Policymakers Share Common Ground on Energy Revenue, But Can They Deliver?

Yesterday, Senators Lisa Murkowski (R-AK) and Mary Landrieu (D-LA) introduced the Fixing America’s Inequality with Revenues (FAIR) Act, which would allow coastal states to collect a portion of the revenues of offshore energy production. Specifically, it provides royalty revenues from offshore oil and gas development to coastal states. States would automatically receive 27.5 percent of royalty revenues, but be eligible for an additional 10 percent provided they “establish funds to support projects relating to clean energy or conservation.” Today, coastal states outside of the Gulf of Mexico don’t receive any royalty revenue at all. While it is unclear what exactly these funds would entail, the emergence of the FAIR Act and President Obama’s recent Energy Security Trust Fund proposal reflects growing interest in linking energy production to energy innovation.

The FAIR Act is motivated in large part by a desire to financially empower coastal states and is only the latest attempt to expand state revenue sharing from offshore fossil fuel development. In 2006, The New Orleans Times-Picayune noted that a bill by Senator Landrieu “gave Louisiana, Alabama, Mississippi and Texas 37.5 percent of proceeds from fuel production in the Gulf, an estimated $6 billion a year that previously went only to the U.S. Treasury.” That bill, however, only allows the four Gulf States to start collecting that revenue in 2017, with a combined cap of $500 million. Since then, Senator Landrieu has continuously introduced legislation to accelerate the revenue sharing process and lift the $500 million cap – and the FAIR Act is only the most recent iteration.

But the FAIR Act is also a promising clean energy innovation policy. While legislative text has not been released as of this writing, the proposed state funds will likely resemble the Advanced Energy Trust Fund idea outlined by Senator Murkowski in her Energy 20/20policy blueprint. That proposal called for federal revenue from expanded energy production going towards a fund that would in turn “be applied to the most promising and cost‐effective proposals in many technology‐neutral categories, including renewable energy, energy efficiency, alternative fuels, and advanced vehicles.”

Furthermore, in addition to its main focus, the legislation includes a provision that increases all states’ share of revenue from onshore renewable energy production on federal lands to 50 percent, the same existing ratio for oil, coal, and natural gas. As of now, according to the Office of Natural Resources Revenue, the vast majority of revenue from onshore energy production on federal land comes from fossil fuels, with solar and wind projects mostly only in the proposal stage. But the Interior Department notes that half the nations’ geothermal energy comes from federal lands, generating close to $12 million in royalties in fiscal year 2012. And that Department’s New Energy Frontier initiative is looking to greatly expand renewable energy production on federal land, with the Secretary approving nine new solar projects on federal land in 2010 alone. Thus, the FAIR Act will not only open up additional revenue for states related to offshore fossil fuel development, but also provide states with an incentive to accelerate onshore renewable energy development.

Most importantly, the FAIR Act, along with the president’s Energy Security Trust proposal, is a sign of growing willingness to link energy production to energy innovation, an idea that was the subject of the 2011 ITIF report Lemons to Lemonade. Clearly, the idea has potential in this Congress. In fact, The Hill reports that while Senator Ron Wyden, the chair of the Senate Energy Committee, has yet to sign on to the FAIR Act he nevertheless “wants to get offshore revenue legislation through Congress” and is open to different proposals. Moving forward, President Obama and Senators Landrieu and Murkowski should seek common ground and work together to advance such legislation. Establishing a dedicated revenue stream for clean energy R&D and other innovation programs would be very welcome news for an endeavor that has long suffered from both inconsistent and underwhelming funding.