Selling Federal Assets

by on January 23, 2013 at 7:31 am in Data Source, Economics | Permalink

According to The Institute for Energy Research the Federal government owns oil and gas worth on the order of $128 trillion. I suspect that these numbers are optimistic. Nevertheless, some judicious sales of land and assets (and to its credit the Obama administration has made some small steps in this direction) would be wise.

Federal assets below the ground are primarily mineral and energy resources, such as oil, natural gas, and coal.  For example, the United States owns millions of acres and billions of barrels of oil that can be developed on federal lands and waters. Currently, the government leases only 2 percent of federal offshore areas and less than 6 percent of federal onshore lands for oil and natural gas production. Areas that the federal government could open to oil and gas development include:

These technically recoverable resources total 1,194 billion barrels of oil and 2,150 trillion cubic feet of natural gas that is owned by the federal taxpayer. At $100.00 per barrel of oil and $4.00 per thousand cubic feet of natural gas, the oil resources are worth $119.4 trillion and the natural gas resources are worth $8.6 trillion for a grand total of $128 trillion, or about 8 times the U.S. national debt.[iii]

Hat tip: Robert Murphy.

Dan January 23, 2013 at 7:51 am

Oil is worth about $100 per barrel in the pipeline. What is it worth in an unexplored oil bearing geological formation?

Finch January 23, 2013 at 10:46 am

It depends greatly on the degree of knowledge and development. It rises with each step in that process. So it’s difficult to say for that whole list in aggregate. It’s almost certainly worth less than $100 per barrel now, but still probably quite a lot.

joan January 23, 2013 at 10:25 pm

If all or even a fraction of these were developed oil would not be worth $100 a barrel even in the pipeline

Ricardo January 24, 2013 at 12:01 am

On the other hand, some of this oil cannot be extracted at a profit for the price of $100 per barrel. Costs start increasing considerably the further down you have to drill and the more work you have to do to extract and process the oil. Cheap natural gas is going to the biggest non-political factor that leads to a lot of this oil staying right where it is.

To January 23, 2013 at 7:58 am

Say what you want, I like all that carbon where it is instead of in the atmosphere.

The Anti-Gnostic January 23, 2013 at 8:43 am

Too bad. We’ve got bills to pay and 1.5M immigrants a year who want US living standards and they get old and sick too.

To January 23, 2013 at 8:57 am

…so we’re a third-world country with no other resources than natural ones, now ? I knew it.

derek January 23, 2013 at 11:46 am

Well all those trips to Davos and the TED conferences take some hydrocarbons, aluminum and other raw materials. I suppose you could get some poor black sucker in Africa to dig it out for you.

john personna January 23, 2013 at 9:03 am

Balanced against those grand-kids who wonder where “their” oil went?

jdm January 23, 2013 at 9:10 am

“We’ve got bills to pay”

Yes.They include a very tiny down payment on eventual costs of rising sea levels and more severe hurricanes in the form of a check to NY and NJ for 70 billion, and another 15 billion to the federal crop insurance program to cover losses from the Midwestern drought. These are two costs one can name off the top of one’s head, in a single year, for one country, stemming from the very early stages of climate change. There are many other real costs to infrastructure, crops, forests, coastal regions (eg the water infrastructure in Texas will need massive investments to cope with the drought) which are not in the headlines but for which we will certainly pay. Promoting carbon burning without aggressively promoting a carbon tax to account for the real costs is just bad accounting.

superflat January 23, 2013 at 9:57 am

yeah, there were no hurricanes or droughts before we started warming the earth, and if we stop warming the earth, there will be no more hurricanes or droughts! even if you believe climate change will increase hurricanes and droughts, not all costs of all hurricanes and droughts can be attributed to climate change, for obvious reasons.

axa January 23, 2013 at 10:52 am

more severe hurricanes? stop living by the sea. you’re not a tree you can move. people from tiny islands have no alternatives but NY? please……

byomtov January 23, 2013 at 11:54 am

There’s libertarianism in a nutshell.

“Hey. I want to drive around in my big honking SUV. If that creates a problem for anyone else too effing bad.”

Norman Pfyster January 23, 2013 at 1:17 pm

So liberalism in a nutshell is: “I like living on a coast, so everyone else needs to pay for it?”

Skip Intro January 24, 2013 at 1:05 pm

As long as there are oceans, there will be coasts. Is the argument that we can keep moving further and further inland?

Go Kings, Go! January 23, 2013 at 1:09 pm

New York suffered 10 hurricanes between 1955 and 1965, and about 5 per decade thereafter. The hurricane float is not in the Rose Parade of accepted climate change horribles, I think.

De gustibus non est disputandum and all that, but after reading some <a href="http://www.abebooks.com/servlet/SearchResults?an=barry+cunliffe&sts=t&quot;longue durée history I’m even more indecisive about carbon. Astronomical projections of the obliquity of the earth’s axis, precession of the equinoxes and especially orbital eccentricity predict extensive glaciation and cooler climate over the next 20,000 years in the Northern Hemisphere, with the 2 caveats that while orbital geometry accurately predicts (with scientific consensus!) long-term trends it does not having anything to say about high frequency oscillations or anthropogenic effects.

Still, a long term cooling is more worrisome than a long term warming. Warming periods expanded habitable territory for Cro-Magnon, Mesolithic, Roman, and Medieval populations, but ice ages did the opposite, ruining agricultural lands, causing famine and producing death and mass migration (trust me, Native Americans did not enjoy all the immigrants fleeing the reduced holding capacity of Europe in the 17th Century). I’m not dogmatic, warming hurts, too; the 7 °C increase in the first 50 years of the Boreal period wiped out large mammals and a mass of humans in Europe, but that’s because trees replaced tundra (forests have far less meat density) and Paleolithic man had no axes, no storage technology, and poor omnivore skills. In sum, I have no idea.

Peter Schaeffer January 23, 2013 at 5:17 pm

jdm,

You need to try harder. The science linking global warming and hurricanes, says that in 2100 we might have a problem. Take a look at http://www.gfdl.noaa.gov/global-warming-and-hurricanes. Quote

“It is premature to conclude that human activities–and particularly greenhouse gas emissions that cause global warming–have already had a detectable impact on Atlantic hurricane activity. That said, human activities may have already caused changes that are not yet detectable due to the small magnitude of the changes or observational limitations, or are not yet properly modeled (e.g., aerosol effects).”

and

“Anthropogenic warming by the end of the 21st century will likely cause hurricanes globally to be more intense on average (by 2 to 11% according to model projections for an IPCC A1B scenario). This change would imply an even larger percentage increase in the destructive potential per storm, assuming no reduction in storm size.”

I guess the 1938 Great New England Hurricane (Cat 5 at the peak, Cat 3 at landfall) was a product of global warming. Alternatively, Hurricane Sandy (Cat 2 at the peak, Cat 1 at landfall) was somehow weakened by global warming. Note that the 1938 hurricane was considerably deadlier than Sandy.

jdm January 23, 2013 at 7:20 pm

Peter Schaeffer,

For some odd reason you forgot to quote the very next two lines of the paper you cite:

“There are better than even odds that anthropogenic warming over the next century will lead to an increase in the numbers of very intense hurricanes in some basins—an increase that would be substantially larger in percentage terms than the 2-11% increase in the average storm intensity. This increase in intense storm numbers is projected despite a likely decrease (or little change) in the global numbers of all tropical storms.”

and

“Anthropogenic warming by the end of the 21st century will likely cause hurricanes to have substantially higher rainfall rates than present-day hurricanes, with a model-projected increase of about 20% for rainfall rates averaged within about 100 km of the storm center.”

I will certainly admit the point that (at this point) no individual extreme weather event can be ascribed to global warming. But the distribution of such extreme
events is amenable to statistical analysis and there the evidence for the role of anthropogenic global warming increasing the frequency of extreme events is becoming increasingly clear. See for example

http://www.nature.com/news/2011/110907/full/477148a.html

and

http://www.nature.com/news/2011/110216/full/470316a.html#B2

Peter Schaeffer January 24, 2013 at 10:56 am

jdm,

Did you actually read my post? The following is taken directly from what I wrote.

