House Committee Holds Hearing to Close Loopholes in Energy Leasing Process

Credit: Mike Eisenfeld (Wild Earth Guardians), flickr. 

On Tuesday, a subcommittee of the House Natural Resources Committee held a hearing to look at a Department of the Interior proposal to change how oil, gas and coal pulled from federal lands are valued.

By Joshua Mantell

Specifically, the proposal is designed to ensure that the American people are receiving their fair share from the sale of publicly owned resources and modernize how we as a country manage energy development.

The administration has realized that the American people own the resources pulled from public land and need to be compensated for the full value, instead of allowing private industry to take advantage of loopholes and deductions to pad their own pockets. Currently, through a mix of these loopholes, deductions and other indirect subsidies, oil, gas and coal companies are not paying royalties on the fair market value for the resources they extract from federal land. In fact, one study from Headwaters Economics found that coal companies are paying an effective royalty rate of only 4.9 percent, even though, by law, the companies should be paying at least 12.5 percent.

One witness who testified before the committee was Dan Bucks, the former state revenue director for Montana. He made clear that money that is going to oil, gas and coal companies should instead be going towards the American people and the states from where they are extracting resources. These funds could end up helping repair roads and bridges and improve schools. While a couple of members of the Committee were concerned about the costs of complying with new standards, it was clear from the questioning and answers by the administration that this new proposal would have very few new requirements for industry, but would overwhelming ensure fair returns for the American people.

Some on the subcommittee, led by Ranking Member Alan Lowenthal (D-CA), went even further than the policy outlined in the proposal. These members argued that while the proposal was an important step, the administration should also look to raise the current royalty rate from 12.5 percent for onshore oil, gas and coal to the rate charged for offshore oil and gas—18.75 percent. Federal lands contribute greatly to the economic health of communities through recreation, tourism and values inherent to the land. If land is developed for energy, the American people need to see returns that fully value the land; a royalty rate increase would realize the full scope of value.

This hearing showed exactly why the administration needs to finalize a strong proposal that will ensure the American taxpayers are seeing fair market value for their resources. Public lands are too valuable to be exploited for below market rates and the American people expect a fair return on their resources.

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