In a bid to check the administration’s power to tap into the Strategic Petroleum Reserve, House Republicans recently passed a measure requiring further drawdowns to trigger more drilling on federal lands. Senate Democrats should now see that bid and raise it by proposing a second requirement: A portion of all new federal royalties from oil and gas drilling leases should go into a dedicated clean energy innovation fund.
Many environmentalists will balk at any idea that doesn’t limit drilling because they believe limiting oil and gas production also limits consumption. But they’re wrong. The only politically viable way to limit oil and gas consumption is to make clean alternatives more affordable — and to do that, we need to accelerate research, development and commercialization of new breakthroughs. Hence, the beauty of siphoning a modest, clean energy innovation fee off the top of federal drilling royalties.
President Biden dipped into the Strategic Petroleum Reserve last year to moderate gasoline prices against 40-year-high inflation, withdrawing more than 213 million barrels. With gas prices falling, the administration is considering replenishing the reserve, which is sensible.
But House Republicans want to prevent that cycle from repeating. They argue tying the reserve to drilling leases will increase the political cost of using reserves to lower gas prices except in dire emergencies. They also say producing more oil and gas will strengthen energy independence. That is a worthy goal, but oil and gas are global commodities, so America will never be able to insulate itself from price spikes — even when it produces more than it consumes, as it has begun to do in recent years.
If the world hopes to reduce fossil fuel consumption, the only way to do that is to ramp up investment in clean energy technologies to bring down their cost and improve their performance. As things stand, however, clean energy remains more expensive than dirtier alternatives. Meanwhile, additional large subsidies for clean energy deployment are likely off the table for budget reasons, just as strict greenhouse gas regulations are off the table for political reasons. So, the only realistic way to drive down clean energy costs is through innovation. This can be the basis for a grand bargain between the Biden administration and Democrats and Republicans in Congress: more drilling and more clean energy innovation.
When Biden reinstituted federal oil and gas leases in 2022, he used his authority under the Mineral Leasing Act to increase the royalty rate from 12.5 percent to 18.75 percent. Federal royalties from onshore leases alone generated $7.1 billion. When the administration restarted the federal oil and gas leasing program in 2022, it opened 250,000 acres for new exploration. A 5 percent clean energy innovation fee on royalties from these new leases would generate billions in funding for new clean energy research, development and demonstration projects that could drive down the costs of low-carbon solutions.
This dedicated funding stream could be allocated to the Energy Department’s ARPA-E program, a proven federal clean energy innovation incubator modeled off of the Defense Department’s successful DARPA program. This would more than double APRA-E’s current budget, accelerating innovation in clean energy technologies to achieve price-performance-parity and spur a cascade of adoption throughout supply chains.
When it comes to American energy policy, the best approach balances the competing interests and needs of current and future generations. The Strategic Petroleum Reserve and federally managed oil and gas resources are public endowments. We should use them to help consumers at the gas pump in the near term and achieve American energy independence in the mid- to long term by investing in the clean energy innovation necessary to enable a transition to a lower-carbon economy without reducing living standards.
