Climate Royalty Surcharges

An examination of the use, determination, and implications of a surcharge on oil and gas production on federal lands to achieve emission reductions and climate goals.

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Date

March 15, 2021 (Updated January 4, 2022)

Authors

Brian Prest and James Stock

Publication

Working Paper

Reading time

1 minute

Abstract

Concerns about climate change have led to calls for reforming or eliminating the extensive US federal fossil fuel leasing program. One proposed reform is adding a climate surcharge to the existing royalty rate, but what precisely that surcharge should be is unclear. 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. 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.

A previous version of this paper was originally published as part of the National Bureau of Economic Research working paper series.

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