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This Land Is Your Land….

This Land Is Your Land…. thumbnail

It’s time to reform how we lease public lands for fossil fuel extraction.

When I drove across the country in my late teens, the wind of the prairies blowing through my long hair and feather earrings from the open window of my 1981 Toyota Tercel, I had no idea that 28% of US land is owned by the federal government. Almost half of California is federal land to this day! When I learned this, I at first thought that this must be an effort to conserve and preserve precious ecosystems for everyone’s enjoyment, akin to the National Parks System. This German hippie was shocked to learn that was not the case. The federal government leases land to private firms for commercial uses such as grazing of cattle and mining for coal as well as drilling for oil and gas. Is this a big deal? Yes! 40% of domestic coal, 22% of domestic oil and 12% of domestic gas come from federal lands.

Now that I am older, maybe wiser, but definitely a more well trained economist, I would not have a problem with this, if the land were leased at rates reflecting its full opportunity cost. But it is not. The rates don’t reflect the true current value of the land, nor do they incorporate the local air pollution or climate damages caused by the fuels that are extracted from these lands (nor a variety of other damages). Let me focus on the climate damages. In this economist’s dream world, where greenhouse gases were priced at their true damage (which is hard to figure out and likely underestimated), a carbon price would “take care” of these damages by internalizing them somewhere along the supply chain. But we have no federal carbon price. So what to do? It is not just me asking this question. President Biden in Executive Order 14008 charged the Secretary of the Interior to come up with a recommendation “whether to adjust royalties associated with coal, oil, and gas resources extracted from public lands and offshore waters, or take other appropriate action, to account for corresponding climate costs.”

A New Framework for Royalties

One of the great econometricians of our time, Jim Stock, and a rising star in our field, Brian Prest, have drafted a “shovel ready” set of possible fixes to this problem in a super cool new working paper. The paper lays out a careful framework that acknowledges two key issues. First, they account for the possibility that decreased oil and gas production from federal lands could “leak” to increased production on private lands thereby offsetting the effectiveness of a surcharge. Second, they consider how such a surcharge would interact with more comprehensive carbon pricing policies at the federal level. The leakage point provides an empirically testable hypothesis (my favorite kind). The paper shows empirical evidence that leakage is incomplete, a fancy way of saying that for each ton of carbon reduced from federal lands you get significantly less than a ton of additional production filling in from private lands.

The second portion of the paper helps us think through how we should measure the impacts of a royalty adjustment. One metric might be the additional revenues collected. Three reasons why this may be a meaningful measure. First, royalties are split between the feds and the state in which the resources are extracted. Hence these royalty increases could be used to help communities suffering from the dying fossil fuel extraction industry. Second, the royalty maximizing solution does not shut off extraction completely, yet it massively reduces emissions. Finally, federal revenues could be used for all sorts of good things (e.g., new shiny renewables tech, more teachers, lower income taxes), as the owners of these lands (you!) are finally paid their worth. Another metric, which might be more appealing to the “money is evil” crowd, is simply reductions in greenhouse gas emissions.

Let’s focus on revenues for a second. There is currently no demand for coal leases, EVEN AT THE EXISTING CRAZY SUBSIDY (yes, the antiquated and low rates the feds currently charge lessees are a subsidy) AND NOT CHARGING FOR CARBON (this is a good thing if you care about Mother Earth). So the paper focuses on oil and gas. These two fuels have different prices and carbon contents. Hence the paper shows results for a uniform carbon fee per ton of CO2, a uniform percentage point royalty increase, as well as different carbon fees for each fuel. In summary, so far we have a framework for thinking about the problem as well as a number of solutions and measures of their impact.

The final part helps us think about how to choose between the different policy options. There are three possible options. The first possible metric is simply revenue maximization. The higher the fee, the lower production. Since revenue is the product of the two, this is a subtle dance where you want to get the price just right.

The second metric, which requires quite a bit of fancy nerd tech (also known as math), is to estimate the welfare impacts of the policy. This approach takes into account the impacts of the policy on consumers (who demand the fossil fuel resources) and producers (who make profits), as well as wasted resources.

Finally, one could look at how well these policies do in terms of phasing out new federal fossil fuel leasing by a specified date, which could be consistent with a path to net zero emissions.

Quantifying the Policy Solutions

So what do they find? For a single surcharge, they show that revenues are maximized by increasing the federal royalty rate from the current 12.5% (18.5% offshore)  to 51% resulting in an additional $6 billion in annual revenues (WOWZA!). This approach would lead global emissions to fall (accounting for leakage!) by about 37 MMT CO2e/year, which is  approximately 40% of what one would achieve by an outright leasing ban.

If we look at welfare maximization, “the common surcharge is estimated to be 19% and 44% for $50/ton and $125/ton SCCs respectively”. One could do even better by charging separate fees for oil (higher) and gas (lower). These have the potential to reduce emissions by 25 to 88 MMt CO2e/year and raise $4 to $5 billion/year.

So in summary, this is a wonkish and incredibly timely and important piece of research. The reforms to the use of federal lands proposed here make society better off. Here and there and everywhere. The additional revenue generated can help communities affected by the inevitable decline of fossil fuel extraction in this painful transition. And this policy can be implemented without a lengthy congressional and partisan battle. It’s simply a brilliant proposal.  Even my 19-year-old hippie self would have approved.


