Yesterday, the White House lambasted Louisiana Sen. Mary Landrieu (D) for her hold on their nominee to head up the Office of Management and Budget. Her goal: to force the president to lift the offshore drilling moratorium put in place in the wake of the largest oil spill in U.S. history so that the regulations governing offshore drilling could be examined and overhauled.
Calling the move “sad” and “outrageous,” the administration is clearly frustrated by the latest example of Beltway hostage-holding.
It should be obvious that the practice of grinding unrelated business in the Senate to a halt every time a senator is displeased with the administration is a serious problem. (Ezra Klein gave a nice explanation.) This case is particularly bad for two reasons: First, as a new fiscal year begins today, work on next year’s budget should already be in full swing. Instead, Jack Lew, the would-be budget director is sidelined, unable to carry out this key job during an economic downturn. (Full disclosure: Lew is a former member of Policy Integrity‘s advisory board.)
But Landrieu’s short-sighted delay of Lew’s nomination has a second major downside. Drilling too much of our oil too soon is a vast waste of this non-renewable resource.
Like a CEO who waits to cash in stock options when the value of the company is high, America should wait to sell offshore leases until we can get the highest possible price at the lowest costs. As Richard Revesz wrote at Forbes.com, this would boost our bottom line as well and ensure that we are being compensated for the risks we take on when we allow drilling.
The choice of whether to drill is not a one-time decision; we can hold off on selling leases today and still go back and allow them in the future. So the decision can be thought of as an option — it’s a resource we can take advantage when we think it will benefit us most. The economics on using options in the oil context are pretty advanced (here’s an example).
Given the size of the oil reserves in our nation’s territory, we are talking about hundreds of billions of dollars of lost option value if we jump the gun and sell too soon.
Holding Lew’s appointment hostage on an unrelated issue makes no sense, no matter what the reason. The longer he has to wait, the less time he has to work on the annual budget.
On the contrary, the longer Obama waits to lift the moratorium offshore, the better the likely outcome; cleaner, safer rigs, and, potentially a better deal on the leases. With millions of gallons of petroleum still floating around in the Gulf, now seems like a decent moment to take a breath and examine the value of waiting.
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