Environmental Valuation & Cost-Benefit News

Link: http://www.gao.gov/new.items/d08691.pdf

In fiscal year 2007, domestic and foreign companies received over $75 billion from the sale of oil and gas produced from federal lands and waters, according to the Department of the Interior (Interior), and these companies paid the federal government about $9 billion in royalties for this oil and gas production. The government also collects other revenues in rents, taxes, and other fees, and the sum of all revenues received is referred to as the "government take." The terms and conditions under which the government collects these revenues are referred to as the "oil and gas fiscal system." This report (1) evaluates government take and the attractiveness for investors of the federal oil and gas fiscal system, (2) evaluates how the absence of flexibility in this system has led to large foregone revenues from oil and gas production on federal lands and waters, and (3) assesses what Interior has done to monitor the performance and appropriateness of the federal oil and gas fiscal system. To address these issues, we reviewed expert studies and interviewed government and industry officials.

In addition to having a low government take, the deep water Gulf of Mexico and other U.S. regions are attractive targets for investment because they have large remaining oil and gas reserves and the U.S. is generally a good place to do business compared to many other countries with comparable oil and gas resources. Multiple studies completed as early as 1994 and as recently as June 2007 indicate that the U.S. government take in the Gulf of Mexico is lower than that of most other fiscal systems. For example, data GAO evaluated from a June 2007 industry consulting firm report indicated that the government take in the deep water U.S. Gulf of Mexico ranked 93rd lowest of 104 oil and gas fiscal systems evaluated. Generally, other measures indicate that the United States is an attractive target for oil and gas investment. The lack of price flexibility in royalty rates--automatic adjustment of these rates to changes in oil and gas prices or other market conditions--and the inability to change fiscal terms on existing leases have put pressure on Interior and the Congress to change royalty rates in the past on an ad hoc basis with consequences that could amount to billions of dollars of foregone revenue. For example, royalty relief granted on leases issued in the deep water areas of the Gulf of Mexico between 1996 and 2000--a period when oil and gas prices and industry profits were much lower than they are today--could cost the federal government between $21 billion and $53 billion, depending on the outcome of ongoing litigation challenging the authority of Interior to place price thresholds that would remove the royalty relief offered on certain leases. Further, royalty rate increases in 2007 are expected to generate modest increases in federal revenues from future leases offered in the Gulf of Mexico. However, in choosing to increase royalty rates, Interior did not evaluate the entire oil and gas fiscal system to determine whether or not these increases strike the proper balance between the attractiveness of federal leases for investment and appropriate returns to the federal government for oil and gas resources. Interior does not routinely evaluate the federal oil and gas fiscal system, monitor what other governments or resource owners are receiving for their energy resources, or evaluate and compare the attractiveness of federal lands and waters for oil and gas investment with that of other oil and gas regions. As a result, Interior cannot assess whether or not there is a proper balance between the attractiveness of federal leases for investment and appropriate returns to the federal government for oil and gas resources. Specifically, Interior does not have procedures in place for evaluating the ranking of (1) the federal oil and gas fiscal system or (2) industry rates of return on federal leases against other resource owners. Interior also does not have the authority to alter tax components of the oil and gas fiscal system. All these factors are essential to inform decisions about whether or how to alter the federal oil and gas fiscal system in response to changing market conditions.

U.S. Government Accountability Office (GAO) www.GAO.gov
GAO-08-691; September 3, 2008
http://www.gao.gov/new.items/d08691.pdf

Link: http://www.taxpayer.net/resources.php?category=&type=Project&proj_id=1350&action=Headlines

Dear Senator,

As the Senate considers various energy proposals before adjourning, Taxpayers for Common Sense Action urges you to oppose any effort to provide additional subsidies to the fossil fuel, ethanol and nuclear industries. These well-established industries have received billions in generous subsidies for decades and should not receive additional federal handouts in the legislative flurry to enact off-shore drilling legislation.

