Biden’s climate promises require oil and gas leasing reform

Oil rig in sunset
Associated Press - Hasan Jamali

The Bureau of Land Management (BLM) this week announced that it would impose a higher royalty rate on new oil and gas leases on federal lands. A BLM spokesperson later walked back the announcement, telling reporters the change was “not final.” The communications mix-up is sure to have caused some red faces at BLM, but the substance of the announcement should not. Increasing royalties on new leases is a no brainer — something BLM can easily do to advance President Biden’s climate agenda. But it won’t be enough on its own. BLM’s seeming reluctance to take this easy step raises questions about whether it is ready for the harder ones ahead.

Increasing royalties is just one step on a path to broader reform of BLM’s leasing program. Through that program, BLM manages 700 million acres of subsurface oil and gas resources owned by the federal government. In the 1920 Mineral Leasing Act, Congress authorized BLM to issue leases to private parties to develop federal oil and gas resources. Lessees must pay royalties on oil and gas production at a rate set by BLM. For over 100 years, the royalty rate has been 12.5 percent, which is the minimum allowed under the Mineral Leasing Act. BLM has authority to increase the rate but never has.

The decision not to increase royalties reflects BLM’s long-standing goal of maximizing oil and gas development. Consistent with that goal, BLM leased over 10 million acres of federal land to oil and gas developers during President Obama’s eight years in office. More than 6 million additional acres were leased during the four years of the Trump administration. In total, as of March 2021, 26.6 million acres of federal land were covered by oil and gas leases. That’s an area larger than the state of Ohio.

Despite the large area under lease, total oil and gas production on federal land has declined recently. Industry claims that it is difficult and costly to secure approval to drill oil and gas wells on federal land. The Biden administration seems to be making things easier, issuing drilling permits faster than its predecessor.

That’s hard to reconcile with Biden’s climate ambitions. The development of federal fossil fuels is a major contributor to climate change, accounting for almost one-quarter of U.S. carbon dioxide emissions.

In January 2021, Biden directed BLM to “pause” oil and gas leasing, pending a review of its “climate and other impacts.” The pause was struck down by a federal court in June, but BLM has not conducted any onshore oil and gas lease sales since. (BLM’s sister agency — the Bureau of Ocean Energy Management — did auction leases for offshore oil and gas in November, but a federal court last week invalidated them.)

BLM plans to hold lease sales in several western states in March. It is those sales that BLM said would be subject to a higher royalty rate — 18.5 percent instead of 12.5 percent —before clarifying that it had actually made no final decision.

It is unclear why BLM is hesitant to increase royalties. It clearly has legal authority to do so. The Mineral Leasing Act establishes only a floor, not a ceiling, for royalties. BLM determines how high they should go.

There are sound reasons for increasing royalties above the current rate, which has remained fixed for over a century. During that time, there have been major developments in the oil and gas industry. As the industry’s profitability has increased, many states have upped their royalty rates. Oklahoma now charges 18.75 percent, Colorado and New Mexico up to 20 percent, and Texas up to 25 percent. BLM’s current rate is clearly well below fair market value. The low rate effectively subsidizes oil and gas production and does not account for its significant social and environmental costs.

BLM has already acknowledged that royalties need to increase. But it hasn’t acted. To be fair, it has faced strong opposition from industry, which claims that increasing royalties would cause a decline in oil and gas production on federal lands. But studies show any decline is likely too small and would have little impact on federal oil and gas revenues. Increasing royalties would ensure the federal government receives a fair return and reduce subsidies to oil and gas producers.

The Biden administration’s reluctance to increase royalties raises questions about whether it will take the harder actions required to deliver on the president’s campaign promise to ban “new oil and gas permitting” on federal lands. That too is strongly opposed by industry.

One industry group recently claimed that BLM cannot stop development on federal land because, in its view, the Mineral Leasing Act “requires quarterly lease sales in every oil and gas state.” In fact, the act only requires quarterly sales in “each State where eligible lands are available” for leasing. BLM has previously declared large tracts of land to be ineligible for leasing and could declare more in the future. That would be controversial and almost certainly face court challenges.

But if the president wants to deliver on his promises, his administration will need to take the necessary steps — both easy and hard.

Romany Webb is an associate research scholar at Columbia Law School and senior fellow at the Sabin Center for Climate Change Law.

Tags Barack Obama Energy Fossil fuels Joe Biden oil and gas oil extraction public lands Romany Webb

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