US increases costs of extracting oil from public lands – 04/12/2024 – Environment

The United States government has made it more expensive for fossil fuel companies to extract oil, gas and coal from public lands, increasing royalty rates for the first time in a hundred years. The Biden administration’s measure is an attempt to reduce subsidies to one of the country’s most profitable industries.

Management also increased by more than ten times the amount of titles that companies must acquire before starting drilling.

The new rules are part of a series of environmental legislation being implemented by President Joe Biden, in the final year of his term in the White House, as he seeks to consolidate policies aimed at protecting public lands, reducing fossil fuel emissions and expanding renewable energy.

Although the oil and gas industry is strongly opposed to higher rates, it is expected that the adjustment will not cause them to significantly abandon drilling projects. The federal rate was much lower than that charged by many American states and private properties for leases for this type of activity.

“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will reduce unnecessary speculation, increase outcomes for the people, and protect taxpayers from being burdened with the costs of environmental repairs,” said the Secretary of the Interior, Deb Haaland.

The government estimates that the new rules, which also increase several other fees and charges for drilling on public lands, will raise costs for fossil fuel companies by about $1.5 billion by 2032. Thereafter, the rate minimum royalties may be raised again.

About half of that money should go to the states, about a third should be used to fund water-related projects in the West, and the rest should be split between the Treasury Department and the Interior.

“This rule will finally reduce some of those wasted subsidies for the fossil fuel industry,” said Josh Axelrod, senior policy advocate at the Natural Resources Defense Council. “Communities, conservationists and taxpayer advocates have been demanding many of these changes for decades.”

The rate increase was mandated by Congress under the Inflation Reduction Act of 2022, which caused the Department of the Interior to readjust the 12.5% ​​royalty rate, established in 1920, to 16.67%. Congress also stipulated that the minimum auction bid for drilling leases must be increased from $2 per acre to $10 per acre.

But the big increase in bond payments — the first since 1960 — was decided by the Biden administration, not Congress. This came in response to charges from environmental advocates, regulatory groups and the U.S. Government Accountability Office that bonds do not cover the cost of cleaning up abandoned and open wells, leaving taxpayers with this onus.

“Taxpayers have been losing billions of dollars in a poorly designed leasing system with these ridiculously low royalty rates, rents and minimum bids for far too long,” said Autumn Hanna, vice president of the tax watchdog group Taxpayers for Common Sense. .

“To make matters worse, taxpayers have been left with the damage caused by the wells that oil and gas companies left behind, long after they had already profited from them. We own these resources, and it is long past time for us to be compensated fair way.”

The new rules increase the minimum title for an individual drilling lease from $10,000 to $150,000. The cost of a bond for drilling leases on several public lands in the states is expected to rise from $25,000 to $500,000.

The changes will replace the current requirement that companies secure a single bond of US$150,000 as insurance against multiple damaged and abandoned wells anywhere in the country.

Oil and gas companies said the changes, which are expected to take effect within 60 days, will disrupt fossil fuel production and hurt the economy.

“The real losers from this misguided policy are the states and localities that depend on revenue from drilling industries on federal lands to meet their annual budget obligations,” said Dan Naatz, chief operating officer of the Independent Petroleum Association of America.

“Instead of taking seriously their mandate to be good stewards of federal lands for the benefit of the American people, the Biden administration continues to ignore people in cities and local communities across the West to please a small group of environmentalists and to further reduce American oil and natural gas production.”

Last year, the United States produced more oil than any other country has ever produced.

The oil and gas industry will continue to receive nearly a dozen federal tax breaks, including incentives for domestic production and deductions tied to foreign production.

Total estimates vary widely, but the fossil fuel subsidy tracker run by the Organization for Economic Co-operation and Development pegged the total at about $14 billion in 2022.

More expensive bonds could make drilling unaffordable for smaller oil and gas producers, said Kathleen Sgamma, president of the Western Energy Alliance, an association of independent oil and gas companies. “They are absurdly loud, absurdly out of touch with the problem,” she said. “They can actually bankrupt companies and create new abandoned wells.”

As a candidate, Biden promised “an end to drilling on federal lands, period. Period, period, period.” He also campaigned to end billions of dollars in annual tax breaks for oil and gas companies in his first year in office.

But since Biden took office, his administration has continued to grant drilling leases, as required by court rulings.

The Biden administration approved more permits for oil and gas drilling in its first two years (more than 6,900 permits) than the Trump administration did in the same period (6,172). Congress has not acted to end tax breaks for oil and gas companies.