H.R. 3534: The CLEAR (Cutting Loose Energy and American Resources) Act

H.R. 3534

The CLEAR (Cutting Loose Energy and American Resources) Act

Sponsor
Rep. Nick J. Rahall II

Date
July 30, 2010 (111th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

H.R. 3534 is expected to be considered on the floor of the House on Friday, July 30, 2010, under a structured rule. The legislation was introduced by Rep. Nick Rahall (D-WV) on September 8, 2009. The version of the legislation being considered on the floor also incorporates provisions from H.R. 5626, "Blowout Prevention Act" and H.R. 5629, "Oil Spill Accountability and Environmental Protection Act."

Summaries of the amendments made in order will be distributed as they become available.

Bill Summary

H.R. 3534 represents the latest installment in the Democrats’ campaign to increase the price of American energy and kill good-paying U.S. jobs in the energy sector and related industries. 

Title I - Creation of New Department of the Interior Agencies

Bureau of Energy and Resource Management:  The bill would establish a Bureau of Energy and Resource Management (BERM), with a mandate to manage the leasing and permitting for renewable energy, non-renewable energy, and mineral resources on all onshore and offshore federal lands in the U.S., other than Indian lands. The BERM Director would be appointed by the President and subject to Senate confirmation.

Bureau of Safety and Environmental Enforcement:  The bill would establish a Bureau of Safety and Environmental Enforcement (BSEE), with a mandate to carry out all the safety and environmental regulatory activities, including inspections, on all onshore and offshore federal lands in the U.S.  The BSEE Director would be appointed by the President and subject to Senate confirmation.

Office of Natural Resources Revenue:  The bill would establish an Office of Natural Resources Revenue (ONRR), which would be responsible for collecting and disbursing all royalties and other revenues from energy and mineral related activities on onshore and offshore federal lands, auditing such collections, and promulgating regulations relevant to revenue collection and management. The ONRR would be headed by a Director appointed by the President and subject to Senate confirmation.

Ethics:  The bill would require that the Secretary of the Interior certify that Department of the Interior employees that interact with oil and gas companies are in full compliance with all employee ethics laws and regulations, as well as supplemental guidance that would be issued by the Secretary.

Abolishment of Minerals Management Service:  The bill would formally abolish the Minerals Management Service (MMS), and ensure that all completed administrative proceedings, pending administrative proceedings, and pending civil actions related to MMS are not affected by this abolishment.

Title II - Federal Oil and Gas Development
 

Jurisdiction on the Outer Continental Shelf:  The bill would ensure that U.S. laws also apply to renewable energy facilities on the OCS.  

Outer Continental Shelf Leasing Standard:  The bill would require new safety and environmental regulations for offshore drilling.  These include minimum safety standards for blowout preventers, well designs, and cementing programs, and independent third-party review of these components or designs by certifiers chosen by the Secretary would be required. The blowout preventer, well design and cementing regulations would be extended to wells drilled in state waters.  

Leases, Easements, and Rights-of-Way:  The bill would disqualify companies with lacking safety or environmental records from obtaining new leases or drilling permits.  The section would also provide for non-competitive offshore renewable energy authorizations if an applicant were seeking to carry out short-term meteorological or marine testing.

Disposition of RevenuesThe bill would provide for yearly mandatory funding of $900 million for the Land and Water Conservation Fund and $150 million for the Historic Preservation Fund, and would deposit 10% of total offshore revenues into a new Ocean Resources Conservation and Assistance (ORCA) Fund, for spending subject to appropriations.

Exploration Plans:  The bill would create new requirements for exploration plans, as well as eliminate the 30-day deadline for approval of those plans.  Exploration plans would be required to include blowout scenarios with estimated timelines for drilling a potential relief well, and an analysis of the impact of a worst-case-scenario discharge from drilling. Categorical exclusions would no longer be allowed for approving plans and plans and permits could only be approved if the applicant will be using best-available technology for drilling the well and responding to spills, and has demonstrated capability and technology to respond immediately to a worst-case-scenario oil spill.

Outer Continental Shelf Leasing Program:  The bill would provide for additional consideration of environmental factors in the preparation of five-year leasing plans. This section would also require consultation with the Secretary of Commerce during the preparation of those plans.

