How oil, gas and coal companies are getting away without paying their fair share

Bulldozer pushing a mountain of coal in Tennessee.

Kentucky Photo File, flickr.

For decades, oil, gas and coal companies have been drilling and mining on public lands and paying a royalty rate of only 12.5 percent or less. For oil and gas, that rate has been in place for nearly 100 years—and for coal since the 1970s.

These rates are sorely outdated, and they don’t accurately reflect the current value of public resources. The last time the oil and gas rate was updated, a gallon of milk cost a mere 11 cents.

The Wilderness Society’s new report (PDF) shows how policies regulating oil, gas and coal production on public lands have not kept pace with the changes in technologies, markets and the public’s expectations for how public lands should be managed.

Even more alarming is that coal companies rarely pay the full 12.5 percent due to subsidies, loopholes and deductions. According to recent studies, the effective royalty rate for coal is under five percent. These outdated policies encourage energy practices that contribute greatly to climate change.

Read the full report (PDF)

Originally put in place through the Mineral Leasing Act of 1920 and other statutes, royalty rates were intended to ensure that the government and American people were properly compensated for the development and use of energy resources extracted from public lands.

Because the current rates are so outdated, the American people aren’t receiving the full value for the production and sale of taxpayer-owned resources. Individual states have significantly higher royalty rates than the federal government, and rates on public lands need to keep pace.

Extracting these resources can also leave a tremendous scar on wildlands while degrading the environment. Companies aren’t adequately compensating the American people for the extensive damage they’re doing to resources that we all own.

In order to fairly value public lands, we must ensure rates reflect current market value, provide a fair return to local communities and take into account the impacts of development.

Our public lands are being undervalued

The current royalty rate of 12.5 percent for oil and gas was established at a time when American way of life was very different. The average price for a furnished home in New York City was $3,000.

Over the past century, Americans are increasingly benefitting from other values of public lands such as conservation and access to recreation. Yet, prices for developing public resources are at rock bottom and open access for leasing have encouraged energy development over all other values of our shared public lands.

Lands managed by the Bureau of Land Management are required to be managed for multiple uses, meaning that management decisions need to account for conservation, recreation and wildlife management in addition to other uses like energy development.

Historically, however, oil and gas companies have left far more acres open for leasing than are saved for conservation and other uses. After all that—even when these lands are developed—Americans have been shortchanged on the full value of their share.

Photo by Robert S. Donnovan, flickr. 

Bargain rates keep us from modernizing the way we produce energy

In 1920 the best available technology required oil, gas and coal to power the nation. Now we have a variety of less polluting energy sources. Due to increased efficiency, we no longer need as much energy per capita, and the costs of producing and selling energy have changed dramatically.

Through low royalty rates, the federal government is encouraging subsidies for resources that contribute greatly to climate change, and the American people are absorbing the costs from these outdated forms of energy production.

Focus needs to shift to reducing the impacts from fossil fuel development, not subsidizing companies to continue developing polluting forms of energy.

A higher royalty rate cannot account for the very real damage these industries do but it can help states and communities to better address them.

Change on the horizon

The Department of Interior has been actively seeking input on how to improve the royalty structure, and there has been strong support for modernizing the way the agency governs energy development on our public lands. The Wilderness Society is on the forefront of working to modernize the use of public lands and push for a cleaner, low-carbon energy future.

Raising the royalty rate for oil, gas and coal is an important avenue for reform. The royalty rate for onshore oil and gas should be raised to 18.75 percent to match the current rate for offshore oil and gas, as well as the rate that many states have set for their own resources.

One avenue for improvement is to change how the agency evaluates the true cost of oil, gas and coal. American taxpayers should receive their fair share from their own federal royalties. The Department of Interior has a historic opportunity to move our federal lands energy policy into the 21st century. Updating the royalty rate for public lands would begin to shift policies and ensure we are managing our energy needs today with our generations of tomorrow in mind.

Outdated and Undervalued