On his first day in office, President Biden suspended new leasing for fossil fuel production on federal lands and waters. He also issued a suspension on the issuance of new drilling permits for 60 days. While these orders are temporary for now, in the coming days and months many new policies relating to oil and gas drilling on federal lands and waters (referred to as “federal lands”) may be enacted that could change the way the country handles oil and gas drilling for years to come. Biden’s Administration has promised policies to reduce oil and gas drilling on federal lands. These promises have shined a spotlight on federal oil and gas leasing policies, as the administration will be pressured to follow through with its campaign promises.
Proposed Policy Changes for Drilling on Federal Lands
While on the campaign trail, Biden proposed several different policy changes for oil and gas drilling on federal lands. A full ban was proposed, which garnered a good amount of media attention. The campaign also proposed modifying royalties to include a fee to those leasing the lands that would entice them to drill on federal lands to reduce their overall emissions. The concept of these “carbon adders” is not new and is similar to the Obama administration’s consideration of carbon adders for federal coal leasing. A full ban on drilling and a carbon adder look to be mutually exclusive proposals. The Biden Administration must consider how both policies could reduce emissions and how they would affect revenues generated by the leasing of federal lands for oil and gas drilling.
Both policies have the potential to reduce oil and gas emissions by decreasing production, but the magnitude of enacting either policy permanently is not yet clear. This is because the reduction in emissions from oil and gas on federal lands would likely be replaced by increased emissions from another industry. The impact of these proposed policies on revenue would be starkly different. Banning oil and gas drilling on federal lands would significantly decrease revenue on all sides while adding a fee to oil and gas leasing on federal lands would create a new revenue stream for federal and state governments. Royalties from drilling that takes place on federal lands are currently split between federal and state governments as well as conservation and reclamation projects.
When considering global oil and gas production, federal lands in the United States only accounts for 15 percent of the global supply. However, there is a consistent demand for the production from these lands, so a decline in production on federal lands would inevitably lead to an increase in production elsewhere, including in unregulated sectors.
A recent paper by Brian Prest, an economist at Resources for the Future, used a detailed economic model of U.S. oil and gas supply to show the impact both policies would have on emissions and revenues. The paper estimated a leasing ban could reduce global greenhouse gas emissions by approximately 100 millions tons of carbon dioxide annually (when using a 2020-2050 projection model). That is only a small fraction of what the Obama Administration’s Clean Power Plan originally projected in its signature climate change policy. A carbon adder, as applied to oil and gas leases, would achieve much more modest emission reductions when compared to the leasing ban (about two-thirds less). The carbon adder would, however, raise approximately $7 billion per year on average compared to a leasing ban, which would bring about $6 billion per year in losses.
A carbon adder may be a bit more palatable of a policy when compared to a full leasing ban on federal oil and gas drilling and would still allow companies to access federal lands for projects that can handle the cost of emission-accountability. The models in the above-mentioned paper show estimates through the year 2050. Short-term effects are much more modest and must be considered in the context of the U.S. House Select Committee on the Climate Crisis’ goal of net-zero emissions by 2040.
Either of these policies would only have a small effect on oil and gas emissions from federal lands during Biden’s Administration. This is because these policies would only apply to newly granted federal leases. Existing leases would continue operating like business as usual, leaving operators working with their current lands until the natural resources are depleted. There is also a large group of leases that have yet to be drilled; and, while still relatively new, these would not be considered under the new potential policies. The Drumpf Administration issued thousands of leases covering nearly 10 million acres of federal land from 2017 to 2019 and gave the companies who signed them the right to start drilling within the next 10 years.
The Biden Administration has also floated another potential policy that can be considered a much more aggressive approach to reducing emissions – a ban on permitting new wells, even on existing leases. This approach would most likely face a variety of legal challenges, as leaseholders could argue their existing leases give them the right to drill new wells on the federal lands subject to their agreements. A permanent ban on permits for drilling new wells could violate their leasing rights.
The Biden Administration has made a lot of promises during the campaign but is limited in how they can deliver them. Multiple avenues may be pursued related to drilling on federal lands with varying degrees of effectiveness. Time will tell how the administration handles these policy changes.