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Leasing, permitting just part of climate debate

ALBUQUERQUE, N.M. — The oil and gas industry is fighting for its future as climate debate and prospects for massive government action to decarbonize the economy sweep the nation.

President Joe Biden

President Joe Biden has made battling climate change not just a top priority, but possibly the No. 1 national security issue today, with climate concerns now woven into virtually every government policy and program. That includes a new proposal last week to spend at least $2 trillion on a massive initiative to modernize the nation’s infrastructure. Clean energy development and carbon reduction is central to the proposal, backed by a new Energy Efficiency and Clean Electricity Standard to accelerate the country’s transition to a low- or no-carbon economy.

A new national standard – combined with a broad range of other potential policies such as a tax on carbon emissions and efforts to convert the nation to an all-electric transportation system over the next two-to-three decades – would mean comprehensive changes in nearly every industry. And, with oil and gas production and consumption accounting for the majority of today’s carbon emissions, fossil fuel companies are facing a possible onslaught of new rules, regulations and mandates that could fundamentally transform the industry, if not outright end many of today’s energy operations.

The current battle over oil and gas leasing and permitting on federal lands and waters is just an opening salvo in the climate debate that’s pushing the industry into a head-on confrontation with the Biden administration, the Democratic-controlled U.S. Congress, and environmental organizations over the future of U.S. energy production.

Biden ordered an indefinite “pause” in January on new leasing to allow the U.S. Department of the Interior to conduct a comprehensive review of current policies and programs and make recommendations that could include sweeping reforms to future management of federal lands and waters.

Historic forum

Interior held a first-ever national forum March 25 with representatives from industry, labor, environmental, tribal and other groups to gather input for an interim report the department will release this summer. During the forum, Interior officials made it clear they’re considering a sharp departure from past policies to place much greater emphasis on environmental concerns.

Deb Haaland,

“Fossil fuels will continue to play a major role in America for years to come, but too often the extraction of resources has been rushed to meet the false urgency of political timetables, rather than with careful consideration for the impacts on current or future generations,” Interior Secretary Deb Haaland told forum participants.

Principal Deputy Assistant Secretary for Land and Minerals Management Laura Daniel-Davis said the Biden administration’s focus on carbon reduction is at the heart of everything.

“For us at the Interior Department, President Biden’s commitment to tackling climate change is the thread that runs through all our efforts,” Daniel-Davis told the forum.

Laura Daniel-Davis

One quarter of all greenhouse gas emissions in the U.S. comes from mineral production on federal lands, Daniel-Davis said.

“It’s a major contributor to climate change,” she said. “We need to restore balance and provide a path to align (Interior policies) with the nation’s climate and clean energy goals.”

Industry is concerned the current pause on leasing could be converted into a permanent ban on new activities going forward. If true, it would have a huge impact on New Mexico’s economy, since most oil and gas production here is concentrated on federal lands, contributing more than $1 billion annually to the state’s operating budget and supporting tens of thousands of direct and indirect jobs.

Pump jacks stand scatted throughout the area of Loco Hills between Artesia and Hobbs. (Roberto E. Rosales/Albuquerque Journal)

Industry leaders say the leasing pause is already impacting operations. Widespread uncertainty makes producers reluctant to commit to new investments until federal policies become clear, said Jason Sandel of Aztec Well Family Services near Farmington in a New Mexico Oil and Gas Association press call following Interior’s national forum.

An area cleared of natural vegetation in order to drill an oil well near Jal in March 2018. Roberto E. Rosales/Albuquerque Journal.

“The longer this policy uncertainty lasts, the harder it will be on businesses like mine,” Sandel said.

National labor leaders also implored Interior to reject a leasing ban and immediately lift the pause.

Sean McGarvey

“We must ask if an outright ban on federal leases is the best first step without addressing the downstream job impacts,” said North America’s Building Trade Unions President Sean McGarvey during the Interior forum. “The last bastions of middle-class employment are in gas and oil, petrochemicals, and power generation.”

Reform, not ban?

So far, Interior seems more inclined to fundamentally reform federal leasing and permitting programs, not ban them, and if the department did recommend a complete halt to new development, it would likely need congressional approval. But even if the pause is lifted, reforms under consideration could still impose significant restrictions on future development.

For one thing, Biden set a “30-by-30” goal in January to conserve at least 30% of public lands and oceans by 2030, which could mean restricting fossil fuel development on at least one-third of all available federal acreage to protect natural and cultural resources while pursuing other uses, such as recreation or renewable energy projects.

