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Oil Spill Fallout Still Gushing

Author: Toni Johnson
June 16, 2010

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President Barack Obama's first Oval Office speech attempted to use the Deepwater oil spill in the Gulf of Mexico, ongoing since April, as way to move clean energy to the forefront of America's agenda. Though Obama did not outline any new specific policies, he alluded to plans already under discussion in Congress. Reuters says the policies likely include his call earlier this year to end oil industry tax subsidies and remove the $75 million oil liability cap as well as the climate legislation bogged down in Congress.

In assessing the speech, CFR's Michael Levi notes: "There was no simple and understandable goal, like halving U.S. oil imports by some date certain. Obama presented a list of relatively weak or ill-defined policies." Edward Luce of the Financial Times argues the speech was inadequate for failing to "reframe the narrative" as well as set a deadline for climate legislation.

Still, the Senate is expected to debate energy policy this summer, and there are a range of policy options (ClimateWire) on the table, including the comprehensive Kerry-Lieberman climate bill. But the outcome of such a debate remains unclear given the time left in the legislative year and the significant disagreement over the best way to approach energy policy for a nation under severe financial constraint. It is also uncertain how much these policies will actually address dependence on oil as a transportation fuel.

Obama's demand for BP to set up a $20 billion escrow account to pay for liability came amid furious debate about whether the company should pay investors a dividend this quarter. BP has been asked whether the company planned to exceed the oil liability cap in payouts to oil spill victims and for cleanup. Though the answer has remained a qualified yes, Democratic lawmakers and the Obama administration remain worried that BP will shirk the growing financial consequences. Estimates for BP oil spill costs currently range from $17 billion to $60 billion (NYT). The company is currently rated just two levels above junk status (WSJ).

The president's speech on the ongoing oil spill came shortly after executives from five of the world's top oil companies faced questions from House lawmakers in a hearing Tuesday. Of particular interest were the safety plans of the oil industry as well as the impact on U.S. energy security, the environment, and jobs. Some lawmakers argued that deepwater drilling is inherently unsafe and the industry is unprepared to deal with massive oil spills.

"When you look at the details, it becomes evident these [oil spill response] plans are just paper exercises. BP failed miserably when confronted with a real leak, and ExxonMobil and the other companies would do no better," said House Energy Chairman Henry Waxman (PDF) in an opening statement at Tuesday's hearing. ExxonMobil CEO Rex Tillerson reluctantly agreed, noting: "When these things happen, we are not well equipped to handle them. That's why the emphasis is on prevention."

Other lawmakers focused on the impact of the six-month moratorium on drilling at depths of more than five hundred feet on Gulf job prospects. As a CFR Backgrounder notes, investment in deepwater drilling has grown significantly in the last decade worldwide--and rigs capable of drilling at depths greater than one thousand feet have to be leased well in advance. The thirty-three deepwater-capable rigs in the Gulf cannot afford to sit idle during the six-month moratorium and instead will be deployed to other countries, executives said. As many 46,000 jobs could be lost (Guardian) as a result of the moratorium, according to industry estimates, and it remains unpopular with lawmakers in the region.

More Analysis

The Washington Post's Jonathan Capeheart notes that Carter's often-criticized 1979 speech during the Iran hostage crisis put out a bold set of energy policies to reduce U.S. dependence on countries like Iran for oil imports, and yet these were never achieved.

In this CFR roundup, four experts discuss the possibility for significant reductions in U.S. oil consumption.

This Reuters Q&A discusses the components of potential energy legislation and its chances of passing Congress.

The Politico expert roundup looks at whether the oil spill will reinvigorate cap-and-trade legislation.

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