Senator Joe Manchin’s about-face on the Build Back Better bill, now renamed the “Inflation Reduction Act” is getting accolades from some coal constituents as it restores a tax on coal to support the Black Lung Disability Trust Fund. Section 13901 of the proposed bill, which is 725 pages long, restores the Black Lung tax whose last extension expired at the end of 2021. The tax is set back to its original level of $1.10 per ton on underground coal mines and 55 cents per ton on surface coal mines after being reduced to less than half those levels for a few years. That makes coal slightly more expensive, but the proposed bill’s provisions for oil and natural gas will make the consumers of Manchin’s state, West Virginia, unhappy since those changes will increase oil and natural gas prices.
If passed, Sec. 50261 (p. 632) of the Inflation Reduction Act would increase the royalty rate for offshore oil and gas production from 12.5 percent to between 16.67 percent and 18.5 percent—a 33 percent to 50 percent increase. For onshore oil and natural gas development on federal lands, the added costs are much more extensive. Sec. 50262 would update the Mineral Leasing Act to:
- Increase the royalty rate from 12.5 percent to 16.67 percent – a 33 percent increase, but less than the royalty rate for the June 2022 lease sales which was set at 18.5 percent.
- Increase the minimum bid amount five-fold for acreage from $2 per acre to $10 per acre. This provision also increases the time period for payments from two years to 10 years.
- Increase the rental rate from $1.50 per acre to $3 per acre, which will last for two years after the lease begins and then increase to $5 per acre for six years and at least $15 per acre for each year after that.
- Add an expression of interest fee of $5 per acre nominated, which will be increased at a minimum of every four years.
- Increase the bonding requirement from $10,000-$25,000 per well to a minimum of $150,000 per lease. If an operator would like to bond all leases in a state the amount would be $500,000 and for all of their leases nationwide it would be $2,000,000.
In addition to these increased costs, Sec. 52063 (p.640) of the proposed bill would expand the royalties paid for both onshore and offshore production to encompass all methane produced, consumed or lost, rather than just what is produced and sold.
While the above deals with production on federal lands only, there is also a provision in the proposed bill that would impact all U.S. oil and natural gas production and the transportation and exportation of natural gas – regardless of whether that takes place on private or federal property. Previously referred to as a “methane fee” in earlier versions of the Build Back Better bill, Sec. 60113 (p.678) imposes a “waste emissions charge” for facilities reporting more than 25,000 metric tons of carbon dioxide equivalent greenhouse gas emissions annually. Using EPA’s assessment, this is about 1,000 metric tons of methane. The tax would be assessed on the production and gathering of oil and natural gas, and on the transmission, storage and exporting of natural gas using an initial cost factor of $900 per ton for 2024 emissions, $1,200 per ton for 2025 and $1,500 per ton for 2026 and each year after.
“This tax could increase U.S. consumer natural gas bills by 17 percent on average or more than $100 per year for an average American family, according to one estimate in a letter to House and Senate leadership signed by IPAA, the American Gas Association (AGA), the Interstate Natural Gas Association of America and several other state and natural gas supply chain trade associations. “By AGA’s estimates, the tax will increase natural gas bills at a minimum of 12 percent per American family per year.”
The increase could be the difference between buying groceries and paying to heat one’s home during the winter. The above estimates were made for this past winter and prior to inflation hitting record levels in 2022.
Conclusion
The bill’s oil and gas provisions will have companies questioning whether they want to invest in these fuels since President Biden wants to end these fuels in the United States. He even blames fossil fuels for giving him cancer. The bill’s provisions regarding tax policy, regulatory policy, and access to federal lands goes a long way toward having the President’s goal met in the not-too-distant future. It is unlikely that companies will invest in these fuels if the leader of the country is proud to put this bill forward, which will only make gasoline prices higher at the pump and natural gas prices higher for heating homes, for electricity production, and for industrial uses. Inflation will continue to be a scourge for Americans as energy prices necessarily skyrocket.
