U.S. taxpayers are getting ripped off by fossil fuel extraction
President Obama, having failed to get a bill to address climate change through Congress when Democrats controlled it, has begun to clamp down on greenhouse gas emissions by using his executive authority under existing law. The biggest component of that is the Clean Power rule that was recently finalized. Another piece fell into place on Tuesday when the Obama administration proposed regulations to limit methane emissions from oil and gas operations. With the administration’s decision (likely a rejection) expected soon on the proposed Keystone XL pipeline, climate activists have a lot to cheer.
But there is a lot more that Obama could do, even without cooperation from Congress. The White House has significant leeway on how to manage natural resource extraction offshore and on federal land. A number of federal policies, from tax law to public lands management, were set up decades ago to encourage fossil fuel development. They haven’t been updated to reflect either the science of climate change or market conditions, but they should be. The administration has made baby steps in this direction: In March, Interior Secretary Sally Jewell said her department will finally begin to consider how to update fossil fuel extraction rules to be consistent with the administration’s climate goals. That’s long overdue, because coal mining on federal land alone is costing taxpayers billions of dollars per year in foregone revenue and costs stemming from climate pollution.
Meanwhile, climate activists are turning up the heat on Democratic presidential frontrunner Hillary Clinton. At an event in New Hampshire last month, college students affiliated with 350 Action demanded to know whether Clinton would ban fossil fuel extraction on federal land. She said no, but — in a nod to shifting sentiment among Democratic voters — Clinton announced Tuesday that she opposes oil drilling in the Arctic Ocean. Clinton also had already called for charging more for fossil fuel extraction on federal land in a campaign speech. But she still has yet to match her challenger Martin O’Malley in calling for more sweeping reform of federal fossil fuel leasing.
So it looks like the current president and the leading Democrat angling to replace him are open to at least reducing the massive subsidies for fossil fuels that result from letting companies drill and mine on public lands and oceans at bargain-basement rates.
And now the Center for American Progress is out with new evidence that such reform is desperately needed. CAP, a liberal think tank, has released a report and scorecard detailing the extent to which different federal resource-extraction programs are ripping off the American taxpayer. In cases of drilling or mining for dirty energy, the answer is: a lot.
CAP examined six categories of extraction, and here’s how they rank from worst to best:
- hardrock minerals, like gold, silver, and iron
- coal (tied)
- onshore oil and gas drilling (tied)
- offshore oil and gas drilling
- solar and wind
To get to that ranking, CAP looked at whether royalty rates are fair (and whether progress is being made in making them fair), whether leasing programs are transparent, and whether there are negative external effects on taxpayers, like water or air pollution and greenhouse gas emissions.
Here are some specifics:
- Coal: The scale of coal mining on federal land is massive, and so is the subsidy we’re handing the coal industry. CAP notes, “Coal mining on national public lands now accounts for more than 40 percent of all coal produced in the United States … According to Headwaters Economics, as a result of loopholes and subsidies, coal companies end up paying just an effective royalty rate of 4.9 percent — well below the 12.5 percent rate required by law. If coal companies paid a 12.5 percent royalty rate on the true market value of coal, taxpayers would collect an additional $1 billion every year in coal revenues.” On top of all that, a lack of transparency and competition in the leasing program means these leases are being sold for less than they’re worth on the free market. As CAP reports, “Since 1990, more than 90 percent of all federal coal lease sales have had only a single bidder. And the formula that the [Department of Interior] uses to estimate the ‘fair market value’ of coal sold is kept confidential, as are the rates applied to each lease and the cost deductions given to coal companies.” Even fixing all of these problems wouldn’t address the negative externalities from coal pollution — which range from toxic coal ash and mercury pollution to massive carbon emissions.
- Onshore oil and gas: Even red states with big dirty-energy industries charge companies more to drill on public land than the federal government does. CAP writes, “Under current rules, oil and gas companies pay a royalty rate of only 12.5 percent [on federal land], much lower than the royalty charged by states. Most Western states charge between 16.67 percent and 18.75 percent to produce oil and gas on state-owned lands, while Texas charges a 25 percent royalty. Failure to modernize the royalty rate costs taxpayers as much as $730 million annually.” And that’s just the royalties on the oil and gas that comes out of the ground. The leasing rates are also low, as little as $2 per acre. Rules on emissions from oil and gas extraction are also too weak. Companies are allowed to flare, meaning burn off, excess methane that comes out instead of capturing it. (The Obama administration’s new proposed rules will rein in some methane emissions from oil and gas drilling, but they’re not nearly strong enough.)
- Offshore oil and gas: Since the Deepwater Horizon spill of 2010, the Obama administration has improved some safety regulation of offshore drilling. Royalty rates are also more in keeping with market and state-level rates. “Still,” CAP’s authors write, “many issues remain unaddressed, with the public bearing significant risk and companies benefiting from lax rules developed in the past. For example, American taxpayers may forego upwards of $50 billion because of a law passed in 1995 to encourage development of offshore leases during a time of low oil and gas prices. The law authorized the now-defunct Mineral Management Service to provide ‘royalty relief’ on oil and gas produced in the Gulf of Mexico, creating a massive loophole allowing companies to avoid paying royalties on leases issued between 1995 and 2000.”
- Solar, wind, and geothermal. Since renewable energy production doesn’t create notable pollution, there simply isn’t the same potential to rip off the public by sticking them with the cost of cleanup or climate change as there is with fossil fuels. However, CAP complains that wind and solar leases are handed out on a first-come-first-serve basis rather than through the kind of competitive bidding process that is used for geothermal.
Charging more for fossil fuel extraction on federal property would be good, but banning it altogether would be better. A new study from Friends of the Earth and the Center for Biological Diversity finds that ending fossil fuel leasing would prevent 46 to 50 percent of potential greenhouse gas emissions from all remaining U.S. fossil fuels.
An outright ban is what the most aggressive activists are pushing for, part of a broader “keep it in the ground” campaign. They’ll continue to dog Clinton on this issue. And once the Keystone decision is made (any day now …), this could become climate campaigners’ top concern.