Finding Funds to Support Energy Research

I really like this and think it’s the sort of future-thinking investment our government should be pursuing.

President Obama last week announced his plans for an Energy Security Trust to fund $2 billion in research into energy technologies to help the United States, among other things:

• Get off oil altogether (particularly foreign oil);

• Develop clean coal technologies; and

• Improve efficiencies in the production of natural gas (thereby reducing greenhouse effects).

This hits at two interesting sweet spots. First, at long last, someone is finally relating energy to national security; and second, it focuses on something most everyone agrees government should be supporting — basic research (versus that nasty old picking winners and losers). As a concept I really like this and think it’s the sort of future-thinking investment our government should be pursuing (like investing in education, clean water, infrastructure, etc.)

This sort of funding concept has been used before. Back in a somewhat less contentious era, the federal Superfund was created to clean up “orphaned” waste sites. It was funded in part by excise taxes on crude oil and refined oil products, on hazardous chemicals, on imported substances that used hazardous chemicals and by an environmental income tax of 0.12 percent on a corporation’s modified alternative minimum taxable income over $2 million. Those taxes expired in 1995 and since then, the EPA has backed Superfund based on Congressional appropriations of around $1.2 billion annually and whatever EPA recovers from companies liable for sites that EPA had cleaned up.

Obama claims that this trust will be funded by “revenue from profitable oil and gas companies” and therefore won’t increase anyone’s taxes. Per the president’s announcement, he wants to fund the trust from oil and gas royalties on federal lands. The government already collects around  $9.5 billion in oil and gas royalties. All of that money already goes somewhere.

The president’s speech left out exactly where the $2 billion would come from. Will it be from: (1) an increase in royalties; (2) eliminating royalty waivers; (3) a reduction in payments for public lands; or (4) a reduction in payments made to states? Based on the commitment not to raise taxes, it appears that the U.S. Treasury will continue to get its cut. I suppose another option would be to increase by some 20 percent the number of wells being drilled. This appears to be the direction that the group that developed this concept wants to go.

It is easy to see where this fight will go. The House of Representatives and many in the Senate have taken the “no new taxes” pledges. Liberals in Congress will contest more arctic and offshore drilling. Will the president dangling more drilling rights encourage the politicians to go for this and spur some of the world’s largest companies to agree to help subsidize their own potential extinction (which I suspect they do not believe is possible in the foreseeable future)? The odds of this proposal getting enacted seem very long, even if the goals are quite worthwhile.