“The science linking global warming and hurricanes, says that in 2100 we might have a problem.”

See the “2100” part?

“Anthropogenic warming by the end of the 21st century will likely cause hurricanes globally to be more intense on average (by 2 to 11% according to model projections for an IPCC A1B scenario). This change would imply an even larger percentage increase in the destructive potential per storm, assuming no reduction in storm size.”

Note the “end of the 21st century” and “even larger percentage increase in the destructive potential per storm” references.

No, I did not copy the entire paper, but my summary quotes make the author’s overall message quite clear. First, there is little evidence of global warming having any impact on hurricanes so far. Second, the author believes that global warming will make hurricanes more dangerous by 2100.

What (in summary) did I leave out?

Note that I am not part of the global warming denial community. However, that does not mean that any specific event can be attributed to global warming (obviously). More relevantly, it is wrong to attribute the damage from a specific event to global warming when the class of events (say hurricanes) has not risen (yet) above historic levels. Note that it appears that U.S. hurricane severity was greater in the 1880s than it is now. That makes blaming hurricane Sandy on global warming an exercise in politics, not science.

jdm January 24, 2013 at 11:40 am

Peter Schaeffer,

I did read your post. Did you read my reply? I conceded that it is currently impossible to attribute any particular extreme event to climate change. I also linked to two recent studies that show if you look at the evolution of the distribution of extreme events (droughts, forest fires, floods, extreme precipitation, extreme storms) through time, a clear signal of climate change is beginning to emerge.

The two lines of the abstract you quote don’t make it clear to the other readers of this blog that in 2100 we may have a problem, because you quote the section that deals with averages
and not extremes – tails. A 2% to 11% increase in the average intensity doesn’t sound so bad. A doubling of the frequency of extreme events does.

Regarding 2100. 2100 is an arbitrary reference point. It’s not like everything is fine in 2099 and then on the morning of Jan 1 2100 everything changes. Paleoclimate data and climate models make it clear we’re going to have serious problems long before 2100 – like now. Again, see the two references on distributions.

Peter Schaeffer January 23, 2013 at 5:48 pm

JDB,

The Anti-Gnostic is trying to teach you (and the rest of the liberal/left) something. Open Borders and Global Warming don’t play nice. If you believe in Global Warming, then America faces a resource scarce and resource constrained future (treating CO2 emissions as a highly limited resource). That means that lifeboat America is going to face ever more severe challenges over the next few decades. The lifeboat is already very crowded and adding more passengers via immigration is just crazy.

If you don’t take global warming seriously, then we can strip mine Wyoming and drill offshore to our heart’s content. Producing more CO2 to maintain living standards for an ever rising population shouldn’t be a problem at all. Of course, someday there won’t be any more coal to mine or oil to pump, but that’s a problem for future generations…

The bottom line is that the left immediately goes into lily pond mode (unlimited cornucopiaism) when any dares to mention the contradictions of Open Borders and global warming (or any type of environmental limit on growth). That shows the extent to which Open Borders ideology trumps all other considerations in contemporary political discourse. A generation ago, the leaders of the environmental movement who quite upfront in targeting population, immigration, etc. as environmental threats. Now PC (and cash bribes) have silenced all legitimate conversation.

Ricardo January 24, 2013 at 12:13 am

Peter, the fact that U.S. CO2 emissions are at a 20-year low cuts against your point. As very poor countries and individuals get wealthier, they tend to consume more fossil fuels. On the other hand, advances in hydrofracturing and the opening up of enormous natural gas reserves is reversing this trend in the U.S. so that CO2 emissions per unit of GDP and even overall CO2 emissions are falling. In the longer-run, advances in wind power and nuclear along with some fairly sensible regulations ought to cut emissions further and put the coal industry almost entirely out of business.

Of course, none of this does anything about rising emissions in China and the rest of the developing world but that is, in fact, where the real problem lies and not in U.S. immigration policy. Your talking points really need to be updated to take account of current trends and technologies.

Peter Schaeffer January 24, 2013 at 1:59 pm

Ricardo,

“Peter, the fact that U.S. CO2 emissions are at a 20-year low cuts against your point.”

Were it only true. U.S. In 1990, U.S. CO2 emissions were 1.371 billion tons (of net carbon). The source is CDAC/ORNL. By 2000, U.S. CO2 emissions rose to 1.612 billion metric tons. The peak was in 2007 at 1.650 billion metric tons. The Great Recession reduced emissions to a low of 1.495 billion tons (still well above 1990). In 2010 emissions rebounded to 1.551 billion tons.

It is true that 2010 emissions were below 2000 emissions (by 3.8%). It is also true, that between 2000 and 2010 the United States created essentially zero jobs (actually employment declined by 1.938 million, see BLS series CES0000000001) and the economics of natural gas improved. Note that gas has replaced coal to a limited extent in power production. However, U.S. gas production would have to double to shutdown the coal industry. That’s not going to happen. Even with fracking, the reserve base is massively inadequate.

However, unless you have a plan that combines mass immigration and zero job growth, the conflict between global warming (and resource/environmental scarcity in general) and mass immigration remains critical.

In the short run, rising emissions in China are the real story (as you point out). China emissions are rising rapidly and already 50% greater than the U.S. From 2009 to 2011, the growth in China’s emissions was greater than the total CO2 emissions of Japan.

However, over the long term immigration is the real issue. Unless the U.S. restricts immigration, U.S. population could easily exceed 1 billion by 2100. With 1 billion consumers, U.S. emissions will be back on top by huge margins (assuming immigration does make the USA drastically poorer).

Freethinking Jeremy January 23, 2013 at 11:49 am

Skilled (and mostly legal) immigrants, like those staffing all of our tech companies have been a major windfall for our economy, allowing us technological dominance, even with our lousy education system. And these immigrants mostly fall into the highest marginal tax bracket (highest including payroll taxes).

Unskilled (and mostly illegal) immigrants drive down the prices of food, cleaning, and construction a lot. Obviously, they get a disproportionate share of welfare, but if I understand correctly, they also frequently pay taxes using fake social security numbers.

I’m guessing you don’t like immigrants? I’m not sure how much is the net fiscal cost of immigrants. I’m not so sure it’s negative. I’d say that if immigrants are a net drain on fiscal resources, that drain is dwarfed by the cost of our excessive military, unnecessary wars, and social security*.

* Social security in the long run anyway. Because we don’t accrue the liability associated with the cash it brings in, it falsely helps our budget numbers in the short term.

Cliff January 23, 2013 at 3:33 pm

If you don’t know, read the literature. Unskilled immigrants are a significant fiscal cost.

Freethinking Jeremy January 23, 2013 at 6:25 pm

Fair enough, I found some literature. Specifically, I found a biased piece by an organization called “fairus”.

Even with their high estimate, their figure is dwarfed by military spending and social security. My statement still stands.

Peter Schaeffer January 24, 2013 at 10:17 am

FJ,

“Even with their high estimate, their figure is dwarfed by military spending and social security. My statement still stands.”

Irrelevant. The issue at hand, is the economics of unskilled immigration or “can America profit from importing poverty?”.

Of course, the Right (parts thereof) loves Open Borders as a source of cannon fodder and the Left (most thereof) loves Open Borders as an infinitely renewable source of welfare recipients. Did I mention that low-skill immigrants are a large net burden on Social Security?

Freethinking Jeremy January 24, 2013 at 11:59 am

Peter Schaeffer,

Actually, the issue at hand is Selling Federal Assets. Your random rant on immigration was the irrelevant comment.

Proving there’s a net cost of immigration still does not render your comment relevant. It’s just not a primary cause of our fiscal woes.

You’re obviously passionate about your position on immigration, but that doesn’t mean it should be thrown into conversations randomly.

Peter Schaeffer January 23, 2013 at 5:30 pm

“Unskilled (and mostly illegal) immigrants drive down the prices of food, cleaning, and construction a lot.”