8 Comments on "This Land Is Your Land…."

  1. Theedrich on Sun, 28th Mar 2021 3:46 am 

    Don’t count on the federal government doing anything rational.

  2. makati1 on Sun, 28th Mar 2021 4:37 pm 

    The US government whores have not done anything rational in at least 50 years. It is only going to get worse. Anyone who can, should leave now.

  3. The_Forbin_Project on Mon, 29th Mar 2021 4:01 am 

    “In this ecologist’s dream world, where greenhouse gases were priced at their “true” damage (which is hard to figure out and likely underestimated or over estimated )” …..

    there better , and of course there is nothing about how to price this CO2 production that the RoW are producing …… like more expensive electrical goods ( ipads, phones, etc) from China.

    Because that is what it means, if you want to “save the planet” TM .

    double the cost of that fancy carbon fiber push bike and lycra “like Wiggins” outfit?

    you have to price everything right , tax it .

    oh deary me ….

  4. Theedrich on Tue, 30th Mar 2021 1:30 am 

    Mankind is dying by emasculation via phthalates. A new book, Count Down ([subtitled “How Our Modern World Is Threatening Sperm Counts, Altering Male and Female Reproductive Development, and Imperiling the Future of the Human Race”) by Dr. Shanna Swan documents the world’s current trajectory toward birthlessness.  Phthalates are used in the manufacture of plastics to make them more flexible, and seep into the bodies of all animals where they mimic œstrogen and disrupt the reproductive system.  Males are being born with smaller penises and other abnormalities, many being turned into “half-males.”  Some revelations:

    – Worldwide fertility has dropped more than 50% over the past 50 years and is continuing to decline.

    – A man today has only half the number of sperm his grandfather had.

    – In many parts of the world, a woman in her 20s today is less fertile than her grandmother was at 35.

    And from the book:

    “Many countries are experiencing increases in issues related to gender identity, gender fluidity, and gender dysphoria.  Gender dysphoria refers to the feeling that one’s emotional and psychological identity as male or female is out of sync with one’s biological sex.”

    (This is the true reason for the recent rise in LGBTQ prominence and political perversion in the West.)


    “Other species are suffering, too.  There’s been a rise of abnormal genitals in wildlife, including unusually small penises in alligators, panthers, and mink, as well as an increase in fish, frogs, birds, and snapping turtles that have both male and female gonads or ambiguous genitalia.  At first glance, these issues may seem like bizarre anomalies or cruel tricks from Mother Nature — but they’re all signs that something very wrong is happening in our midst.  Exactly what that culprit is continues to be hotly debated, but evidence pointing to likely suspects is mounting on a regular basis.

    “The following is clear:  The current state of reproductive affairs can’t continue much longer without threatening human survival.  Current levels of sperm counts and concentrations, and decreased fertility, are already posing serious threats to Western populations, on both ends of the human life span:  infertility is linked to an increased risk of certain diseases and earlier death in both men and women, while leading to a decrease in the number of children born over time.  Obviously, this isn’t a healthy scenario for Homo sapiens (or for other threatened or endangered species.)  Already, some countries with problematic age distributions are grappling with shrinking populations, with increasing numbers of older people being supported by fewer younger people.”

    But genosuicide-promoting, power-obsessed America and its Christianity couldn’t care less about disease, deformations and death.  Onward, Christian soldiers.

  5. sighting of big foot on Tue, 30th Mar 2021 2:16 am 

    supertard rock

    THE Natural Gas Thread Pt. 2
    by ROCKMAN, March 29, 2021 12:43 pm

    please love supremacist muzzies more

  6. Cloggie on Tue, 30th Mar 2021 2:39 am 

    Mankind is dying by emasculation via phthalates. A new book, Count Down ([subtitled “How Our Modern World Is Threatening Sperm Counts, Altering Male and Female Reproductive Development, and Imperiling the Future of the Human Race”) by Dr. Shanna Swan documents the world’s current trajectory toward birthlessness. Phthalates are used in the manufacture of plastics to make them more flexible, and seep into the bodies of all animals where they mimic œstrogen and disrupt the reproductive system. Males are being born with smaller penises and other abnormalities, many being turned into “half-males.”

    That’s why more economic growth should NOT be pursued. Instead, a long economic decline should be accepted, while the economy is refactored to more sustainable levels.

    – no more cheap global mass tourism
    – severe restrictions on flying
    – localism
    – no private car ownership
    – 100% renewable energy base
    – basic income
    – reducing meat consumption to once a week (like in the fifties)
    – an overhaul of all industrial chemical processes
    – addressing the obesity pandemic
    – fat shaming
    – banning sugar from most food

  7. makati1 on Tue, 30th Mar 2021 4:53 pm 

    Cloggie, but electric cars are good? LMAO! What a hypocrite!

  8. makati1 on Tue, 30th Mar 2021 5:54 pm 

    BTW: It takes more FFs to make an electric car than a gasoline powered car. Think battery and rare earths. Rare earths are the most polluting mining and processing mineral ever. Not to mention, most expensive. FF cars are going to be the majority for decades.

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