Climate Royalty Surcharges

26 Pages Posted: 15 Mar 2021 Last revised: 18 Jan 2025

See all articles by Brian C. Prest

Brian C. Prest

Resources for the Future

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: March 2021

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.

Suggested Citation

Prest, Brian C. and Stock, James H., Climate Royalty Surcharges (March 2021). NBER Working Paper No. w28564, Available at SSRN: https://ssrn.com/abstract=3804563

Brian C. Prest (Contact Author)

Resources for the Future ( email )

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James H. Stock

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Harvard University - Harvard Kennedy School (HKS) ( email )

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