McCain backs incentives to boost offshore oil

ROCHESTER, Michigan (Reuters) - Republican U.S. presidential candidate John McCain said on Wednesday he would support incentives to encourage states to develop potential oil fields but would not try to force them to exploit potential resources, especially in environmentally sensitive areas.

"I do believe that we should drill for it," he said when discussing oil exploration at a town hall meeting in Rochester, Michigan. "But I am a federalist and I believe in the rights of states to make those decisions."

He said he believed the U.S. government could do more to encourage states to develop their resources.

"I think we can offer more incentives to states like California and Florida and more of a larger share of revenues and taxes from oil they may exploit," McCain added. "But I can't tell people in California what to do with their coast."

"I can't say we must drill in the most pristine environments," he added.

Energy companies say they need to develop more domestic gas and oil supplies to help meet growing demand, but federally owned areas that hold much of those reserves -- from onshore Alaska to waters off the West and East coasts of the lower 48 states -- have drilling bans.

New offshore energy exploration is now allowed only off the coasts of Texas, Louisiana, Mississippi and Alabama, and in some Alaskan waters. A presidential order bans offshore drilling everywhere else.

That is not likely to change after the U.S. election in November. If elected, Democratic presidential candidates Hillary Clinton and Barack Obama would likely extend the offshore moratorium, which is set to expire in June 2012.

McCain has favored a more flexible approach, giving the states more say on whether they want drilling off their shores.

McCain spokesman Brian Rogers has said McCain "supports the aim of the moratorium to protect ecologically sensitive areas but believes there are some (offshore) areas that can and should be developed for their energy potential."

Senate Republicans introduced legislation recently that would attempt to boost domestic oil production by allowing governors to petition to have the moratorium on offshore drilling lifted for their states and would give states a greater share of royalties.

All three of the candidates oppose opening the spigot to the huge oil reserves that are in the Arctic National Wildlife Refuge.

The Alaska refuge is the main target of oil industry, which is eager to tap its possible 16 billion barrels of crude. The industry came close to getting ANWR opened under President George W. Bush, who made it a key part of his national energy policy.

McCain told supporters in Rochester he would lead the United States to energy independence and favored developing alternative energies as well as boosting nuclear power production.

(Editing by Vicki Allen)

(To read more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at http:/blogs.reuters.com/trail08/ )