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Biden's incoherent proposal to ban fossil fuel leasing on federal lands

Biden's incoherent proposal to ban fossil fuel leasing on federal lands
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During the election campaign, President-elect Joe BidenJoe BidenExpanding child tax credit could lift 4 million children out of poverty: analysis Maria Bartiromo defends reporting: 'Keep trashing me, I'll keep telling the truth' The Memo: The center strikes back MORE pledged to end new oil and gas leasing and permitting on federal lands (including federal waters); that is, to ban on those lands the discovery and development of fossil energy resources by private companies, and to end approvals of specific drilling proposals that result from leasing rights. Biden further pledged to ban hydraulic fracturing (“fracking”) – a specific production technology – on federal lands. 

The proposed bans are driven by Biden’s apparent belief in the commonly-asserted “existential crisis” for climate phenomena resulting from increasing atmospheric concentrations of greenhouse gases. That those GHG trends are having effects that we can detect is incontrovertible; anthropogenic climate change is a real phenomenon. That is very different from arguing that a “crisis” is upon us, an assertion for which there is no evidence.

But Biden and the individuals likely to staff his various climate policy efforts are adamant in terms of the “existential crisis” argument, and Biden’s opposition to the use of federal lands for fossil production was so prominent during the campaign that it is certain that his administration will attempt to implement such a ban. Less noticed during the campaign is the reality that an end to fossil leasing, permitting and fracking on federal land is both incoherent and perverse, for reasons political and analytic.

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Incoherence: Biden has been forced to satisfy the demands of two constituencies with objectives diametrically that are opposed: the climate/environmental left, for which opposition to fossil fuels is an ideological imperative, and voters with important economic and employment interests in the fossil fuel industry generally and from operations on federal lands. (Note that those voters’ views are correct on the merits.) Those economic and employment interests are vast: Oil and gas production represents about 1 percent of the U.S. economy. At the level of presidential politics, these voters are concentrated in specific regions and states that are competitive in the electoral college. Ignoring their interests is deeply problematic.

And so we have Biden’s intended ban on fossil operations only on federal lands as an attempt to reconcile that political conflict. But if there is an existential climate crisis, then it is not quite clear why the ban should not be applied to all fossil exploration and production. Biden has attempted to resolve this obvious problem by proposing that the U.S. achieve net-zero GHG emissions by 2050, a policy that if implemented would reduce global temperatures by 0.137 degrees C by 2100, applying the EPA climate model under highly favorable assumptions. That hypothetical climate impact would be barely detectable given the normal variation in annual temperatures. Because oil and gas production on federal lands is about 24 percent and 13 percent, respectively, of total U.S. oil and gas output, the climate effect of Biden’s proposed ban on federal lands only would not be detectable.

Nor can Biden’s proposal be rescued with the argument that it is an early step toward implementation of the international emissions reductions promised under the Paris agreement, which Biden clearly will rejoin. The emission cuts promised by the various governments under the Paris agreement would reduce global temperatures by 0.17 degrees C by 2100; and they will not and cannot be enforced in any event. In short: The leasing/permitting ban on federal lands only as proposed by Biden is incoherent because it cannot be reconciled with the “existential crisis” rhetoric, and because his larger proposed solutions to the “crisis” effectively will make no difference while imposing massive economic costs.

Perversity: Natural resources are one form of national wealth, a truism that applies to oil and gas reserves no less than any other. In 2019, total U.S. oil and gas production was about 4.5 billion barrels and 34 trillion cubic feet, respectively. Production on federal lands again was about 24 percent and 13 percent of the totals, or about 1.1 billion barrels and 4.4 trillion cubic feet, with approximate values of about $62.7 billion and $11.7 billion. (Prices during the economic downturn attendant upon the COVID pandemic are substantially lower, but it is reasonable to assume a return toward historical norms as vaccines are developed and distributed and as the adverse economic effects of the virus are reduced sharply as a benefit of innumerable adjustments by individuals and sectors.) 

For the period 2008-2018, oil production on federal lands grew at an annual rate of about 4 percent, while gas production fell at about the same rate. Weighted by the value of production (oil was about 84 percent of the $74.4 billion total), the combined oil/gas production growth rate was about 3.4 percent. Let us assume that the value of such production on federal lands would increase by 3 percent per year in real (inflation-adjusted) dollars in the absence of a federal ban on new leasing and drilling. Accordingly, the ban would reduce the value of oil and gas produced on federal lands by about $2.2 billion per year; if permanent, the ban thus would reduce national wealth by the present value of that lost stream of production, or about $45 billion.

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Tax revenues derived from oil and gas production as a first approximation are payments for the public services demanded by the wealth creators, in this case by fossil production activities. What is of greater interest are the federal disbursements to the states from energy production on federal lands, a sharing of the wealth created by that output. The total in fiscal year 2019 was $11.7 billion. The five largest such disbursements went to New Mexico ($1.2 billion), Wyoming ($641.1 million), Colorado ($108.1 million), Louisiana ($101.3 million) and North Dakota ($93.7 million).

In short, the proposed ban will reduce national wealth and therefore the resources available to actual people, whether through private sector payments or government budgets, in exchange for asserted environmental benefits that would be trivial at best. The ban is deeply problematic and should be rejected.

Benjamin Zycher is a resident scholar at the American Enterprise Institute.