Study: CBO Underestimated the Potential Leasing Revenue from Expanded Oil and Gas Lands by Billions!!!
IER released a new study today, authored by Louisiana State University economist Joseph Mason. The report finds that the Congressional Budget Office underestimated – by the billions of dollars – the potential leasing revenue from expanded oil and gas leasing on federal lands.
Not only did CBO miss the mark with revenues, it also failed to look at the GDP ($127 bil. annually), employment (550k new jobs) and wage benefits ($32 bil. in wage increases) that would result in the next 7 years alone from opening up public land that’s currently off limits to oil and gas leasing.
While headlines have reported a boom in US oil and gas production, that boom has been related exclusively to exploration and development on private and state lands and waters. Even that limited expansion has had profound effects. Opening up Federal resources — in addition to private and state resources — to exploration and development can accelerate all of those trends. But recent administrations have yet to follow through on promises to allow access to Federal resources, instead proposing to levy increased taxes on oil and gas production.The Congressional Budget Office (CBO), at the request of the House Budget Committee, recently released an analysis of lease revenues that could be expected to arise from a proposal to open Federal lands and waters to oil and gas leasing (the “CBO Assessment”). Specifically, the proposal aims to open areas that are statutorily or as a matter of administration policy prohibited from leasing. The issue has repeatedly been a hot-button political and economic issue in the last several years, most recently at the beginning of the Obama administration and then again as Republican challengers in the 2012 election placed opening the lands and waters at the center of their energy policy.
But while the Administration cannot shy away from exploring the fiscal benefits of opening Federal lands, the CBO study was restricted to analyzing just one component of those benefits: lease revenues. This paper highlights the larger economic effects, including economic growth, wages, jobs, and both federal and state and local tax revenues, of opening Federal lands and waters to oil and gas leasing, relying solely upon the CBO natural resource and oil and gas price estimates to show these broader economic effects in order to maintain direct comparability with their analysis. This paper also seeks to “complete” the CBO Assessment by taking measurements of output, jobs, wages and tax revenues into consideration.
The findings of this paper demonstrate that opening federal land that is currently closed-off because of statutory or administrative action would lead to broad- based economic stimulus, including increasing GDP, employment, and wages. Specifically:
• $127 billion annually for the next seven years.
• $450 billion annually in the next thirty years.
• $14.4 trillion cumulative increase in economic activity over the next thirty-seven years.
• 552,000 jobs annually over the next seven years.
• Almost 2 million jobs annually over the next thirty years.
• $32 billion increase in annual wages over the next seven years.
• $115 billion annually between seven and thirty years.
• $3.7 trillion cumulative increase over thirty-seven years.
Increase in tax revenue:
• $2.7 trillion increase in federal tax revenues over thirty-seven years.
• $1.1 trillion in state and local tax revenues over thirty-seven years.
• $24 billion annual federal tax revenue over the next seven years, $86 billion annually thereafter.
• $10.3 billion annual state and local tax revenue over the next seven years, $35.5 billion annually thereafter.
This paper illustrates that Congress has chosen to evaluate only one small piece of the economic effect of opening federal tracts to oil and gas leasing. By ignoring the investment phase, the CBO — upon the instruction of Congress — substantially underestimates the economic effects of current policy choices. Moreover, by focusing on lease revenue and ignoring the potential for increased tax revenue, Congress has doubly downplayed the fiscal effects of such a policy. By failing yet again to analyze jobs, wages, and output, Congress ignores the crucial economic reality that freeing resources can help our economy grow beyond the recent recession and its continuing drag upon economic growth.
As Congress again turns its attention to the means through which our ongoing budget crises – from the debt limit to budget sequesters to the simple act of funding our government beyond the current continuing resolution – there will no doubt be renewed efforts to address revenue concerns by punitively taxing the oil and gas industry in pursuit of modest revenue gains. As this analysis notes, though, the revenue potential inherent to expanding access to resources found on Federal lands and waters is orders of magnitude greater than that which is measured by the CBO.