Biden Administration Proposes Increased Costs for Fossil Fuel Companies on Federal Lands
The Biden administration has put forward a proposal to raise royalties on fossil fuel companies for extracting oil, gas, and coal from public lands in the United States. This would be the first increase in royalties since 1920 and would also raise the cost of bonds that companies must pay before commencing drilling by more than tenfold.
The Interior Department estimates that the new rule, along with various other rate and fee increases for drilling on public lands, would cost fossil fuel companies approximately $1.8 billion by 2031, with potential for further rate increases beyond that. Roughly half of this money would be allocated to states, around one-third would fund water projects in the West, and the remaining portion would be split between the Treasury Department and the Interior.
The Interior Department views these changes as part of a broader shift towards addressing climate change by promoting renewable energy on public land and in federal waters, while simultaneously making drilling on public lands more expensive for private companies.
Laura Daniel-Davis, the Interior Department’s principal deputy assistant secretary for land and minerals management, stated that these proposed changes would codify the department’s goals of ensuring a fair return to taxpayers, accounting for environmental harm, and discouraging speculation by oil and gas companies.
However, oil and gas companies have strongly opposed the proposed changes, arguing that they would create more barriers to energy production, increase uncertainty for producers, and potentially discourage investment. Holly Hopkins, a vice-president at the American Petroleum Institute, a lobbying group representing oil and gas companies, expressed concern amidst a global energy crisis.
On the other hand, environmental groups have welcomed the proposal as a step in the right direction, but have also called on the Biden administration to take further action to limit drilling on public lands in order to effectively tackle the climate and biodiversity crises.
Some of the changes in the proposal were mandated by the 2022 Inflation Reduction Act, which directed the Interior Department to increase royalty rates from 12.5% to 16.67% for companies drilling on public lands and raise the minimum bid at auctions for drilling leases from $2 to $10 per acre. These royalty rates have been in place since 1920.
The new rule also seeks to go beyond the requirements of the law by significantly increasing the cost of bonds that companies must provide before drilling on public lands. The Interior Department aims to use these funds to remediate damage caused by abandoned and uncapped oil and gas wells, shifting the cost from taxpayers to companies.
In conclusion, the Biden administration’s proposal to raise costs for fossil fuel companies operating on federal lands has garnered both support and opposition. While the administration seeks to address climate change and increase returns to taxpayers, oil and gas companies are concerned about the potential impact on energy production and investment. The proposal is seen as a step in the right direction by environmental groups, but they urge further measures to curb drilling on public lands in order to tackle pressing environmental challenges.
