Commentary: On Offshore Oil and Gas Leasing, Biden Is Flouting the Law

By Benjamin Zycher

Let us review the plain language of the Outer Continental Shelf Lands Act (§1344(a)): “The Secretary [of the Interior] shall prepare and periodically revise, and maintain an oil and gas leasing program,” defined by the Congressional Research Service as a requirement that the Interior Department “prepare and maintain forward-looking five-year plans… to schedule proposed oil and gas lease sales on the U.S. outer continental shelf (OCS).” (Italics added)

Currently, offshore leasing is taking place under a program approved by Obama Administration for mid-2017 through mid-2022.That existing plan expires at the end of June, and with only two months remaining no renewal proposal has been put forth by the Biden administration, despite the clear legal requirement noted above. A renewal obviously would facilitate planning for new bidding activity and continued future investment in exploration and production of fossil resources. One study based upon mainstream assumptions estimates that a delay in the leasing program until 2028 would result in a decline in average daily output of almost 500,000 barrels per day from the Gulf of Mexico over the 2022-2040 period, below total Gulf output of about 2.6 million barrels per day that would be observed with a timely renewal. Because production follows leasing with a lag of approximately ten years — the processes of permitting, exploration, geologic analysis, environmental reviews, litigation, and capital investment are time-consuming — the actual production loss during the relevant time period (roughly 2032-2040) would be on the order of well over 1 mmbd.

Note that fossil fuels are an important form of national wealth, and production from the Gulf of Mexico is about 15 percent of U.S. output. Even assuming prices averaging only about $75 per barrel, that production decline of 500,000 barrels per day translates to an aggregate economic loss of about $14 billion per year, and any compensating increase in other U.S. production necessarily would be higher in cost. An attendant increase in foreign production in effect would transfer U.S. wealth to foreign economies, OPEC+ in particular.

Part of the national wealth created by offshore production is shared with both the federal and state governments: The Biden FY 2023 budget as submitted to Congress projects a decline in offshore auction bids and royalty payments of over $370 million for the fiscal year, down to a total of only $25 million. A delay until 2028 would reduce federal revenues by about $1.5 billion annually for the 2022-2040 period, including $900 million annually for the Land and Water Conservation Fund, with an additional loss of about $375 million annually for state and local governments, and perhaps $150 million annually for the Historic Preservation Fund.

Note that the Biden administration announced in April a sharp reduction in the on-shore acreage to be offered for lease, combined with an increase in the royalty rate “to ensure [a] fair return for the American taxpayer.” That justification for the increase in the royalty rate is deeply problematic, but the point here is that the failure to prepare a new five-year offshore leasing plan cannot be made consistent with that “fair return” objective.

About 370,000 jobs both directly and indirectly are supported by offshore fossil-fuel production in the Gulf of Mexico, and the study noted above finds that about 57,000 of them might be lost on an annual basis in the absence of a renewed leasing program. For the direct employment in fossil production, annual compensation averages almost $70,000. The issue is not whether these estimates are strictly accurate; even under the extreme assumption that every worker displaced would find employment elsewhere immediately — a deeply dubious premise — the wages and salaries that they would receive would fall because their economic productivity would be lower. That is the reality made obvious by the fact that given the existence of the leasing program they are employed in offshore fossil-fuel production in the Gulf of Mexico, and not in other regions or sectors.

It is clear that the administration’s failure to adhere to the law is driven by its ideological opposition to fossil fuels generally, and by its political unwillingness to offend the environmental left driven by purported climate imperatives. Let us make the extreme assumption that an end to the offshore leasing program would not result in increased fossil-fuel production anywhere else in the world. Using the Environmental Protection Agency climate model under a set of assumptions that exaggerate the effects of reductions in greenhouse gas emissions (6.6 billion tons for the U.S. in 2019), the temperature effect in 2100 of an end to the offshore leasing program (7.3 million tons in 2019) would be about 0.0002 degrees C. Is that worth the economic losses noted above?

But — obviously — overseas production would increase as a substitute for lost U.S. offshore production. The Interior Department during the Obama administration concluded that “The production of oil and gas from other global sources can be more carbon-intense relative to oil and gas produced on the OCS.”

The Constitution requires the President to “take care that the Laws be faithfully executed.” There is no exception for satisfaction of the demands of ideological interest groups, and the failure of the administration to “maintain” the offshore leasing program by preparing a new leasing plan is one important dimension of its larger effort to achieve its political objectives by any means necessary, foremost among them a circumvention of Congress with regulatory initiatives and with a decided willingness to ignore the requirements of the law. This is the real pollution problem, of our constitutional and legal institutions, the damage from which will prove enormous.