Working Paper: NBER ID: w28564
Authors: Brian C. Prest; James H. Stock
Abstract: In 2019, production on federal lands comprised 40% of domestic coal, 22% of domestic oil, and 12% of domestic natural gas production. Currently, the federal fossil fuel leasing program does not consider the climate costs of burning federal fossil fuels. One way to do so is through a climate royalty surcharge in addition to the current royalty rate, set in 1920, of 12.5% (18.75% offshore). We consider determining this surcharge by maximizing revenue, maximizing welfare, or setting royalties to achieve 80% of the emissions reductions of an outright leasing ban. Using the model in Prest (2021), we calculate the resulting surcharges and their implications. We estimate that all three approaches would lead to meaningful declines in global emissions, and the first two would substantially increase royalty receipts, which are split with the state of production. For example, we estimate that choosing a common royalty rate to maximize revenues yields a climate royalty surcharge of 39%, increases annual royalty receipts by $6.2B, and reduces global emissions by 37 to 63 MMton CO2e/year.
Keywords: No keywords provided
JEL Codes: H23; Q35; Q38; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| climate royalty surcharge (H27) | global emissions (F64) |
| climate royalty surcharge (H27) | federal production (D20) |
| federal production (D20) | market prices (P22) |
| market prices (P22) | overall consumption of fossil fuels (Q35) |
| climate royalty surcharge (H27) | royalty receipts (D33) |
| climate royalty surcharge (H27) | welfare implications (I30) |
| federal production (D20) | non-federal production (D20) |
| non-federal production (D20) | overall emissions (Q52) |
| climate royalty surcharge (H27) | emissions reductions (Q52) |