Study: CBO underestimates revenues from expanded oil-and-gas drilling

The Congressional Budget Office is vastly underestimating the potential revenue that could be achieved by opening more federal lands to oil-and-gas drilling, according a report released Tuesday by the Institute for Energy Research (IER), a conservative think tank.

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The study comes as President Obama prepares to float a plan to replace automatic spending cuts from sequestration. The IER report concluded that boosting oil-and-gas development on federal lands would help plug the federal deficit more than a previous CBO report suggested.

“[T]he revenue potential inherent to expanding access to resources found on Federal lands and waters is orders of magnitude greater than that which is measured by the CBO,” the study, conducted by Louisiana State University Professor Joseph Mason, said.

Obama’s plan to avoid the $85 billion of government-wide cuts scheduled for March 1 will likely include ending subsidies awarded to the oil-and-gas industry. Obama and supportive Democrats have said nixing those incentives would save the government $40 billion through 10 years.

But oil industry lobbyists have said the industry’s incentives should not be singled out, saying many other businesses are given deductions and cost-recovery mechanisms. The oil industry also said removing the incentives would stymie domestic energy production.

In all, the IER study said expanding drilling on public lands and waters would increase gross domestic product by $127 billion annually for the next seven years, and $450 billion annually through the following 30 years. It also would boost federal tax revenues by $2.7 trillion through 37 years, the study found.

That paints a different picture than the August CBO report, which said lifting drilling bans would bring in about $7 billion through the next decade, mostly through selling exploration leases.

The CBO report also said opening the Arctic National Wildlife Refuge — a politically unlikely option — would generate between $25 billion and $50 billion in gross royalties from 2023 through 2035.

The IER study takes into account “spillover” effects that the CBO document did not consider, and strikes a tension point between Republicans and Democrats on oil-and-gas production.

“[W]hile the Administration cannot shy away from exploring the fiscal benefits of opening Federal lands, the CBO study was restricted to analyzing just one component of those benefits: lease revenues,” the study said.

The White House contends it still permits drilling on a majority of the identified, recoverable fossil fuel reserves. It has also noted that fossil fuel output has increased during Obama's tenure.

Republicans have pushed Obama to relax restrictions for fossil fuel development on federal lands.

They say expanding drilling would provide jobs, and also send royalties to the federal government and boost exports to help close the deficit. And while oil-and-gas production has risen under Obama, activity on private and state lands has carried the increase.

The White House is treading cautiously on its onshore drilling policy, largely because of questions regarding hydraulic fracturing, or fracking. The administration had originally planned to finalize regulations for fracking on federal lands last year, but decided in January to draft new ones.

The drilling practice, which injects a high-pressure cocktail of water, sand and chemicals into tight rock formations to tap oil and gas deposits, has been credited with driving the domestic energy boom.

While industry and its congressional allies saying fracking is safe, green groups and some Democrats worry it could contaminate drinking water.

For offshore drilling, BP’s 2010 Gulf of Mexico oil spill has framed much of the Obama administration’s and congressional Democrats’ outlook.

Obama revised his initial offshore leasing plan for 2012 through 2017 following the disaster. The new plan, which was approved last year, excluded leasing sales off the coasts of mid-Atlantic and Southeastern states. It also scaled back on leasing plans in the eastern Gulf of Mexico.

Republicans criticized the administration for those changes, saying the plan would slow economic growth.