Wednesday, December 18, 2013

New GAO Report: Federal Government Not Collecting a "Fair Return" from Drilling on Public Lands

In a report issued last week, the Government Accountability Office (GAO) criticized the continued reliance on nearly century-old policies that prevent the federal government from collecting a "fair return" from the oil and gas extraction on public lands. The U.S. government has one of the lowest return rates for federal leases, and the Department of Interior lacks clear, modernized procedures for collecting such royalties.

From the Huffington Post's review:
The latest report notes that Interior has updated its terms for offshore leasing since its last report and has considered -- but not made -- changes to its onshore terms. But the department still does not have a system in place for making sure such updates happen on a regular basis. It has "discontinued its efforts to pursue revised regulations" for onshore drilling, arguing that it "does not have enough information to determine how to adjust onshore royalty rates."

"Without documented procedures, Interior will not have reasonable assurance that it will consistently conduct such assessments in the future and, without periodically conducting such assessments, Interior cannot know whether there is a proper balance between the attractiveness of federal leases for investment and appropriate returns for federal oil and gas resources, limiting Interior’s ability to ensure a fair return," the GAO concluded.
This means that the federal government is missing out on lots of money in royalties from oil and gas operations. Last year, companies made $66 billion on the sale of oil and gas they produced from public lands, and paid $10 billion to the federal government, according to the GAO report -- but it could make a lot more.

According to a recent report from the Center for American Progress' public lands project, the federal royalty rate for oil and gas onshore has been set at 12.5 percent since the 1920s. The revenues are split between the federal government and the states where the production takes place. Some states charge higher rates than the feds; Texas, for example, charges 25 percent. But those states that don't charge higher than the federal rate are bringing in hundreds of millions of dollars less than they could be, each year.
This comes at a time of record domestic oil production and ever-increasing natural gas extraction (often via fracking), both for which the president crudely commends himself. 
Consider his weekly address on energy from last month:
We produce more natural gas than anyone...And just this week, we learned that for the first time in nearly two decades, the United States of America now produces more of our own oil here at home than we buy from other countries.

That’s a big deal.  That’s a tremendous step towards American energy independence.
And here's the president in a speech in Cushing, Oklahoma, last year:
"Over the last three years, I've directed my administration to open up millions of acres for gas and oil exploration across 23 different states. We're opening up more than 75 percent of our potential oil resources offshore. We've quad­rupled the number of operating rigs to a record high. We've added enough new oil and gas pipeline to encircle the Earth, and then some. . . . In fact, the problem . . . is that we're actually producing so much oil and gas . . . that we don't have enough pipeline capacity to transport all of it where it needs to go."
Obama's Climate Action Plan likewise touts the benefits of fracking
Compared to his predecessors, Obama has amassed a horrible record on protecting public lands:

And he has leased 2.4 times as much land to oil and gas drillers as he's protected:

In order to prevent catastrophic climate change, at least two-thirds of all known fossil fuel reserves must be left in the ground. The administration should not continue its environmentally harmful policy of leasing away public lands to oil and gas drillers, worsening this problem.

However, with the land currently being drilled, the least the federal government could do would be to ensure a strong and fair return (nationalization of extractive industries is, sadly, a nonstarter). By letting royalties go uncollected, the Department of Interior is further lining the pockets of the oil and gas companies and thereby entrenching their economic and political power. Moreover, the uncollected money could have been used to fund the development of renewable energy as well as the systemic changes to energy, agriculture, transportation, etc., that are necessary.

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