The Biden administration is considering an increase in royalty rates on oil, gas and coal development on public lands for the first time in more than a century.
Part of a sweeping executive order issued last week, the president has tasked the U.S. Interior Department with reviewing how much of a cut taxpayers get when companies drill on public lands. The current rate of 12.5% has stayed the same since the 1920s for oil and gas and the 1970s for coal. Biden wants those royalty rates "to account for corresponding climate costs," according to the order.
The review comes as the oil and gas industry continues to reel from 2020's historic drop in demand, which has companies pulling back from drilling on federal public lands in the West. The same executive order also places a moratorium on new oil and gas leases on public lands. Together the actions threaten fossil fuel-dependent economies around the region.
"In the longer term, this is an industry under stress anyways," said Robert Godby, an energy expert and associate dean of the Haub School of Environment and Natural Resources at the University of Wyoming.
One goal of the potential royalty hike, Godby said, is to reduce the country's carbon footprint, as roughly one-quarter of U.S. carbon emissions come from fossil fuels extracted from public lands, according to the U.S. Geological Survey. Another goal is to maximize revenues from a resource owned by the American taxpayer. It’s the opposite of the approach taken by Trump administration.
"That administration did not care long-term about low carbon," Godby said. "They were out to maximize economic activity today."
The nonpartisan group Taxpayers for Common Sense published a report last February making the case for an increase in the royalty rate on publicly owned oil and gas.
"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in revenue from oil and gas drilling on federal lands from 2010 through 2019, because it continues to apply a grossly outdated royalty rate set in 1920," the report found. It urged policymakers to increase the royalty rate from 12.5% to 18.75%, in line with the rate currently charged for offshore production.
Godby says the review of federal royalty rates could take months, if not years. And he points out that most Western states already charge more in royalties than the federal government on extraction from state-managed public lands.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Boise State Public Radio in Idaho, KUNR in Nevada, the O'Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, KUNM in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.