The president "bams" the economy on oil.

• Author: Gordon, Richard L.
• Position: Public Policy - Barack Obama's energy policy - Viewpoint essay

MOST, IF NOT ALL, Americans accept without question the idea that the U.S. Federal government should charge for access to commercial resources on public lands. Yet, it is not obvious that such charges are appropriate. The call for charges arises from the assertion that the land belongs to all citizens and all therefore should share in the proceeds from land use. In practice, however, half of the gross revenues gained from access charges are allocated to the state in which the land is located. Federal expenditures for administering commercial activities on those lands eat up such a large share of the remaining revenues that the Federal government often incurs net losses from resource extraction.

The profits associated with resource extraction on public lands are subject to the same Federal taxation regime imposed on everyone else, weakening the case for additional taxes in the form of an access charge. However, no clear basis exists for the assignment of rights for access to public lands, so bidding becomes the best alternative. An additional problem associated with access charges is the inevitable politicization of the fees being levied. With no clear route to the "right" charge (either in form or amount), it is easy for politicians and advocacy groups to claim the rates were "giveaways," whatever the yield may be. To lessen such attacks, the Department of the Interior has devised complex and expensive--but ultimately pointless and ineffective--methods for selecting sites for leasing and evaluating bids.

These management problems are increased further by congressional insistence that a substantial part of the payments for public land use comes from royalties on oil, natural gas, and coal production. Two important objections exist. First, this defies established economic principles; royalties tax production rates and thus are a drag on production. Second, we must determine production levels and the value of that production for accounting purposes, but both are difficult to monitor. Differences associated with the quality of minerals lifted and the transportation costs associated with getting those minerals to market make it tough to assess the actual market price of the output from a lease. Proper accounting of mineral production consequently has plagued public land managers from the start.

A better (that is, more economically productive) policy would be to impose all fees on the private use of public land when the lease is granted. While calls to improve administrative monitoring of this tricky business are omnipresent, no politician dares to propose the only fix that promises a solution within the public land regime--a more efficient system of initial payments only, which intrinsically would eliminate subsequent misrepresentation.

Charges that the Bureau of Land Management and Minerals Management Service are too close to industry stem from the fact that those agencies have faced reality and made accounting accommodations with industry on these royalty payment issues. Concern that the agencies have shirked their responsibility to oversee and enforce drilling and mineral extraction regulation is a more recent complaint. The two problems, however, are similar in that public agencies intrinsically are incapable of accumulating and assessing the information necessary intelligently to monitor and second-guess the regulated parties.

Another complaint often raised by opponents of increased leasing is that...