In other words, they drive down the wages, and take the jobs, of working Americans. Who do you think pays the bills for these folks (the Americans) when they end up on disability, Medicaid, welfare, food stamps, etc.? We all do. Note that an immigrant who takes a job from a native, is essentially a pure cost on the economy of the American people. Income is transferred from the native to the immigrant. The GDP of the American people goes down, literally with each job displacing immigrant.

“but if I understand correctly, they also frequently pay taxes using fake social security numbers.”

Some do. However, Social Security is designed to pay much larger benefits to low income workers compared to what they pay into the system. In other words, low income workers are designed to be a large net burden on Social Security and they are. Importing workers who will drain Social Security is a really bad idea.

Note that even working illegals are a burden and not just because they push Americans onto welfare and dependency. Why? Of course, there are food stamps, WIC, section 8 housing, jails, prisons, welfare, etc. However, the biggest costs are tied to programs that are never going to be limited. The children of illegals go to public schools at fantastic expense to taxpayers (typically $15K+ per year per child). Of course, they perform dismally at even greater cost.

Inevitably, illegals get health care paid for by taxpayers. Do the math. Health care costs $8K per person, per year in the United States. The means that an illegal with a wife and two kids costs $32K in health care and another $30K for education. That’s a total of $62K for each illegal with a typical family.

More detailed estimates don’t yield such high numbers (not everyone has two kids, health care for children isn’t that expensive in the short run). However, they all show that unskilled immigrants are a huge burden on taxpayers. How could it be any other way? No one denies that our own poor people are a burden. Why would imported poor people be any better? How can importing poor people ever make sense?

Who do you think pays these bills? We all do. There is nothing cheap about cheap labor.

Peter Schaeffer January 23, 2013 at 5:35 pm

“even with our lousy education system”

Wrong. America has one of the best education systems in the world. Check out “The amazing truth about PISA scores: USA beats Western Europe, ties with Asia.” (http://super-economy.blogspot.com/2010/12/amazing-truth-about-pisa-scores-usa.html)

“What I have learned recently and want to share with you is that once we correct (even crudely) for demography in the 2009 PISA scores, American students outperform Western Europe by significant margins and tie with Asian students. Jump to the graphs if you don’t want to read my boring set-up and methodology.”

Read the article. The author shows in considerable detail how immigration (not the school system) is weakening academic performance in the United States and Europe.

Freethinking Jeremy January 23, 2013 at 6:50 pm

Have you ever met any foreigners?

Try talking to some Asians, Indians, Russians, or Western Europeans. Assess their education and skill level. There’s some selection bias here as the smarter ones are more likely to migrate, so compare the brightest immigrants to our brightest. Or just directly ask them at what age they learned the subjects you learned in college.

You really think you know better than conventional wisdom, statistics, and anecdotal evidence because you found some study on the internet that makes some very questionable adjustments?

rightsaidfred January 24, 2013 at 5:41 am

Jeremy: yes, i’ve talked to immigrants. I find your “superman” notion to be overstated. And what numbers bear this out? Our country hasn’t had all that great of an economic ride in this era of immigration uber alles.

Peter Schaeffer January 24, 2013 at 10:30 am

“You really think you know better than conventional wisdom, statistics, and anecdotal evidence because you found some study on the internet that makes some very questionable adjustments?”

Wow is that far off. PISA is the gold standard of international comparisons (along with TIMSS and PIRLS) of education systems. You can download the data yourself and check each of the results.

By the way, the author of the Super-Economy post is a PhD in Public Policy from the University of Chicago and was born in Iran (but is not Iranian as conventionally defined).

Your reference to “statistics” is actually somewhat funny. All studies show that immigrant children and the children of immigrants are performing poorly in the United States (and everywhere else other than Canada and Australia). Keep in mind that the median immigrant to the United States has a high school education of less and doesn’t come from a country that “values education”. Predictably, they and their children fail.

See the NAEP data on the subject if you don’t believe me. You can download it and study it to your hearts content. A few specific notes on the subject.

1. John Judis “End State Is California finished?”

“At the gathering, held in a plush conference room, one of the experts projected tables and graphs comparing various states. It was there that I had my own “AHA!” moment. The states with thriving educational systems were generally northern, predominately white, and with relatively few immigrants: the New England states, North Dakota, and Minnesota. That bore out the late Senator Patrick Moynihan’s quip that the strongest factor in predicting SAT scores was proximity to the Canadian border. The states grouped with California on the lower end of the bar graph were Deep South states like Mississippi and Alabama with a legacy of racism and with a relative absence of new-economy jobs; states like West Virginia that have relatively few jobs for college grads; and states like Nevada, New Mexico, and Hawaii that have huge numbers of non-English-speaking, downscale immigrants whose children are entering the schools. California clearly falls into the last group, suggesting that California’s poor performance since the 1960s may not have been due to an influx of bad teachers, or the rise of teachers’ unions, but to the growth of the state’s immigrant population after the 1965 federal legislation on immigration opened the gates.”

2. Michael Lind “Innovation and education won’t save our economy”

“The overall PISA scores of American students are lowered by the poor results for blacks and Latinos, who make up 35 percent of America’s K-12 student population. Asian-American students have an average score of 541, similar to those of Shanghai, Hong Kong, Japan and South Korea. The non-Hispanic white American student average of 525 is comparable to the averages of Canada (524), New Zealand (521), and Australia (515). In contrast, the average PISA readings score of Latino students is 446 and black students is 441.”

3. “In the Golden state, leaden school scores”. Useful quote

“”If you ask why California schools have gone from the nation’s best to among its worst, I would say the influx of non-English speaking immigrants tops the list of reasons,” says Ms. Augustine, a 30-year teaching veteran.”

4. “US Educational Achievement on International Assessments: The Role of Race and Ethnicity”

“The debate about the performance of US students on international assessments of educational achievement routinely fails to account for one consistently stark result: US achievement is bifurcated between a group of high-performing Asian and white students and an exceptionally low-performing group of black and Hispanic students. By summarizing results across 20 major international tests conducted since 1995, this research paper shows that when US racial and ethnic groups are separately compared with other countries, Asian and white students regularly perform at or near the top of international rankings, while black and Hispanic students typically rank at or near the bottom. Furthermore, the United States has a substantially larger minority population than all other developed countries, and minority status is not synonymous with internationally comparable factors such as socioeconomic level or immigrant status.”

5. “The amazing truth about PISA scores: USA beats Western Europe, ties with Asia”

“What I have learned recently and want to share with you is that once we correct (even crudely) for demography in the 2009 PISA scores, American students outperform Western Europe by significant margins and tie with Asian students. Jump to the graphs if you don’t want to read my boring set-up and methodology.”

6. “The Hispanic Challenge” by Samuel Huntington

The author shows little improvement in education attainment across generations of Mexican immigrants.

“The education of people of Mexican origin in the United States lags well behind the U.S. norm. In 2000, 86.6 percent of native-born Americans had graduated from high school. The rates for the foreign-born population in the United States varied from 94.9 percent for Africans, 83.8 percent for Asians, 49.6 percent for Latin Americans overall, and down to 33.8 percent for Mexicans, who ranked lowest.”

7. “Honesty from the Left on Hispanic Immigration A provocative new book doesn’t flinch from delivering the bad news”

“Hispanics are underachieving academically at an alarming rate, the authors report. Though second- and third-generation Hispanics make some progress over their first-generation parents, that progress starts from an extremely low base and stalls out at high school completion. High school drop-out rates—around 50 percent—remain steady across generations. Latinos’ grades and test scores are at the bottom of the bell curve. The very low share of college degrees earned by Latinos has not changed for more than two decades. Currently only one in ten Latinos has a college degree.”

Peter Schaeffer January 24, 2013 at 10:37 am

RSF,

I call it the “magical unicorn” theory of immigration. Somehow immigrants are supposedly superior to Americans in every respect. Supposedly, they magically create jobs for themselves (and Americans) just by being here. Somehow unemployed Americans can’t manage this trick, but immigrants can. Supposedly, they are magically entrepreneurial even though the actual data shows that this is untrue. Supposedly, the revitalize America with their “energy” which is one way of describing illegitimacy, welfare dependency, educational failure, poverty, crime, low wages, etc.

