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Royalty Rate Changes for Offshore Drilling

At a meeting in Houston on February 28, the Interior Department’s Royalty Policy Committee recommended lowering the royalty rate that companies pay to the public when they drill for oil and gas in U.S. coastal waters. Such a change would go against the Interior Department’s statutory mandate to earn fair market value for the development of publicly owned natural resources.

The offshore royalty rate was raised twice during the George W. Bush administration, to the current rate of 18.75% – a move that was estimated to increase total government revenue by $8.8 billion over the next 30 years. Moreover, there is evidence that even the 18.75% rate shortchanges American taxpayers, as it fails to account for significant environmental and social costs from offshore drilling. Yet the Committee suggested lowering the rate to 12.5%. This will harm all taxpayers, including coastal states which receive a portion of revenue from federal offshore production. In addition to inadequate royalty rates, the public earns less than fair value for offshore oil and gas due to flaws in the leasing program, such as “area-wide leasing,” which has resulted in little to no competition for leases, and record-low bids.

Our policy director, Jayni Hein, submitted public comments to the Royalty Policy Committee in advance of the meeting, and gave verbal comments at the meeting.