The Bush administration last week belatedly acted to partially plug a loophole that has cost U.S. taxpayers billions in royalties on off-shore oil. Congress should go further, plug the loophole permanently, and channel the savings from eliminating such unnecessary subsidies to the oil and gas industry into alternative energy development.
The Interior Department boosted royalties on future deep-water drilling leases in the Gulf of Mexico to 16.7 percent instead of the current 12.5 percent. The higher royalties will bring in an estimated additional $4.5 billion over 20 years.
The move came after widespread criticism in Congress of old leases in the Gulf that allowed energy companies to drill without paying a dime in royalties to the taxpayers who actually own the resources. These drill-for-free leases were signed in 1998 and 1999 when oil prices were relatively low and companies sought incentives to seek new sources. But either by a government blunder or skillful lobbying by the oil industry, the old contracts contained no provision to begin paying royalties when prices rose to levels where incentives were no longer necessary. Now, with oil fetching $55 a barrel, oil companies obviously could afford to pay a fair return to taxpayers.
Five companies recently agreed to pay royalties on future production from the leases, but more than 50 others have refused to renegotiate the contracts. The no-royalty leases have already cost taxpayers $2 billion and will cost an estimated $10 billion more over their lives.
Reps. Edward Markey of Massachusetts and Maurice Hinchey of New York welcomed the higher royalty rates, but vowed to continue pressing for a law to renegotiate the flawed leases. We cheer their efforts, especially with so many oil companies refusing to act voluntarily.
A good use for the billions that could be recouped from a fair royalty was suggested this month by the Governors’ Ethanol Coalition, representing 36 ethanol-producing states, including Colorado. A new report by the coalition urged Congress to increase the target for ethanol and biodiesel use – currently 6.8 billion gallons a year by 2010 – to 12 billion gallons a year.
Ethanol could replace 25 percent of America’s petroleum needs by 2025, the report said. That would be a sizeable step toward energy independence and aid the fight against global warming as well.
