Budget Watchdog Calls For Hiking Oil And Gas Royalty Rates On Federal Lands

Originally published on February 26, 2020 5:35 pm

On the 100th anniversary of the Mineral Leasing Act of 1920, the nonpartisan group Taxpayers for Common Sense published a report Tuesday calling for an increase in the royalty rate on publicly owned oil and gas.

“The federal government lost up to $12.4 billion in revenue from oil and gas drilling on federal lands from 2010 through 2019, because it continues to apply a grossly outdated royalty rate set in 1920,” the group argued, urging policymakers to increase the royalty rate from 12.5% to 18.75%, in line with the rate currently charged for offshore production.

The report, called “Royally Losing,” follows analyses specific to Western states that Taxpayers for Common Sense issued last year. Mineral production on federal lands in Colorado, for example, yielded $1.6 billion in royalties between 2009 and 2018. If the royalty rate had been 18.75%, the government would have collected $1.3 billion more. It would have also collected $1.4 billion more from federal lands in Utah.

As the independent Congressional Budget Office estimated in 2016, “Raising the royalty rate for onshore parcels to 18.75 percent to match the rate for offshore parcels would generate $200 million in net federal income over the next 10 years” — and increase significantly in subsequent decades.

The CBO predicted such a rate hike would also reduce the profitability of speculative exploration, shifting some exploration from federal to state lands in the West, all of which have higher royalty rates.

Conservation groups like the Center for Western Priorities support increasing the royalty rate. “The Mineral Leasing Act is like a 100-year-old house,” said the group’s policy director, Jesse Prentice-Dunn. “It’s got a shoddy foundation. It hasn’t had renovations in decades. And there is a desperate, desperate need for some work.”

Kathleen Sgamma, director for the Western Energy Alliance, a nonprofit trade association, defends the status quo, saying it incentivizes more drilling and more jobs. “We’re providing energy for everyone, but also revenue to the federal treasury,” she said.

The Bureau of Land Management, which manages much of the country’s mineral estate, maintains its industry-friendly stance.

“As the Act enters its second century, the Bureau of Land Management will continue to facilitate energy and mineral development opportunities that create jobs, help support local communities, and help increase America's energy and mineral independence, all while promoting healthy landscapes,” an agency spokesperson said in a statement.

This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Boise State Public Radio in Idaho, KUER in Salt Lake City, KUNR in Nevada, the O’Connor Center For the Rocky Mountain West in Montana, and KRCC and KUNC in Colorado.

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