Domestic Production Increases Urged in Context of Comprehensive Energy and Climate Legislation

March 4, 2010

Washington, D.C. - The Commissioners of the bipartisan National Commission on Energy Policy (NCEP) today released a new report, “Expanding Production from America’s Domestic Energy Resources” that calls for specific measures to increase production of US oil, natural gas, nuclear, coal and renewable energy in the context of comprehensive energy and climate change legislation pending in Congress. Today’s recommendations are the latest in the NCEP series “Forging the Climate Consensus,” and come as the US. Senate attempts to determine supply and climate elements in an overall energy bill package.

“As Congress considers new energy and climate legislation, there will be vigorous debate about the best approach to limiting U.S. greenhouse gas emissions, about the government’s role in accelerating the deployment of new energy technologies, and about the impact of different policy choices on energy security, the economy and jobs, and the environment,” the new NCEP report states. “Provisions aimed at expanding domestic energy production and diversifying the array of energy options available to U.S. consumers and businesses during the transition to a low-carbon economy are likely to play an important role in this debate and in winning bipartisan support for final legislation.”

As the Commission notes in its report, today’s supply “recommendations must be read in the context of the Commission’s ongoing support for comprehensive energy and climate legislation that caps and reduces greenhouse gas emissions while also promoting a balanced portfolio of cost-effective demand- and supply-side energy resource options. In other words, no one should read this paper as implying NCEP support for the recommendations that follow in isolation from such legislation, or as an alternative to it. “

Major recommendations in the new NCEP report include:

Making the Most of America’s Domestic Oil Resources

• Expanding OCS Oil and Gas Lease Sales: Following expiration of the OCS drilling moratorium in 2008, all OCS areas should be considered for potential inclusion in the MMS’s recently introduced Five-Year Program. The aim of that program is to develop a schedule of future oil and gas leases based on a planning process that strives to integrate resource potential, future energy needs, and environmental considerations. Additional OCS areas that should be part of the process in the future include areas in the Atlantic, along the Southeast coast, and in the Eastern Gulf of Mexico. In addition, Congress should reverse the moratorium on drilling in the Destin Dome near Pensacola, Florida and allow this area to be considered for inclusion in the Five-Year Program.
• States Retain “Opt-Out”: States should retain the ability to “opt out” of OCS lease sales within 20 miles of their shores. In other words, states should be permitted to prohibit OCS oil and gas production within a 20-mile zone off their coastline. State- or federally-designated marine sanctuaries should, of course, continue to remain off-limits to oil and gas development.
• Revenue Sharing: The OCS Lands Act should be amended to extend revenue-sharing from federal lease sales to all states with OCS leases off their coasts. Specifically, all coastal states should be entitled to the more generous revenue sharing provisions extended to Alabama, Louisiana, Mississippi, and Texas under the Gulf of Mexico Energy Security Act of 2006 (GOMESA).[1]
• Reforming Interior’s onshore leasing process: The Commission supports reforms proposed by Interior Secretary Salazar in January 2009 that are aimed at providing greater certainty in the onshore oil and gas leasing process while also assuring adequate environmental protection. These reforms should be funded fully and implemented as expeditiously as possible.
• Enhancing oil production from existing fields while sequestering carbon: Congress should direct the Department of Energy (DOE), USGS, and MMS to assess the national and regional potential for, and barriers to, enhanced oil recovery utilizing captured CO2 from power sector and industrial sources. The Commission supports investment tax credits for activities to assess, characterize and test reservoirs for their carbon sequestration potential, in accordance with requirements being developed by EPA. The Commission also supports Master Limited Partnership (MLP) tax treatment for pipelines that transport anthropogenic CO2 in a manner similar to that afforded to pipelines transporting naturally occurring CO2 today. EPA should ensure that regulations are in place to give enhanced oil recovery operators who pursue the appropriate monitoring, verification, accounting, and reporting measures to certify projects as permanent sequestration.