The New Energy Reform Act, originally proposed by the “Gang of 10”, is one energy package being discussed. The current language included in the bill provides billions in giveaways to the fossil fuel and nuclear industries, among them subsidies for reprocessing facilities, loan guarantees for the nuclear and coal industries; and grants and loan guarantees for coal-to-liquid technologies. The following information describes some of the most egregious taxpayer giveaways included in this proposal:

Department of Energy Loan Guarantees
Current language included in the New Energy Reform Act provides the Department of Energy (DOE) Loan Guarantee Program authority to distribute unlimited loan guarantees by exempting it from the Federal Credit Reform Act. The DOE loan guarantee program, authorized in the Energy Policy Act of 2005, already puts taxpayers at substantial risk by distributing loan guarantees to energy industries, like nuclear power, that cannot obtain private financing on Wall Street. Providing a blank check for DOE to distribute unlimited loan guarantees would eliminate an important taxpayer safeguard and could leave taxpayers holding the tab for billions in defaulted loans.

Coal-to-liquids
The New Energy Reform Act also includes provisions that allow for up to $500 million in grants and $10 billion in loan guarantees for coal-to-liquid projects. Because the success of coal liquids and other synthetic fuels depends heavily on volatile oil prices, subsidizing the coal-to-liquid industry would be very risky for the federal government. The coal-to-liquid industry would be heavily impacted if oil prices drop and taxpayers will be stuck with the bill for the loans and other assistance provided to the industry. When Congress created the Synthetic Fuels Corporation in the 1980’s to fund coal-to-liquid and other synthetic fuel projects, volatile oil prices drove the industry into near bankruptcy, wasting billions of dollars spent on capital. Additionally the construction, operating and carbon capture and sequestration costs for coal-to-liquids projects are predicted to be extremely high, with industry estimates for plant construction alone upwards of $6.5 billion.

Nuclear Reprocessing Facility
Despite the failure of past efforts to reprocess nuclear waste, the New Energy Reform Act provides funds for the development of a nuclear reprocessing facility. The nuclear industry has been wary of investing in reprocessing technology, and DOE estimates a reprocessing facility would cost $1.5 billion. Furthermore, the cost estimates for reprocessing waste from existing reactors in the United States have been as high as $100 billion.

Standby Support for the Nuclear Industry
This provision included in the New Energy Reform Act requires the federal government to provide “risk insurance” for the nuclear industry by providing up to $500 million per nuclear plant to fully cover construction delays for up to 12 projects. If enacted into law taxpayers could be on the hook for $6 billion to the nuclear industry.

Alternative Fuels and Biofuels
New provisions for alternative fuels and biofuels in the New Energy Reform Act will cost $6.8 billion combined in 2009 and 2010. This includes “such sums as are necessary” for researching how to retrofit pipelines for transporting biofuels, including corn-based ethanol; loan guarantees to cover up to 90% of new renewable fuel pipelines; and an expansion of the definition of “qualified fuels” to include oil shale and tar sand refineries as eligible for preferential tax treatment.

Taxpayers for Common Sense Action urges you to oppose any legislation that includes additional subsidies for the heavily-subsidized nuclear, ethanol and fossil fuel industries. At a time of record deficits the country can ill-afford to pass energy policy that continues to subsidize mature energy industries.

Sincerely,
Ryan Alexander, President

Taxpayers For Common Sense www.taxpayer.net
http://www.taxpayer.net/resources.php?category=&type=Project&proj_id=1350&action=Headlines
September 18, 2008

Link: http://www.newsday.com/news/printedition/longisland/ny-liwind235854268sep23,0,7225238.story

[The Long Island Power Authority has formed a working group with Con Ed to study the feasibility of a wind farm in the Atlantic Ocean near Queens.]
...
The plan is expected to benefit from a decision to erect the 450-foot-high wind turbines 10 miles out to sea - farther than the 3.5 to 5-mile location of [an abandoned] Jones Beach project, which was to have been built by FPL Energy. The energy capacity for the newly proposed wind farm would be 300 megawatts, double that of the FPL plan. [Power for 80,000 - 100,000 homes would be generated by 80-100 turbines, rather than the 40 proposed for Jones Beach].

