NCPA - National Center for Policy Analysis

Increasing Drilling on Federal Lands

May 13, 2014

The U.S. needs to show Americans the direct benefits of energy exploration on federal lands, contends Jared Meyer, policy analyst at Economics21.

While economic growth has largely come to a halt, the vast amounts of oil and gas across the United States could change the country's economic outlook. The U.S. needs more oil and gas exploration on federal lands.

  • Oil production in the United States has grown almost 50 percent over the last half decade. Shale gas production has increased 400 percent from 2007 to 2012.
  • But despite this boom, the amount of federal acres leased for oil and gas exploration has dropped 24 percent since 2008. While the U.S. leased 131 million federal acres in 1984, it leased only 36 million acres last year.

The federal government owns the mineral rights on federal lands, and it charges a 12.5 percent royalty rate on land that is leased for oil and gas production.

  • Currently, most oil and gas royalties are directed into the U.S. Treasury's general fund.
  • Energy royalties are the largest non-tax component of the federal budget. In 2013, the federal government received $2.5 billion in onshore oil and gas royalties.

The U.S. could establish an oil and gas royalty fund, similar to Norway's wealth fund, which generates returns of 5.7 percent annually. Instead of directing energy royalties to the Treasury for general use, the royalties could be directed into the fund. The fund could invest in equities, fixed income, and real estate, generating further revenue to be used for specific purposes.

If the U.S. were to increase the number and speed of federal permits in exchange for higher royalty rates, we could see more oil and gas exploration as well as higher federal revenues.

Source: Jared Meyer, "Convincing Americans It's Time to Drill on Federal Lands," Real Clear Energy, May 7, 2014. 


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