The People of America's Oil and Natural Gas Indusry

Mountain West: Environmental Leadership

Environmental Stewardship and Safe Energy Production

Geyser

Within the borders of America’s Mountain West region are some of the planet’s most unique natural wonders, from the Grand Canyon to the world’s largest concentration of geysers at Yellowstone National Park to the Great Salt Lake. These eight states are home to almost one-third of America’s 59 National Parks. The states of the Mountain West have a long and successful tradition of balancing the need to preserve the natural beauty of some of America’s most historic and storied natural wonders while safely developing the region’s abundant natural resources. The large number of national parks, in addition to military bases and other federal installations, places much of the land of the Mountain West under federal management, primarily under the authority of four agencies: the National Park Service, the Bureau of Land Management (BLM), the United States Fish and Wildlife Service and the United States Forest Service.

The Mountain West’s energy producers are at the forefront of efforts to safely and responsibly deliver the energy our nation needs all while shrinking the footprint and environmental impact of energy development operations. Advancements in technology allow the oil and natural gas industry to develop U.S. energy resources more efficiently than just a few years ago. Today’s energy development occurs on a much smaller “footprint” – the amount of surface area needed – generates less waste, and is less disruptive and more compatible with the environment. That’s critically important as the oil and natural gas industry develops more energy in the Mountain West, which is home to some of the most ecologically sensitive and unique landscapes in the world.

Less than 10 percent of BLM’s federally managed surface and mineral estate is currently leased for oil and natural gas development. And on lands administered by BLM and leased to energy companies, only a fraction of the total acreage under lease is occupied by surface operations for exploration or production – about 1 percent.

That’s not by accident. The federal government’s permitting process is cumbersome and inefficient in comparison to that of the states. For example, the average time for Colorado to issue a permit is fewer than four weeks. In contrast, because of the overly complex and burdensome permitting requirements on federal land, it took an average of 236 days just to submit all of the required paperwork required by BLM’s permit application and an additional 11 weeks to issue a decision on the permit.

The most effective energy policies are those that acknowledge the states’ long record of leadership, strong history of responsible environmental stewardship and safe energy production, as well as the fact that state regulators are positioned to determine how best to develop their energy resources based on each state’s unique geology and other characteristics.

Public vs. Private Land: Contrasts in Production Levels

Chart supporting the text: U.S. Crude Oil Production, Federal and Non-Federal Areas for years 2009 to 2013

Source: Federal data obtained from ONRR Statistics, http://www.onrr.gov (using sales year data). Non-federal from EIA. Figure created by CRS.

Between 2010 and 2014, the percentage of the nation’s crude oil produced on federal land decreased from 36.4 percent to 21.4 percent. According to BLM, the number of drilling permits issued on federally controlled onshore land dropped by 43 percent from 2008 to 2014.

Federal data show crude oil production remained flat between 2009 and 2014 on federally controlled land while natural gas production declined 35 percent. By contrast, on private and state lands, where development does not need permission from the federal government, production increased 88 percent for crude and 43 percent for natural gas.

Each year the states of the Mountain West play a critical role in our nation’s 21st century renaissance – producing 1 million barrels per day of crude oil and more than 4.8 tcf of natural gas in 2014. If they were a sovereign nation, they would collectively rank 20th in the world in oil production and sixth in natural gas production. Mountain West states produced more oil than Oman and more natural gas than Norway or Saudi Arabia.

Costly New Regulations Ignore Progress: Ozone

States of the Mountain West are sparsely populated with only a few urban centers, yet ozone regulations released by the EPA could classify large portions of their land – including pristine areas within the region’s national parks – as non-attainment areas and drastically restrict economic activity. Although ozone levels dropped 18 percent between 2000 and 2014, the new mandate lowering the ozone standards from 75 to 70 parts per billion (ppb) could increase the number of county or county equivalents not in attainment from 217 to 958, a fourfold increase. And perhaps the best example of why the ozone standards are unrealistic is that even pristine areas such as Yellowstone National Park and the Grand Canyon barely meet them. Non-attainment status means areas could be subject to restrictions that could delay or prevent job-creating activities from manufacturing and energy development to infrastructure projects like roads and bridges. In a letter to the EPA, a collection of 370 state coalitions illustrated the real-world consequences of federal actions, urging the agency to avoid moving ahead with ozone standards that could “significantly damage the economy by imposing unachievable emissions limits and reduction targets on almost every part of our country, including rural and undeveloped areas.” Made up of manufacturers, builders, contractors, road construction groups and chambers of commerce across the nation, the organizations warned, “EPA’s proposed stringent ozone standards could limit business expansion in nearly every populated region of the United States and risk the ability of U.S. companies to create new jobs.” The previous standards were the strictest in history when they were issued in 2008. Keeping the 2008 standards, which have not been fully implemented yet, would have been the prudent and least disruptive course to protect public health without further stifling job creation and economic growth. At a minimum, EPA should work to ensure that the new standard’s implementation timeline is as long as possible to spread out the negative impact on our nation’s economy.

