POLITICS:

Obama's climate volley sets oil industry's focus on EPA

Oil and gas companies -- with their broad spectrum of interests in Washington, D.C. -- tend to steer clear of brawls over presidential appointments. Presidents are usually able to fill high-level positions, even during periods of intense partisanship.

Still, political and energy analysts say this year could bring some surprises during the confirmation process, including push-back from the oil and gas industry. There are oil and gas-related issues to consider, particularly the regulation of hydraulic fracturing.

Then there is this: global warming, a U.S. environmental policy issue that, for the most part, multinational oil companies have ducked for the past two decades.

The coming flotilla of nominees for top jobs at U.S. EPA, the Energy Department and the Interior Department will be rolled out in the coming weeks and months on the heels of one of Obama's boldest statements about climate change since early in his first term.

"Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms," Obama said in his inaugural address Monday. "The path toward sustainable energy sources will be long and sometimes difficult. But America cannot resist the transition; we must lead it."

The mere suggestion that addressing climate change is a high priority for the second-term White House has cracked open a hornet's nest of corporate and political interest groups. Old Washington hands representing the oil and gas industry are debating among themselves whether any policy push by the administration could come in the first two years of Obama's second term as Congress grapples with debts and deficits.

In 2010, the Senate failed to muster enough support to vote on a House-passed climate bill. But Obama's EPA pressed on with its interpretation of the Clean Air Act, which under a Supreme Court ruling authorizes the agency to take actions to reduce greenhouse gas emissions. This year, oil and gas producers are girding for EPA requirements to cut emissions at their drilling and processing sites.

Oil and gas producers also enter 2013 with a number of Obama administration regulatory efforts tied to energy development in the works. Access to public lands dominates the industry's Interior Department agenda. At EPA, companies are also watching for clearer signs about the extent to which the agency is willing to challenge industry assertions that the process of drilling in deep shale gas and tight oil formations doesn't pose dangers to groundwater.

That full plate of issues tends to make industry pick its battles carefully.

"They won't want to be seen drawing a bright line in the sand with the president," said Susan Tierney, managing principal of Boston-based Analysis Group and a close outside adviser to Energy Secretary Steven Chu. "The industry has a lot of issues relating to access to public lands, access to the outer continental shelf and environmental regulatory issues."

Oil's call for 'sound science'

At a press briefing this month, Jack Gerard, the oil industry's chief advocate, seemed to deliberately sprinkle the words "sound science" into his answer to a question about what oil companies will look for in a new EPA administrator.

"I'll look forward to continuing a dialogue based on sound science, and not on pure philosophy and ideology," said Gerard, president of the American Petroleum Institute.

Top environmental advisers are chosen at the president's discretion, Gerard allowed. "But clearly, with anybody who would fill those roles, we would seek to have a good relationship," he said, "to base policy development in sound science and to pursue mutual interests."

Gerard's use of the term "sound science" mirrors the rhetoric that oil executives have used for years to oppose U.S. government efforts to regulate carbon dioxide. It has been used to suggest there wasn't enough scientific agreement around whether a rising concentration of carbon dioxide emissions in the atmosphere was man-made and causing major shifts in the world's climate.

For years, the oil industry's reputation as an opponent of federal action to reduce carbon emissions revolved around the position taken by Exxon Mobil Corp., which had financed campaigns to discredit climate science and policy proposals. Exxon Mobil and other oil companies have recalibrated their positions to support a straight carbon tax instead of a cap-and-trade approach or an EPA-led effort to slash emissions.

Last June, Exxon pivoted again on the subject of climate change. In a speech in New York, CEO Rex Tillerson said that whatever the consequences of global warming, "We believe those consequences are manageable."

"What do you want to do if we think the future has a sea level rising 4 inches, 6 inches? Where are the impact areas, and what do you want to do to adapt to that?" he told an audience at the Council on Foreign Relations.

"It's an engineering problem, and it has engineering solutions," he said.

With few exceptions, said one source, the oil industry has abandoned its impulse to raise questions about the scientific evidence supporting global warming. Generally, the industry's position, according to one high-level oil industry source speaking on the condition of anonymity, is to curtail efforts to double up on regulations and legislation aimed at capping or cutting emissions.

API and America's Natural Gas Alliance have said they don't oppose outright an EPA proposal to regulate air pollutants from the production, storage and transportation of oil and gas. But early last year, they called on the administration to give the industry two extra years to comply with New Source Performance Standards.

The groups also asked EPA to exempt oil and gas service companies like Halliburton Co. and Schlumberger Ltd., which operate fracking technology, from a requirement that they use "green completion" equipment to control emissions.

The Independent Petroleum Association of America has come out more firmly in opposition of EPA efforts to regulate oil and gas site emissions. IPAA represents domestic oil and gas producers, including Devon Energy Corp. and Chesapeake Energy Corp., both large gas producers out of Oklahoma City.

"Regulatory actions that can fundamentally influence the ability of independent producers to develop America's natural gas should not be driven by court agreement, they should be driven by science and cost-effective technology," IPAA said in comments it submitted to EPA.

In an interview, Lee Fuller, vice president of government relations, reiterated the industry's position that hydraulic fracturing is not a danger to groundwater. EPA is conducting a multiyear study to determine if that's true.

"If you have a proposed nominee who had taken visible positions alleging otherwise, or opposing fracturing, we'd view that as inappropriate for an administrator," Fuller said.

"There are interests pushing [EPA] toward the middle," said Scott Campbell, director of the Howard Baker Forum. "Fracking turned out not to be the boogeyman that people thought."

Names floating around for EPA administrator include Jackson's deputy administrator, Bob Perciasepe, who as acting administrator could end up signing off on the proposed Tier 3 rule for gasoline. EPA's top air-quality official, Gina McCarthy, who has had to work closely with power plant operators on an assortment of Clean Air Act regulations, is also bounced around as a potential nominee.

Outgoing Washington Gov. Christine Gregoire (D) is also considered a possible candidate for a top spot in the administration. Sources in the oil and gas industry said Gregoire would have to be a quick study on oil and gas issues, including fracking.