Environmental Studies:  The bill would require environmental studies at least once every three years of OCS areas where oil and gas lease sales are scheduled, and would direct the Secretary of Commerce to conduct research on the impacts of deepwater oil spills and the use of dispersants.

Safety Regulations:  The bill would require more frequent studies by the Secretaries of Interior and Homeland Security on the adequacy of health and safety regulations relevant to operations on the OCS.  This section would also broaden the requirement to use best available and safest technologies, and require the Secretary to publish lists of the best available technologies for key areas of well design and operation, including blowout preventers and oil spill response technologies. The bill would also mandate regulations requiring all operators to have safety cases before they could receive new permits to drill, and would mandate reviews of the effectiveness of safety case regulations.

Enforcement of Safety and Environmental Regulations:  The bill would require monthly inspections of drilling rigs, more frequent investigations of safety-related incidents on the OCS, investigations of all allegations brought by employees of operators or contractors, and certifications from operators, operators' Chief Executive Officers, and independent third parties regarding compliance with safety and other regulations. Audits of safety cases and safety and environmental management plans would also be authorized.

Remedies and Penalties:  For failure to comply with the Outer Continental Shelf Lands Act, the bill would increase civil penalties from $20,000 per day to $75,000 or $150,000 per day, depending on the violation and raises the maximum criminal fine under the Act from $100,000 to $10,000,000.

Uniform Planning for Outer Continental Shelf:  The bill would create new requirements for development and production plans, and to ensure that such requirements extend to all areas of the OCS, whereas in existing law the Gulf of Mexico is exempt.  As with exploration plans, this section would require development and production plans to include blowout scenarios with estimated timelines for drilling a potential relief well, and an analysis of the impact of a worst-case-scenario discharge from drilling.  Approval of plans through categorical exclusions would no longer be allowed. This section would also require applicants to provide a comprehensive survey of the marine and coastal environment within their proposed area of operations, and to use production platform as observation stations for collecting data for the Integrated Coastal and Ocean Observing System.  Development and production plans would not be able to be approved unless the applicant has the demonstrated ability to effectively remediate a worst-case release of oil from activities conducted under the plan.

Elimination of Royalty-in-Kind Program:  This section would eliminate the authority for the Secretary to conduct a royalty-in-kind program.

Restrictions on Employment:  The bill would increase "revolving door" prohibitions on employees of the Department of the Interior who carry out duties under the Outer Continental Shelf Lands Act, by broadening the scope of prohibited activities and adding a two-year ban on accepting employment with certain companies.  This section would also add new recusal requirements and provide stricter penalties for violations.

Repeal of Royalty Relief Provisions:  The bill would repeal the shallow-water-deep-gas, deep-water, and Alaskan OCS royalty relief provisions that were enacted in the Energy Policy Act of 2005.

National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling:  This section would provide subpoena power to the president’s hand-picked commission on the Deepwater Horizon incident and require the Commission to consult with the National Academy of Engineering on a monthly basis.

Retroactive Implementation:  The bill provides the Secretary with authority to apply the Titles II and VII of this Act to existing OCS leases.

Eligibility for New Leases and the Transfer of Leases:  The bill would prohibit companies from obtaining new oil and gas leases on the OCS if they hold any leases issued between 1996 and 2000 that provide royalty relief regardless of oil and gas prices.  Companies that renegotiate their leases to include price thresholds would be eligible to bid for new leases.

Title III - Oil and Gas Royalty Reform


Compliance Reviews:  The bill would provide statutory authority for the Secretary to conduct compliance reviews of royalty payments, and require any discrepancies to be referred to an auditor. The Secretary would have to provide notice to payors that a compliance review was being conducted.

Fines and Penalties:  The bill would double fines for underpayment or late payment of royalties, and would also double the penalty for theft. The section would also extend the statute of limitations for oil and gas leases held by violators.

Adjustments and Refunds:  The bill would eliminate the opportunity for lessees to make adjustments to their royalty obligations after a compliance review or audit is completed on a lease in question, and would limit the ability to make adjustments to four years after the date royalties were initially due. Currently, lessees are allowed to make adjustments for a full six years even after MMS has already completed a compliance review or audit.

Appeals and Final Agency Action:  The bill would extend the timeframe for the Secretary to issue final decisions on any appeals on demands or orders to pay royalties or penalties to 48 months, from the current 33 months.

