Supply-Side Reforms to Oil and Gas Production on Federal Lands: Modeling the Implications for CO2 Emissions, Federal Revenues, and Leakage

Abstract

Policy reforms targeting federal oil and gas production are increasingly considered as approaches to reduce CO2 emissions. Yet such policies are controversial, in part due to leakage concerns. I model the effects of three such policies, including carbon adders and a leasing ban. Accounting for leakage, a leasing ban reduces emissions by about one-quarter of the amount originally projected for the Clean Power Plan but reduces royalty revenues by $5 billion annually. Carbon adders reduce emissions less but can raise billions of dollars annually. Charging the same carbon adder for both oil and gas is not revenue-maximizing because gas production is more sensitive to the adder. I estimate revenue-maximizing adders of $40/ton for oil and $5/ton for gas, but higher revenues come at the cost of higher emissions than achieved by charging adders based on the social cost of carbon. These results highlight important policy trade-offs in federal leasing reforms.