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Drilling and Mining on Public Lands: The State of Play

(Photo: Troy Williams / Flickr)

As this presidential administration comes to an end, the Project On Government Oversight (POGO) and Taxpayers for Common Sense (TCS) review the top five natural resource reforms from the past eight years that benefited American taxpayers and improved transparency in the federal government. We also look ahead to the top five necessary reforms for this and the next administration to tackle in the coming months and years.

Top Five Natural Resource Reforms

Royalty-In-Kind program is terminated (2009)

In 1997, the Interior Department’s Minerals Management Service (MMS) implemented the Royalty-In-Kind program, which allowed oil, gas, and mining companies to make royalty payments to the federal government in the form of product rather than cash. Almost from the start, it was evident MMS lacked the oversight capabilities to ensure companies were sufficiently compensating taxpayers for extracting natural resources from public lands. Amid mounting concerns from the federal government’s internal watchdogs and pressure from POGO and TCS, MMS terminated the Royalty-In-Kind program in 2009.

Dodd-Frank requires companies to disclose natural resource payments (2010)

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act includes a provision—Section 1504 of the law—requiring U.S. companies to disclose the royalties, fees, and other payments they make to governments in order to extract oil, gas, and minerals. Moreover, the disclosures must be available online for public access. Although the industry tried to maintain the status quo by filing a lawsuit against the Securities and Exchange Commission (SEC) to block the provision, open government groups fought for years against this attack on transparency. The SEC announced in 2016 that the provision will soon go into effect.

Troubled Minerals Management Service is dissolved (2011)

The Deepwater Horizon oil spill of 2010 clearly demonstrated MMS’s poor oversight of the oil industry, but the agency’s problems went back many years. Its cozy ties with industry were well documented by the government, whistleblowers, TCS, and POGO, among others. Alleged ethics violations at MMS were widespread—everything from agency officials passing through the revolving door to industry to agency employees accepting lavish gifts from the companies they were overseeing. In 2011, the Interior Department dissolved MMS, setting up new agencies that separated Interior’s oversight and royalty-collecting functions, reducing possible ethical conflicts of interest.

United States joins Extractive Industries Transparency Initiative (2011)

As part of the U.S. National Action Plan for the Open Government Partnership, the President committed the U.S. to joining the Extractive Industries Transparency Initiative (EITI) in 2011. The EITI is an international reporting standard that promotes greater transparency and accountability from companies that extract natural resources and from governments that collect royalties for their citizens. Following several years of collaboration among U.S. government, industry, and civil society—including POGO—the United States released its first EITI report in 2015. The report is available online and includes downloadable and interactive data that allows taxpayers to follow the money.

Oil, gas, and coal regulations overhauled for first time in decades (2016)

In 2016, the Interior Department significantly overhauled the way it determines how much money taxpayers get from federal oil, gas, and coal. POGO, TCS, and other experts long maintained that the old regulations, written in 1989, had a loophole allowing companies to cheat taxpayers. In short, a company could sell its coal for cheap to a subsidiary, pay royalties to the federal government based on that low price, and then sell the coal to an unaffiliated company for a huge profit not subject to royalty payments. The new regulations finally closed a loophole that likely cost taxpayers billions of dollars.

Top Five Reforms That Still Need to be Completed

Overhaul the federal coal program (in progress)

As part of efforts to modernize its regulations to reflect today’s market, the Interior Department called for a comprehensive review of the federal coal program at the beginning of 2016. Fearing its regulations are outdated, and to prevent further taxpayer losses, I Interior has halted granting new coal leases until the review is completed. Among other issues, the agency will investigate whether taxpayers are receiving a fair return from federal coal royalties. Experts have concluded that Interior is granting companies enough deductions so that they are paying only a fraction of the statutory royalty rates of 12.5% for surface mining and 8% for underground mining. Given that context, it’s time for Interior to overhaul this outdated program.

Ensure a fair return on renewable energy (in progress)

Under a new rule the Bureau of Land Management is expected to release this year, solar and wind energy companies would have to compete for leases and pay fees to the federal government—much like non-renewable energy companies. This system will ensure companies pay fair market value for use of public resources and taxpayers receive a fair return on renewable energy development on federal lands. As renewable energy development becomes more common, establishing a competitive and transparent leasing process that delivers a fair return to taxpayers is essential.

Ensure coal companies pay to clean up after themselves (in progress)

Companies that extract coal from public lands are required to post cash or collateral insurance to guarantee they have sufficient funds to reclaim the land once mining is finished. However, the Office of Surface Mining Reclamation and Enforcement (OSMRE) and the state regulatory authorities can allow companies to “self-bond,” or promise to pay cleanup costs without a third-party surety. After three of the country’s largest coal companies, which had $2 billion of self-bonds among them, filed for bankruptcy this year, OSMRE recommended that regulatory authorities reevaluate existing self-bonds and exercise discretion when accepting new ones. Given the inevitability of more bankruptcies and the risk that self-bonding poses to reclamation of public lands, OSMRE should do everything possible to prevent self-bonding.

Stop giving away minerals on federal lands for free

Under a law that’s nearly 150 years old, companies that mine hard rock minerals from federal lands, including gold, copper, and iron, pay no royalties to the U.S. government. The law, which was passed in 1872 as part of the government’s effort to develop the American West, is clearly outdated. It has cost taxpayers billions of dollars in potential revenue. A federal royalty on hard rock minerals must be implemented to stop this blatant giveaway of public natural resources.

Be more transparent about lost natural gas

When companies extract oil and gas from federal lands, they lose millions of dollars in potential federal royalties every year from venting and flaring (burning) natural gas, as well as from unintentional gas leaks. Companies pay no royalties on these lost resources, and there is no centralized location where taxpayers can find data on how much natural gas is lost. Given these are public resources, the Bureau of Land Management should take steps to minimize venting and flaring. The BLM also should set up an online database allowing the public to view monthly aggregated data on lost natural gas.