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Oil and gas infrastructure on BLM land, Kern County, California.BLM
This story was originally published in High Country News, and is reproduced here as part of the Climate Desk collaboration.
Friday after Thanksgiving—a day the federal government notoriously reserves for dropping politically inexpedient information—activists were blindsided by a long-anticipated reportThe US Department of the Interior. The document was a review of the agency’s oil and gas leasing program, which manages fossil fuel extraction on federal public lands and waters.
Climate activists hoped that the Biden administration would propose a ban on federal oil and gas leasing. Although the report recommends a major overhaul of the leasing system many environmentalists think it is weak on climate action. They believe that Interior’s recommendations signaled an unwillingness to take bold steps to address the urgency of the climate crisis.
“We’re sympathetic to the political gantlet the Biden administration must run,” said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center, in a statement. “But it had a choice to run it with power, speed and agility. Instead, it’s running that gantlet weak, slow, and tentative.”
Jeremy Nichols of WildEarth Guardians, director for the climate and environment program, said that the report didn’t call for a halt in new oil-and-gas leasing. Instead, it focused on increasing royalty rates on existing leases. “The fact that it applies to new leases signals new oil and gas development,” he said. “The department seems to be signaling that it wants to do everything it can to keep the oil and gas industry going. That is not a climate solution.”
The West would be benefited if the royalty rate was changed. New Mexico and Wyoming have over half the program’s leases and together take in well over a billion dollars a year from combined royalties—the revenue shares paid to state governments by oil and gas companies. The money goes to schools, roads, and other public services.
But royalties can be extremely volatile and are subject to change at any moment. boom-and-bust industry. Onshore oil and gas companies currently pay a 12.5 percent royalty rate—a figure set more than a century ago. The report points out that private landowners as well as oil-producing states require higher rates, some up to 25 percent.
The Interior Department also recommends addressing the root financial cause of so-called “orphaned wells” on public land. Oil and gas companies can liquidate assets to avoid bankruptcy, which can lead to wells being abandoned. The taxpayer is responsible for the cleanup costs when this happens. According to a report by the Western Wildlife Federation, in 2018 there were 8,050 inactive wells “orphaned or at risk of being orphaned on federal lands” across five Western states.
To solve this problem, the Interior Department argued that “bonding levels”—the amount of money companies pay up front to cover future cleanups—need to be raised to pay for these wells before they are abandoned. Companies can currently lease what are called blanket bonds. A single bond can cover a large number.
This allows a company buy a $25,000 bond to cover all its wells in one state or a $150,000 bond for all its wells on public lands. This model has a problem: the average cleanup cost of a single well can range from $20,000 to $145,000 according to a Government Accountability Office report.
Nichols said that while conservationists and environmental activists are pleased with the recommended reforms, Westerners are already paying increasing amounts due to climate inaction as wildfires rise, floods, and drought worsen. “It seems like this administration is cowering,” he said. “There’s an unwillingness for them to own the issue and play a role in confronting the climate crisis.”
