Energy Provisions in the House Surface Transportation bill: Sweeping Changes, But Doubtful Outcome

Last week, the House of Representatives approved the energy portion of a surface transportation package, the “Protecting Investment in Oil Shale the Next Generation of Environmental, Energy, and Resource Security (PIONEERS) Act” (H.R. 3408) by a vote of 237-187. The amended bill included several provisions to significantly expand offshore oil and natural gas development off the Pacific, Mid-Atlantic, and Gulf Coasts as well as Alaska as a way to fund transportation projects due to a shortage in federal-gas tax receipts for the Highway Trust Fund. In addition, HR 3408 would open up the Alaska National Wildlife Refuge (ANWR) to exploration, incentivizes the development of oil shale reserves and it includes language to expedite the approval process of the Keystone XL project. Prospects for final passage are uncertain at best as the bill faces stiff opposition in the Senate and a veto threat from the Administration.

The primary funding mechanism for surface transportation projects is the federal 18.4 cents per gallon excise tax on gasoline and 24.4 cents per gallon tax on diesel fuel. Declining fuel consumption and decreased federal gas tax revenue has stymied the development of a new reauthorization bill since traditional sources of revenue are not sufficient to meet transportation demands - especially in a struggling economy and a bipartisan resistance to increasing federal gas taxes. Congressional leaders in the House and Senate differ substantially on their approach to reauthorization. The Senate version is a two-year bill that is slimmed down from past reauthorizations, but largely falls under the current budget constraints facing the Highway Trust Fund. The House bill is a six-year reauthorization that includes a wide swath of energy development and leasing directives to fill in budget holes for transportation projects. The energy provisions can be broken down into essentially for areas:

  • Offshore Oil and Natural Gas Leasing - Directs the Administration to offer lease sales in its current 5-year plan in areas that have the largest resource potential, which is defined as those estimated to contain 2.5 billion barrels of oil or 7.5 trillion cubic feet of natural gas on the Atlantic, Pacific, and Gulf Coasts. It also requires the Administration to offer lease sales that were canceled off the coast of Virginia, Alaska, as well a new leasing in the Eastern Gulf of Mexico off the coast of Florida. Governors would be given the option to "opt-in" and request leasing off a state's coast in future 5-year plans produced by the Department of Interior, and it would expand revenue sharing of 37.5% to new producing states (an extension of the 2006 Gulf of Mexico Energy Security Act).
  • ANWR - Requires the Department of Interior to open up 400,000 acres, roughly 3% of refuge's acreage, for leasing activities. The lease sales must be peformed in 50,000-acre increments  every two years, but an Environmental Impact Statement must be completed before the first lease sale is offered. The bill prohibits any oil developed from being exported and it requires that lease sales be closed at certain times for wildlife migration and habitat protection.
  • Oil Shale - Requires the Department of Interior to reissue R&D leases that were canceled in 2009 by the Administration and it directs the Secretary to offer at least 5 commercial leases by 2016 for oil shale development in the West. According to the USGS, domestic shale reserves are roughly 1.5 trillion barrels, but previous efforts to extract these resources were opposed by environmental groups because of impacts to wildlife habitat and the stress it would pose on limited Western water supplies.
  • Expediting Keystone XL - Encapsulates language from a bill passed in the House Energy and Commerce Committee that would remove the President's executive authority for approving/disapproving the pipeline and instead gives the Federal Energy Regulatory Commission (FERC) oversight responsibility. FERC would be given 30 days to determine if the project is in compliance with the State Department's most recent final environmental review, which concluded that building the pipeline was "the preferred option." It also creates a process at FERC to implement the re-routing of the project in Nebraska once the Governor has approved the plan.

The prospects for the energy provisions in HR 3408 surviving in the Senate are quite dim. The first challenge is that expected revenues from oil and natural gas drilling are speculative. Leasing and production activities can take upwards of 8 to 10 years due to significant permitting requirements and are often fraught with legal challenges. It is difficult for states to conduct long-term transportation planning and construction when funding is not entirely guaranteed. Perhaps most daunting for supporters of HR 3408 is that the Senate reauthorization bill, despite its usual hiccups, has proceeded largely in a bipartisan fashion. An important procedural vote to consider the Senate bill passed by a wide margin of 85-11. Ideological polar opposites, Senator Barbara Boxer and Senator Jim Inhofe, have been working in tandem to dissuade extraneous "wedge issues" that could derail reauthorization. The President has issued a veto threat on the House-passed bill and it's clear that the votes simply are not there in either chamber to override it.