Climate Royalty Surcharges

Brian Prest and James Stock

No 28564, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 2019, production on federal lands comprised 40% of domestic coal, 22% of domestic oil, and 12% of domestic natural gas production. Currently, the federal fossil fuel leasing program does not consider the climate costs of burning federal fossil fuels. One way to do so is through a climate royalty surcharge in addition to the current royalty rate, set in 1920, of 12.5% (18.75% offshore). We consider determining this surcharge by maximizing revenue, maximizing welfare, or setting royalties to achieve 80% of the emissions reductions of an outright leasing ban. Using the model in Prest (2021), we calculate the resulting surcharges and their implications. We estimate that all three approaches would lead to meaningful declines in global emissions, and the first two would substantially increase royalty receipts, which are split with the state of production. For example, we estimate that choosing a common royalty rate to maximize revenues yields a climate royalty surcharge of 39%, increases annual royalty receipts by $6.2B, and reduces global emissions by 37 to 63 MMton CO2e/year.

JEL-codes: H23 Q35 Q38 Q54 Q58 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-ene and nep-env
Note: EEE
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published as Brian C. Prest & James H. Stock, 2023. "Climate royalty surcharges," Journal of Environmental Economics and Management, .

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Related works:
Journal Article: Climate royalty surcharges (2023)
Working Paper: Climate Royalty Surcharges (2021)
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