It is quite true, that a small number of highly talented, elite, immigrants are a plus for America. The rest, not so much.

“Our country hasn’t had all that great of an economic ride in this era of immigration uber alles.”

Wow is that ever true. A correlation (and causation) that is generally ignored even though it is rather obvious.

Freethinking Jeremy January 24, 2013 at 12:10 pm

Peter Schaeffer,

I never argued that illegal immigrants don’t under-perform so your long post was unnecessary.

I also never argued against the usefulness of PISA. The study you’re pointing to actually argues against take straight PISA scores. Instead, it takes out all non-whites and many generations of immigrants from the American statistic and taking out only a generation or two from European statistics. This requires a lot of justification (ie it is probably not a valid approach). You’ve taken it for absolute truth.

I’m afraid this will be my last response to you. You’re obviously an intelligent person who has become too excited about a single political position. That may make you willing to argue all day, but I’ve got a job and this it taking too much time.

Floccina January 23, 2013 at 11:21 am

It is pretty cheap to remove the co2 from the air using:
Biochar, enhanced weathering and deep ocean iron fertilization, subtract that cost from the value and it is still pretty valuable.

OldFarmerBrown January 23, 2013 at 12:35 pm

That carbon used to be in the atmosphere in the carboniferous era and if we are to sustainably support 10 billion people we are going to have to seriously consider the benefits of increasing all the phases of the carbon cycle i.e. more CO2 , more plant life , and more animal life.

Urso January 23, 2013 at 3:52 pm

I for one am looking forward to the return of dragonflies with 5′ wingspans.

Jamie_NYC January 23, 2013 at 7:30 pm

No, insect size depends on oxygen concentration in the atmosphere, not on CO2 (insect size is limited by their inefficient respiration).

Dan Weber January 23, 2013 at 1:52 pm

Pretend the Sierra Club found out that they were sitting on a bunch of oil they could sell for a very high price. Is the only possible answer they would come to is “we don’t sell it,” or might they decide “it’s worth having 10,000 metric tons more CO2 in the air if we get $1 million to spend to improve the environment”?

Dan Weber January 23, 2013 at 2:01 pm

Equivalently, someone comes to the Sierra Club with a technology that will turn atmospheric CO2 into oil they can pump underground to sequester it, at a cost of $1 million per 10,000 metric tons of CO2. How much money would the Sierra Club spend on this project? Would it abandon all other spending to pursue this goal?

The Anti-Gnostic January 24, 2013 at 5:23 pm

Of course not. These folks have principles!

You’re talking at least a 100 million simoleons. before the Sierra Club shows some leg.

Alex' January 23, 2013 at 8:01 am

Oil Shale counts as technically recoverable now?

Alex' January 23, 2013 at 8:03 am

Oops, early in the morning. Oil shale (which isn’t the same thing as shale or tight oil) is technically recoverable but is by no means economically recoverable.

Orange14 January 23, 2013 at 8:03 am

The problem is that the USG gives away leases at rock bottom prices and could do much better. The bad precedent that was established in the old railroad era continues to the present day.

JWatts January 23, 2013 at 10:26 am

The USG doesn’t give away leases. They have an auction.

NPW January 23, 2013 at 8:06 am

Why not be the last ones with access to fossil fuels? Drink everyone elses milkshake first.

j r January 23, 2013 at 9:29 am

There is a global price, with a discount or premium for different grades, and a global market for oil. Granted, having so much of the world’s oil supply in a volatile region like the Middle East certainly adds to the price of oil. That aside, if the global price of a barrel of oil is $100, it still costs an American buyer $100 whether it’s produced here or not.

NPW January 23, 2013 at 10:10 am

jr, agreed, but relevance? I’m saying that if the US is the last country with oil in the ground however many years from now that will be, wouldn’t that be a position of power?

JWatts January 23, 2013 at 10:33 am

Since the Federal government has massive deficits and the proceeds for the leases will reduce the amount of deficit, you are in effect arguing for leaving the oil in the ground, but borrowing the money it’s worth from the the Chinese.

So you are, in effect, swapping future oil reserves for current debt. That doesn’t seem like a particularly good choice. If we end up developing a post-oil economy the US would end up with a lot of useless oil, but a massive debt. The only way your scheme would be beneficial in the long term is if oil were worth substantially more in the future for a long period of time. Since we, as a society, are actively working to avoid that eventuality by supporting electric cars, renewable fuels, etc, that seems like a counter productive decision.

NPW January 23, 2013 at 11:17 am

Assuming that green energy suddenly works, bad plan. Assuming that we suddenly develop a willingness as a nation to live within our means, bad plan. Likelihood of either of these things happening?

j r January 23, 2013 at 10:37 am

Only if you nationalized the oil industry or regulated it into de fact nationalization.

There is some benefit to being the country that owns the resource from a fiscal and from a balance of payments standpoint. At the same time we are going to be one of the world’s two biggest consumers of that resource. So, Exxon is going to sell a barrel to the highest bidder whether it be a Chinese bidder or an American bidder.

The whole idea of “energy independence” is kind of a chimera.

NPW January 23, 2013 at 11:06 am

“regulated it into de fact nationalization” Aren’t we already there?

JWatts January 23, 2013 at 11:57 am

“So, Exxon is going to sell a barrel to the highest bidder whether it be a Chinese bidder or an American bidder.”

While, technically true that statement is also amazingly wrong in context. Certainly, Exxon will sell to the highest bidder. However, it’s also virtually certain that, as long as America consumes more oil than it imports the cost of shipping bulk commodities will ensure that no substantial amount of oil will be exported outside of the local market.

It is true that due to the proximity of Mexico and Canada that they would be included in the local market. So, it’s certainly possible that some American oil might be exported to close neighbors, but those cases aren’t likely to be substantial, nor effect the basic argument.

Americans will consume American oil first and foreign oil second. Additional oil production in America will directly displace foreign imports.

j r January 23, 2013 at 12:44 pm

“Americans will consume American oil first and foreign oil second. Additional oil production in America will directly displace foreign imports.”

Again, oil is an undifferentiated commodity (factoring in different grades and quality of course) that is priced on a global market. It doesn’t matter what displaces what. It’s not where it comes from that matters, but what it costs. If the global oil price is $100, then an American oil producer has two choices. Sell it to an American for $100 or sell it to an American for less than a $100 and lose the difference in opportunity cost.

Brian Donohue January 23, 2013 at 10:50 am

The Stone Age didn’t end because we ran out of stones?

MC January 23, 2013 at 2:32 pm

+1

Careless January 23, 2013 at 11:14 am

Hey, I played that video game (Fallout)

Floccina January 23, 2013 at 11:24 am

Because in 50 year we may not need it because of thorium nuclear power or some other power source.

Ashok Rao January 23, 2013 at 8:14 am

I’d prefer entitlement, tax reform and healthy skies to primitive fuel being burned, thank you very much.

jdm January 23, 2013 at 8:47 am

I agree with that and the comment of ‘To’ above. I find it very odd that both Alex and Tyler, who have insightful views on most topics, seem relatively unconcerned about the cataclysmic effects our carbon habit is going to have on the climate and on our civilization which is based on the stable mild climate of the Holocene. Perhaps they believe we will innovate and adapt our way out of coastal flooding, unprecedentedly severe multiyear droughts across much of the world’s temperate zones, enormous floods, devastation to the ocean food chain etc, but, if so, the grounds for this optimism are far from apparent to me.

Ed January 23, 2013 at 9:00 am

Good to the last drop!

Brian Donohue January 23, 2013 at 9:26 am

“the grounds for this optimism are far from apparent to me.”

