President Donald Trump has pitched using royalties from energy production on federal lands to help fund new infrastructure projects. Lawmakers say the idea could work, but low energy prices and existing guidelines for how royalties are appropriated could limit contributions to infrastructure investment.
In its "America First Energy Plan," the Trump administration said the U.S. should use revenues on energy production to rebuild roads, schools, bridges and public infrastructure, including parts of the electric grid. Trump made infrastructure development, including the removal of permitting barriers, a major focus of his campaign. The America-first plan provided estimates from the book "Fueling Freedom: Exposing the Mad War on Energy" — co-authored by Trump energy adviser Kathleen Hartnett White — that the U.S. contains $50 trillion worth of energy resources on federal lands and waters.
Much of the royalty revenue from federal energy leases goes to states and a reclamation fund, but key lawmakers said the plan is feasible.
"Theoretically it can be done," U.S. Rep. Rob Bishop, R-Utah, chairman of the House Natural Resources Committee, said Jan. 27. "Congress has to be involved," he added, with lawmakers needed to authorize using royalties for a particular purpose.
If Congress approves the plan, Bishop said the government could increase royalty revenue by growing energy production in federal areas and making more land available for development, a goal the new administration could advance by simplifying the approval process for new energy projects. On Jan. 24, Trump signed an executive order directing agencies to streamline and expedite the review process for infrastructure projects, including pipelines.
But skeptics have questioned how much more energy will be extracted from public lands in the current market environment. The Center for Western Priorities, a conservation group focused on land and water protection, reported that of the 29 million acres of public lands the U.S. Bureau of Land Management auctioned for oil and gas development between 2009 and 2015, only 7 million acres received bids from energy companies.
Raising royalty rates or acreage rental fees could generate more revenue, but Republicans have resisted those efforts. The Obama administration introduced an advanced notice of public rulemaking in 2015 to accept ideas on how to reform the BLM's royalty rates, bonding requirements, minimum bids and rental fees for its oil and gas leasing program. The initiative was not completed before President Barack Obama left office in January, and GOP lawmakers have fought attempts to raise royalty rates on federal energy production, even though they lag the rates many states and private landowners charge, according to an analysis from the Center for American Progress.
The Republican-led House Appropriations Committee included a provision in its fiscal year 2017 interior and environment spending bill to block BLM from changing royalty rates or product valuation rules for the federal coal, oil and gas leasing programs.
In addition, much of the royalties from energy production on public lands goes to states and not the federal government. Money from energy royalties and rental fees initially goes to the U.S. Treasury, but the Mineral Lands Leasing Act of 1920 requires that 50% of the funds are allocated to the states where the land of mineral deposit is located. Another 40% is set aside for a reclamation fund that provides water for arid western states, with the remaining money going to a general Treasury fund. Money from offshore royalties goes to the federal Land and Water Conservation Fund.
Pressure on energy prices, particularly crude oil, could also constrain the federal leasing program's contributions to infrastructure spending. The prompt-month NYMEX Brent crude futures contract is below $60/barrel compared with more than $100/bbl in the middle of 2014. In fiscal year 2016, the U.S. government collected almost $6.0 billion in revenues from royalties, rental costs and other fees from energy production on federal and American Indian lands, the lowest level since at least fiscal year 2004 and down from over $14 billion in fiscal year 2013, according to the U.S. Energy Information Administration.
But funding from energy royalties is not the president's only idea for spurring infrastructure investment. During his campaign, Trump proposed creating tax credits for privately funded infrastructure projects and giving companies the option to offset repatriation taxes by investing in new infrastructure. That plan contrasts with a recent infrastructure proposal from Senate Democrats that would largely rely on direct federal spending.