The so-called Gang of 10 (now 20) deal and similar energy bills being floated by Democrats on the House side are designed to give liberal members of Congress cover on the most explosive issue of the election season.
The basic deal they pretend to offer is if you give us higher taxes on energy production, we’ll give you more access to offshore oil and gas. But the reality is these deals don’t offer more access to offshore oil and gas at all; they offer less, indeed substantially less than will be available under current law when the calendar turns from September to October. That’s when the current, temporary offshore ban expires. So the liberals offer higher taxes in exchange for new permanent restrictions on access. Some deal. Any member of Congress who wants more domestic production and lower prices at the pump should say no and instead run out the clock on the current ban.
Congress has passed annual offshore drilling bans for years but never a permanent ban. The current ban ends with September, which means in just a couple of weeks, there will be no legal obstacle to offshore drilling. Any new, permanent restrictions on drilling must be viewed in the context of the change coming under current law. Thus, the proposal to allow drilling only more than 50 miles from the coast, included in various compromise energy packages, is not an increase in access — it is a new permanent restriction on access within 50 miles of the coast.
If the deal is limited to just a handful of states, it will be a new permanent ban on access off the coasts of all the other states.
Given these facts, these deals don’t make any sense for advocates of more domestic production. We get higher taxes that discourage investment and push up prices throughout the supply-chain, including at the pump, and in return we get more restrictions, not less, on access to offshore oil and gas. Moreover, the idea of a deal almost certainly amounts to political theater to prevent the ban from expiring, considering how little time is left this session to develop a bill that can pass both houses of Congress and be signed by the president.
Advocates of drilling must remain undistracted and redouble our efforts to run out the clock on the current ban, and that means pressuring Congress to reject a compromise and the White House to issue a firm veto threat on any extension of the ban, as well as any new permanent access restrictions.
The White House has already taken the lead by lifting the executive branch moratorium on July 14th. That move coincided with the peak in crude oil prices, which have declined sharply since. This is probably not a coincidence. This chart shows the crude oil spot price in the United States in 2008, with a clear inflection point when Bush lifted the executive ban:
There is now a clear market expectation that Congress will follow the president’s lead and lift the statutory ban, either by new legislation passing or simply by the current ban being allowed to expire. The Intrade Prediction Markets predict a 65 percent chance of the offshore ban being lifted this year, suggesting the dramatic decline in oil prices we’ve seen in the past two months was driven by changing political expectations. Oil traders have likely already priced in that 65 percent chance of the ban ending. If Congress fails to allow that to happen, market psychology could turn around again — not only would the downtrend stop, but prices could shoot back up to where they were before President Bush’s announcement opened up the political possibility of new offshore supply
When all the political theater about compromises dies down, we will still face a real fight over the extension of the current ban. The most likely strategy from Democratic leadership will be to include an extension of the ban in a continuing resolution — the bill that funds the government.
This is a high stakes game; if President Bush holds firm to a veto threat, the only way the Democrats could stop drilling would be to shut down the government. Shutting down the government to stop oil drilling isn’t likely to play well back home.
To win this fight we’ll need all of the grassroots energy and outrage on the drilling issue to unify behind opposing a deal and supporting the expiration of the current ban. Stay tuned.
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