Here, try this:

http://www.rationaloptimist.com/publications/the-rational-optimist-how-prosperity-evolves.aspx

superflat January 23, 2013 at 10:17 am

you seem to be ignoring that this post focuses on national self-interest, so even if you believe climate change will cause harm, the question is whether the harm in the US will outweigh the benefits to the US (with so much in fossil fuels, US may be better off even if we cause/accelerate/whatever warming). put another way, where’s you analysis of the harms from not using fossil fuels? you may be willing to return to some paleo-utopia, but certainly there will be costs?

maguro January 23, 2013 at 11:47 am

The predicted negative effects of global warming are based entirely on computer model forecasts of extremely dubious accuracy. Basing national energy policy on these models is quite insane.

jdm January 23, 2013 at 12:47 pm

“The predicted negative effects of global warming are based entirely on computer model forecasts”

No. That’s wrong. There is an enormous body of research that has been done on paleoclimate in the last thirty years. We don’t need to rely on computer models (which in any case have become increasingly sophisticated and accurate). We now know for example what happened in the past when the global mean temperatures rose only a few degrees – huge melting of the ice sheets and many meter rises in sea levels.

http://www.nytimes.com/2013/01/22/science/earth/seeking-clues-about-sea-level-from-fossil-beaches.html?pagewanted=all

maguro January 23, 2013 at 3:10 pm

No, the computer models are not increasingly accurate. They can’t even predict what global temps will be this fall with any degree of accuracy, let alone predict what things will be like in 2100. The “science” behind AGW theory is a complete farce.

mulp January 23, 2013 at 5:09 pm

I hope you consider computer models of the economy as equally bogus.

After all, all those hundreds of tax cuts over the past dozen years were predicted to spur growth, job creation, job opportunity, create wealth, and reduce the deficit below the budget surplus in 2000 to repay all the debt.

Economists are hardly ones to criticize climate scientists and their models.

maguro January 23, 2013 at 10:26 pm

Yeah, I certainly wouldn’t place any degree of faith in computer-modeled forecasts of the economy, either.

jdm January 24, 2013 at 7:17 am

maguro,

You are confusing weather with climate. Weather is chaotic in the technical sense of the word. What the weather will be like in a few weeks is highly sensitive to exactly what it is now (initial conditions). That makes weather inherently unpredictable. Faster computers and better models won’t change that fact. We’ll never be able to predict the weather months ahead. Climate is different. Climate refers to the distribution of states of temperature, precipitation, ice cover, sea levels, and so forth. The goal of climate science isn’t to say that at noon on March 3rd 2050 the temperature in Chicago will be 79 degrees F and sunny. That’s obviously absurd. The goal is to say what the probability distribution of temperatures and precipitation will be. This is still a difficult problem because it involves all sorts of complicated feedbacks, but unlike weather prediction, it is tractable. Using a combination of paleoclimate data and computer models (for the climate, not weather), it’s possible to get a handle on what will happen to the climate. To the extent that there is uncertainty in how things will unfold because of the complicated nature of the feedbacks and interactions, that uncertainty is not our friend. Things could get far worse far more quickly than the best climate models predict.

Minority Bolshevism January 24, 2013 at 11:37 pm

Predicting the future is not science.
It is either delusion or fraud, or both.

Norman Pfyster January 23, 2013 at 1:22 pm

I like the heat and electricity generated from primitive fuel being burned, thank you very much.

Marc Roston January 23, 2013 at 8:21 am

When did “the geologic provinces north of the Arctic circle” become an asset of the Federal government? Do we call it the “Upper Fifty-First”?

That seems a little more serious for foreign policy than a couple of rocks between China and Japan.

Cliff January 23, 2013 at 3:47 pm

I believe it is part of the zone around Alaska that the U.S. owns/controls?

sam January 23, 2013 at 8:37 am

These are revenues. What of cost?

prior_approval January 23, 2013 at 9:27 am

Who cares about costs – there is gold in them thar hills.

Benny Lava January 23, 2013 at 8:37 am

Drill baby, drill. I mean we wouldn’t want to leave any of that for our grandkids right. They listen to poop dog and the enema man so fuck them.

Benny Lava January 23, 2013 at 8:40 am

Oops I forgot to change my handle to Alan Simpson!

mrmandias January 23, 2013 at 6:24 pm

This would tug at the ol’ heartstrings a little more if we weren’t planning on leaving them mountains of debt plus years of interest instead.

Benny Lava January 24, 2013 at 8:36 am

Really? All I hear is talks of balanced budgets so I’d like some evidence for that. Still, it is good that you admit that you hate your grandkids.

celestus January 23, 2013 at 8:51 am

OK either I have no idea what I’m talking about or Alex is missing the fact (as Dan points out) that it costs money to get this oil out of the ground (especially in Alaska and offshore), and so you can’t value the oil assets at just volume x per barrel price.

The cost to produce that oil is probably in the $50-60 per barrel range minimum, and then the oil company will account for the discounted cash flows from production as opposed to the up front drilling costs. So it would be more accurate, and possibly even still aggressive to say that private actors would pay $10 per barrel for the oil. If you leave out the oil shale at least for now (which makes up the overwhelming majority of the $128 billion figure) I get 210 billion barrels of hard-to-recover oil and at $10 per barrel my estimate is that the feds would make closer to $2 trillion from selling that. Not nothing, and the numbers would work much better at say $130 or $140 per barrel, but perhaps that means it’s better to wait.

I highly doubt that offshore, Alaskan, or Arctic gas is profitable to produce at $4 even if you get the drilling rights for free.

Which leaves the oil shale. I suppose it will eventually be economically recoverable, and so if you’re calculating the government’s net worth you’d assign some value to it, but it’s the oil companies who will eat the cost for developing the technology necessary to do so. Plus it’s a stock, not a flow- you only get to use it once.

celestus January 23, 2013 at 9:09 am

Ah OK I see Alex never actually backed those numbers, just reported them straight from a think tank with no comment.

“CBO conservatively estimates could total almost $150 billion over 10 years for the oil and gas leases alone” is key.

libert January 23, 2013 at 10:23 am

Here’s the source for the CBO number: http://www.cbo.gov/sites/default/files/cbofiles/attachments/08-09-12_Oil-and-Gas_Leasing.pdf

That study shows that 70% of oil and gas (see page 2) is already available for leasing, yet it only produces $10-15 billion per year in revenues (page 5). While it is true the government gives away some of the resources to oil companies for free or at otherwise below-market prices due to the Deep Water Royalty Relief Act, the fact that we’re only getting $10 billion per year in exchange for the vast majority of our oil suggests that the $128 trillion figure has to be incredibly wrong.

In addition, marginal costs of oil are well above $60 per barrel (for example, see here: http://online.wsj.com/article/SB10001424052702303610504577418081105218276.html), and that’s for resources that are currently being extracted. That figure is going to be much higher for unexploited offshore resources and even higher for oil shale. Thus, most of those technically recoverable reserves mentioned in the post above are not economically recoverable unless oil prices skyrocket.

As a result, no company or collection of companies in their right minds would pay $128 trillion for the assets listed above. Would you invest in a company that paid $100 per barrel for unexploited oil resources that they then have to extract at a cost of $60+ per barrel? I wouldn’t.

Ray Lopez January 23, 2013 at 3:05 pm

Good points. I’ll add that the rule of thumb in the oil industry is that two-thirds of oil remains trapped underground since it’s too difficult to extract, and the thermodynamics rule of thumb is that at best you get two-thirds efficiency, so multiplying these numbers gives: 0.67 * 0.33 = 0.22 or 1/4.5 So, contrary to the article, we have (if gas and other natural resources follow the same rule, which they probably do): not about 8 times national US debt but 8/4.5 = 1.8x national debt. And that’s a high side. So probably selling all the crown jewels will wipe out the national debt to date.

Ole Lukie January 23, 2013 at 3:06 pm

Selestus and Libert get it mostly correct. This is a specious analysis.

The resource amounts referenced are the 50% probability (P50) for undiscovered technically recoverable resources (UTRR). The federal government already leases through competitive auctions the most prospective onshore and submerged public lands. In return for leasing the rights to explore for and produce oil, gas and coal, the public receives bonus bids, rentals, royalty on production and corporate income tax receipts for about 60-70 percent of the “take” (“take” is after capital and operational costs). Oil, gas and coal payments are already the largest non-tax source of federal revenue receipts except when the FCC has an especially good spectrum auction year.