Nada Wolff Culver

In addition, oil and gas producers have already accumulated a huge amount of federal land under leases that they have yet to even use, said Nada Wolff Culver, Bureau of Land Management deputy director for policy and programs.

Producers now hold about 37,500 leases nationwide, representing 26.6 million acres of public land. But operators are using less than half that amount, with no production occurring on about 14 million acres, Culver said.

Going forward, Interior expects to open up the process of approving leases for land use to more public input, likely generating even greater pressure from environmental and conservation groups to restrict fossil fuel development and approve alternative, environmentally-friendly activities.

“There’s a number of ways we can better meet the needs of the public,” Daniel-Davis said. “We can ensure greater equity, transparency and public involvement to shore up environmental policies, provide a fair return for taxpayers, and protect sacred places. Those are things we’re looking at in the review process.”

Frank Macchiarola

Industry leaders say non-producing leases don’t mean operators have “stockpiled” public acreage. Rather, operators must first thoroughly evaluate the productive potential of those lands, which is a lengthy process, said Frank Macchiarola, the American Petroleum Institute’s senior vice resident for policy, economics, and regulatory affairs.

“It often requires several years of due diligence with all the assessments and logistics before producers can determine if there are commercial quantities of oil and gas,” Macchiarola told Interior officials. “Producers are taking a chance by acquiring the leases.”

Push for a ban

But environmental organizations say the huge lease backlog undermines industry arguments to continue leasing and permitting on federal lands. A new analysis from the Center for American Progress, for example, says operators could continue drilling at current rates for at least a decade without access to any new leases, since industry has only started production on an average of about 107,000 acres annually over the past five years.

And with enough leases in hand to last until at least 2030, no new ones should be granted, because it would undermine long-term goals for a low- or no-carbon economy, said Josh Axelrod, senior advocate for the Natural Resources Defense Council’s Nature Program.

“We want reforms enacted that would apply to production on leases the industry already holds today, with no new leases, so that we lay the groundwork for a transition away from fossil fuels over the next 10 to 15 years,” Axelrod told the Journal. “We need to take a longer view. If we keep leasing lands, it locks in more production at a level that’s not in line with where we’re trying to go on carbon reduction.”

During the national forum, NRDC and the environmental group Earthworks called for an immediate, permanent ban on new federal leasing.

Other mainstream environmental groups have called for extensive reforms, not a ban. That includes raising royalty rates and other fees on leased lands to provide a better return to taxpayers, higher bonding rates to finance clean up and remediation from oil and gas operations, and strict federal rules to control methane emissions.

But even those organizations not calling for a ban say they would support it if feasible.

“We want aggressive action now to reform a broken system, which the Interior Department is hearing, but they operate under legal constraints that limit their ability to do some things like immediately banning leasing and permitting,” said Jesse Prentice-Dunn, policy director for the Center for Western Priorities. “So as long as the reforms are strong enough, we’ll consider any progress as good progress.”

Industry and government officials in high-producing states will fight hard against any leasing ban. Thirteen states led by Louisiana Attorney General Jeff Landry sued the Biden administration on March 24 in the federal court’s Western District of Louisiana for an immediate end to the leasing pause.

New Mexico did not join the lawsuit. But Gov. Michelle Lujan Grisham is pushing the Interior Department to grant states credit for their own environmental policies if they achieve equal or greater success than federal regulations in lowering carbon emissions and other pollution. That could lower the economic impact on states like New Mexico that remain highly dependent on oil and gas production.

But even if the industry wins the fight to continue leasing and permitting, bigger and harder battles lie ahead, such as potential new carbon reduction mandates that Congress could approve under Biden’s proposal for an Energy Efficiency and Clean Electricity Standard. Indeed, Biden is expected to announce a national goal next month for a 50% reduction in U.S. carbon emissions by 2030 under the country’s re-entrance into the Paris Agreement on climate change. And the administration is expected to pursue mandates for 100% clean electric generation nationwide by 2035.

Those policies and more will have direct impacts on the oil and gas industry, said NRDC Western Director for Climate and Clean Energy Noah Long.

“It’s well documented where the emissions are, and oil and gas are by far the biggest problem,” Long told the Journal. “Americans and New Mexicans understand it’s time to act on climate change. We can’t say ‘let’s move to renewable energy’ on the one hand and still tap into fossil fuels on the other hand. That means a major shift, but it’s critical, and we have to act quickly and decisively.”

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