The Interior Department’s Bureau of Land Management (BLM) has proposed increasing royalty rates for oil and natural gas drilling on federal lands from 12.5 percent to 16.67 percent—about a third higher–and raising the minimum bond paid upon purchasing an individual drilling lease from $10,000 to $150,000. To top it off, they propose raising the minimum bond required for a drilling lease on multiple public lands in a state from $25,000 to $500,000—a 20-fold increase. Developers must pay the bond before drilling begins. The agency also proposes limits designed to steer development away from wildlife and cultural sites. The Interior Department estimates that energy firms will incur $1.8 billion in additional costs by 2031 as a result of the increases, which will make oil and natural gas products more expensive for consumers. The Biden administration is making this determination as Americans are seeing higher inflationary costs, including for fuel, of 16.3 percent since President Biden took office in January 2021.
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Fast Facts
- The Biden administration is proposing to increase fossil fuel royalties, bond payments and fees on federal land by $1.8 billion.
- It also proposes to allow conservation leases that would stop energy and other development on federal lands, which may violate the Federal Land Policy Management Act (FLPMA).
- Along with increasing fees on fossil energy, the Biden administration is proposing to cut fees for renewable energy on federal lands by 80 percent, after a 50 percent drop last year.
- A recent poll shows Americans like abundant, affordable and secure oil and natural gas, and would support more activity to reduce energy costs.
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The Interior’s rule also raises fees to rent land from the government — previously either $1.50 to $2.00 per acre — to $3 per acre during the first two years of the lease, $5 per acre for the next six years and $15 per acre after that. It also ups the required minimum bids for a lease from $2 per acre to $10 per acre and establishes a new fee of $5 per acre for companies to formally register their interest in leasing public land for drilling. The new rule also requires the agency to prioritize approvals of new permits in areas where drilling is already taking place or where there is significant potential for oil and gas production and that is not near “important wildlife habitat or cultural sites.”
The Interior Department’s plan codifies provisions in Biden’s climate law, the Inflation Reduction Act, approved solely by Democrats in Congress last year, as well as the 2021 infrastructure law and recommendations from an Interior report on oil and gas leasing issued in November 2021. The new royalty rate set by the climate law is expected to remain in place until August 2032, after which it can be increased.
A separate Biden administration proposal would allow conservationists and others to lease federally owned land to keep it from other uses, similar to the way oil companies buy leases to drill and ranchers pay to graze cattle. Environmentalists say the plan would benefit wildlife, outdoor recreation and conservation, but opponents say it could exclude mining, energy development, forest management and agriculture, increasing scarcity and resulting in higher costs. This is a significant change from federal law that stipulates multiple uses of the public lands under the Federal Land Policy Management Act, FLPMA.
At the same time, the Biden Administration is discussing dropping renewable energy fees by 80 percent, after a 50 percent reduction last year. Biden supports wind and solar energy deployment, even though the land footprint to produce energy from these sources is much larger than that of oil and gas to produce similar amounts of energy.
Of the $1.8 billion additional cost in Biden’s proposals, about half is scheduled to go to states, approximately a third would be used to fund water projects in the West, and the rest would be split between the Treasury Department and Interior. However, increasing costs may ultimately dissuade people from investing in such activities on federal lands, which could result in less activity and revenue.
The rules on oil and gas and public lands use are expected to become final next year.
New Poll on Domestic Energy Production
A new poll indicates that an overwhelming majority of voters not only support the production of more American energy but also want the economic contributions of oil and natural gas to inform energy policies in the United States. The poll found that 88 percent of voters believe it is important to produce natural gas and oil in the United States; 90 percent believe producing natural gas and oil strengthens the U.S. economy; and 83 percent believe that the government should consider economic data when developing regulations that would affect the development of the U.S. energy infrastructure. Further, 88 percent of voters believe that producing natural gas and oil in the United States can help lower energy costs for American consumers and small businesses; 85 percent believe that producing natural gas and oil in the United States helps make it more secure against actions by countries such as China and Russia; and 80 percent support increased development of the U.S. energy infrastructure.
The study was commissioned by the American Petroleum Institute and prepared by PricewaterhouseCoopers. The oil and gas industry supported 10.8 million jobs and contributed nearly $1.8 trillion to the U.S. economy in 2021, and since energy makes all other endeavors possible, is responsible for much of the wealth creation and the sustainability of the modern quality of life.
Conclusion
The proposed rules by the Department of the Interior and Bureau of Land Management raise the costs for onshore fossil fuel leasing including bonding requirements, royalty rates, and minimum bids. These drilling fee increases are so huge that they could kill new oil and gas production on federal lands that are owned by the American public. A new poll shows that the American public wants continued domestic oil and gas development, which they believe provides for greater security against actions from such countries as China and Russia. The new fees by the Biden administration come after its policies have resulted in federal leases falling dramatically as the Wall Street Journal reported last year.
American Petroleum Institute Vice President of Upstream Policy Holly Hopkins called the move “yet another attempt to add even more barriers to future energy production, increases uncertainty for producers and may further discourage oil and natural gas investment.” These policies are part of a suite that fulfills President Biden’s promise to end fossil fuels.