Penalty for Late or Incorrect Reporting of Data:  The bill would establish a penalty for companies that file late or incorrect data, to be set at a level the Secretary would determine is sufficient to ensure that companies file correct data on time, but no less than $10 per incorrect line of data.

Applicability to Other Minerals:  This section would extend civil and criminal enforcement authority as amended to coal and other solid minerals on federal lands, as well as to solid mineral mining or alternative energy development on the Outer Continental Shelf.

Limitation on Royalty-in-Kind Program:  The bill would eliminate the authority of the Secretary to establish a regular program of taking royalties-in-kind from onshore leases.

Title IV - Full Funding for the Land and Water Conservation Fund

Extension of the Land and Water Conservation Fund:  The bill would extend the authorization of the Land and Water Conservation Fund until 2040.

Permanent Funding for the Land and Water Conservation Fund:  The bill would provide for $900 million to be available to the fund each year out of OCS receipts without further appropriations, subject to the authority of Congress to allocate the funds to eligible activities.  The bill contains no restrictions on earmarking the funding.

Permanent Funding for the Historic Preservation Fund:  The bill would provide for $150 million to be available to the Historic Preservation Fund (HPF) each year out of OCS receipts without further appropriations, and would extend the authorization of the fund until 2040.  Funding would be subject to Congress to allocate the funds to eligible activities. The bill contains no restrictions on earmarking the funding.

Title V - Gulf of Mexico Restoration  

Gulf of Mexico Restoration Program:  This section would establish a Gulf of Mexico Restoration Task Force, composed of the heads of the relevant federal agencies and the Governors of the Gulf Coast states, to develop a long-term restoration plan within one year. 

Gulf of Mexico Long-Term Environmental Monitoring and Research:  The bill would direct the Secretary to establish a long-term marine environmental monitoring and research program on the impacts of the Deepwater Horizon oil spill on the environment of the Gulf of Mexico, to remain in effect for a minimum of 10 years.  Data from the program would be available to governmental and non-governmental personnel and the public.

Gulf of Mexico Emergency Migratory Species Alternative Habitat Program:  The bill would establish an emergency migratory species alternative habitat program to support projects along the Gulf of Mexico to ensure that migratory species have alternative habitat available for use outside of areas impacted by the oil spill.  It allows the Secretary to contract with a named Washington D.C. group for conducting this program.

Title VI - Outer Continental Shelf Coordination and Planning  

Regional Coordination Councils:  The bill would establish Regional Coordination Councils, to include representatives of federal agencies, coastal states, Regional Fishery Management Councils, fisheries commissions, Regional Ocean Partnerships, affected Tribes, and county and local governments. 

Regional Strategic Plans:  The bill would authorize the Regional Coordination Councils to prepare and complete Strategic Plans to foster comprehensive, integrated, and sustainable development and use of ocean, coastal, and Great Lakes resources. This is essentially a process of establishing ocean zoning to coordinate the management of various ocean resources and activities.

Ocean Resources Conservation and Assistance Fund:  The bill would establish a new Ocean Resources Conservation and Assistance (ORCA) Fund.  A percentage of all OCS revenues would be deposited into Fund and be available subject to appropriations.  The Fund would be used to provide grants to coastal states and Regional Ocean Partnerships and the Regional Coordination Councils for activities that contribute to the protection, maintenance, and restoration of ocean, coastal and Great Lakes ecosystems.  Grants will also be available for coastal states to improve their oil spill response planning and for the implementation and operation of an integrated ocean observation system.

Title VII -Oil Spill Accountability and Environmental Protection

Repeal of and Adjustment to Limitations on Liability:  The bill would remove the existing limitation on liability for damages of a responsible party for an offshore facility and directs the President to revise as necessary other limitations on liability. Under the bill, any responsible party for an offshore facility is liable for all removal costs plus all damages related to a discharge, or a substantial threat of discharge of oil. 

Evidence of Financial Responsibility for Offshore Facilities:  The bill would increase the minimum amount of evidence of financial responsibility that a responsible party for an offshore facility must demonstrate. The financial responsibility requirement is raised to $300 million for an offshore facility.

Damages to Human Health:  The bill would authorize an individual to seek compensation for damages to human health, including mental health, resulting from a discharge of oil.

Information on Claims:  The bill would authorize the President, in the event of a spill of national significance, to require a responsible party to provide information on or related to claims.

