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Federal Lands and Fossil Fuels: Maximizing Social Welfare in Federal Energy Leasing

August 2019

Citation: 49 ELR 10729

Issue: 8

Author: Jayni Foley Hein

The externality costs of fossil fuel production—including pollution costs—are not accounted for under the U.S. Department of the Interior’s (Interior) coal, oil, and natural gas leasing programs. This results in fossil fuel production on public lands imposing significant social costs. Interior’s leasing programs have never been tailored to meet any past or present climate change goals, despite their significant contribution to domestic greenhouse gas emissions. Moreover, several government studies show that federal fossil fuel leasing programs are riddled with loopholes and stagnant fiscal terms that shortchange federal taxpayers, to whom the nation’s minerals belong. This Article presents a path forward for Interior’s fossil fuel leasing programs that would instill more rationality into the process, with the goal of maximizing social welfare. This Article argues that Interior should account for all the costs and benefits of leasing—including environmental and social costs—and adjust the fiscal terms of its fossil fuel leases to recoup unmitigated externality costs. In doing so, Interior can arrive at a social-welfare maximizing leasing program. The tools and reforms suggested in this Article would likely have the effect of reducing production on marginal tracts where the cost of production would outweigh the benefits. Additionally, these tools and reforms could earn states, the federal government, and taxpayers more revenue from the resources they own while reducing greenhouse gas emissions, illustrating the utility of using fiscal reform as a policy lever in the absence of comprehensive climate change legislation.

Jayni Foley Hein is the Natural Resources Director at the Institute for Policy Integrity, New York University School of Law, and is an Adjunct Professor of Law, New York University School of Law. 

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