Democrats on the House Natural Resources Committee will consider proposing to raise onshore oil and gas revenue rates when they return in September, a committee aide told Bloomberg Environment.
The plans include committee hearings and a proposed legislative fix, Adam Sarvana, Democratic spokesman for the House Natural Resources Committee, said. But any bill would face strong headwinds on the road to becoming law, given Senate Republicans’ commitment to the Trump administration’s “energy dominance” agenda.
The idea of raising federal royalty rates isn’t new, but it has surfaced as a priority for Democrats and environmentalists because of growing concerns about both climate change and value to taxpayers, said Jayni Hein, natural resources director at New York University School of Law’s Institute for Policy Integrity.
Some of the newfound energy comes from Dan Bucks, the former director of Montana’s Department of Revenue. He wrote a new report arguing that the current 12.5% rate is too low to return fair market value to the American public.
“It’s as if Texas is selling a three-bedroom house for $400,000, and the federal government is selling the house next door for $200,000,” said Bucks, now an independent consultant on public revenue policies and administration. “The American people are getting shortchanged.”
States Raising Rates
To prove his point, Bucks points to major oil-producing states that have hiked their own royalty rates and haven’t seen any drop in production. For example, Texas’ top rate is 25%; Louisiana’s is 23.375%; and both Colorado’s and New Mexico’s are 20%, according to Bucks.
In some states, slightly lower rates are charged for lower-quality deposits, he said.
Even at the highest rates, production would only drop by 2% at the most, according to Bucks.
Will Fadely, senior government relations representative for climate and energy at the Wilderness Society, said his organization will be taking Bucks’ report to congressional lawmakers and “raising the alarm bills to champions on the Hill, across the aisle, and across the chambers.”
Hein said the 12.5% rate has remained locked in place in large part because of inertia.
“For a long time, powerful special interests have opposed any fiscal reform,” Hein said. “And it hasn’t been until recently that this call for a fair share of taxpayers has gotten traction among public interest groups and the media.”
Pushback From Industry
The oil and gas industry says it would be a mistake to raise the rates, in part because federal lands require producers to undergo expensive environmental reviews that add significant costs to their projects.
State environmental reviews are generally much less costly, said Dan Naatz, senior vice president of government relations and political affairs at the Independent Petroleum Association of America.
Moreover, federal lands tend to be more remote and harder to access than state lands, raising the costs of production still further, Naatz said.
A higher federal rate would mean fewer jobs and less government revenue, he said.
“Either our members would stop producing or reduce production and look to go to state and private lands,” Naatz said. “In many states, like Wyoming, which is 50% federally owned, it’s really hard to operate in just a pure private or state play. If you keep adding additional hurdles, and companies don’t produce on those lands, eventually they’ll become non-productive.”
The Government Accountability Office found in 2017 that raising federal royalty rates could decrease production, but would also boost overall federal revenue. GAO wasn’t able precisely measure the extent of those effects, saying they depend on factors such as market conditions and prices.
Royalties have been hiked in the past for other types of minerals. In 2007, the George W. Bush administration raised the rate for deepwater oil and gas extraction from 12.5% to 16.67%.