Environmental Law

Congress Approves Export of U.S. Crude Oil

Author: June DeHart

On December 18, President Obama signed into law HR 2029, the Consolidated Appropriations Act of 2016, the so-called Omnibus Appropriations bill. This $1.15 trillion measure funded the Federal Government through FY 2016. Included in this seemingly unrelated Omnibus package were provisions that ended the 40-year prohibition on the export of crude oil produced in the United States. When I wrote about this topic for this publication a year ago, it was clear that it would be one of the pressing issues of the 2015 Congressional session. At the time, the outcome was uncertain, but what was certain was that timing before the 2016 election year would be a key driver for proponents.

As the first session of the 114th Congress began in 2015, Congressman Joe Barton (R-TX) reintroduced his bill and Senator Lisa Murkowski (R-AK) began hearings and introduced her own legislation, both calling on Congress to unleash the restrictions on the industry. Though the House passed the Barton bill, and the Murkowski and Senator Heidi Heitkamp (D-ND) bills to lift the ban were reported from the Energy and Banking Committees, respectively, and several attempts were made to offer amendments on the Senate floor, the Senate never considered the Barton, Murkowski or Heitkamp bills as stand-alone legislation on the floor of the Senate in the face of strong opposition from Democrats. Even some vulnerable Republicans up for reelection in 2016 were leery of voting to lift the ban in fear of retribution from voters if gasoline prices were to rise from new lows.

Lifting the ban on crude exports was destined for the Omnibus bill given the politics. Proponents of lifting the ban had natural allies in most Republicans who historically supported the oil industry. Though Republicans were concerned that some refiners were opposed to lifting the ban because of the adverse impact of higher crude prices on refinery operations, investment and refinery jobs, in the end they came down on the side of increased U.S. production and the estimated one million jobs it could create. They also believed a win for the oil industry would buoy the 2016 campaign for the Congress and the White House, but feared it could never be accomplished in the 2016 election year.

While House Republicans easily passed the Barton bill, it was no sure thing in the Senate, where 60 votes are needed to end a filibuster. So Senate Republicans focused on winning Democrat votes. But getting to 60 votes in the Senate proved too difficult. Opponents of lifting the ban had natural allies in Democrats. While a group of small refiners successfully led the opposition to exports for most of the year, environmental, labor and consumer groups joined in lobbying Senate Democrats, focusing on the environmental impacts of increased fossil fuel production, the potential loss of unionized refinery jobs, and the possible increases in consumer fuel prices. With Republicans determined to lift the ban and most Democrats strongly opposed, moderate Democrats and Democrats from oil-producing states saw an opportunity to forge a "grand bargain," one that would achieve Democrat goals for renewables in exchange for agreement to lift the ban. It could happen only in the year-end Omnibus bill and the complex give-and-take in crafting the bill. The White House signaled that it wouldn't veto such a bargain.

On December 16, the Senate and House Leadership announced such a "grand bargain." Republicans secured crude exports. The provisions also authorized the President to require licensing for crude exports during national emergencies, for sanction purposes and during times of supply shortages and high domestic prices, language that Democrats bargained for in the House. In exchange, Democrats secured an extension of production and investment tax credits for solar and wind energy to 2021 and 2022 that will give more certainty to investors in such projects. To address refiners' concerns, Republicans included a tax credit for transportation costs.

As all such "grand bargains" do, this one also required a pathway to approval. To accommodate Democrats who opposed the tax extenders bill due to the cost to the Treasury, the House voted first on the tax extenders bill, which was approved by Republican votes. The vote on the Omnibus bill came a day later so that House Leadership could depend on needed Democrat votes to secure passage, given conservative Republican opposition. The bills were joined again in the Senate, necessary to secure the votes and send a consolidated bill to the President.

As the issue was debated, much concern was expressed for the potential adverse impact on independent refineries and particularly small refineries. Several proposals to assist refiners, including a $3 tax credit, were considered, but concerned about costs, House Republicans instead focused on Section 199 of the tax code, and in the end their approach made it into the bargain, amending Section 199(c) of the IRS Code of 1986 to add a provision allowing a 75 percent tax credit on allocable transportation costs, expiring December 31, 2021.

Interestingly, the view among a number of refiners both small and large is that the provision is estimated to be of minimal assistance, even if appreciated. This raises the question as to whether additional assistance will be sought. A possible opportunity to improve on the refiner provision could come in early 2016. It has been reported that several clean energy tax credits for fuel cells, geothermal, and other renewables were inadvertently left out of the bill due to a drafting error. Reportedly, Minority Leader Nancy Pelosi (D-CA) has said that she has been promised that the error will be fixed in an early revenue bill, and Chairman Kevin Brady (R-TX) has said he will revisit it.

It remains to be seen just what the impact of lifting the ban on crude exports will be on consumers, independent refineries, the national economy, and even producers. Much depends on what happens in the world. With world crude prices at seven-year lows, the spread between Brent and WTI narrowing, and worldwide crude demand still sluggish, there may be little incentive to export crude even though recent news reports indicated that the first two cargoes of U.S.-sourced crude were shipped.

On the upside, if crude prices stay low in the face of exports, consumers should continue to benefit from the lowest gasoline and diesel prices in years and U.S. refiners should still have access to favorably priced crude. On the downside, the nation may see an increase in foreign imports. And for producers, time will tell.

This article was originally published in Environmental Leader, January 12, 2016.



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