The most prospective inaccessible areas are ANWR and the So. CA offshore and these lands are unlikely to be available for leasing anytime soon. Oil shale is not yet economic at today’s oil prices. The most optimistic production scenario for U.S. public lands yields only moderate federal revenues with fiscal terms and a regulatory burden already more onerous than most comparable international jurisdictions.

Skip Intro January 24, 2013 at 8:12 am

An energy company think tank produced seriously biased estimates? And a libertarian shill passed them along blithely?

I am shocked.

Jan January 23, 2013 at 9:18 am

Norway has good policies on state oil and gas development. They basically do the opposite of the U.S.

http://www.arcticgas.gov/norway%E2%80%99s-different-approach-to-oil-and-gas-development

prior_approval January 23, 2013 at 9:29 am

And the Norwegians aren’t even in the EU /much less the eurozone), thus ruining one of the best distractions possible for far too many commenters here.

Da January 23, 2013 at 10:41 am

I fail to grasp that comment’s meaning.

prior_approval January 23, 2013 at 11:18 am

A lot of commenters here dismiss such socialist concerns as the long term good of a society being a reasonable goal of government.

But in this case, even though the Norwegians are truly in a class by themselves in looking out for the long term good of their society when dealing with theirt resource wealth, being willing to sacrifice short term profit for long term gain, they are neither a part of the EU, nor are they part of the eurozone.

In other words, a lot of the convenient excuses relating to dismissing intelligent planning over a generational time do not apply to the Norwegians.

(Bonus – it is the Norwegians and their oil wealth which currently ensure that Iceland has no problem paying the bills, the Norwegians having stepped in as a final guarantor of Iceland’s creditworthiness –

‘In light of the 2008–2012 Icelandic financial crisis, the Norwegian government provided Iceland with a €500 million 5-year loan[7] to stabilise the Icelandic króna in November 2008. The Norwegian Foreign Minister Jonas Gahr Støre said after meeting Icelandic Prime Minister Geir Haarde that “We want to show our support for the international initiative and we will be providing support to Iceland in the near future.”‘

http://en.wikipedia.org/wiki/Iceland–Norway_relations#Economic_assistance )

Da January 23, 2013 at 12:15 pm

Thank you for explaining.

But isn’t the Norwegians wise way to handle their oil riches and their repeated decision to stay as much as possible out of Brussel’s shadow very consistent behaviour?

txslr January 23, 2013 at 3:36 pm

I find the notion that the government could figure out what is in the best interest of society risible. The fact that pursuit of this inevitably mis-framed goal requires the application of coercion renders it not only incorrect but immoral.

Cliff January 23, 2013 at 3:51 pm

So they’re not European because they’re not in the EU?

RZ0 January 23, 2013 at 9:21 am

If our nation’s assets exceed our liabilities by so much, then we don’t have to worry about deficit spending for quite a while.

Jeff Morgan January 24, 2013 at 3:55 am

Shhhh!!

Jacob January 23, 2013 at 9:27 am

Echoing others, the quantity of technically recoverable resources has close to no meaning when trying to calculate the revenue the government could get from this. Technically recoverable includes all resources that can be recovered without regard to cost. Much of this oil and probably close to all of the gas cannot be brought to market at a cost low enough to justify the investment on the part of anyone the government would lease/sell these to.

It’s easy enough to calculate how much it would be worth if it were all above ground, but the comparison to the size of the national debt is specious.

Minority Bolshevism January 24, 2013 at 11:44 pm

So, if the government cannot get enough revenue out of these (or other) assets, they have no value?

Alexei Sadeski January 23, 2013 at 10:05 am

Ummm… if the stuff is worth $128T at retail prices, doesn’t that mean that the government can only capture a very small portion of that? I imagine something along the lines of 1-5%?

JWatts January 23, 2013 at 11:04 am

Sure. But 2% of $128T, spread out over the next 30 years is still $85 billion per year.

And keep in mind that the total value of the oil is produced and consumed in the US, so you have the fiscal multiplier effect working for you. It’s much better from an American point of view to pay $100 for a barrel of American oil than for a barrel of Saudi oil.

It’s also better for the global environment to extract oil locally than to extract it on the other side of the globe and transport it 12,000 miles to a local refinery.

All thinks considered it’s better in almost every way for the US to use as much of it’s local energy sources than to pay some one else to produce them as long as the end price is comparable.

Alexei Sadeski January 23, 2013 at 8:35 pm

$85B a year is nice, but that’s only 10% of the annual deficit gap.

All worldwide energy reserves will likely be consumed eventually, don’t you worry about that.

TMC January 23, 2013 at 9:30 pm

Closer to 5% lately

Bender Bending Rodriguez January 24, 2013 at 12:39 am

Very little oil used in this country comes from the Middle East. We want the Saudis to pump like there’s no tomorrow solely to keep the global price down so that we can continue to afford oil from Mexico, Canada, and Venezuela.

Alexei Sadeski January 24, 2013 at 1:58 pm

“so that we can continue to afford oil from Mexico, Canada, and Venezuela.”

And from America! Cheaper domestic gasoline is great too. Unless you happen to own some mineral rights, that is.

louis January 23, 2013 at 10:18 am

In translating the quantity of reserves to asset value, you can’t just multiply reserves by mkt prices. You need to take into account upfront drilling costs and ongoing operating and transport costs. You also need to take into account the fact that the reserves are typically extracted over 20-40 years, so the present value of a well drilled today is less than the sum of the profits it will deliver over several years, and the present value of a field of 1,000 drilling locations that will be drilled over 10 yrs is less than the value of a field where somehow you can drill all 1,000 wells in year 1.
Also, leases are typically finite. They have a term of several years, over which a leasee must “use it or lose it”. If somehow an operator does not get around to drilling a tract, the lease fee is wasted. This would not apply if the gov’t sold the mineral rights outright instead of the typical process of leasing them, but I don’t think such a change is in the offing.

RR January 23, 2013 at 10:30 am

Can the government sell arable federal lands at a price extrapolated from how many dinners at Per Se it can produce?
Also, I’d prefer leasing to selling if only to avoid populist calls for land reform and the potentially disastrous political instability that would entail.

Bill January 23, 2013 at 10:50 am

1. Let’s sell federal grazing land that we lease at below market rates to cattlemen. We’ll then get the true value of land, rather than providing continued subsidy. They can build their own private roads, as well.

2. Let’s get revenue from federal mining leases. We basically give away mineral rights for people to develop land…and, they can sit on it.

3. Let’s put more money in FEDERAL treasuries, rather than state treasuries. Every time we have an “energy bill”, guess what happens. Coastal, and primarily gulf states, amend the leasing statutes to direct OCS and other oil revenues to….guess…state treasuries, and not the federal government.

Lease revenues today, except for Alaska, which gets an even more generous take, are as follows:

“Royalties are payments made from one party to another based on usage of an asset, often in the form of a percentage. The Mineral Leasing Act required monetary gains from the leasing of public lands to be divided three ways, except for Alaska:[6]
50 percent of gross revenues to states other than Alaska.
40 percent of gross revenues to Reclamation Fund.
10 percent of gross revenues to Federal Treasury.
90 percent of gross revenues to Alaska.”
http://en.wikipedia.org/wiki/Mineral_Leasing_Act_of_1920

4. So, those who BELIEVE that the sale or lease of FEDERAL oil lands sends money to the Treasury are deluded. Revenues are sent to Texas, La, Alaska, etc. But, if there is a spill, the federal government will pick up the tab until or if the responsible party cleans it up.

5. SO…amend the laws so that more money comes to the Treasury. Otherwise, you are deluding yourselves.

Urso January 23, 2013 at 11:44 am

The concept that gulf states (Louisiana specifically) has been getting some kind of windfall from offshore drilling revenue is comically inaccurate. Louisiana spent decades getting the shaft on mineral revenues (as in, 90%+ of the money went to the feds) because some crooked politicians made a bad deal many years ago.

But hey, don’t let the fact that you have no idea what you’re talking about stop you.

Bill January 23, 2013 at 2:13 pm

Oh, com’on.

Louisiana, Texas, etc. get 50% of gross leasing revenue from oil produced on Federal lands.

