Sen. Chuck Grassley proposes 50% hike in oil, gas royalties on federal lands

Source: By James Q. Lynch, The Gazette • Posted: Thursday, December 3, 2020


Sen. Chuck Grassley addresses constituents during a town hall at the Columbus Junction city hall on Tuesday, July 7, 202
Sen. Chuck Grassley addresses constituents during a town hall at the Columbus Junction city hall on Tuesday, July 7, 2020. (Liz Martin/The Gazette)

Sen. Chuck Grassley is calling for an end to an “outrageous giveaway” to oil and gas companies by raising the royalties they pay for oil and gas production on federal lands by 50 percent.

The increase would end what the Iowa Republican calls an “unnecessary subsidy” to Big Oil by updating the royalties established in the century-old Mineral Leasing Act when automobiles had just started to replace the horse and buggy, and the oil industry relatively new.

Grassley and New Mexico Democratic Sen. Tom Udall are proposing the Fair Returns for Public Lands Act.

“As senators from different parties, we have our share of policy differences,” they wrote in a New York Times Op-Ed piece published Wednesday. “In this case, we agree that oil and gas companies should pay fair market value for the public resources they extract and sell. They aren’t doing that now — not even close — and the American public is the big loser.”

However, Grassley said Wednesday it won’t be easy to win support for the measure even though it may seem like common-sense legislation.

“Very difficult,” he told reporters, “unless you get it into something that deals with, let’s say, infrastructure, roads and highways, things of that nature.”

Grassley, chairman of the Senate Finance Committee, has found bipartisan support for increasing the federal gas tax to raise $93 billion to fund a 2019 Senate Public Works and Environment Committee plan for transportation infrastructure. However, neither Senate Majority Leader Mitch McConnell nor Senate Minority Leader Chuck Schumer supports the measure.

The federal per-gallon fuel tax, last raised in 1993, is 18.4 cents on gasoline and 24.4 on diesel.

“So it would be difficult to get passed unless it was in a bigger package of things, to reach a compromise,” Grassley said.

Nevertheless, Grassley called the proposal “more a matter of principle … a matter of consistency and fairness.”

He’s proposing to increase the royalty for new leases on federal lands from 12.5 percent of the value extracted to 18.75 percent — the same as the royalty on offshore production. By comparison, the current royalty is half what Texas levies.

The proposed increase would raise $200 million in federal revenue over the next 10 years as it is phased in, with an equivalent amount going to the states where the oil or gas is being extracted, according to the Congressional Budget Office.

According to the Center for Western Priorities, if the onshore federal royalty rate were the same as the offshore rate, the U.S. government and the affected states would have collected up to $730 million annually in additional revenue.

In fiscal 2019, the U.S. government received $2.93 billion in royalties from onshore oil and gas production on federal lands. The overall value of those resources computes to $23.4 billion at a 12.5 percent royalty rate.

Grassley and Udall also want to raise the minimum bid to lease federal lands for oil and gas exploration from $2 an acre to $10. Over the past four years, more than 1 million acres have been leased at this minimum rate, meaning that nearly 20 percent of the 5.4 million acres leased since 2016 has produced only $2 million in rental revenue to taxpayers.

“Updating our oil and gas leasing laws is just the first step that the federal government should take to make sure taxpayers get a fair deal while protecting our public lands.” Grassley and Udall wrote.

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