While environmental activists praise various aspects of the U.S. Department of the Interior’s newly released report on federal oil and gas leasing and permitting processes, some say the report is incomplete and fails to account for the impact fossil fuel emissions have on climate change.
The department released the report to comply with an executive order President Joe Biden issued titled “Tackling the Climate Crisis at Home and Abroad.” This executive order directed the Department of the Interior to review leasing and permitting processes. The report was released Friday and consists of 18 pages.
The report includes recommendations such as raising royalty rates, charging more for rent and requiring higher levels of bonding.
While the recommendations are supported by the environmental advocates, many of whom have been pushing for such reforms for years, some say that the recommendations do not go far enough to address the climate crisis.
“We’re sympathetic to the political gauntlet the Biden administration must run, but it had a choice to run it with power, speed, and agility. Instead, it’s running that gauntlet, weak, slow, and tentative,” said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center, in a press release. “This report does little but rearrange the deck chairs of the federal public lands oil and gas program, treating these lands as nothing more than a commodity to be exploited by oil and gas CEOs and Wall Street investors. Changing royalty rates, minimum bids, and bonding levels are all good things to help the public get a fair return on drilling, but they neither meet the promise President Biden made to the American people regarding public lands, nor address the urgency demanded by the climate crisis. This report landed with a deeply disappointing thud.”
There are nearly 37,500 federal oil and gas leases onshore in the United States, with nearly 91,000 wells, located on 26.6 million acres. Of that acreage, 13.9 million acres is non-producing.
At the end of September, oil and gas companies had about 9,000 approved permits to drill, according to the report.
“Our nation faces a profound climate crisis that is impacting every American. The Interior Department has an obligation to responsibly manage our public lands and waters – providing a fair return to the taxpayer and mitigating worsening climate impacts – while staying steadfast in the pursuit of environmental justice,” said Secretary Deb Haaland in a press release following the release of the report. “This review outlines significant deficiencies in the federal oil and gas programs, and identifies important and urgent fiscal and programmatic reforms that will benefit the American people.”
Industry groups criticize report amid high energy costs
Industry groups criticized the recommendations in the reports, highlighting the current supply crisis that is raising the cost of oil and gas.
In its statement, New Mexico Oil and Gas Association said policies, which it described as “little more than virtue signals,” could push production to other countries that do not have the same environmental safeguards that the United States has and could hurt those in the western United States who “work every day to provide our country with the oil and natural gas needed for daily life.”
“During one of the busiest travel weeks of the year when rising costs of energy are even more apparent to Americans, the Biden Administration is sending mixed signals,” Frank Macchiarola, senior vice president of policy, economics and regulatory affairs for American Petroleum Institute, said in a statement. “Days after a public speech in which the White House said the president ‘is using every tool available to him to work to lower prices and address the lack of supply’, his Interior Department proposed to increase costs on American energy development with no clear roadmap for the future of federal leasing.”
Recommendations include increased royalty rates
Onshore royalty rates have never been raised and bonding rates have not been raised in 60 years and are much lower than what states charge for extraction on state trust land. For example, federal lands royalty rates are 12.5 percent or, at times, lower. Meanwhile, New Mexico’s royalty rates range from 18.75 to 20 percent, according to the report.
Raising royalty rates will likely not reduce production. The report highlights that Colorado and Texas raised their state royalty rate and did not see significant impacts on production. Colorado’s royalty rate is 20 percent while Texas’ is 20 to 25 percent.
Before the lease is put into production, the companies pay rent rather than royalties. The rental fees have not been changed since 1987—set at $1.50 per acre annually for the first five years and $2 per acre after that.
“Such low prices for leases, coupled with generous 10-year lease initial terms that are frequently extended, encourage speculators to purchase leases with the intent of waiting for increases in resource prices, adding assets to their balance sheets, or even reselling leases at a profit rather than attempting to produce oil or gas,” the report states.
Increasing the bonding requirements would help reduce the financial burden the government faces when an operator goes bankrupt and leaves behind orphaned oil and gas wells. New Mexico’s U.S. Rep. Teresa Leger Fernández, a Democrat, introduced legislation this year to raise the bonding requirements.
Report: Current practices encourage speculation
The report found that current practices, including low costs, encourage speculation from the oil and gas industry.
“Industry suggests that the significant surplus of leases and permits is necessary for a successful business model, but this speculative approach contributes to unbalanced land management. When land is under contract for potential oil and gas activity, the shared public lands cannot be managed for other purposes, such as conservation or recreation,” the report states.
Environmental advocates have criticized the federal Bureau of Land Management, which oversees the onshore oil and gas leasing, for favoring extractive industry over other uses of the land, such as renewable energy and outdoor recreation.
“For more than a century, oil and gas companies have taken advantage of a system that prioritizes profits over communities, taxpayers, and our climate. This report provides a critical roadmap to ensure drilling decisions on public lands take into account impacts on our land, water, and wildlife, while ensuring a fair return for taxpayers. Make no mistake, this is not a pie-in-the-sky wish list, it’s a detailed action plan that will yield real benefits for taxpayers and communities,” said Jennifer Rokala, the executive director at the Center for Western Priorities. “It is now up to Congress and the Biden administration to put this plan into action and move toward a day in which our public lands continue to strengthen local communities while being part of the climate solution, not part of the climate problem.”
The report also comes as New Mexico seeks to expand outdoor recreation opportunities, including in areas that have traditionally relied on oil and gas extraction as the main economic driver.
While extraction and outdoor recreation are not diametrically opposed—oil and gas roads in rural New Mexico can also provide access to public lands—the presence of oil and gas infrastructure contributes to noise pollution and emissions that can make it hard for some people to recreate.
With the review now completed and the report released, it falls to the Biden administration and Congress to take action based on the recommendations.
“The agency is formally taking responsibility for and seeking to address something that has long been widely acknowledged: we have a broken and outdated leasing system,” said Alexandra Adams, senior director of federal affairs for Natural Resources Defense Council, in a press release. “The administration and Congress must seize this opportunity to fix these problems. Beyond that, it is time to embrace critical climate and environmental reforms that will sustain our local communities and safeguard our incomparable oceans and public lands.”