Why are other states giving oil states subsidies of this magnitude they would have otherwise benefitted from had it gone into the US Treasury.

The Federal government (Treasury) gets only 10%. On top of it, these states lecture other states on why they have low taxes.

That’s why today’s post is somewhat misleading. IF only the Federal Treasury did get the money.

Urso January 23, 2013 at 3:42 pm

“Louisiana, Texas, etc. get 50% of gross leasing revenue from oil produced on Federal lands.”

True but irrelevant. The key words here are “federal lands.” There is very little federal LAND in Louisiana, and very little oil/gas production on that land. Instead, the vast majority of oil revenue comes from offshore. Because of the vagaries of federal law, offshore mineral rights are treated differently, and states do not get a 50% of offshore oil & gas revenues. Instead they get a pittance.

To be fair, this is changing. A bill to give coastal states a fair share of offshore revenues has been passed within the past couple of years and will go into effect before the end of the decade. But this new bill, while welcome, certainly isn’t retroactive, and it won’t even come close to making up for the screw job we’ve been on the receiving end of for several decades now.

http://www.landrieu.senate.gov/?p=issue&id=5

Bill January 23, 2013 at 7:43 pm

Urso,

I looked at your link. It says that Louisiana gets 50% of the gross leasing revenue on Federal lands.\

No disagreement.

Yet, your argument is that La. should get money on OCS–land that is not within the jurisdiction of La., land that is solely NOT in La.

La. can tax pipelines, charge for port access, etc. Why should it get money that previously went to the Federal government? To lower your taxes, Texas’s taxes….

A new piece of legislation proposes “provides revenue sharing (37.5 percent) to any state with energy production off its coast.”

Currently, “Outer Continental Shelf Lands Act (OCS Lands Act) section 8(g) revenue sharing program
that provides states with offshore federal leases located within the first three miles from the
state’s seaward boundary receive 27 percent of the revenue generated from those leases; 2) the
Coastal Impact Assistance Program (CIAP) for Alaska, Alabama, California, Louisiana,
Mississippi, and Texas; and, 3) the Gulf of Mexico Energy Security Act (GOMESA) for
Alabama, Louisiana, Mississippi and Texas.” BOEM

Re the Landreau proposal:

“The federal government already shares 27% of all bonuses and royalties from offshore leasing in the “shared boundary” area, which is three miles seaward of states’ waters. Between 2008-2010, seven coastal states received a total of $203.7 million from this arrangement (established by law under the Outer Continental Shelf Lands Act).[3]

Additionally, four Gulf states (Louisiana, Texas, Mississippi and Alabama) do already benefit from revenue-sharing under the Gulf of Mexico Energy Security Act (GOMESA) of 2006, which sends $37.5% of the revenue from certain leases directly to these states. According to the Department of Interior, the loss to the Federal Treasury from this revenue-sharing arrangement will be between $117 billion and $150 billion through 2070.[4]

Some lawmakers have argued that onshore oil production revenues are shared with states, thus offshore revenues should be similarly divided. However, the Mineral Leasing Act – which authorizes such revenue-sharing – does so to compensate the states for the loss of lands from their property tax base. Therefore, the situation is not analogous. The states do not have any ownership rights – and thus suffer no limitation on property tax potential – from federal ocean waters.”

Brian Donohue January 23, 2013 at 9:54 pm

Bill,

This is interesting but, ultimately the numbers cited (“Between 2008-2010, seven coastal states received a total of $203.7 million” and “between $117 billion and $150 billion through 2070″) work out to about $500 million per state per year. Decent piece of change, but not the kind of money that moves the needle for a state-sized budget.

Bill January 24, 2013 at 6:00 pm

Brian, Actually, it is much larger. This was in addition to the Mineral Leasing Act. GOMESA, passed in 2006, applied only to a few tracts that had been bid out since 2006.

There’s big money in this. Money that would have otherwise gone to the Federal Government to reduce the deficit.

txslr January 23, 2013 at 3:31 pm

It has been a few years since I worked on evaluating properties in federal OCS lease sales, but my recollection is that the auctions call for bonus bids. That is to say, the highest bidder for a tract pays the federal government a lump sum for the right to explore and produce on that tract, a right that expires and reverts back to the government if not exploited. The subsequent royalty payments (in the event of an economic success) are divided, but neither the royalties nor severance taxes nor ad valorum taxes constitute the entirety of payments made. Furthermore, given that bonus bidding is typically quite competitive it is not clear that bidders have made profits on the exercise over the years. To the extent that the winners’ curse applies to these auctions I would not be surprised to discover that the government(s) make money off of the oil companies on these asset sales.

Interestingly, the government sometimes winds up self-dealing on these transactions. In Alaska offshore leases have been sold for large amounts of money only to have federal judges refuse to allow drilling pursuant to a lawsuit without resetting the clock on the time period during which the lease is available to the oil company. This raises the real possibility that an oil company could pay hundreds of millions of dollars on a lease that expires while they are in court trying to get the right to actually drill on it before it reverts back. Note that these types of events will inevitably lower the amount of money that the Treasury will bring in for future lease sales. Likewise for rules requiring that offshore rigs halt all operations in the event that a whale is within whale-hearing distance of the rig. No free lunch, I’m afraid.

mrmandias January 23, 2013 at 6:28 pm

Selling the grazing land to cattlemen would probably give both cattlemen and environmentalists fits, but in the long run I bet both groups would be better off. The cattlemen, because their leases would now be tradeable and mortgageable and improvable assets, the environmentalists because you’d have market forces pushing against overgrazing and not just BLM regulatory mechanisms.

Hazel Meade January 23, 2013 at 11:33 am

The irony is that while Obama surrepticiously moves to open federal lands to oil and gas exploration, he is likely to publicly nix the Keystone XL pipeline again. So it’s really all a PR move to assuage environmentalists.

maguro January 23, 2013 at 11:49 am

One can only hope.

mulp January 23, 2013 at 1:28 pm

Obama has approved the XL Pipeline, and a cynic would say because he supports jackboot government agents taking the land of Texans who didn’t vote for Obama and turns it over to Canadian corporations for private profits.

I just love the irony of the people who attacked the Kelo taking for private profit loving the taking of private property for private profits when the land being taken is owned by conservative Westerners. I don’t see any of the conservative property rights groups screaming about these land takings – just conservatives defending the taking of private land.

Hazel Meade January 23, 2013 at 1:32 pm

Er. Obama has not approved Keystone XL. The governor of Nebraska did.
http://www.guardian.co.uk/environment/2013/jan/22/keystone-xl-pipeline-obama-nebraska

mulp January 23, 2013 at 4:31 pm

The XL Pipeline in very long and only a short portion is under Federal regulation, technically only a few miles.

The expansion below Cushing has been going full ahead, with Obama’s approval as a statement of public support, not regulatory, because the only interstate construction regulated by the Federal government is natural gas pipeline. Federal agencies have zero authority over the construction of oil or petroleum pipeline, of power lines, of water pipes, or roads or rails, just natural gas pipelines.

The construction of the XL Pipeline within the States is solely under State regulation, except for impact on wetlands part of interstate waterways which fall under Nixon’s EIS rules.

Most Texas landowners have been beaten down and forced to give up their land to the pipeline under Texas law on eminent domain.

Landowner Fights Keystone XL Pipeline By Suing the State
December 3, 2012 | 4:29 PM
By Terrence Henry

Mike Bishop is fired up. He’s standing with about a dozen protestors and half that many reporters in front of a state office building, waving a lawsuit in his hands.

“It’s beyond me why regulatory agencies and elected officials can’t say, ‘You know what? I made a mistake. I’m so sorry. You know what we’re going to do? We’re going to correct that mistake.’” he intones, slamming his fists.

Bishop is unhappy with how state agencies are handling pipelines in Texas, specifically the Keystone XL pipeline, which will soon cross his land in Nacodoches County.

So unhappy, in fact, that he’s suing the state.

Thursday morning, Bishop filed a lawsuit in Travis County District Court against the Railroad Commission of Texas, which regulates pipelines in the state. The suit alleges that the commission should not have given the Canadian company a permit, and is failing to protect water and safety. He’s also asking for an injunction and restraining order against the commission.

