In March 2021, the National Bureau of Economic Research (NBER) released a new working paper titled “Climate Royalty Surcharges.” The paper proposes potential carbon fees that could be added onto existing royalty rates to increase revenue from the federal fossil fuel leasing program and lower greenhouse gas emissions.[1] On January 27, 2021, President Biden issued Executive Order 14008, which paused new oil and gas leases on federal lands and waters while the administration reviews the environmental impacts of the federal leasing program. This review includes considering “whether to adjust royalties associated with coal, oil, and gas resources extracted from public lands and offshore waters, or take other appropriate action, to account for corresponding climate costs.”

Set in 1920 when the leasing program was established, the royalty rate on revenue generated from onshore oil and gas leases is 12.5% (18.75% offshore). Half of the revenues are allocated to the state the lease is in. According to the report, the program is projected to generate an average of $9.6 billion/year from 2020 to 2050 under the current rates, assuming the pause is lifted. However, a "climate surcharge" for fossil fuel leases of $22 per ton of CO2 equivalent would generate an estimated $14.2 billion/year on average from 2020 to 2050. It would also reduce emissions by about 32 million metric tons of CO2 equivalent. While $22 per ton of CO2 equivalent generated the most revenue, the report found that higher climate surcharges would further reduce emissions while still generating more revenue than current rates. In total, the paper’s proposed surcharges would bring royalties to approximately 39% to 51.5%.

[1] https://www.nber.org/system/files/working_papers/w28564/w28564.pdf