Gas prices in the U.S. have fallen from their summer highs. While this has many Americans breathing a sigh of relief, they are still about double what they were just two short years ago. Many energy traders also say prices are set to again move higher into the fall and winter months.
This market roller coaster ride shows how vulnerable the United States is against volatile market fluctuations in the short term. In the past, the domestic market response to high oil and gas prices has been to increase production, thus leading to lower prices in the future.
But the time-consuming and increasingly expensive cost of permitting for new energy exploration has since hindered this supply response, artificially inflating prices for longer periods of time.
The fact is, poor policy choices created this situation. The solution is to reform this permitting bottleneck that holds back the necessary supply-side response to high prices and to support policies that will address America’s long-term energy needs.
This is true not just for the oil and gas industry, but for all economic activity subject to oppressive permitting regulations as well.
Since taking office President Joe Biden has taken many steps to curtail domestic production, including limiting and rescinding federal permits for oil and gas drilling and leasing. This antagonistic attitude has ultimately created an uncertain investment climate for the energy industry.
Time delays for permits not only add directly to costs that are ultimately born by consumers, but regime uncertainty also increases risks and thus the price tag. Industry won’t make high-risk capital investments in new leases and projects such as refining capacity if the return is increasingly in question. Government stepping in to impose barriers and limits on U.S. energy operations will inevitably result in less production and continued high costs.
This directly affects states like Colorado, which is the seventh biggest energy producer in the United States and where 36% of state lands are federally managed. According to the Colorado Oil and Gas association, approved permits have dropped significantly, just as higher oil and gas prices have risen dramatically — the opposite of the market response we need.
Unfortunately, Colorado is experiencing another layer of attack on leasing as well.
A March case study of Garfield County, produced by Natural Resource Economics, estimates that new permitting delays and regulatory costs following passage of Colorado Senate Bill 19-181 will cost upward of $200 million. That is not even close to the cost of permitting and regulations; it is just the new cost following passage of SB19-181. Subsequent rule makings will add even more cost, delays, and uncertainty.
These costs have the same effect as taxes, which reduce investment and production.
The impacts to Colorado’s economy will be severe, as oil and gas development on public land and mineral estate is an important economic driver for the state’s economy.
The Bureau of Land Management says the 4,712 leases it manages in Colorado produce an economic output of $2.3 billion. From 2003 to 2020, these leases provided more than $147 million in royalty and fee revenues to state government. Those are funds that go back into Colorado communities to fund schools, police and other public works.
At the national level, permitting reform will also be tremendously important to bolstering U.S. energy security.
Some in Washington have pledged permitting reform as a companion to the recently passed Inflation Reduction Act. But these pledges need teeth. For example, the biggest governmental hurdle for energy projects is the National Environmental Protection Act permitting process which creates costly delays.
First signed into law by President Richard Nixon, the act has not undergone substantial updates in nearly 50 years. The regulations as well as extravagant and excessive methods of assessing environmental impacts have already delayed major infrastructure projects and prolonged the decision-making process.
According to a 2018 study by the Council on Environmental Quality, the federal agency that primarily implements the National Environmental Protection Act, review times have more than doubled since the 1970s and 25% of reviews completed took more than six years.
We can streamline the current permitting and NEPA review processes and promote responsible, environmentally conscious development thanks to other laws such as the Clean Air and Clean Water Acts. This is the path to more stable and more affordable energy prices and a secure future for an energy sector that is so critical to Colorado and across the country.
Paul Prentice, Ph.D. is a senior fellow at the Independence Institute.
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