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President Obama's overall budget of $11.7 billion for the U.S. Department of the Interior includes an overhaul of the oil and gas management program. Those changes fall into three categories: advancing royalty reforms, encouraging diligent development of oil and gas leases, and improving revenue collection processes. The budget would also repeal legislatively mandated royalty relief, establish minimum royalty rates for oil and gas, and increase the onshore oil and gas royalty rate.

In response to the White House budget request, the American Petroleum Institute said the budget proposal -- which repeals nearly $44 billion in fossil fuel tax preferences -- will cost jobs and imports. Obama's budget would eliminate tax incentives and deductions for oil and natural gas producers over 10 years, including a break on income derived from domestic manufacturing, probably pushing oil and natural gas investment overseas and diminishing job-creation and economic activity here at home.

Democrats have pushed to end the energy industry's tax breaks for years without success, and there is little indication that this time will be different. Obama labels "loopholes and tax expenditures that benefit these industries over others" calling for repeal of incentives for oil, gas and coal products. Of note is the fact that the budget request sets a goal of cutting net oil imports in half by the end of the decade, relative to 2008 levels. He calls for an overhaul in federal management of oil, gas and coal, including a series of actions that his administration and Congress would need to take that the administration estimates would deliver more than $3 billion in net revenue to the Treasury over 10 years. They include royalty reforms and incentives to diligently develop leases, such as shorter primary lease terms, stricter enforcement of lease terms, and monetary incentives to get leases into production through a new per-acre fee on nonproducing leases. For years, the administration and some congressional Democrats have been touting "use it or lose it" as a way to defend against GOP attacks that they are not opening up enough federal lands and waters for production.

Obama is also seeking to improve revenue collection, including simplification of the royalty valuation process and elimination of interest accruals on company overpayments of royalties, and he repeats his long-standing desire to permanently repeal Interior Department authority to accept in-kind royalty payments. He calls for establishment of a new Energy Security Trust that would invest $2 billion over 10 years in cleaner energy sources and funded by federal oil and natural gas production dollars. Alaska Senator Lisa Murkowski, the ranking Republican on the Senate Energy and Natural Resources Committee, outlined a similar idea many months ago and said Obama's idea would face major hurdles in Congress because it does not expand drilling, as she and other Republicans have proposed.

The budget seeks a one-time $1 billion investment from Congress to launch up to 15 manufacturing innovation institutes. Obama will take executive action in the meantime to launch three of them this year "with an initial focus on manufacturing technologies that address critical national security and energy needs." His budget does address pipeline safety more generally, including the first phase of a multi-year plan to more than double the number of federal pipeline safety inspectors. There are currently 135 federal inspectors who, with the help of state officials, inspect 2.6 million miles of pipeline.

The Obama budget highlights an increasingly prominent role for EPA, saying the agency in 2014 will "continue to implement existing regulations to reduce emissions from light-duty and heavy-duty vehicles. The agency will also collaborate with federal and state agencies and other to explore other cost-effective strategies to reduce greenhouse gas emissions." However, the budget offers no details on new big-ticket efforts to reduce emissions, and it backs off any specific mention of EPA's expected efforts to restrict greenhouse gas emissions from power plants.

Obama calls for doubling energy efficiency by 2030, or more specifically cutting in half the energy wasted by American's homes and businesses by setting a goal of doubling the economic output per unit of energy consumed in the United States by 2030, relative to 2010 levels.

The Obama administration and Senate Republicans have clashed over global warming this week at the confirmation hearing for the new EPA administrator, Gina McCarthy. The president has made clear he wants action on global warming to be a cornerstone of his legacy, but it is a goal the fossil-fuel industry views as a threat to its very existence.

At his State of the Union address in February, Obama said that if Congress will not pass climate change legislation, then his administration will do as much as it can using its existing authority. One likely course of action would be to have EPA mandate cuts in air pollution from coal-fired power plants and oil refineries. McCarthy would be the regulator most responsible for developing and implementing new climate change rules and put her in the crosshairs of the industries that would have to comply.

Posted in: Government News
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