Errors in the CBO Report on ANWR
In August, the Congressional Budget Office (CBO) released a little-noticed report on the budgetary effect of opening federal lands to oil and gas exploration. The report looked specifically at the Arctic National Wildlife Refuge (ANWR) in Alaska and the Outer Continental Shelf (OSC). This report was generated at the request of the chairman of the House Budgetary Committee, Representative Paul Ryan. Ryan, being the clever and fiscally conservative member of the House that he is, was looking for ways to increase revenue without raising taxes.
Unfortunately, it seems that the CBO has grossly underestimated the revenue potential generated by opening these two vast untapped areas of natural resources. The CBO has told the chairman that revenue from just putting the land under lease, without extracting one drop of oil, would yield only $50 billion a year at best. However, the CBO, in the very same paragraph, admits to a 55% margin of error. A coin toss would be more accurate.
In truth, the number is quite a bit higher than the CBO estimate. The CBO doesn't add the royalty income in its equations. For every 1 billion barrels produced from federal lands at $80 per barrel, the royalty revenue of a standard 16.7% royalty would be $13 billion per year. So if ANWR has 500 billion barrels of oil, as some estimates suggest, the royalties to the federal government should total to $6.6 trillion over 30 years, which is the expected production life of those fields in Alaska.
Then there are other errors of omission in the report. The CBO does not cite the information in a recent Energy Information Agency report that identifies the secondary benefits of opening ANWR. The EIA says that the opening of ANWR for exploration would benefit the U.S. in a number of ways.
The opening of ANWR to oil and gas development includes the following impacts:
- reducing world oil prices,
- reducing the U.S. dependence on imported foreign oil,
- improving the U.S. balance of trade,
- extending the life of TAPS for oil, and
- increasing U.S. jobs.
The EIA report goes on to say the following:
As a result, the opening of ANWR to Federal oil and natural gas leasing improves the U.S. balance of trade by $135 to $327 billion during the 2018 through 2030 timeframe[.]
It is clear that Ryan is onto something here, but it seems that the CBO does not want him to know it.