By Sarah Kaplan
In an effort to boost revenue and protect the environment, the Biden administration on Friday laid out plans to make fossil fuel companies pay more to drill on federal lands and waters.
The 18-page Interior Department report describes an “outdated” federal oil and gas leasing program that “fails to provide a fair return to taxpayers, even before factoring in the resulting climate-related costs.”
The document calls for increasing the government’s royalty rate — the 12.5 percent of profits fossil fuel developers must pay to the federal government in exchange for drilling on public lands — to be more in line with the higher rates charged by most private landowners and major oil- and gas-producing states. It also makes the case for raising the bond companies must set aside for cleanup before they begin new development.
Though Friday’s report focuses on the fiscal case for updating the leasing program, Interior officials say they will also consider how to incorporate the real-world toll of climate change into the price of permits for new fossil fuel extraction. The Biden administration this year set its “social cost of carbon” at $51 per ton of emissions, but suggested the number could go even higher as researchers develop new estimates of the damage caused by raging wildfires, deadly heat, crop-destroying droughts and catastrophic floods.
“The direct and indirect impacts associated with oil and gas development on our nation’s land, water, wildlife, and the health and security of communities — particularly communities of color, who bear a disproportionate burden of pollution — merit a fundamental rebalancing of the federal oil and gas program,” the report says.
But many activists were dissatisfied with the document, which they say breaks President Biden’s campaign promise to ban new oil and gas leasing on public lands.
Changing the bonding rate could have a more significant environmental impact, according to University of Chicago economist Ryan Kellogg.
The Interior Department said its lands contain scores of “orphaned wells” — abandoned oil and gas infrastructure the owners of which have disappeared, gone bankrupt or been lost to history. These facilities can continue to leak pollution for years, but the current minimum bond rate — just $25,000 for all a company’s facilities across an entire state — is not enough clean up even one shuttered well.
“Each one of these wells is a little time bomb in the ground that is ultimately going to leak methane” — a potent greenhouse gas, Kellogg said.
Raising the bonding rate ensures that funds for plugging old wells are dedicated ahead of time, rather than as an afterthought, he said.
The Interior Department document also calls for policy changes to discourage speculation and give communities more input in the leasing process.
Currently, there is no requirement that bidders on leases be publicly identified. Leases that don’t get sold at competitive auctions are put into a “noncompetitive” pool from which companies can rent land for a small administrative fee. This leads to firms buying and reselling leases at a higher price, the agency says — generating profits for speculators, rather than taxpayers. And it creates an incentive for companies to purchase leases even if they have no plans to develop, preventing that land from being used for recreation, habitat restoration or other purposes.
Many of these shortcomings have been identified in decades of reports from the Government Accountability Office and the Interior Department’s Office of Inspector General.