Coastal states that agree to oil and gas drilling off their shores would be offered one-quarter of the revenue, under the latest draft of the new climate and energy bill, sources on and off the Hill say.
Another 10 percent would go to the Land and Water Conservation Fund, with the remaining 65 percent going to the Treasury for deficit reduction, under the draft authored by Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.), according to a Senate aide close to the process and people who have seen the draft.
It's not surprising that the trio is opting to give a portion of the royalties to the states, commonly referred to as "revenue sharing." Graham, a supporter of offshore drilling, has long insisted on it.
But it still requires a delicate balancing act. Some Republicans demand the concession to even consider voting for the bill. Some coastal Democrats want revenue sharing for their states. But Senate liberals do not like offshore drilling, and they do not want to see anything that encourages it, such as revenue sharing.
"I don't know how we do it," said Lieberman, who said he thinks it should be included. "So, we're going to be consulting various writings of King Solomon to see how we can do it."
Lieberman said he expected further talks on numbers and percentages on the draft, which most senators expect to see next week. But, asked if the three had reached agreement, he said, "You'd better talk to the other two."
The draft outline, circulated in a meeting with industry leaders Wednesday, also states that U.S. EPA would not regulate the drilling practice known as hydraulic fracturing. Environmentalists have charged that the process can contaminate groundwater and U.S. EPA yesterday formally announced plans for a study of fracturing activities. But the oil and gas industry defends the practice as perfectly safe.
The bill is also expected to include assistance for utilities to retrofit coal-fired power plants with "carbon capture and storage" technology, incentives for large vehicle fleets to switch to electric power, and tax incentives to convert heavy duty trucks to run on natural gas.
The draft was written in layman's terms and does not include many of the specifics that could make or break the bill.
For instance, it is unclear what would happen with drilling off the west coast of Florida, the last area closed to drilling after the moratorium was lifted in 2008. A bill passed by the Senate Energy and Natural Resources Committee in June (S. 1462) removed the ban on drilling off Florida, the only place Congress now blocks any drilling. At the time, Sen. Bill Nelson (D-Fla.) threatened to filibuster a bill with expanded drilling in the Gulf of Mexico.
Revenue sharing is popular with states that have drilling off their coasts, such as Louisiana, and states that want offshore drilling, such as Virginia. It is also generally supported by industry, because it encourages state governments, who have the final say in drilling off their coasts, to allow offshore rigs.
Opponents of offshore drilling generally oppose revenue sharing for the same reason. But even some drilling supporters, such as Senate Energy Chairman Jeff Bingaman (D-N.M.), oppose it because the drilling is taking place in federal waters, not state waters.
"If anything, I just don't quite understand how the nation's resources, both in terms of energy and in terms of money, gets shared in that respect," said Sen. Robert Menendez (D-N.J.). "I think it's like buying, like getting states to buy into drilling for the purposes of getting money. I don't think that's the way you should be incentivizing people."
At the same time that Bingaman's committee voted to remove the ban on drilling off Florida, the committee rejected revenue sharing. That could spell trouble for the concept because the committee is considered to be more pro-industry than the rest of the Senate. But it also has more Westerners.
Some Senate liberals have indicated they would back down on offshore drilling in exchange for legislation that limits carbon and puts the brakes on climate change. But they do not want to give up that leverage in an "energy only" bill.
Industry officials were careful to say that they had signed off on nothing, and their attendance at Wednesday's meeting was not an endorsement of the draft legislation.
Interior Secretary Ken Salazar, a former Senate colleague of Kerry, Graham and Lieberman, said the Obama administration does not have a position on revenue sharing, and his department has not been involved in the negotiations. He did note that President Obama supported oil and gas production in his State of the Union address.
Interior is working on a five-year plan for drilling on the outer continental shelf, which Congress opened to drilling in 2008. Currently, Salazar said, there is no overlap between Congress' drilling discussions and the department's planning work.
"We're moving forward on our track," Salazar said. "Congress of course can come in and change the rules and provide different authorities, and I suspect that that's part of what will happen if we ultimately get into the discussion here with the Congress on energy legislation."
Meanwhile, a day after briefing representatives of industry trade groups, Kerry briefed about a dozen environmentalists on the draft late yesterday during a 90-minute closed-door meeting in his office.
Dan Weiss, a senior fellow at the Center for American Progress, said the session covered the same set of details that emerged a day earlier from the industry session. But Weiss and all of the other environmentalists declined to comment about the specifics of their talks -- except for a general statement from Gene Karpinski, president of the League of Conservation Voters.
"We had a very encouraging meeting," Karpinski said. "We're looking forward to continue to work together to pass a comprehensive bill this year. We're very encouraged. We're very promising. We're looking forward to moving forward as quickly as possible."
RES or CES?
As talks continue, the title of the bill that would require either renewable energy or "clean energy" to supply a set percentage of the total electricity supply appears to be in flux.
The key question is whether nuclear power qualifies toward the standard.
"We have some thoughts about that, but we haven't firmed it up," Lieberman said yesterday. "I'd say that's still a work in progress."
Lieberman added he would be open to including nuclear to a renewable electricity standard and also said Bingaman is open to "improving" the renewable electricity standard in S. 1462.
But Bingaman spokesman Bill Wicker said that while the chairman would like to strengthen the standard's targets, he is not open to significantly changing what sort of power generation could qualify. "Senator Bingaman is a reasonable fellow with an open mind," Wicker said. "But his mind is not open to the idea of inventing a new definition for renewable."
The committee energy bill included a "renewable electricity standard" that would require utilities to supply 15 percent of their power from renewable sources like wind and solar by 2021, while allowing up to a quarter of the requirement to be met with energy-saving measures instead (Greenwire, June 5, 2009).
But there has been pushback from Republicans, including Graham and Sen. Lisa Murkowski (R-Alaska), who say a renewable electricity standard would be too expensive and unfair to certain regions of the country. They want to switch to a "clean energy standard" that would include new nuclear, natural gas, and coal with carbon capture and storage.
Graham told reporters in January he could not support the committee-approved bill "because nuclear power doesn't have the standing as wind and solar, and we can't meet the targets in the Southeast."
Instead, Graham has floated a proposal that has higher targets but includes several non-renewable fuels: new nuclear capacity built after the bill became law, coal-fired plants that capture and permanently sequester 65 percent of the greenhouse gases produced by the facility, and retired fossil-fuel plants that had produced more than 2,500 pounds of carbon dioxide per megawatt-hour of generation.
The "clean energy" targets would be 13 percent by 2012, 20 percent by 2020 and 25 percent by 2025 (Greenwire, Feb. 17).
The Graham proposal would also more than double the fee utilities would pay instead of meeting the targets, raising it to 5 cents per kilowatt hour. The alternative compliance payment is 2.1 cents under the committee bill.
The higher fees, which a majority of utilities would need to pay to meet a renewable electricity standard at the beginning, are pushing participants toward using the committee's provision instead, according to an industry source.
"Graham had circulated the [clean energy standard] for comment, but I don't know that it got any traction," the source said. "Most utilities thought it hurt too much in the early years."
Noelle Straub contributed to this report.
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