Photographer: Matthew Busch/Bloomberg

Energy Companies May Pay U.S. More to Drill, Mine on Public Land

  • Interior Secretary Ryan Zinke orders committee to study rates
  • Zinke orders coal sales to resume while halting broad review

Energy companies could pay the U.S. government higher royalties for oil, gas and other resources extracted from public land, under a review Interior Secretary Ryan Zinke authorized Wednesday.

The two-year review is designed to determine whether Americans are getting a fair return for those natural resources, he said in an interview.

"We’re going to re-evaluate royalty rates across the board," Zinke said, stressing that the analysis will touch on the price developers pay for generating renewable power as well as unearthing fossil fuels. His approach is rooted in the idea that "what we do on public lands is in the best interest of the taxpayer. I want to make sure the taxpayer gets value out of it," Zinke said.

Zinke also signed an order resuming the sale of new leases to mine coal from federal land, following a directive issued by President Donald Trump on Tuesday. With the document, Zinke revoked an order from his predecessor that halted those sales in January 2015 and ended a broad environmental review of the coal leasing program that the Obama administration launched at the same time.

That environmental assessment was designed to evaluate ways to modernize how the U.S. sells coal on federal land -- including whether it should happen in the first place. The Obama administration issued a blueprint for possible changes in January, such as tacking a carbon fee onto coal leases to account for climate change and requiring payments into a fund that could help out-of-work miners.

Years of Analysis

Zinke said that with at least two more years of analysis to go, that process would take too long and be too costly -- and is an unnecessary formality for making any potential improvements to the coal leasing program. Proposed coal leases already go through separate tailored environmental reviews, he said.

Conservationists have argued those discrete assessments of individual sales aren’t sufficient to solve various problems with the current coal program, including how to guarantee the reclamation of old sites, boost competition and ensure taxpayers get a fair return.

The new advisory committee, focused on just one of those concerns, could recommend a suite of changes. Zinke said he would not prejudge the outcome, which could include recommendations for lower or higher royalty rates as well as other modifications.

Previous Effort

When former Interior Secretary Ken Salazar raised the prospect of higher royalty rates for onshore oil and gas development, energy companies cried foul. Industry trade groups said a hike in rates would discourage developers from drilling on federal land. Across-the-board changes were never adopted, though a Bureau of Land Management regulation imposed last year gives the agency the discretion to boost rates in some cases. That measure, which chiefly aims to reduce the venting and flaring of natural gas on federal land, is the target of repeal legislation in Congress.

In the long run, Zinke said, energy companies will be more interested in bidding on territory -- and maybe pay a higher price -- if they have better chances of development, as the Interior Department reviews Obama-era regulations, including mandates on the hydraulic fracturing process used to stimulate the production of oil and gas.

"We think that by reducing some of this uncertainty, at least on the regulatory environment, that we will be able to get a better price-point for that," Zinke said. "The taxpayer wins, and the industry will win by having a clearer choice based on market conditions whether they should go forward and invest or not."

Committee Membership

The group Zinke is set to authorize Wednesday will have as many as 28 members representing Indian tribes, states that contain federal lands with significant energy development, public interest groups, academia and other stakeholders. Zinke said it will exclude members who have dealings with the Interior Department to avoid potential ethical conflicts.

Zinke pushed a similar idea while serving in the House of Representatives alongside Senator Steve Daines, a fellow Republican from Montana.

While Zinke emphasized that he isn’t prejudging the outcome of the committee’s review, it follows a series of reports suggesting the U.S. isn’t getting a fair return for oil and gas extracted from its public lands. The Government Accountability Office has blamed Interior Department regulations that fix the royalty rate at 12.5 percent of the value of oil and gas pulled from onshore federal territory -- generally lower than the amount charged by Wyoming, New Mexico, Colorado, Utah and other Western states.

That 12.5 percent rate for onshore production hasn’t been updated in nearly a century, though the administration of former President George W. Bush boosted the royalty charged for offshore oil and gas development to 18.75 percent.

‘Studied to Death’

The nonpartisan Congressional Budget Office estimated last year that the federal government would net an extra $200 million in income if onshore oil and gas royalties also were increased to 18.75 percent.

"This is an area that has already been studied to death and could be fixed immediately by bringing royalty rates more in line with what states and private landowners charge," said Matt Lee-Ashley, a senior fellow with the Center for American Progress. "There is hardly a need for yet another committee, but hopefully Secretary Zinke is serious about being fair to taxpayers, doesn’t just stack the deck with oil industry allies and takes some action within months -- not years."

The Interior Department generally would have to propose and adopt new rules to revise royalties for wind and solar production as well as oil, gas and coal development. Zinke said he would follow up on the committee’s eventual recommendations "and put rules forth that are appropriate."

Zinke stressed safeguards are necessary.

"As a lifetime conservationist, and one who loves Teddy Roosevelt, industry does not regulate themselves," he said. "And our public land is for the benefit and enjoyment of the people -- with a big emphasis on benefit."

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