A little-known federal advisory committee, the Royalty Policy Committee (RPC), is quietly proposing to reduce the amount of money that oil and gas companies would have to pay states, tribal governments, and U.S. taxpayers for the rights to drill on federal and tribal lands and waters, as well as further prevent public oversight of oil and gas development on public lands. Members of the RPC, who were hand-picked by Secretary of the Interior Ryan Zinke in October, are expected to vote on this radical rewrite of federal public lands management policy in a meeting this week. If Secretary Zinke adopts the committee’s recommendations, these measures would deliver financial benefits to the individuals, companies, and trade associations that dominate the committee. The focus of this upcoming meeting makes plain that the RPC is simultaneously falling short of its mission while also exceeding the scope of its charter.
An October Center for American Progress analysis of the RPC found the companies represented on the committee would have compensated taxpayers at least an additional $2.1 billion if the onshore royalty rate had been raised from 12.50 percent to 18.75 percent over the previous four years. Since Secretary Zinke first convened the RPC, at least three additional allies of the fossil fuel industry have been present at subcommittee meetings representing organizations not initially appointed to the RPC.
The RPC previously sent Secretary Zinke recommendations with broader implications than royalty rates alone. Significantly, these recommendations supported Trump administration priorities such as drilling in the Arctic National Wildlife Refuge, expanding offshore drilling, and boosting the coal industry. This week, the RPC is planning to vote on additional recommendations that take swipes at public scrutiny and environmental reviews of oil and gas leases on public lands; expand opportunities for industry to not pay royalties; and propose changing regulations designed to ensure accurate reporting and calculations of royalty payments. These recommendations exceed the scope of the RPC’s charter, and—if adopted—would put industry’s wish list ahead of public interests in providing for other economic development opportunities on public lands. Such actions could ignite a firestorm of criticism from state, tribal, and local governments; be highly vulnerable to legal challenge; invite congressional oversight and investigations of conflicts of interest; and further erode Secretary Zinke’s fragile public image.
While the fallout from this week’s vote remains to be seen, Zinke has already faced pressure from his response to past RPC recommendations. The industries’ self-serving suggestions went too far last time when the RPC blatantly recommended that the U.S. Department of Industry (DOI) lower royalty rates for offshore oil and gas leases, a move that would pad industry pockets without benefit to taxpayers. Even Secretary Zinke—an avowed supporter of the fossil fuel industry—had to save face by publicly dismissing the request.
A tale of two leases
The onshore royalty rate affects the amount industry pays on U.S. public lands, which are already low compared to rates on state and private land. This disparity shortchanges Western communities and U.S. taxpayers. In New Mexico, where representatives of Anadarko Petroleum Corporation, Royal Dutch Shell PLC, Chevron Corp., and other oil industry allies will convene this week for the RPC meeting, the fiscal irrationality of current federal oil and gas leasing policy is evident.
Lea County, New Mexico, just north of the Texas border, shares access to the oil-rich Permian Basin with Loving County, Texas, but the royalties paid by the companies that drill the formation vary widely. In New Mexico, for example, a company that specializes in bidding on behalf of other companies obtained an oil and gas lease on federal land in December 2017. The company that holds the lease—which could be the bidder or another company that paid the bidder to bid—will now pay a 12.50 percent royalty to American taxpayers on the oil and gas it extracts from this particular parcel. But fewer than 5 miles away, on Texas state land, a lease in the very same oil and gas formation dictates a 100 percent higher royalty rate to the Texas taxpayers. This is because Texas—one of the most prolific oil and gas states in the country—charges a 25.0 percent royalty rate, while the federal government requires only 12.50 percent.
The RPC’s people problem
As the situation in New Mexico and Texas makes clear, U.S. royalty policy is in need of an update. But the RPC’s members are on the brink of voting on another round of recommendations that would further shortchange taxpayers and favor industry at the expense of the public. In what appears to be a response to criticism that it failed to include public interest representation, the DOI invited The Heritage Foundation, a conservative think tank, and Americans for Tax Reform, a right-of-center advocacy group, to join the RPC subcommittee meetings. But this is hardly a solution, as both of these groups share the oil and gas industry’s dominant view on production. The Heritage Foundation, for instance, has repeated the Trump administration’s “energy dominance” rhetoric and written a report denying the widely accepted science on climate change, a view contrary to that of the majority of Americans but similar to some in President Trump’s cabinet. Americans for Tax Reform has financial ties to the billionaire Koch brothers, who made their fortune in industry and deny the existence of climate change, and the American Petroleum Institute. The group’s positions on energy policy are enthusiastically pro-fossil fuel production, but little if any analysis of oil and gas royalty policy appears on its website. Rather than represent the public interest, it is far more likely that these two groups will create an echo chamber of agreement on existing RPC recommendations.
To make matters worse, summaries of nonpublic meeting have recorded that people not listed as RPC members or alternates have been participating in subcommittee meetings. These unannounced additions included a representative of the American Petroleum Institute (API), an influential fossil fuels industry association. According to the agenda for the upcoming full RPC meeting on June 6, 2018, the API representative will be presenting information on behalf of one of the subcommittees.
The RPC’s transparency problem
Industry group representatives not only fill the committee, show up at meetings, and make presentations, they also help write RPC recommendations. According to documents obtained through a Freedom of Information Act request by HuffPost, draft recommendations considered by an RPC subcommittee were authored by an employee of an oil and gas industry group. Secretary Zinke has already acted on one these recommendations: ceasing to plan local drilling sites according to local community concerns.
Thus far, the full-day RPC meetings have welcomed public input for half an hour each. The more frequent and substantive subcommittee meetings are not open to the public, and the RPC website publishes summaries of these meetings weeks after they take place. But the summaries themselves are of limited usefulness to outside observers trying to understand what transpired between the committee members behind closed doors. For instance, summaries of the subcommittee discussions sporadically refer to the idea that reductions in royalty payments will encourage higher levels of fossil fuel production from federal lands. But this is not consistent with federal law, which requires that payments on publicly owned fossil fuels to taxpayers reflect fair market value, not be used as tools to increase production. If the subcommittee is indeed recommending reducing royalty payments in order to boost fossil fuel production, the DOI should beware. Not only do government reports not support the theory that oil and gas production would rise due to cuts in royalty rates, the RPC could be recommending an action that goes against the law.
Contrary to its founding mandate, the RPC is not ensuring that taxpayers receive a fair return on the energy extracted from public lands. In fact, this week’s meeting agenda indicates that the Fair Return and Value Subcommittee does not currently have any recommendations for the RPC to consider. Rather, the industry-heavy committee is looking out for their own interests. Given the committee’s past actions, it seems likely that, at its meeting this week, RPC members will vote for recommendations that favor oil and gas companies and continue the Trump administration’s legacy of putting multibillion-dollar industries ahead of the American people.
Mary Ellen Kustin is the director of policy for Public Lands at the Center for American Progress.
The author would like to thank Matt Lee-Ashley, Nicole Gentile, and Emily Haynes for their contributions to this column.