Biden Resumes Drilling Leases, but With a Catch
Sixteen months into Joe Biden's term in office, with soaring energy prices due to demand exceeding supply, inflation eating away at state and family budgets alike, and very much against its will, the White House has decided to change course and start selling oil and gas leases again.
The Biden administration announced Friday that it would resume selling new oil and gas leases on federal lands.... The announcement comes as Republicans pressure President Joe Biden to expand U.S. crude production and rein in higher gasoline prices contributing to record inflation.... Leases for 225 square miles (580 square kilometers) of federal lands primarily in the West will be offered for sale in a notice to be posted on Monday, officials said.
There's a catch, of course.
The Interior Department on Friday said it's moving forward with the first onshore sales of public oil and natural gas drilling leases under President Joe Biden, but will sharply increase royalty rates for companies as federal officials weigh efforts to fight climate change against pressure to bring down high gasoline prices.
The royalty rate for new leases will increase to 18.75% from 12.5%. That's a 50% jump and marks the first increase to royalties for the federal government since they were imposed in the 1920s. Biden suspended new leasing just a week after taking office in January 2021. A federal judge in Louisiana ordered the sales to resume, saying Interior officials had offered no "rational explanation" for canceling them.
The announcement came on Good Friday, with Biden safely hidden away at Camp David for his Easter vacation, and therefore unavailable to answer questions, so was delivered by Interior Secretary (and devoted environmentalist) Deb Haaland, who had to sugarcoat the news for her fellow Green New Dealers, sprinkling into her speech standard lefty nonsense:
For too long, the federal oil and gas leasing programs have prioritized the wants of extractive industries above local communities, the natural environment, the impact on our air and water, the needs of tribal nations, and, moreover, other uses of our shared public lands.
She neglected to mention the fact that Native groups have begged for an exemption to the original leasing ban, which they felt violated their autonomy, and were eventually granted one. Unfortunately the "local communities" who lost out on their lease revenues weren't so lucky.
Those communities will, however, benefit from the reported 50 percent hike on royalties for the new leases. Of course, this will likely have the effect of limiting the number of potential buyers. Moreover, the amount of land being offered for leases is substantially lower than that requested by the resource sector.
It didn't get as much publicity as the Keystone XL cancellation, but Joe Biden's executive order putting a moratorium on the sale of oil and gas leases on federal land was a very big deal. As we wrote at the time,
[Twenty-two] percent of American oil production and 12 percent of natural gas extraction occurs on federal land. Those numbers go up precipitously when you look at some of our western states -- according to the American Petroleum Institute, federal land production accounts for well over 92 percent of Wyoming's production, half of New Mexico’s, 42 percent of Colorado's, and 63 percent of Utah's.
Along with the likelihood of serious supply issues resulting from this order, we were also concerned about the financial angle -- according to Shawn Regan, “revenues from energy development on federal land... are a major source of federal income, second only to tax revenue.” As that revenue is split between the federal government and the states, this move was a direct attack on the budgets of western, resource heavy states who stood to lose as much as $1.6 billion per year on average.
Desperate Times Mean Desperate Measures
One sign that the Democrats are getting increasingly concerned about their potential losses in the upcoming midterm elections is that they're frantically trying to find ways to, at least temporarily, deal with the soaring price of gasoline. The president's decision to further deplete the Strategic Petroleum Reserve is a prime example, but it isn't the only one. Here are a few others:
- Chicago mayor Lori Lightfoot recently announced that the city would spend $12.5 million on 50,000 gas cards -- each worth $150 -- to be distributed to residents of her city through a lottery. The Lightfoot administration will offer another 100,000 cards, each worth $50, for the use of public transportation in the city.
- According to the Wall Street Journal, lawmakers in several Democratic controlled, high-tax (but I repeat myself) states, including California, Illinois, Massachusetts, Maine, Michigan, Minnesota, and New York, are considering the possibility of temporarily suspending their local gasoline tax. Connecticut, meanwhile, has already suspended its gasoline tax until at least June, and heavily Democratic Maryland has done the same for 30 days. All of those states have gubernatorial elections in the November, and all but New York and California are expected to be competitive. But even those 'Safe D' states have to worry about the ugly congressional math projected for this Fall.
- Six Democratic governors -- Michigan's Gretchen Whitmer, Colorado's Jared Polis, Minnesota's Tim Waltz, Pennsylvania's Tom Wolf, New Mexico's Michelle Lujan Grisham, and Wisconsin's Tony Evers -- have called for the suspension of the 18.3 cents per gallon Federal gasoline tax through the end of this year. Once again, each of these states is likely to have a contentious gubernatorial election in November.
California deserves its own special mention here. Golden State governor Gavin Newsom recently unveiled an $11 billion relief package in the hopes of combating the state's highest-in-the-nation gas prices. The average price in California recently hit $5.88 per gallon, though it has passed the $6 mark in many areas. As the Wall Street Journal notes dryly, "Gasoline prices in California are often higher than in other states due to higher fuel taxes and stricter regulations." No kidding. More than $1 billion of the Newsom proposal comes from the gas tax reduction.
The biggest chunk of money, however, is allocated to issuing $400 debit cards for all registered vehicle owners (with a two-car maximum). Unlike the Chicago gas card plan mentioned above, which is directed towards middle and lower income residents, Newsom's plan has no income cap. Neither is it targeted towards the owners of gas-powered cars. Electric vehicle owners are also eligible. For some reason. The cost: a cool $9 billion. Newsom also called for $750 million to be spent on free (at the point of service) public transportation for three months and, this writer's personal favorite, $500 million to "promote biking and walking."
Now, all of these plans are expensive workarounds which ignore more straightforward solutions. They're also transparently self-serving, temporary in nature, and of questionable efficacy -- as Jinjoo Lee recently argued, the degree to which these temporary cuts "translate to lower pump prices partly depends on the size of the market and how strained a region’s refining system is." Still, as vacation season approaches and the war in Ukraine drags on, it is better than nothing.
And, more important, it is a refreshing sign of politicians' accountability to the voters. To see the opposite response, here's Steven Guilbeault, former Greenpeace activist, and (God help us) Canada's current Environment Minister, explaining his opposition to proposed fuel taxes in that country. He said, "All of these crises will go, but climate change will still be there, and climate change is killing people." Guilbeault's party just made a deal that keeps them in power until 2025. He's not accountable to anyone.