BILLINGS, Mont. – The Interior Department said on Friday it was moving forward with the first onshore sales of public oil and natural gas drilling leases under President Joe Biden, but would sharply raise interest rates. royalties for businesses as federal officials weigh efforts to fight climate change against pressure to bring down high gas prices.
The royalty rate for new leases will increase from 12.5% to 18.75%. That’s a 50% jump and the first royalty increase for the federal government since they were imposed in the 1920s.
Biden suspended the new lease just a week after taking office in January 2021. A federal judge in Louisiana ordered sales to resume, saying Interior officials had offered no ‘rational explanation’ for canceling them .
The government held an auction of offshore leases in the Gulf of Mexico in November, although a court later blocked the sale before the leases were issued.
Friday’s announcement comes as Biden is under pressure to increase U.S. crude output as the pandemic and war in Ukraine upend the global economy and fuel prices have soared. The Democrat is facing calls from within his own party to do more to reduce emissions from the fossil fuels that are causing climate change.
Leases for 225 square miles (580 square kilometers) of federal land mostly in the West will be offered for sale in a notice to be released Monday, officials said. The plots are about 30% less land than authorities had offered for sale in November and 80% less than originally offered by industry.
The sale notices will cover rental decisions in nine states – Wyoming, Colorado, Utah, New Mexico, Montana, Alabama, Nevada, North Dakota and Oklahoma.
Interior Department officials declined to specify which states would have land for sale or give a breakdown of the amount of land by state, saying that information would be included in Monday’s sale notices. They said the reduced area offered reflects a focus on leasing in locations close to existing oil and gas development, including pipelines.
Hundreds of plots of public land that companies have designated for leasing had already been withdrawn from the upcoming lease sale due to fears that wildlife could be harmed by drilling rigs.
At the time, officials said burning fuel from remaining leases could cost billions of dollars in climate change impacts. Fossil fuels mined from public lands account for about 20% of energy-related greenhouse gas emissions in the United States, making it a prime target for climate activists who want to end leasing.
Republicans want more drilling, saying it would increase US energy independence and help lower the cost of crude. But oil companies have been reluctant to expand drilling due to uncertainty over how long high prices will continue.
Friday’s announcement comes after Interior officials raised the prospect of higher royalty rates and less land available for drilling in a leasing reform report released last year.
“For too long, federal oil and gas leasing programs have prioritized the needs of extractive industries,” Secretary Deb Haaland said. “Today we begin to reset how and what we consider the highest and best use of American resources.”
But the move was condemned on both sides of the political spectrum: environmentalists derided the decision to suspend long-delayed sales, while oil industry officials said higher royalty rates would deter drilling.
Nicole Ghio, of environmental group Friends of the Earth, said Biden is putting the profits of the oil industry ahead of future generations who will have to deal with the worsening consequences of climate change.
“If Biden wants to be a climate leader, he needs to stop auctioning off our public lands to Big Oil,” Ghio said in an emailed statement.
American Petroleum Institute Vice President Frank Macchiarola said officials had removed some of the most important plots that companies wanted to drill while adding “new barriers” that would discourage companies from investing in drilling on public lands.
Lease sales and the royalties companies pay on extracted oil and gas have brought in more than $83 billion in revenue over the past decade. Half of the money from onshore drilling goes to the state where it happened.
Most states and many private landowners require companies to pay royalty rates above 12.5%, with some states charging 20% or more, according to federal officials.
The royalty rate for oil produced from federal reserves in the deep waters of the Gulf of Mexico is 18.75%. In the November auction which was later canceled, energy companies including Shell, BP, Chevron and ExxonMobil bid a total of $192 million for offshore drilling rights in the Gulf.
The new leases that are being developed could continue to produce crude well beyond 2030, when Biden has set a goal of reducing greenhouse gas emissions by at least 50%, compared to 2005 levels. The scientists say the world must be on track towards this goal over the next decade to avoid catastrophic climate change.
Economists say a higher royalty rate would have a relatively small effect on global emissions, as any reduction in oil and gas from federal lands would be more than offset by fuel from other sources.