Amendments to Oil Pollution Act of 1990:  This bill would change the definition of "removal costs" under OPA to clarify that such costs include the costs of enforcement activities, and also expands the definition of "responsible party" to include any person who owns or who has an interest in the land or in the minerals beneath the land on which the facility is located, and any person who is the assignor of a property interest in the land or in the minerals beneath the land on which the facility is located.

U.S.-Flag Vessels:  The bill would require offshore energy-related vessels to be U.S.-flag vessels owned by U.S. citizens.  The bill would apply to activities that begin after June 30, 2011.

Safety Management Systems:  The bill would require the safety management plan for a offshore unit operating in waters subject to U.S. jurisdiction to include processes, procedures, and policies related to the safe operation and maintenance of the machinery and systems on board the vessel that may affect the seaworthiness of the vessel in a worst-case event.

Safety Standards for Mobile Offshore Drilling Units:  This bill would require the Secretary of Homeland Security, in prescribing regulations for MODUs, to develop standards to address a worst-case event on the vessel.

Repeal of Response Plan Waiver:  The bill would prohibit an onshore facility, offshore facility, or tank vessel from operating without an approved plan for responding to a worst-case discharge.

National Contingency Plan:  The bill would require the president to develop guidelines for the use of oil spill containment booms, the Administrator of the Environmental Protection Agency to update the regulations for use of chemical dispersants and the president to develop criteria for ceasing and removing a worst-case discharge of oil or hazardous substances, or for mitigating and preventing a substantial threat of such a discharge.

Evaluation and approval of response plans; maximum penalties:  The bill would strengthen federal oversight of oil spill response plans update the level of administrative and civil penalties for failure to develop or implement an oil spill response plan.

Oil and Hazardous Substance Cleanup Technologies:  The bill would require the Secretary of Homeland Security to establish a process for soliciting, assessing, and deploying offshore oil and hazardous substance cleanup technologies in the event of a discharge of oil in U.S. waters. 

Federal Enforcement Actions:  The bill allows independent federal and state actions, including the assessment of penalties, in relation to the discharge of oil or hazardous substances.

“Build America” Requirement for Offshore Facilities:  The bill would state that a person may not use an offshore facility for oil and gas activities unless the facility was built in the U.S., although the bill would allow limited waivers to this requirement.

Authorization of Appropriations: The bill authorizes appropriations from the Oil Spill Liability Trust Fund for the Coast Guard, EPA, and Department of Transportation to carry out the Act.  The Coast Guard would receive $30 million in FY 2011 and $32 million per year from FY 2012—2015.  The EPA would receive $10 million per year from FY 2011—2015.  The Department of Transportation would receive $7 million per year for FY 2011—2013 and $6 million per year for FY 2014—2015.
 
Title VIII - Miscellaneous Provisions

Repeal of Royalty Relief for the Energy Industry:  The bill would repeal Alaskan OCS royalty relief provisions that were enacted in the Energy Policy Act of 2005 and would eliminate lease extensions and royalty relief in the National Petroleum Reserve-Alaska.

New Energy Tax:  This bill would impose a new fee of $2 per barrel of oil, or 20 cents per million Btu of natural gas, for production from all new and existing federal onshore and offshore leases in the U.S.  This tax would expire on December 31, 2021.  CBO has scored that litigation costs associated with this fee will total nearly $14 billion during the 10 year budget window, while the tax will generate $22 billion.

Outer Continental Shelf State Boundaries:  This bill would direct the Secretary determine the seaward boundaries of states to the outer margin of the OCS.  In 2006, the Minerals Management Service published administrative boundaries between states in the OCS, but it did so without any notice or comment period.

Coastal State Oil Spill Planning and Response:  This bill would provide grants, not to exceed $750,000, to eligible coastal States to revise relevant plans of management programs to ensure sufficient oil spill response capabilities.

Eliminates Categorical Exclusions: The bill would eliminate “categorical exclusions” both onshore and offshore designed to limit duplicative environmental analyses and enable energy development on existing well sites where the environmental impact is minor, in developed fields, and where drilling was analyzed in a NEPA document as a reasonably foreseeable activity.

Federal Response to State Proposals to Protect State Lands and Waters:  The bill would require that when states apply for a permit to undertake a project in response to an oil spill of national significance, agencies must either decide on the application within 48 hours or provide a date by which the application will be decided. Failure by the agency to meet deadlines would result in the application being deemed approved.

