- Senate Majority Leader Harry Reid unveiled legislation to reform the oil industry and its response to spills. The House also announced their version a couple weeks ago.
- The Senate version greatly heightens the financial risks of offshore drilling and faces serious opposition due to a contentious unlimited liability provision.
- The Senate bill is a slimmed-down version of previous incarnations, showing the difficulty in winning bi-partisan support today, and could be indicative of what's ahead for the bill—a further watering down.
- The House plans to vote on their bill this Friday, and the Senate votes on their version next week.
With financial reform now passed, politicians are redirecting their regulatory laser beams toward oil companies. On Tuesday, Senate Majority Leader Harry Reid unveiled the "Clean Energy Jobs and Oil Spill Accountability Plan"—legislation ostensibly intended to reform the oil industry and its response to spills. This latest energy bill iteration is a far cry from the sweeping reform proposed previously, but pushing through even this heavily diluted version may prove difficult ahead of November's mid-term elections.
The Senate bill comes in the wake of the House's proposed energy bill announced two weeks prior. Both bills contain similar provisions focusing on oil industry regulation and spill responses following the Gulf oil spill. But the Senate version greatly heightens the financial risks of offshore drilling. Under the Senate bill, oil producers would face unlimited liability for spills, removing the current $75 million liability cap, while the House counterpart would instead give authority to the president to raise the cap.
Additionally, the Senate bill would require oil companies to demonstrate financial capacity to cover oil spill liabilities (which, remember, will be unlimited) and liability insurance on Federal leases, while increasing the Oil Spill Liability Trust Fund from $1 billion to $5 billion by raising the per-barrel tax refiners pay. The bill would also dole out $3.8 billion in subsidies for electric and compressed natural gas vehicles and another $5 billion for homeowners making energy efficiency upgrades.
The Senate bill needs 60 votes to avoid a filibuster—but faces serious opposition from both the right and left. The unlimited liability provision is particularly contentious, and not without reason. It would make it very difficult if not impossible for smaller companies to engage in deepwater drilling and likely produce higher insurance premiums for both oil producers and drill rig contractors. This raises oil extraction costs and potentially the price of oil, which ultimately affects businesses and consumers. Against a backdrop of high unemployment and a still-nascent economic recovery—and ahead of November elections—politicians likely aren't keen on passing initiatives that could impose an economic toll. Time may also play a factor in its passage since the Senate plans to vote before its recess starts in August, shortening the time to sway votes.
Though still hotly debated, the Senate bill is already a shadow of its former self. Previous incarnations included provisions for cutting greenhouse gas emissions, establishing a "cap-and-trade" scheme, and promoting alternative energy—all which are notably absent in a bid to garner more votes. The slimmer legislation shows the difficulty in winning bi-partisan support for sweeping legislation in today's political environment and could be indicative of what's ahead for the bill—a further watering down as more concessions are wrangled from the opposition.
Even if the two bills are passed (the House bill was met with caution but not direct opposition from the oil and gas industry and could face a vote this Friday), there doesn't seem to be concrete plans for what's next. It seems House and Senate leaders haven't decided yet whether to combine the two measures in conference or if the previous House-passed climate legislation will also be attached, raising doubts about a final singular energy bill passing this year.
The Gulf oil spill is immensely tragic, and there are many lessons to be learned. But burdensome legislation is seldom an appropriate teacher. For the time being, there is a need for productive energy sources, many of which are far offshore. Increasing the costs of deepwater drilling could likely do more harm than help. However, we cannot conclusively examine the impact of the final energy bill until it arrives—and if like other recent legislation, that bill may prove to be much more muted than initially intended.
For more information on the energy sector, visit the Fisher Investments on Energy website.