Changing Supply Picture for Natural Gas

• Safe and Effective Shale Gas Extraction: As interest grows in extracting natural gas trapped in shale formations, state and federal efforts to regulate this type of production—and in particular, to address concerns about the potential for groundwater contamination—must keep pace. States and the U.S. Environmental Protection Agency (EPA) should coordinate efforts to assure that regulatory processes are effective and efficient, recognizing that there are substantial differences in geology and hence in the potential for adverse environmental impacts at different sites.

Next Generation of Nuclear Power Technology

• Nuclear Waste Management: As prospects diminish for a permanent nuclear waste repository at Yucca Mountain, we believe attention should be refocused on the effective management of spent fuel as an interim step towards permanent disposal. To that end, the Commission strongly supports the Administration’s recent announcement of a Blue Ribbon Panel that will re-examine options for nuclear waste management beyond Yucca Mountain. The Panel, which was formally introduced by DOE in January 2010, will bring together a diverse group of stakeholders representing a range of backgrounds, expertise, regions, and political affiliations[2] and is expected to issue a final report in 24 months. Given the breadth and depth of knowledge represented on the Panel, the Commission is optimistic that it will generate ideas that can move the nuclear waste debate beyond the current impasse.
• Nuclear Waste Fund: In addition, the Commission believes it would be appropriate to direct resources currently held in the Nuclear Waste Fund toward exploring other approaches for managing spent fuel. Trust funds (which currently total approximately $23 billion) were collected from utility customers for the express purpose of managing civilian nuclear waste and should continue to be deployed to that end. We note that a proposal along these lines has recently been put forward by former Senator Pete Domenici.[3]
• Expanding Tax Incentives: The Commission recommends that Congress—in addition to expanding the existing Title XVII loan guarantee program[4] as proposed by the President—extend and expand tax incentives to help finance new reactors. This would include :
• amending the production tax credit (PTC) to make it available to all reactors in service before January 2025, indexing the credit for inflation, and allowing public power entities to transfer their credits to tax-paying partners in joint projects and
• allowing merchant generators to convert the PTC to an investment tax credit (or grant) in lieu of the PTC in states where this is necessary to create competitive parity with utilities that have access to regulatory mechanisms that provide for cost recovery during plant construction.

Moving Forward with Carbon Capture and Storage

• Funding, Research and Regulatory Issues: The Commission supports efforts to provide RD&D funding for a broader range of CCS technologies suitable for use with non-IGCC plants. Future RD&D programs should include exploratory and proof-of-concept research, pilot-scale testing, and large demonstration projects. In addition, the Commission supports continued efforts to address remaining long-term regulatory and stewardship issues for geological CO2 storage and to address issues and barriers related to building the pipeline infrastructure that will eventually be necessary to transport large volumes of captured CO2 to long-term storage sites. A number of critical regulatory and legal issues, for example, have yet to be resolved despite recent legislative activity aimed at addressing the technological and financing challenges. To close these gaps, a formal interagency process could be launched to solidify a coordinated regulatory framework for CCS, including appropriate transfer of stewardship for the long-term integrity of geologic repositories to the federal government (recognizing that midcourse action will likely be needed as experience and data are gained). A similarly coordinated effort is needed to assess CO2 pipeline needs and to begin developing a strategy for addressing this critical infrastructure challenge.