Background

H.R. 3534 puts the 9.2 million jobs supported by American oil and natural gas at risk by raising taxes, blocking American energy development, continuing a moratorium on deepwater drilling and completely eliminating economic liability caps.  Members may have the following additional concerns with this legislation:

De Facto Drilling Moratorium:  The bill would impose a de facto moratorium on offshore oil and gas production by increasing taxes and regulation, allowing the approval process for exploration plans to be extended indefinitely, adding layers of bureaucracy, and imposing unlimited liability caps.  The Obama moratorium has already cost tens of thousands of jobs and now Democrats in Congress want to exacerbate the problem, especially on the Gulf coast.

New Tax on American Energy:  The CLEAR Act includes a new tax on oil and natural gas produced on all existing and new federal onshore and offshore leases.  The tax would be $2 per barrel of oil and 20 cents per million British thermal units of natural gas.  This cost would eventually be passed on to American consumers of energy—small business, families, and farmers.  It is estimated that this tax will total $22 billion in ten years, and the taxes will eventually climb to $3 billion per year.  Of course, this new tax only applies to American energy, giving a distinct advantage to foreign oil and gas and jeopardizing American energy jobs.

Unlimited Liability Kills Jobs and Local Revenue:  The CLEAR Act includes unlimited liability caps for offshore energy producers.  This would effectively eliminate smaller and independent producers from operating if they cannot obtain insurance policies to cover their operations.  According to a recent study, these producers account for more than half of offshore jobs—meaning a loss of 300,000 jobs and $147 billion in federal, state and local revenues.  Members may be concerned that a liability increase is premature because under current law if a responsible party is found to be grossly negligent, engaged in willful misconduct or to have violated a federal safety, construction or operating regulation, it is responsible for all costs.

Billions of Dollars for New, Mandatory Spending:  The bill includes over $30 billion in new mandatory spending for two programs that have nothing to do with the Gulf oil spill—the Land and Water Conservation Fund and the Historic Preservation Fund. 

Protectionist “Build America” Provisions:  The CLEAR Act includes a make-work provision for labor unions requiring all rigs to be U.S.-built, owned and operated.  Currently, rigs are already built to U.S. standards, staffed by U.S. crews and inspected by U.S. governmental agencies.  Drilling rigs are extremely complex platforms and the U.S. lacks the capacity to build one from scratch in our globalized economy.  This provision would have the effect of driving rigs out of the U.S., thus raising energy costs for Americans.  Estimates suggest that this provision would shut down 25 percent of today’s oil and gas production and make new U.S. offshore projects uneconomic by raising costs 30 to 100 percent.

Political Cover for the President:  In the version of the CLEAR Act to be considered on the House floor, Democrat leadership has removed a provision authored by Rep. Bill Cassidy (R-LA) to establish a bipartisan, independent National Commission on Outer Continental Shelf Oil Spill Prevention.  This commission would be comprised of technical experts to study the events leading up to the Deepwater Horizon disaster.  Democrats are thus protecting the president’s own hand-picked, expert-deficient Commission.  As Natural Resources Committee Ranking Member Doc Hastings (R-WA) noted, “There is widespread agreement that no member of the President’s Commission possesses technical expertise in oil drilling, and several are on the record in opposition to offshore drilling and support a moratorium that will cost thousands of jobs.”

Seizes States’ Authority:  The bill would enable the federal government to encroach on states’ offshore leasing programs by taking over permitting and dictating the type of technology to be used on state wells, seemingly even in the event that technology is improved in the future.  This would reduce incentives for advances in energy technology and possibly even the development of safer designs and procedures moving forward.

Changing How Onshore Federal Land is Leased:  The bill would change leasing onshore by the Forest Service and Bureau of Land Management, which affects not just leasing for natural gas and oil, but also for renewable energy.  This provision could lead to a decline in energy production on federal land and lost energy jobs.  

Interior Secretary Slush Fund:  The bill allows 10 percent of all offshore revenues to be spent on a new fund controlled by the Interior Secretary to issue ocean research grants.  These funds can be earmarked.

Cost

The Congressional Budget Office (CBO) estimates that enacting this legislation would increase spending by $20.5 billion over ten years and would increase revenues by $22.2 billion over the same period.  Interestingly, CBO predicts over $14 billion in litigation costs alone stemming from the new energy tax in this bill.