Leading the Way in Innovations That Protect Our Environment

Chart Supporting Text: U.S. Greenhouse Gas Emissions Per Capita and per Dollar of Gross Domestic Product

Source: BEA, 2014

America’s 21st century energy renaissance has made our nation not only a global energy leader but also a leader in the reduction of greenhouse gas emissions. As a result of the greater availability of affordable, cleaner-burning domestically produced natural gas for power generation, EIA has found that carbon dioxide emissions from power plants have reached near 20-year lows.

Industry’s commitment to protecting our air is evident in our record of technological investments. While the federal government invested $110.3 billion in greenhouse gas emission reduction technologies from 2000 through 2014, the oil and natural gas industry invested $90 billion in emissions-reducing technologies, nearly as much as all other U.S.-based private industries combined and more than twice the amount invested by each of the next two individual sectors – the automobile industry ($38.2 billion) and the electric utility industry ($37.1 billion).

Even as domestic oil and natural gas production has risen dramatically, methane emissions have fallen just as dramatically, thanks to industry leadership and investment in new technologies. According to a recent EPA greenhouse gas inventory, methane emissions from hydraulically fractured natural gas wells have fallen 79 percent since 2005. Also, total methane emissions from natural gas production are down 38 percent since 2005. These dramatic reductions at a time of increased domestic energy production illustrate that the oil and natural gas industry’s technological leadership, innovation and commitment to safety, not federal government mandates or national command-and-control style regulations, are the best way to improve environmental protection without sacrificing the job creation and economic development potential of energy production. The states are the best places to provide the most protective regulatory oversight and also allow for responsible energy development. With their agency staffs’ on-the-ground experience, state rules can be tailored to address the specific characteristics of state geology, hydrology, geography, and other characteristics. In addition, states have demonstrated the ability to quickly and effectively update and adapt their environmental and safety regulations to ensure safe, reliable and environmentally sound operations while addressing changes in technology.

Duplicative federal regulations not based on facts or rooted in science risk stifling the American energy renaissance, our economy and position as a global energy leader, and threaten to reverse the substantial progress already made in reducing greenhouse gas emissions.

The Right Tax Approach

Tax reform remains a priority for many in Congress and a hot topic on the presidential campaign trail. Most can agree that our nation’s tax laws are too complex and are in need of reform, yet occasional calls for punitive taxes on the oil and natural gas industry are counterproductive. The industry delivers tens of millions of dollars per day to the federal government and in 2014 paid an average effective tax rate of 39.5 percent – compared to 28.7 percent for the S&P 500 Industrials.

Like every business in America, oil and natural gas companies are allowed to deduct operating costs when calculating their federal income tax liability. Critics call deductions like these “subsidies,” but they are standard business expenses similar to the research and development deduction used by other industries. Provisions like the deduction for intangible drilling costs (IDCs) do not affect a project’s lifetime tax liability, which remains the same regardless of when it is paid. The practice simply allows oil and natural gas companies to recover their costs more quickly and reinvest in the next well. Drilling and preparation of wells represent direct investment in the U.S. economy and the generation of energy for American consumers. Increasing oil and natural gas development means more revenue for government, more jobs for Americans, and abundant and affordable energy for consumers.

According to a 2013 Wood Mackenzie study, raising taxes on oil and natural gas production by repealing IDC could eliminate 190,000 American jobs in a single year and cut domestic production by 14 percent after 10 years. Designating winners and losers in federal tax policy in this way risks significant negative consequences for consumers, in the form of higher energy costs, fewer jobs created and – ironically – less revenue generated for government. On the other hand, increasing oil and natural gas development means more revenue, more jobs, more domestic energy production and continued American global energy leadership.

Proposals that seek to raise taxes on the oil and natural gas industry are not a smart long-term solution to the nation’s fiscal problems and would instead slow economic growth and weaken our nation’s role as a global energy leader.