“No more drilling on federal lands,” said former vice president, Delaware senator, and presidential candidate Joe Biden in March 2020. Debating his then-competitor Bernie Sanders on CNN, Biden urged: “No more drilling, including offshore, no ability for the oil industry to continue to drill, period.”
On July 1, President Joe Biden’s administration put out a new draft plan to open up oil and gas drilling leases in the federal waters off the coast of Alaska and in the Gulf of Mexico. Released on the Friday before the Fourth of July holiday weekend, the plan represents a direct reversal not just from Biden’s campaign promises, but also from his earliest policies as president. On his first day in office, Biden issued a moratorium on such leases, barring the Department of Interior from issuing new permits on federal lands. (The moratorium did nothing to stop drilling under existing permits — which many major fossil companies had preemptively stockpiled.) In April, the administration announced that it would resume selling new permits, and under the draft plan released Friday, the Gulf of Mexico and Alaska coast would be among the approved sites.
The April announcement pointed to “a first-ever increase” in the royalty rate for new competitive leases on public lands — from 12.5 percent to 18.75 percent — meant to soften the blow of the resumption of drilling by packaging it with additional revenue for the federal government and, theoretically, forcing the fossil fuel companies to pay more. In a study released in June, the progressive nonprofit advocacy group Public Citizen recommended that all drilling on federal lands be subject to the higher rate after decades without a royalty increase. The previous June, the group released another report showing that Biden had, by then, already surpassed the monthly average number of drilling permits on public lands issued under former President Donald Trump.
The rate hike the Biden administration has implemented isn’t permanent, and it does not apply to the areas affected under the draft plan. As the recent Public Citizen study notes, federal waters beyond a depth of 200 meters were already subject to an 18.75 percent royalty rate. The rate increase only applies to onshore drilling, Interior Department spokesperson Melissa Schwartz told The Intercept, allowing offshore drilling that does not reach the 200-meter threshold to remain exempt. According to Schwartz, the new leases in the Gulf of Mexico and off the coast of Alaska would be subject to royalties between zero and 11 percent.
Beyond not being permanent, the royalty increase isn’t retroactive either. Like the lifted moratorium, it would not affect permits issued before the policy’s implementation. Public Citizen’s study showed that high gas prices this year have driven record profits for the oil and gas industry — which have only been inflated by decades of low royalty rates. Twenty major onshore drilling companies — including Devon Energy, ConocoPhillips, and ExxonMobil — would have paid more than $1 billion in royalties last year, the study showed, had they not been subject to outdated and artificially low rates.
“In a year of record oil profits and inflation, the oil and gas industry is taking advantage of unparalleled tax breaks, subsidies, and exemptions,” Alan Zibel, research director at Public Citizen, said in a statement to The Intercept. “At the very least, these companies should pay a fair price for the resources they extract from public lands and be forced to cover the cost of environmental cleanup without additional costs to taxpayers.”
Cleanups and royalty increases, however, provide only a partial fix. The current rate increase could be undone just as easily as it was implemented, and even if it’s made permanent, any drilling on federal lands runs contrary to efforts to curb climate change and reduce fossil fuel dependency. Nothing would be as effective at stopping fossil fuel production — and its emissions — as a full ban.
Instead, Biden has proposed a gas tax holiday to make prices at the pump cheaper for consumers. In the words of the White House, Congress could suspend the federal gas tax for three months “to give Americans a little extra breathing room.”
Below-market rates for drilling on federal land have funneled close to $6 billion away from U.S. taxpayers to oil and gas companies over the last decade.
To be sure, high gas prices are hitting poor and working-class people the hardest. But there is no guarantee that suspending the federal gas tax would ease the cost of gas for consumers, particularly if oil and gas companies have any say. A recent study of state-level gas tax holidays found that savings were “mostly” passed onto consumers in the form of lower gas prices, but that those reductions in price often did not last the full term of the tax suspension. And the current tax structure for federal drilling gives oil and gas companies little incentive to pass on those savings. Below-market rates for drilling on federal land have funneled close to $6 billion away from U.S. taxpayers to oil and gas companies over the last decade.
In the United Kingdom, by contrast, Prime Minister Boris Johnson’s government announced in May that it would impose a 25 percent tax on oil and gas companies’ profits to alleviate pressure from the country’s rising cost of living. “The oil and gas sector is making extraordinary profits,”said Rishi Sunak, the recently departed chancellor of the exchequer, announcing the new measures. “I am sympathetic to the argument to tax those profits fairly.” (The tax, he promised, would not last beyond 2025.)
“While gas prices spike at the pump, these oil and gas drillers are not only squeezing drivers, they are fleecing taxpayers as well,” Zibel, of Public Citizen, said. “With the industry expected to report the highest profits on record this year, now is an ideal time for Congress and the Biden administration to get rid of longstanding giveaways to the oil and gas industry.”
From hurricanes to heat waves, the impacts of the climate crisis have grown more severe by the season. As a response, a fossil fuel royalty increase is not radical. Even Republican Sens. Chuck Grassley, R-Iowa, and Jacky Rosen, D-Nev., introduced a bill last year to adjust rates in line with the economy. (It was referred to committee but never came to a vote; Sen. John Hickenlooper, D-Colo., was the bill’s only other co-sponsor.)
Asked if the Interior Department would, if nothing else, at least make the rate increase for drilling on federal lands permanent, Schwartz pointed The Intercept to the department’s existing public statements and a November report outlining the department’s reform and regulatory focus. The White House did not provide a comment.