WND
‘Notwithstanding the apparent assumption, there really is no free lunch’
[Editor’s note: This story originally was published by Real Clear Energy.]
By Benjamin Zycher
Real Clear Energy
The Biden administration announced late last week that it would resume leasing of federal lands for fossil fuel exploration and production, but at a scale (144,000 acres) about 80 percent smaller than the 733,000 acres that had been nominated by energy companies for evaluation by the Department of the Interior. (Over 90 percent of the acreage to be offered for lease is in Wyoming.) Moreover, the royalty rate to be paid on future fossil production from these leases is to be increased from 12.5 percent to 18.75 percent, “to ensure [a] fair return for the American taxpayer and on par with rates charged by states and private landowners.” This action in part is a response to a court injunction last June from the western district of Louisiana forcing the Biden administration to resume such leasing. A few observations are appropriate.
In a way consistent with the incoherence of the overall Biden energy policy — ever-tighter constraints on investments in fossil fuel resources and associated infrastructure combined with vociferous pleas for greater production by producers foreign and domestic so as to relieve the political effects of high fuel prices — the administration is trying to have it both ways. To wit: The administration believes that the leasing announcement will allow it to argue that it is taking action to reduce gasoline prices while reassuring the leftist environmental groups that it is not backing off its climate policy agenda. That this gambit will work as a policy and political matter is a deeply dubious proposition, in particular because the effect on gasoline prices almost certainly will be close to zero.
The increase in the royalty rate, far from “ensur[ing a] fair return for the American taxpayer,” will have the opposite effect, by reducing the amount that the fossil producers will be willing to bid initially for the leases. After all, the expected value of a given lease — driven by estimates of likely fossil resources, geological conditions, production costs, and other such parameters — is what it is. That value will be reflected in the present value of the initial bid and the expected future royalty payments, and an increase in one must reduce the magnitude of the other. Notwithstanding the apparent assumption of the Biden administration officials, there really is no free lunch.
