The Biden administration has issued a final rule that mandates oil and gas companies to pay higher costs for drilling on federal lands and adhere to stricter cleanup standards for old or abandoned wells. Under the new regulations announced by the Interior Department, the royalty rates for oil drilling on federal lands have increased from 12.5% to 16.67%. This rate change, the first in a century, aligns with the 2022 climate law enacted by Congress, aiming to provide a better return to U.S. taxpayers and to enhance responsible leasing practices.
Additionally, the rule imposes a significant hike in the minimum leasing bond from $10,000 to $150,000. This increased bond is designed to ensure that companies fulfill their cleanup duties at drilling sites, addressing a long-standing issue where taxpayers often bore the cost of environmental remediation for abandoned sites.
The adjustments to the federal oil and gas leasing program, described by Interior Secretary Deb Haaland as the most significant in decades, are intended to reduce wasteful drilling and environmental risks. While the new policy does not ban new drilling on federal lands—a key demand of many environmentalists—it does aim to concentrate drilling in areas with existing infrastructure and high resource potential, potentially reducing the environmental footprint.
The rule also includes provisions from the 2021 infrastructure law and an Interior Department report that advocated for limiting available areas for energy development and increasing costs for drilling on public lands. The increased royalty rate is expected to be in effect until August 2032, projected to raise drilling costs by approximately $1.8 billion during this period.