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Joe Biden hits US oil drillers with first royalty rate increase in a century

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The Biden administration has increased the cost of oil and gas drilling on public lands, raising royalty rates for the first time in a century as part of a sweeping crackdown on the industry ahead of November’s election. 

The Bureau of Land Management said on Friday it had finalised a rule to raise the royalties drillers must pay to the government for the first time since 1920 and the bonds needed to cover the cost of clean-ups for the first time since 1960. 

“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public, and protect taxpayers from being saddled with the costs of environmental clean-ups,” said Deb Haaland, interior secretary.

The rule comes as President Joe Biden toughens his stance on fossil fuel producers in a bid to mobilise progressive voters in the run-up to this year’s presidential election. His administration also recently moved to restrict offshore drilling leases and froze permits for new liquefied natural gas infrastructure. 

But the royalty rise also comes as crude oil prices increase amid fears of supply disruptions due to turmoil in the Middle East — factors that have already pushed up US petrol prices and boosted inflation, just as Biden tries to sell his economic record to voters.

Brent crude, the international benchmark, traded as high as $92 a barrel on Friday after breaking above $90/b last week for the first time since October. Average US petrol prices are now $3.63 a gallon, up about 15 per cent since the start of the year.

Biden pledged on the campaign trail to lead a transition away from fossil fuels, but he has since urged more drilling to stem rising prices. US oil and gas production under his presidency has outstripped that of any country in history.

But energy has nonetheless emerged as a battleground in the election, with Donald Trump vowing to unshackle the industry and “drill, drill, drill” if he is returned to the White House.

While the regulations unveiled on Friday only apply to public lands, which make up less than 10 per cent of US production, the announcement immediately drew criticism from fossil fuel groups and their Republican allies in Congress.

John Barrasso, the top Republican on the Senate energy and natural resources committee, slammed Biden for “doing all he can to make it economically impossible to produce energy on federal lands”.

“Less oil and natural gas from federal lands means fewer jobs for Americans and, almost certainly, more money to the Middle East, Venezuela, Russia and Iran,” said Barrasso. 

Royalty rates will rise from 12.5 per cent to 16.67 per cent, in line with a change first mandated by the Inflation Reduction Act, Biden’s landmark climate law. Minimum bond requirements, used to pay for the clean-up of abandoned wells, will rise from $10,000 to $150,000 for an individual lease.

Friday’s rule is the latest of several climate rules by federal agencies as Biden races to wrap up his regulatory agenda ahead of November’s vote.

This week, the Environmental Protection Agency issued rules setting a limit on toxic pollution from chemical plants and stripping cancer-causing chemicals from tap water.

Last month, the agency released final regulations capping car and truck emissions and earlier this year brought out a rule clamping down on the most deadly forms of air pollution from factories and power plants. 

Although the rule was broadly welcomed by climate campaigners, it was criticised as inadequate by some who argued it did not go far enough.

Friends of the Earth, an environmental group, said that while it supported the new royalty rate rise as a way to “curb financial giveaways to Big Oil”, the rule failed “to confront the massive tide of climate emissions stemming from [the interior department’s] leasing programme”.

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