President Biden’s climate plans include a review of federal and state royalty rates paid by private companies for access to fossil fuel reserves underneath public lands.[i] On January 27, Biden issued Executive Order 14008, “Tackling the Climate Crisis at Home and Abroad,” urging aggressive domestic policy directives.[ii]

The Order directed the Secretary of the Interior to pause the issuance of new oil and gas leases for drilling rights on federal lands until the Secretary completes a “comprehensive review” of oil and gas permitting requirements.[iii] The Secretary subsequently issued Order No. 3395 (“the Order”), which directed the pause on approving new leases for fossil fuel extraction on federal lands and ordered the comprehensive review of federal royalty rates.[iv]

Notably, the Order does not limit existing operations under valid leases, nor does it bar drilling on tribal lands.[v] Amid ongoing legal challenges to the Trump Administration’s reversal of a coal leasing moratorium, the Biden Administration stopped short of ending the issuance of new coal leases.[vi]

Federal energy royalty rates are percentages of revenue that energy companies pay to the federal government for oil, gas, or coal that is extracted from public lands.[vii] The current royalty percentages were established by statutes, such as the Mineral Leasing Act of 1920.[viii]

At 12.5 percent, onshore oil and gas royalty rates have not been updated since the 1920s and coal royalties since the 1970s. [ix] Coal companies often do not pay the full 12.5 percent, though. After subsidies, loopholes, and deductions, the effective federal royalty rate is less than 5 percent–resulting in energy-rich states in the Rocky Mountain region missing out on an estimated $490 million to $730 million in gross revenue.[x]

Offshore rates, on the other hand, recently changed from 12.5 percent to 18.5 percent.[xi] As a result, current onshore federal royalty rates do not reflect changes in the market.[xii] Texas, in contrast, charges as much as 25 percent for oil and gas from its land.[xiii]

While oil and gas extraction on federal lands generates billions in revenue for both local and state economies, it also accounts for nearly 25 percent of the United States’ greenhouse gas emissions.[xiv] There have been strong reactions to the Order, mainly by critics who predict lost jobs and revenues but no environmental benefits.[xv] But the real impact of the executive actions is still unclear while the Biden administration completes its review of royalty rates.

[i] Dino Grandoni, The Energy 202: How Biden may get oil companies to pay more to drill, The Washington Post (February 2, 2021), https://www.washingtonpost.com/politics/2021/02/02/energy-202-how-biden-may-get-oil-companies-pay-more-drill/

[ii] Exec. Order No. 14,008, 86 Fed. Reg. 7619 (Jan. 27, 2021), https://www.govinfo.gov/content/pkg/FR-2021-02-01/pdf/2021-02177.pdf.

[iii] Id. at 7623-24.

[iv] Order No. 3395, Secretary of the Interior, Temporary Suspension of Delegated Authority (Jan. 20, 2021), https://www.doi.gov/sites/doi.gov/files/elips/documents/so-3395-signed.pdf; See Nathan Rott, Scott Detrow, and Alana Wise, Biden Hits ‘Pause’ On Oil And Gas Leasing On Public Lands And Waters, NPR (January 27, 2021), https://www.npr.org/sections/president-biden-takes-office/2021/01/27/960941799/biden-to-pause-oil-and-gas-leasing-on-public-lands-and-waters

[v] Order No. 3395, supra note 4.

[vi] Jennifer A. Dlouhy, Biden Leasing Review May Change Royalty Rates, Rigzone (January 28, 2021), https://www.rigzone.com/news/wire/biden_leasing_review_may_change_royalty_rates-28-jan-2021-164455-article/

[vii] The Wilderness Society, Federal Energy Royalty Rates, https://www.wilderness.org/sites/default/files/media/file/Fact%20sheet%20%20Federal%20Energy%20Royalty%20Rates.pdf#:~:text=The%20current%20royalty%20rate%20officially,in%20effect%20since%20the%201970s

[viii] Id.

[ix]Id.; Dlouhy, supra note 6.

[x] Id.

[xi] Dlouhy, supra note 6.

[xii] See The Wilderness Society, supra note 7.

[xiii] Id.

[xiv] Rott, Detrow, and Wise, supra note 4.

[xv] Alan Kovski, Biden orders indefinite moratorium on new oil and gas leasing on federal lands, Oil & Gas Journal (January 27, 2021), https://www.ogj.com/general-interest/government/article/14196350/biden-orders-indefinite-moratorium-on-new-oil-and-gas-leasing-on-federal-lands