Royalties for Drilling on Public Lands to Increase

Equipo
By Equipo
9 Min Read

The Biden administration on Friday made it more expensive for fossil fuel companies to pull oil, gas and coal from public lands, raising royalty rates for the first time in 100 years in a bid to end bargain basement fees enjoyed by one of the country’s most profitable industries.

The government also increased more than tenfold the cost of the bonds that companies must pay before they start drilling.

The new rules are among a series of environmental regulations that are being pushed out as President Biden, in the last year of his term in the White House, seeks to cement policies designed to protect public lands, lower fossil fuel emissions and expand renewable energy.

While the oil and gas industry is strongly opposed to higher rates, the increase is not expected to significantly discourage drilling. The federal rate had been much lower than what many states and private landowners charge for drilling leases on state or private property.

“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public, and protect taxpayers from being saddled with the costs of environmental cleanups,” Interior Secretary Deb Haaland said.

The government estimates that the new rules, which would also raise various other rates and fees for drilling on public lands, would increase costs for fossil fuel companies by about $1.5 billion between now and 2031. After that, rates could increase again.

About half of that money would go to states, approximately a third would be used to fund water projects in the West, and the rest would be split between the Treasury Department and Interior.

“This rule will finally curtail some of these wasteful handouts to the fossil fuel industry,” said Josh Axelrod, senior policy advocate with the Natural Resources Defense Council. “Communities, conservationists, and taxpayer advocates have been demanding many of these changes for decades.”

The rate increase was mandated by Congress under the 2022 Inflation Reduction Act, which directed the Interior Department to raise the royalty fee from 12.5 percent, set in 1920, to 16.67 percent. Congress also stipulated that the minimum bid at auctions for drilling leases should be raised from $2 per acre to $10 per acre.

But the sharp jump in bond payments — the first increase since 1960 — was decided by the Biden administration, not Congress. It came in response to environmental advocates and watchdog groups that have argued for years that the burden of cleaning up abandoned, uncapped wells should be shifted from taxpayers to the oil and gas companies.

“Taxpayers have been losing billions of dollars on a broken leasing system with these ridiculously low royalty rates, rents, and minimum bids for far too long,” said Autumn Hanna, vice president of Taxpayers for Common Sense, a fiscal watchdog group. “Adding insult to injury, taxpayers were left holding the bag for damages from wells oil and gas companies left behind, long after they had already profited from them. We own these resources and it’s about time we are fairly compensated.”

The new rules increase the minimum bond paid upon purchasing an individual drilling lease from $10,000 to $150,000. The cost of a bond required upon purchasing a drilling lease on multiple public lands in a state would rise from $25,000 to $500,000.

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Oil and gas companies said the changes, which could take effect in as few as 60 days, would damage the economy.

“As energy demand continues to grow, oil and natural gas development on federal lands will be foundational for maintaining energy security, powering our economy and supporting state and local conservation efforts,” said Holly Hopkins, a vice president at the American Petroleum Institute, which lobbies for oil companies. “Overly burdensome land management regulations will put this critical energy supply at risk.»

The oil and gas industry will continue to receive nearly a dozen federal tax breaks, including incentives for domestic production and write-offs tied to foreign production. Total estimates vary widely but the Fossil Fuel Subsidy Tracker, run by the Organization for Economic Cooperation and Development, calculated the total to be about $14 billion in 2022.

But more expensive bonds could put drilling out of reach for smaller oil and gas producers, said Kathleen Sgamma president of Western Energy Alliance, an association of independent oil and gas companies. “They are ludicrously high, ludicrously out of whack with the problem,” she said. “They could actually put companies out of business and create new orphan wells.”

The Interior Department estimates that there are 3.5 million abandoned oil and gas wells in the United States. When oil and gas wells are discarded without being properly sealed, which can happen when companies go bankrupt, the wells can leak methane, a powerful planet-warming pollutant that is a major contributor to global warming.

The Biden administration has had to navigate challenging terrain when it comes to extraction of fossil fuels on public lands and in federal waters, which is responsible for almost a quarter of the nation’s greenhouse gas emissions.

As a candidate, Mr. Biden promised “no more drilling on federal lands, period. Period, period, period.” He also campaigned to end billions of dollars in annual tax breaks to oil and gas companies within his first year in office.

But since Mr. Biden took office, his administration has continued to sell leases to drill, compelled by court decisions. The Biden administration approved more permits for oil and gas drilling in its first two years (over 6,900 permits) than the Trump administration did in the same period (6,172 permits). Congress has done nothing to end tax breaks for oil and gas companies. And in 2023, the United States produced more oil than any country, ever.

Environmentalists excoriated Mr. Biden for his administration’s final approval earlier last year of an enormous $8 billion oil drilling project in Alaska known as Willow.

At the other end of the political spectrum, Republicans have accused the administration of waging a “war” on fossil fuels that threatens the nation’s economy and national security.

At rally in January, former President Donald J. Trump blamed economic inflation on Mr. Biden’s policies. “His inflation that he caused and would’ve been so easy not to. All it was — is energy. Remember this, gasoline, fuel, oil, natural gas went up to a level that it was impossible,” said Mr. Trump, who is running to unseat Mr. Biden. “That’s what caused inflation, and we’re going to bring it down because we’re going to go drill, baby, drill. We drill, baby, drill. We’re bringing it way down.”

Last month, the Republican-majority House passed a bill, sponsored by Representative Lauren Boebert of Colorado, that would force the administration to withdraw the new royalty regulation, although the measure has little chance of passage in the Democratic-majority Senate.

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