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Well He Must Be Doing Something Right

President Obama’s new offshore drilling plan is taking flak from both sides of the aisle. He must be doing something right:

WASHINGTONPresident Obama’s proposal to open vast expanses of American coastlines to oil and natural gas drilling drew criticism from both sides in the drilling debate.

The plan, which Mr. Obama said would balance the need to produce more domestic energy while protecting natural resources, would allow drilling along the Atlantic coastline, the eastern Gulf of Mexico and the north coast of Alaska. It would end a longstanding moratorium on exploration from the northern tip of Delaware to the central coast of Florida, covering 167 million acres of ocean.

“Drilling our coasts will doing nothing to lower gas prices or create energy independence,” Michael Brune, executive director of the Sierra Club, said in a statement. It will only jeopardize beaches, marine life, and coastal tourist economies, all so the oil industry can make a short-term profit.”

On the other hand, Senate Republican Leader Mitch McConnell called Mr. Obama’s proposal “a step in the right direction, but a small one that leaves enormous amounts of American energy off limits.”

Mr. McConnell also sought proof that the drilling would ultimately be permitted. “Will the administration actually take concrete steps to finish the studies, approve the necessary permits, and open these areas for production?” he said in a statement. “Will they stand by as their allies act to delay the implementation in the courts?”

I must admit McConnell’s concerns mirror my own but I have sympathy for the enviromentally correct view as well. I live in Florida and some of the areas he opened up in the eastern Gulf of Mexico are ones that have been off limits for a long time because of concern for Florida’s beaches and I share that concern. On the other hand, some areas off Florida’s coast are being drilled by Venezuela and Cuba and I have zero confidence that they will do it in a more environmentally friendly way than US companies. The point is that drilling will happen off Florida’s coast and I’d prefer that it be US companies doing it. About all we can do is cross our fingers and hope they don’t screw it up.

As for McConnell’s concerns, well I am a cynic so I thought much the same thing when I heard about this plan last night. There is no political danger to Obama from conducting offshore surveys – the members of the Sierra club will vote for him anyway. There will be no drilling before he stands for re-election and if he wins he can probably flip flop and prevent any drilling for a second term. By making this gesture, if that’s what it is, he can quiet critics and appear to be pragmatic and non partisan. Or he could really intend to follow through on this if the surveys show signficant deposits offshore. I’ll believe it when I see it, but it is possible (all you Republican stop laughing).

I would also add that President Obama has a chance here to do more than just play politics with the energy issue as past Presidents have. He needs to drop the cap and trade charade and embrace a carbon tax. Or a higher gas tax. And then he should offset the new carbon tax (or gas tax hike) with an equal tax cut on income or capital. Why not institute a carbon tax and offset it with a cut in payroll taxes or corporate income taxes? This set of policies is a winning political strategy, good geopolitics and good for the US economy; what’s not to like? More drilling and a carbon tax reduce our dependence on foreign oil and suppress consumption of fossil fuels. A reduction in payroll taxes or corporate income taxes would be a positive for the economy. Good policy, good politics. 

The problem with cap and trade is that it provides politicians and lobbyists with massive opportunities for corruption and therefore is the preferred approach of both. If President Obama would point that out publicly and make the case for a straight up, transparent carbon tax, he’d get support from the public. He campaigned on a cap and trade system where the permits are all auctioned off but that isn’t what will happen when Congress is done with it. The House bill that passed already doles out the permits – for free – to favored corporations and industries. It basically raises no money and therefore can’t be used to offset a tax cut or an increase in spending on alternative research (as Obama envisoioned during the campaign). Another bonus of this approach is he won’t have to wade into the global warming debate. The purpose of the carbon tax is to reduce the consumption of oil but that can be sold as being for geopolitical reasons rather than global warming reasons.

With this policy announcement President Obama has shown he is a smart political operator. He can prove he’s more than that by embracing the approach above.