Advancing the Full Range of Clean-Energy Options

• Clean Energy Portfolio Standard: NCEP’s 2007 recommendations included support for a technology-neutral federal renewable electricity standard (RES). Interest in a federal RES has grown in the 111th Congress and recent legislative proposals have allowed new nuclear facilities and new nuclear plant uprates[5] to be removed from the baseline used to calculate the percentage of an electricity supplier’s overall portfolio that is provided by renewable resources. A broader Clean Energy Portfolio Standard (CEPS) would promote the deployment of renewable resources as well as other low-carbon technologies such as nuclear power, coal or natural gas generation with carbon capture and sequestration, and energy efficiency. Analysis of past legislative proposals indicates that a standard designed to support a wider range of eligible resources can incentivize the deployment of both nuclear and renewable power.[6] A more inclusive policy could also address some of the regional differences in available renewable resources. Several options exist for designing a broader portfolio standard. For example, nuclear and CCS could be phased into the program over time, with the portfolio requirement becoming more demanding as these additional technologies become eligible for compliance. Alternatively, the program could be structured to recognize different ‘tiers’ of technologies. For example, companies could be required to supply some percent of their portfolio using Tier 1 resources, where Tier 1 is limited to renewable and possibly efficiency resources, while Tier 2 resources could be used to supply additional resources up to a broader target. Obviously, numerous options exist for designing such an approach and for designating a more or less complicated structure with respect to different tiers. Whatever approach is chosen, however, a more inclusive standard should be paired with more aggressive targets to reflect the larger menu of eligible technologies. In addition to expanding the menu of clean energy technologies included in a national clean energy portfolio standard, the Commission believes that a sound federal policy should:[7] Apply to all retail electricity providers, not just electric utilities, and; complement but not pre-empt state programs and recognize credits that are used for compliance with state RPS requirements (in other words, a federal CEPS should not be construed as creating an additive requirement on top of whatever state RPS may be in place—where a state RPS also exists, retail providers should be able to use the same renewable energy commitments to meet both requirements).

Today’s paper is the sixth in a series of specific recommendations on key issues designed to provide a way forward for Congress to pass mandatory climate change legislation during the 111th Congress that President Obama can sign into law. In addition to today’s report, NCEP has released recommendations on climate legislation provisions dealing with cost containment, offsets, market regulation and oversight, harmonizing State and Federal climate programs, and maintaining US international competitiveness. In June 2009, the Commission provided an overview of these issues in its “Forging the Climate Consensus” report.

Today’s “Expanding Production from America’s Domestic Energy Resources” and other papers in the “Forging the Climate Consensus” series are available at: www.bipartisanpolicy.org

The Members of the National Commission on Energy Policy are:

William K. Reilly Co-Chair, Senior Advisor, TPG, Inc.; Former Administrator, U.S. Environmental Protection Agency

John W. Rowe Co-Chair, Chairman and CEO, Exelon Corporation

Susan Tierney Co-Chair, Managing Principal, The Analysis Group; Former Assistant Secretary of Energy

Philip R. Sharp Congressional Chair, President, Resources for the Future; Former U.S. Representative, Indiana

Neil Z. Auerbach Founder and Managing Partner, Hudson Clean Energy Partners

John E. Bryson Emeritus Chairman, Edison International; Emeritus Chairman, Southern California Edison

Ralph Cavanagh Senior Attorney and Co-Director, Energy Program, Natural Resources Defense Council

Erroll B. Davis Jr. Chancellor, the University System of Georgia

Senator Rodney Ellis State Senator, Texas

Leo W. Gerard International President, United Steelworkers of America

Robert E. Grady Managing Partner, Carlyle Venture Partners, The Carlyle Group; Former Executive Associate Director, Office of Management and Budget

F. Henry Habicht Managing Partner, SAIL Venture Partners, LLC; Former Deputy Administrator, U.S. Environmental Agency

Newton B. Jones International President, The International Brotherhood of Boilermakers

Richard A. Meserve President, Carnegie Institution; Former Chairman, U.S. Nuclear Regulatory Commission

Mario Molina Professor, University of California, San Diego

Sharon L. Nelson Former Chair, Board of Directors, Consumers Union; Former Chief, Consumer Protection Division, Washington Attorney General's Office

Marvin E. Odum President and Upstream Americas Director, Shell Oil Company

Richard L. Schmalensee Howard W. Johnson Professor of Economics and Management and John C Head III Dean, Emeritus, Sloan School of Management, Massachusetts Institute of Technology

Norm Szydlowski President and Chief Executive Officer, SemGroup

R. James Woolsey Vice President, Booz Allen, Hamilton; former Director of Central Intelligence

Martin B. Zimmerman Clinical Professor of Business, Ross School of Business, University of Michigan; Former Group Vice President, Corporate Affairs, Ford Motor Company

Jason Grumet Founder and President of the Bipartisan Policy Center; Executive Director of the National Commission on Energy Policy

###

---

National Commission on Energy Policy