A Department of Interior report released on Friday found that taxpayers are being shortchanged by a federal oil and gas leasing program that consistently undercharges fossil fuel companies.
Under an executive order Biden issued shortly after taking office, the department reviewed the federal program that sells leases to drill for gas and oil on federal land and in federal waters.
The study’s damning key conclusion is that decades-old bureaucratic processes generate less revenue for the federal government than they should and that they fail to factor in the environmental harms of fossil fuel extraction.
“The review found a Federal oil and gas program that fails to provide a fair return to taxpayers, even before factoring in the resulting climate-related costs that must be borne by taxpayers; inadequately accounts for environmental harms to lands, waters, and other resources; fosters speculation by oil and gas companies to the detriment of competition and American consumers; extends leasing into low potential lands that may have competing higher value uses; and leaves communities out of important conversations about how they want their public lands and waters managed,” the report states.
But while some environmentalists greeted the news as a long-overdue first step toward reforming the program, which effectively subsidizes the production of fossil fuels that cause climate change, others expressed frustration that the 18-page report only mentions climate change twice.
“The report lays out everything we already know and have been saying for years. The federal oil and gas program is in dire need of reforms to ensure fairer returns to taxpayers and to ensure that industry cleans up its mess,” said Sara Cawley, legislative representative with the environmental organization Earthjustice, in a statement released on Monday.
“But in other ways,” Cawley added, “this report falls far short of the promised ‘comprehensive review,’ notably leaving out the climate consequences of continuing to lease public lands and waters to the oil and gas industry. In addition to ignoring the huge climate impacts from oil and gas production, this report failed to address other environmental impacts of oil and gas activities on communities and the critical regulatory and safety reforms needed to limit those impacts.”
According to the Natural Resources Defense Council, oil and gas companies have active leases on 26 million acres of federal land and on 12 million acres of ocean managed by the federal government. In 2019, 23.6 percent of U.S. oil production and 11.2 percent of gas production came from federal lands and waters. Half of the federal land under lease and most of the offshore lease areas haven’t actually been drilled yet, meaning oil and gas companies could keep producing off of federal leases for years even if new leasing stopped completely.
In his 2020 presidential campaign, Biden promised to end federal fossil fuel leasing in order to hasten the transition from fossil fuels to clean energy, but the report stops short of calling for that, instead it only proposes programmatic reforms that would improve the return to taxpayers.
The single most straightforward change the report proposes is raising century-old royalty rates for on-shore oil and gas production that are far lower than current standards on private and state land. “The Mineral Leasing Act was passed in 1920 and set royalties at a minimum of 12.5 percent for oil and gas produced from public lands,” the DOI report explains. “Today, 100 years later, leases are still being sold using these low rates, which are out of step with modern times ... nearly all State and private lands require that operators pay a royalty rate higher than 12.5 percent.”
States with large oil and gas reserves typically charge a rate of at least 16.67 percent, as Montana, Utah and Wyoming do. Last year, a report from the nonprofit watchdog group Taxpayers for Common Sense estimated that “the federal government lost up to $12.4 billion in revenue from oil and gas drilling on federal lands from 2010 through 2019, because it continues to apply a grossly outdated royalty rate.”
There are other ways fossil fuel companies are undercharged, according to the report, including below-market land rental rates and a minimum bid in lease auctions, which hasn’t been raised from $2 per acre since it was set in 1987. The review also calls for more stringent requirements that bidders prove they have the wherewithal to actually capitalize on the lease. Currently, undercapitalized speculators buy leases at the low prices set by the federal government and flip them for an easy profit. They sometimes also attempt to exploit the fossil fuel reserves but run out of money, leaving orphaned wells for the government to clean up.
Environmentalists say another omission from the report concerns the cost of carbon emissions. Every time oil or gas is drilled, its greenhouse gas emissions cause harm to the rest of the world. Shouldn’t the cost of that damage be factored into the cost of selling the leases, they’ve asked. The Department of Interior didn’t address that question in its report, much less go all the way to recommending an end to fossil fuel leasing on the grounds that oil and gas must be left underground if the world is to avert catastrophic climate change.
Some in the environmental movement fear that means Biden is backing away from his campaign pledge.
“Releasing this completely inadequate report over a long holiday weekend is a shameful attempt to hide the fact that President Biden has no intention of fulfilling his promise to stop oil and gas drilling on our public lands,” said Food & Water Watch policy director Mitch Jones in a statement.
The Department of Interior told Yahoo News that it is still working on analyzing the effect of federal fossil leasing on climate change.
“In addition to seeking to restore balance to managing our public lands and waters, the report recommends a more transparent, inclusive, and just approach to leasing and permitting that provides meaningful opportunity for public engagement and Tribal consultation,” DOI spokesperson Tyler Cherry wrote in an email. “Analyses of the effects of greenhouse gas emissions are ongoing and will be incorporated in the Department’s planning and reviews as it moves forward with leasing consistent with court direction, including recent announcements by BOEM and BLM.”
The Biden administration is already being sued by Earthjustice for auctioning oil-drilling leases in the Gulf of Mexico earlier this month. The White House said it had no choice, due to a federal judge’s order that it complete the auction planned by the Trump administration. But this latest report will only serve to intensify calls for it to actually integrate addressing climate change into its land management policies.
“We expected much more, especially given the Biden administration’s deeply disappointing and legally avoidable Gulf lease sale,” Cawley’s statement concluded. “Interior must take decisive action to reduce climate-heating emissions from federal energy extraction and end new leasing on public lands and waters.”