Biden’s Plan to Raise Federal Drilling Rates Will Hurt American Competitiveness

American families are dealing with the highest inflation rate in forty years, with some of the toughest increases concentrated in energy costs. The price of gasoline is up $1 per gallon compared to last year, natural gas is estimated to be thirty percent higher this winter, and residential electricity prices are up six percent. These higher energy prices place additional stress on the wallets of people, particularly lower-income Americans, by making it more difficult to heat their homes or fill up their tanks. Americans need relief on their bills, and Congress and the Biden administration must ensure new laws or regulations won’t make inflation worse than it already is.

Thus far, President Biden has not taken energy inflation seriously. After all, on his very first day in office, the President terminated the Keystone XL pipeline, a project that would have delivered hundreds of thousands of barrels of oil per day to the United States from Canada. He also suspended oil and natural gas leases in Alaska and advocated for the suspension of future drilling on federal lands. While Biden’s progressive base may like his apparent hostility toward the fossil fuel industry, he is turning a blind eye toward the costs to American consumers. By using the power of the federal government to beat down fossil fuels, President Biden is choosing to overlook the fact that American consumers may be struck as collateral damage.

Instead of using the power of the federal government to pick and choose which types of energy are allowed, the president should employ an “all of the above” strategy. Letting the market choose which types of energy should be used is the most fair and effective way to lower prices and protect jobs. Alas, the president has picked the opposite approach. 

His stalled signature legislation, the Build Back Better (BBB) Act, contains more than a few punitive provisions that would unfairly harm fossil fuel producers. Ahead of the House passage of BBB, NTU explained many of the problematic tax and fee, and regulatory energy provisions. This disastrous plan would increase the cost of energy production and ultimately result in higher prices consumers pay. The legislation is a punitive attempt to put the “unfavorable” oil and gas industry out of business.

Thankfully, BBB is on life-support due to opposition from two moderate Democratic Senators. With the fate of the legislation in limbo, the Biden administration is working to unilaterally implement at least one provision of BBB: raising oil and natural gas royalty rates. According to a leaked document on its website, the Bureau of Land Management (BLM) is considering raising the fees that companies pay to drill for oil and gas on public lands by fifty percent. News outlets including Reuters spotted a webpage on BLM’s website that stated rates for leases offered this quarter would increase from 12.5 to 18.75 percent.

As background, once BLM completes its competitive bidding process for leasing out federal lands for drilling or mining and production of the resource starts, the federal government receives royalty payments based on a percentage of the value of production—known as the royalty rate. For onshore oil and gas leases, the Mineral Leasing Act of 1920 sets the royalty rate for competitive leases at not less than 12.5 percent of the amount of what’s produced from those lands. While much smaller compared to federal income tax receipts, in FY2019, the federal government collected $2.93 billion in royalties from oil and natural gas resources extracted from federal land.

So how would a fifty percent increase to the royalty rate impact energy producers? Well, according to a 2017 report by the Government Accountability Office (GAO), an increase “could decrease oil, gas, and coal production on federal lands,” but the extent of reduced production is “uncertain.” America needs more production of all types of energy sources - both green energy and fossil fuels - to ensure energy independence and affordability for consumers. Choosing to enact royalty hikes would hamper our country’s energy renaissance, and hurt energy producers and their workers. Further, that same GAO report states that it would “increase overall federal revenue.” However, raising rates might not be the boon for federal coffers as some argue, as higher costs could drive more production to private lands and overseas. So our government could end up sacrificing American energy production without any additional revenues.

On the consumer side, higher taxes and fees and other government-imposed burdens would increase the cost all consumers pay. By making it more expensive to extract resources, the Biden administration believes energy producers would bear the burden of the higher royalty rates, but in reality, these companies would pass it on to their customers in the form of higher prices. 

The Biden administration believes a higher royalty rate is needed in order to ensure “a fair return to taxpayers” but this is a disingenuous cover in order to penalize certain energy producers. Taxpayers should see through the ruse and stand strong against yet another attempt to raise energy prices.