Last week, Mitt Romney released a plan to reach North American energy independence by 2020 -- a possibility many believe is now plausible thanks to our booming natural gas and oil production. The platform involves opening up our coasts to more deep water oil exploration, handing over more control over leasing federal lands to the states, and approving the controversial Keystone XL pipeline, among other initiatives.
There are plenty of reasons to be skeptical that we can ever actually drill our way to energy independence. But to get an expert take on the plan from someone who isn't skeptical, I called Citi's Edward Morse, whose own recent work seems to have influenced much of Romney's proposal. His March study, "Energy 2020: North America, The New Middle East?" is cited six times in the campaign's white paper, including the projection that more domestic energy production could create up to 3.6 million new jobs.
Morse had mixed feelings about Romney's energy agenda, which he called a "significant step," but also "incomplete." This is a transcript of our discussion, edited for length and clarity.
So what do you think of Romney's plan overall?
I think whether or not the staff in the Romney campaign did a lot of homework on it, they basically have the thrust of an unfolding reality right. And I think what's unfolding makes an enormous difference to the country and will make an enormous difference no matter who the president is. When you have this much natural gas and oil being produced in the country, it just changes the reality on the ground, and changes the constraints and possibilities that are being confronted.
So I think they have the basic story absolutely correct. I think they clearly chose, for political reasons, to ignore some of the constraints on boosting hydrocarbon production. They do not take a studied look at environmental factors. Nor do they look at the price that's required to keep this going. I think that one of the most misunderstood aspects of the "shale gale," as people call it, which is not just shale, but it's oil sands from Canada, and is also deep water in the U.S. Gulf of Mexico, is that it does require a price somewhere between $50 and $65 a barrel to make it economical.
What do you think are the best aspects of the plan?
You said the energy boom will happen regardless of who's president. But could regulations slow it down?
I think we addressed -- in this ungodly long study -- I think we addressed California's issues. So you know, it's probably the case that the resource base of California is as big as the resource base of Pennsylvania, Ohio, or North Dakota. Maybe not Texas, but it's pretty big. And the major constraint is not federal regulation, but state regulation. But that speaks to two issues. One is that regulation can be a major impediment, for better or worse. Some regulation, when it's based on best practices, is for better. Other regulation may be more politically engendered, as the wholesale ban in NY State on fracking appears to be politically engendered. But there are significant regulatory issues that need to be taken seriously. I think the fact that a drilling ban accompanied the Macondo disaster speaks to that. And nobody is God and can say there won't be another similar episode. I certainly am not going to predict that we won't have another drilling ban. But a big environmental problem anywhere could have a serious impact no matter who the regulator is. But let me just finish this thought. The fact that I've mentioned both California and New York is an indication that it's not necessarily an issue of whether the federal government is the regulator, but rather what the nature of the regulations are.
Are there any federal regulations currently in the pipeline that could halt the energy boom?
Since a number of the issues being confronted are under investigation, and we don't know what regulations may emerge from them, including Clean Water Act-related potential EPA regulations, I don't know how to answer that.
What would handing the states more responsibility over federal lands accomplish?
The thing that's incomprehensible -- I really mean we don't know enough from the Romney plan -- is that the Macondo disaster exposed a fact that the same agency within the Department of the Interior, the Mineral Mining Service, acted as lessor of land, acted as revenue collector, and acted as safety regulator. And the new regulations have separated those three areas of jurisdiction to make sure that there was no conflict of interest that would block one of these functions from being fulfilled at the expense of others. One of the things that I don't understand about moving things from federal to state jurisdiction is the degree to which those three areas of activity -- revenue collection, land leasing and mineral rights leasing, and safety regulations -- are adequately managed at a state level. And there's nothing apparent to me that a state could do this better than the federal government.
The Romney plan looks at the lead time on federal lands vs. the average lead time on state land. [Editor's note: Romney argues that it takes significantly longer to get drilling permits approved by the federal government than the states] But what that doesn't tell you is how complex the federal lands issues might be. And let me give you two examples. Federal lands include all deep water. There's no deep water in any state territory. Any kind of planning for deep water is bound to have more planning associated with it, so it's going to be a longer process than anything on land, or in shallow water, which includes the shallow waters of Texas and Louisiana. Just ipso facto, I don't really understand what the comparison is talking about. The second area is the collection of revenues for minerals exploitation. This is one of the single most important sources of revenue for the federal government. How readily should the federal government devolve that to the state level and how much less revenue is going to be associated with it? And is this something that ought to be considered a tradeoff in this moment in time?