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Royalty Revenue Sharing Plan Could Cost U.S. Taxpayers $49B

A proposal before congress aimed at capturing a greater share of the revenues from offshore oil and natural gas drilling for the coastal states could increase the federal debt by more than $49 billion by 2040 while penalizing coastal states that oppose expanded offshore drilling, according to areport by the Center for American Progress (CAP).

"These changes would fundamentally undermine the principle that the resources on and under public lands and waters belong to all Americans and should be shared equitably," CAP said.

Introduced earlier this year by Sens. Mary Landrieu (D-LA) and Lisa Murkowski (R-AK), the Fixing America’s Inequities with Revenues (FAIR) Act (S 1273) would give 27.5% of revenue from offshore energy development, including oil, gas, wind and other renewable energy sources, to coastal states, plus another 10% if the state creates a clean energy or conservation fund (see Daily GPI,March 20). The measure also would phase out the current congressionally mandated $500 million per year cap on revenues kept by Gulf Coast producing states.

Acost estimate by the Congressional Budget Office concluded that enacting the FAIR Act would increase direct spending by approximately $6 billion over the 2015-2023 period.

"While the Congressional Budget Office has projected that the cost of this bill would be only $6 billion, it looks out only to 2023, before the revenue sharing caps are lifted under the FAIR Act," CAP said. "Under the proposal, states such as Florida, which experienced extensive damage from the Deepwater Horizon oil spill despite having a moratorium on drilling near its coast, would be ineligible to receive any type of offshore energy revenue, conventional or renewable, from the OCS [outer continental shelf]."

The study also concluded that the FAIR Act "would result in a significant and arguably inequitable windfall for a handful of states," with federal energy payments to Louisiana increasing nearly $2 billion per year by 2025.

"This imbalance appears particularly indefensible in light of the fact that OCS resources belong to all Americans," CAP said. "Unlike onshore federal lands, OCS lands lie outside state boundaries, and the federal government is responsible for the full cost of their management, safety and environmental protection.”

CAP recommended that Congress set aside the FAIR Act and instead establish a new mitigation fee that oil and gas companies would pay when drilling in the OCS, with the money being used to cover the costs of environmental damage related to offshore oil and gas development. Congress should also create "a true conservation royalty by using OCS revenues to fully and permanently fund America's premier conservation program, the Land and Water Conservation Fund," CAP said.

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