In his quest for more revenue, President Obama seems willing to push us off the fiscal cliff. But there is a way to generate massive new revenues without raising taxes.
Sitting under federal land right now, begging to be tapped, are hundreds of billions of dollars — and only the president can approve it.
While campaigning for re-election, Obama repeatedly claimed that oil and natural gas extraction had increased during his first term. That statement was technically correct, but almost all of that growth came from drilling on privately owned land, which the federal government does not control.
Where the federal government does have control — federal lands and offshore, as in the Gulf of Mexico — the president has opposed, delayed or slow-walked any efforts to expand energy extraction.
How bad has it been? Nobel Royalties Inc., an oil and gas acquisitions company, has released a study examining the decline in drilling on federal lands under the Obama administration. Using Bureau of Land Management statistics, the study found that in the lower 48 states there were 126.6 million cumulative federal acres leased in 1984 compared to just 38.9 million in 2010. That's a 30-year low.
The study also asserts that on federal lands, 91% of resources are either inaccessible or restricted due to the government.
Oil and gas companies pay royalties to the federal government when they drill on federal land. If the Obama administration opened up this land for energy development, the new royalties generated could add up to hundreds of billions of dollars.
A 2011 study from the consulting firm Wood Mackenzie found that "U.S. policies which encourage the development of new and existing resources could, by 2030, increase domestic oil and natural gas production by over 10 million BOED (barrels of oil equivalent per day) ... and raise over $800 billion of cumulative additional government revenue."
Since that study oil and gas projections have increased significantly based on new extraction technologies, so it may be unintentionally low-balling the real numbers.
In its economic projections, Nobel Royalties estimated that if the administration were to simply allow leasing to gradually trend upward to normal patterns, the federal government would take in $442 billion in royalties from federal land between 2013 and 2042. And it would get $363 billion in royalties from offshore projects.
That's a total of $785 billion in new revenue going directly into federal coffers.
That, too, could be an underestimation. Once drilling on federal lands is fully operational and production levels have peaked, annual royalty payments could reach $100 billion. That would put federal royalty income at $1 trillion over 10 years — the exact amount of new revenue that Speaker John Boehner has proposed in the fiscal cliff negotiations.
And, remember, expanding federal leasing would generate that huge amount of new revenue without raising a dime in taxes.
Leasing royalties are just the tip of the economic iceberg. The Wood Mackenzie study projects that expanded federal land for energy development would create 1.4 million new jobs. And the Nobel Royalties study estimates that the economic activity from expanded production would generate about $1 trillion in tax revenue by 2042.
And these new positions would not be like Obama's amorphous "green" energy jobs. These would be secure, well-compensated employment opportunities.
In addition to expanding access to federally owned energy deposits, the White House could drive up federal revenues by allowing American energy companies to export natural gas. Domestic natural gas production is far outpacing demand. Other countries facing much lower supplies, and therefore higher prices, are interested in buying from American companies.
But exporting liquefied natural gas (LNG) — liquefaction makes it possible to transport — has yet to be fully federally approved. Government regulators had been waiting for a federally commissioned study assessing the economic effects of exports before making a final decision.
That report was recently released. It determined that the benefits of exporting LNG greatly outweighed any potential downsides. Opening up foreign markets to American-made natural gas would fuel further expansion in the American energy sector, leading to even higher federal tax and royalty revenues.
If Obama wants more federal revenue, he can have it without raising taxes. Just relax the restrictions on drilling on federal lands and offshore and let natural gas companies export abroad. The new revenue from taxes and royalties would be huge, there would be a job explosion and the economy would get a boost.
And future generations would fondly remember the Obama years as a time of economic growth rather than stagnation.