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Climate Royalty Surcharges

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  • Prest, Brian C.

    (Resources for the Future)

  • Stock, James

    (Resources for the Future)

Abstract

Concerns about climate change have led to calls for reforming or eliminating the extensive US federal fossil fuel leasing program. One proposed reform is adding a climate surcharge to the existing royalty rate. We consider determining this surcharge by maximizing social welfare, including the climate damages from combusting federal fossil fuels and the value of raising revenue when the marginal value of public funds exceeds one. We estimate that the resulting climate royalty surcharge would lead to meaningful declines in global emissions, would significantly increase royalty receipts, and would result in royalty rates substantially greater than those currently in place. We also evaluate the change in onshore royalty rates made by the Inflation Reduction Act of 2022, finding the law’s modest rate increases leaves substantial welfare gains, emissions reductions, and royalty revenues on the table.A previous version of this paper was originally published as part of the National Bureau of Economic Research working paper series.

Suggested Citation

  • Prest, Brian C. & Stock, James, 2021. "Climate Royalty Surcharges," RFF Working Paper Series 21-08, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-21-08
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    2. Nathan Ratledge & Laura Zachary & Chase Huntley, 2022. "Emissions from fossil fuels produced on US federal lands and waters present opportunities for climate mitigation," Climatic Change, Springer, vol. 171(1), pages 1-8, March.
    3. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

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    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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