Oil industry disasters like the BP spill capture the media's attention and the public conscience with images of tarred shores and reckless practices, but the Gulf of Mexico crisis also reveals a deeper danger to our safety and energy security -- and the urgent need for greater transparency in the oil industry's relationship with government.
The Obama administration and members of Congress have rightly linked this crisis to the well-documented collusion between the Interior Department's Minerals Management Service (MMS) and the industry it oversees. But the agency's failures go beyond weak environmental enforcement. They also include a failure to collect company tax payments for drilling and mining on Federal lands, costing the budget billions of dollars.
Interior Secretary Ken Salazar moved last week to undo the entangled roles of oversight and revenue collection by breaking up the MMS. However, such reorganizations have been tried before to little effect, and could easily be undone by future administrations. Indeed, the MMS itself was created in response to an earlier Interior Department corruption scandal.
The only true safeguard against undue industry influence is to embed strong transparency requirements in law and regulation -- transparency that includes public disclosure of royalty payments, taxes, bonuses and related fees to the Federal government.
Congress can take a critical step to increase the transparency of the tens of billions of dollars flowing between extractive companies and governments both at home and world-wide, by approving an amendment sponsored by Republican Richard Lugar and Democrat Ben Cardin to the pending finance reform bill.
Through a simple rule change at the Securities and Exchange Commission, the Lugar-Cardin bill would require any U.S. or foreign company registered with the SEC to report how much it pays to governments for access to natural resources.
Oil industry lobbyists argue that the disclosure requirement could increase operating costs and hobble competition, but the events in the Gulf of Mexico amply demonstrate that the unpredictable costs of low accountability pose a far greater hazard than small shifts to reporting practices.
The same lesson plays out in the developing world, where oil sector opacity and corruption in places like Nigeria or Peru lead to unrest that disrupts communities, company operations and supply chains and in turn drives up energy costs to American consumers. The amendment would level the competitive field by creating a uniform transparency standard for 27 of the 30 largest oil companies operating in the international arena and for the most important mining enterprises, of which only two are American. The cost would be negligible, as companies already must keep records of the taxes, royalties and fees paid to the countries where they work.
Transparency helps investors manage risk and empowers governments and citizens to ask the right questions and ensure that no company operates outside the law.
Congress has a clear mandate to respond to the spill, but it will not be enough to investigate the latest disaster and tighten environmental protections. The spill, the history of mismanagement within the MMS and the current financial crisis itself are all symptoms of our government's failure to do its job.
Cleaning up the governance of the energy sector will take more than agency restructuring or large restitutions from companies. It demands that we shine permanent daylight on industry practices and government relationships through strong, legally binding public disclosure requirements.
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