The Biden Administration recently proposed a new rule that would raise the costs for oil and gas companies to drill on public lands. Furthermore, they would have to meet higher requirements for cleaning up wells, where drilling has been completed or abandoned.
As proposed by the Interior Department, the rule increases the royalty rates by over a third, meaning that the previous rate of 12.5% would be increased to 16.67%. The previous federal rate has been unchanged for over a century and has been lower than the rates for drilling in many states or on private land. According to the Interior Department, the new rate is expected to remain unchanged until August 2032, while the cost increase for oil and gas companies is estimated to reach $1.8 billion in that period.
Moreover, this rule increases the minimum leasing bond to $150,000, from the previous $10,000 from 1960, which is paid by energy companies. Taking this requirement into account, these companies would have to clean up the drilling sites, after drilling is completed. Previously, these costs were frequently covered by taxpayers, in cases where companies refused to clean up the drilling sites or declared bankruptcy. Therefore, the Interior Department has allocated over $1 billion in funds in the past two years to clean up such wells on public lands.
However, this does not prohibit new oil and gas drilling on public lands, as desired by environmental groups, but results in a better return to U.S. taxpayers. As said by the Principal Deputy Assistant Secretary for Land and Minerals Management, Laura Daniel-Davis, “The Interior Department has taken several steps over the last two years to ensure the federal oil and gas program provides a fair return to taxpayers, adequately accounts for environmental harms, and discourages speculation by oil and gas companies. This new proposed rule will help fully codify those goals and lead to more responsible leasing and development processes,”, adding that “The Department is committed to creating a more transparent, inclusive and just approach to leasing and permitting that serves the public interest while protecting natural and cultural resources on our public lands.”