June 5, 2013
U.S. Sen. David Vitter (R-La.), top Republican on the Environment and Public Works Committee, finally received a response from the U.S. Department of Interior to a November 2012 letter he and Sen. Lamar Alexander (R-Tenn.) wrote to former Interior Secretary Ken Salazar, requesting data on the economics of offshore wind production.
They noted that that the agency will not allow offshore oil and gas leasing in the Atlantic Outer Continental Shelf (OCS), and requested data on the economics of the wind lease sale, to compare with “the value of a similar lease for oil and gas on equivalent acreage.” Seven months later Interior’s response provides limited analysis that further undermines justification for offshore wind.
“The administration has a habit of picking energy industry winners and losers, but their ‘winners’ – in this case – actually cost taxpayers money and are not sustainable without government subsidies,” Vitter said. “I appreciate the Interior Department’s response – albeit six months late – but their response tells us that the government assistance the wind industry receives in leasing and special tax credits, exceeds the money they can generate for the Treasury in offshore production. I’ll reiterate that alternative energy has potential for our ‘all of the above’ energy future, but the administration needs to quit ignoring the economic benefits of traditional energy.”
In the November letter, the senators write, “the Federal Government derives significant revenue from royalties for offshore oil and gas production. The current rate companies must pay is between 12.5% and 18.75%.” This is before taxes and after competitively bidding on the lease. This tax is levied on all energy produced by an oil and gas company working on federal offshore or onshore resources. The senators want to compare with an offshore wind lease granted without competitive bidding in October 2012: “What is the effective royalty rate Interior has contracted with NRG Bluewater Wind Delaware LLC for this lease for the energy it produces? What is the anticipated revenue to be raised from this development over the next 10 years?”
In the Department of Interior’s response, they explain that a minimum bid for oil and gas offshore lease sales is $100 per acre for deepwater leases, compared to $1 or $2 per acre for the upcoming wind lease sale. In addition, there is strong indication that the royalty rate is a fraction of the tax credit, thus meaning federal subsidies more than cover what these projects are expected to pay in royalties.