LIPA and Con Ed will share ... energy from the project and divide the costs, [which have been estimated at ]... $1.5 billion.
...
The Jones Beach wind farm ultimately suffered from ballooning cost estimates. Originally estimated at $150 million to $200 million, the price tag for the project's 40 turbines and an interconnection system eventually topped $800 million. Raw material costs have only risen since then....
...
By Mark Harrington
FOR FULL STORY GO TO:
http://www.newsday.com/news/printedition/longisland/ny-liwind235854268sep23,0,7225238.story
Newsday www.newsday.com
September 23, 2008
also see
http://www.newsday.com/news/printedition/longisland/ny-liwind245855475sep24,0,1060256.story
New wind plan may appeal to ratepayers
By Mark Harrington
September 24, 2008
and http://www.nytimes.com/2008/09/24/nyregion/24wind.html?fta=y
Wind Farm Site Considered 10 Miles From Queens Shore
By Ken Belson
September 23, 2008

Link: http://www.usace.army.mil/cw/hot_topics/ht_2008/pandg_rev.htm

The U.S. Army Corps of Engineers today published in the Federal Register a notice to solicit public written comments on proposed new draft Principles for the ongoing revision of the “Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies,” dated March 10, 1983. The Principles and Guidelines (P&G) guide national water resources planning for the Corps and other federal agencies.
The proposed Principles are included in the Federal Register notice and may also be found at: http://www.usace.army.mil/cw/hot_topics/ht_2008/pandg_rev.htm.

Written comments will be accepted through October 15.

The proposed Principles would replace the first two pages of the current Chapter 1, Principles and Standards, and the version that was made available for written comments on that chapter during a public comment period that ended June 5. The Corps also conducted a public meeting in Washington, D.C., on June 5 to hear oral and take written comments.
Major issues discussed during the earlier public comment period included: watershed planning; collaborative planning; the reliance on benefit-cost ratios for project justification; placing more importance on project environmental values; and non-structural flood damage reduction projects.

The proposed Principles are divided into nine primary sections. Key topic areas that the public may want to provide written comment on include: actions covered by the Principles (section 1); the language used to describe the national planning objective (section 2); the role of public safety in project formulation (sections 2, 7, and 9); the role of watershed analysis (section 4); the response to uncertainty (sections 5, 6, and 9); ensuring consideration of all reasonable alternatives (sections 6 and 7); the definition of and preference for non-structural plans (sections 7 and 9); and the plan selection criteria (section 9). Comments are also specifically invited on the appropriate discount rate to use in formulating proposed water resources projects.

Section 9 includes a proposal to use a higher economic standard to justify recommending projects, project features, and increments of work whose primary purpose is to achieve economic benefits. A benefit-cost ratio (BCR) of 1.5, rather than the current 1.0 BCR threshold in the 1983 P&G, is proposed. The higher BCR would result in projects that are more likely to provide a positive net economic return on the federal and local investment. The proposed new standard would exclude projects, project features, and increments of work that provide a low return to the nation.

Congress directed the Secretary of the Army to revise the March 10, 1983, guidelines in Section 2031 of the Water Resources Development Act of 2007 (Public Law 110-114). The revision is to be “consistent with a number of considerations enumerated in the statute. Upon completion the revision will apply to water resources projects, project reevaluations, or project modifications and project feasibility studies carried out by the Secretary except those commenced prior to the completion of the revised guidance.“
While section 2031 of the Water Resources Development Act applies specifically to Corps’ water resources projects, the proposed Principles are drafted more broadly to allow for their possible application by other federal water resource agencies currently covered by the P&G.

Revising Chapter I, Principles and Standards, is the first of two phases planned by the Secretary of the Army to update the guidelines. The second phase will address revisions to chapters II through IV, Procedures. No date has been set for the phase 2 public comment opportunity.

Written comments on the proposed principles should be submitted to Mr. Larry J. Prather,
Assistant Director of Civil Works, at the following:
Mail: HQUSACE, Attn: P&G Revision, CECW–ZA, 441 G Street, NW, Washington, DC 20314–1000
FAX: 202-761-5649
E-mail: larry.j.prather@usace.army.mil

The Corps will post written comments on the proposed Principles to the U.S. Army Corps of Engineers Web site, http://www.usace.army.mil/cw/hot_topics/ht_2008/pandg_rev.htm. Comments received during the earlier public comment period are also posted there.
The Web site also provides links to copies of the Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies, dated March 10, 1983; the Water Resources Development Act of 2007 (Pub. L. 110–114); the proposed Principles; and other relevant documents. Hard copies of these documents may also be requested by mail or e-mail at the addresses listed above.

For further information, contact Mr. Larry J. Prather, Assistant Director of Civil Works, at 202-761-0106 or larry.j.prather@usace.army.mil.

U.S. Army Corps of Engineers www.usace.army.mil
http://www.usace.army.mil/cw/hot_topics/ht_2008/pandg_rev.htm
Press Release No. PA-08-06 dated September 12, 2008