Flanked by members of Greenpeace, Occupy Austin, and other protestors, Bishop railed against what he calls an unfair system that allows private companies to seize land for profit.

“This is our country, not TransCanada’s!” he yelled.
:
http://stateimpact.npr.org/texas/2012/12/03/landowner-fights-keystone-xl-pipeline-by-suing-the-state/

Vince Williams January 23, 2013 at 12:09 pm

So during a natural gas glut and after prices have plunged is a good time for the US government to divest itself of land and assets?

Tabarrok neglects to mention that funders of the Institute for Energy Research include the Claude R. Lambe Charitable Foundation, a trust set up by the private energy company, Koch Industries, and the president of which is an executive vice president of Koch Industries.

The IER advocates positions on environmental issues including deregulation of utilities, climate change denial, and claims that conventional energy sources are virtually limitless.

The political arm of the IER, the American Energy Alliance, paid for television advertising campaigns attacking the energy policies and positions of the Obama Administration. The American Energy Alliance is run by Tom Pyle, a former lobbyist for Koch Industries.

Remember, Alex Tabarrok is the guy who insisted there was no housing bubble after the collapse was already well underway.

anon January 23, 2013 at 1:38 pm

Ah the evil Koch’s dog whistle. Source of all problems. Not like those other good lefty billionaires.

You sir, do not tell stories in an amusing way, nor in a skillful way.

Vince Williams January 23, 2013 at 8:56 pm

I understand that you might not recognize them, but these are facts, entities notably missing from your abbreviated, anonymous little screed.

I would say that Tabarrok and Cowen are decorative house servants– they let the field hands do the dirty work.

Skip Intro January 24, 2013 at 8:16 am

Hey man,

If you wanna be invited to dance with BoBo and the other big boys, someone’s gotta pay the band.

Popeye January 23, 2013 at 1:48 pm

Credit snobs!

Hazel Meade January 23, 2013 at 3:34 pm

Government always jumps on the bandwagon last.
That’s how they end up getting stuck holding the bag when the bubble bursts.

Peter Schaeffer January 23, 2013 at 6:05 pm

VW,

Natural gas prices are at low levels. However, oil prices are not. Almost all of the (hypothetical) value is derived from oil, not gas. For a long list of reasons, that would be true even if gas prices were not depressed. Note that the Alaskan oil pipeline was completed many decades ago. The Alaskan gas pipeline has never been built.

chuck martel January 23, 2013 at 12:21 pm

In a piece in the NYT, mental defective Nick Kristoff described the Arctic National Wild Life Range as a “national inheritance” . http://www.nytimes.com/2003/09/10/opinion/casting-a-cold-eye-on-arctic-oil.html?src=pm Where do you all get the idea that because the US is powerful enough to intimidate the individual Inuit it can ethically claim their property by delivering some bullion to the Tsar? Why not invade and take over Canada or Mexico or Nicaragua? None of those countries could withstand even one aircraft carrier group. Making an agreement with some cacique could justify annexing Yucatan and Quintana Roo, the same procedure used on Keokuk by the Jackson administration.

dead serious January 23, 2013 at 1:23 pm

+1 for using “cacique” in your post.

mulp January 23, 2013 at 1:20 pm

The USA has been in existence for almost 225 years and in that time the Federal government has confiscated the lands of people who thought it was theirs and redistributed about three-quarters of that confiscated land, most in the first 150 years. In fact, the Great Depression marked a transition from solving economic problems with land giveaways, redistributing the wealth of the victims of US power. The last gasp of land redistribution was of prairie that even without drought many native to the West knew should not be turned over by the plow.

Obama spoke of the next 400 years.

Don’t you sell assets when you are basically going out of business?

If all the oil and gas is sold and developed in the next two-three decades, what of the next four centuries?

If the idea is the land is sold to the private sector and then not developed for centuries, what is the maximum prices it would fetch? $100B? $1T?

Bill January 23, 2013 at 2:49 pm

Bidding for assets with consumption externalities. It’s more than just money for the US Treasury (small that it is).

One item worthy of consideration is creating an auction market for Federal oil properties that included paying for abatement costs from oil consumption externalities.

Each barrel of oil produces so much carbon–an externality of consumption.

So, why not create a bidding system whereby a bidder would bid both a price for the oil and a price for abatement of externalities–in effect, you would bid to pay $x for the land and agree to abate so much carbon that would be released in the atmosphere. Companies would be competing both for the asset by bidding high for the oil, and taking with the bid, the price (cost) of abatement. Those companies that were more efficient than there rivals in abatement (carbon sequester), for example, would be the higher bidder because its cost of abatement would be lower.

Anything wrong with this auction design?

Ole Lukie January 23, 2013 at 3:16 pm

Lots wrong with this auction design. The “tax” should be on the consumption end, not added on when bidding for acreage that may not even hold hydrocarbons. It would simply penalize domestic production. We would only buy oil overseas where the environmental protections and practices are generally weaker.

Bill January 23, 2013 at 4:07 pm

Ole,

Don’t agree with your analysis.

The incidence of tax would fall on the government, not the buyer. In other words, the government would be getting less for its oil in a bid as the buyer would be taking into account the costs of abatement. That shouldn’t be your concern; it is the equivalent of having a carbon tax born by citizens who get less oil revenue. It’s offset though by competition by oil producers to find the cheapest costs for carbon offset.

As to purchasing overseas, the price of oil would be the world price; bidders would bid taking into account the tax, just as they take into account what minimum royalties are.

Bill January 23, 2013 at 4:14 pm

And, one final comment: today, without incorporating the cost of the carbon externality, we are in effect promoting more carbon production, because the bid price does not include the total costs or releasing an added barrel from the ground. So, by incorporating the cost of abatement into the bid price, we don’t release more oil from the ground than we should, given the costs of the externalities, or if we do, we pay to offset by receiving less royalties and having someone else offset the emissions.

Bill January 23, 2013 at 4:26 pm

One other point: the amount of OCS and other Federal leasing would be partially driven with this proposal by the rate at which we improved, that is, made cheaper, carbon abatement. Under the current rule, we would expand drilling, not taking into account carbon release, and thus lease earlier and lease more than we would if we included the cost of the externality. Under this proposal, we would lease perhaps less, but lease more as the costs of abatement declined. This would increase the incentive for efficient abatement.

txslr January 23, 2013 at 5:46 pm

So the arguments against the federal government selling these assets seem to run along two tracks. First, that the value received would be too low somehow (the government would make more money by holding on to the assets and selling them when the underlying resource is scarcer than it is now). Second, that there are negative externalities associated with the development of these assets that would not be fully reflected in the prices received.

The first of these assumes that the markets for oil assets don’t correctly reflect expected future price of oil or, put another way, that the government (!) can do a better job of predicting the future price of oil than the competitive market.

Consider the problem a different way. If the government wasn’t holding all of the assets whose value is dependent upon future oil prices, would it make sense for it to purchase massive forward positions in oil? For that matter, by what amazing coincidence is the quantity of future oil currently held by the government (in potential future production) exactly the amount it should hold? How would you feel about the Treasury announcing that they were committing the government to pay trillions of dollars in the future for the physical delivery of oil? Does that make any sense at all? If not, why should they hold the real asset equivalent to this?

With respect to the second set of issues, some of the concern seems misplaced. Is the worry really that oil companies bidding for these assets will pay too much, given the types of constraints on CO2 that we’re (it is assumed) going to have to put in place? And even if you are worried about oil companies interests (which I think is unlikely), isn’t it likely that they are taking the possibility of CO2 restrictions into account when they value the future revenue streams?

jose January 23, 2013 at 6:54 pm

I’ve often wondered whether environmentalists have a soul.
Mostly I think no. Hard to explain their evil, anti-human nature otherwise.
Thankfully, most of them don’t breed.

Nicoli January 24, 2013 at 4:57 pm

Profound.

Tigre de Tasmania February 22, 2013 at 4:37 am

Good post

John Mart

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