U.S. fossil fuel production is at an all-time high, up by 20% in energy terms since 2010. The U.S. now ranks first in the world in oil and gas, and second in coal production. About a quarter of the fuels being extracted, including two-fifths of all coal, come from lands and waters leased to producers by the federal government.

These leasing systems have been in place for generations and are a significant source of government revenue. Yet the capital-intensive investments they enable can “lock in” coal, oil and gas production at high levels for decades to come, making it more difficult and expensive to transition to cleaner, low-carbon alternatives.

At the same time, President Obama has made climate change a policy priority. He’s moving fast to ratify the Paris Agreement, which aims to keep global warming “well below 2°C” and try to stay closer to 1.5°C. In his 2016 State of the Union address, he said we need “to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet”.

As part of a review of the federal coal program, the U.S. Department of Interior (DOI), which oversees the fossil fuel leasing systems, is considering a possible declining schedule of leases “consistent with the United States’ climate goals and commitments”. The administration is also looking at its offshore oil and gas leasing program, and could take climate considerations into account there as well. U.S. Senators Bernie Sanders (D-VT) and Jeff Merkley (D-OR) have also introduced legislation that would stop all future leasing activity.

Climate and energy policy observers sometimes argue that supply-side measures like this are ineffectual, because even if fossil fuel production goes down in one place, someone else will quickly fill the gap – a “whack-a-mole” effect. Yet a new analysis from SEI, using standard economic modelling tools and data from recent studies suggests that phasing out federal fossil fuel leases could make a real difference.

“Even after accounting for increased production elsewhere, and after considering that, for example, some coal will be replaced by added gas, we found fossil fuel consumption would drop enough to reduce CO2 emissions by more than 100 million metric tons in 2030,” says Peter Erickson, a senior scientist in SEI’s U.S. Center in Seattle and lead author of the study. “That is a substantial benefit – greater than that of several of the policies the Obama administration has proposed in its Climate Action Plan.”

Comparison of the potential global GHG emissions impact of federal leasing reform and other U.S. government policies, 2030.

For comparison, the Obama administration estimates that new fuel-efficiency standards for light-duty vehicles will save 200 million tonnes of CO2 equivalent per year in 2030; fuel-efficiency standards for medium- and heavy-duty vehicles, 60 million tonnes CO2e, and regulations to control methane leaks from oil and gas operations, 13 million tonnes CO2e. The Clean Power Plan would save about 600 million tonnes CO2e.

“The scale of impact suggests that this a policy option worth exploring further,” says Michael Lazarus, director of SEI’s U.S. Center and co-author of the study. “Combined with other measures, it could help bring U.S. fossil fuel production down to levels more consistent with a 2°C pathway, which we estimate requires a 40–60% reduction from current levels. Under current policies, production is expected to rise by 11%.”

Historical and forecast U.S. fossil fuel production, 1990–2040, in energy terms, by status of federal lease.

If the U.S. government stopped issuing new leases for fossil fuel extraction on federal lands and waters, and refused to renew existing leases for resources that are not yet producing, U.S. coal production would begin to decline steadily, the study found. Oil and gas extraction would likely drop as well, but more slowly. This reflects differences in the industries: gas (and oil) projects tend to have longer lead times than coal, as gas companies must first conduct exploratory drilling and put wells or offshore platforms in place. By contrast, new federal coal leases are often next to existing mines and can be accessed readily with existing equipment.

Most of the coal production that would be avoided would be in Wyoming’s Powder River Basin. Most of the emission reductions from restricted oil leasing (86%) in 2030 would involve offshore production. Less than one-fifth of U.S. gas production is on federal lands and waters; about half of this is in Rocky Mountain states, especially Wyoming and Colorado; about a third is from offshore deposits, almost all in the Gulf of Mexico.

Erickson notes that although a lease phase-out could have significant economic implications for the affected states and communities, there would be time to adjust. “We absolutely need to have complementary policies that help them,” he says. “But even if we stopped issuing new leases this year and stopped renewing non-producing leases, coal mining on federal lands would continue for at least another two decades. Oil and gas production would continue beyond the period we studied.”

The study also highlights the interplay of demand- and supply-side climate policies. If the U.S. and other countries do little else to address climate change, Erickson and Lazarus found, a drop in production on federal land could be mostly offset by other fossil fuel sources, for a net impact of as little as 4 Mt CO2 in 2030. By contrast, in a world with shrinking fossil fuel supplies and greater availability of low-cost renewables, the impact of federal leasing policy could be as great as 210 Mt CO2 in 2030.

“The benefits are greatest if all countries are taking ambitious steps on both the supply and demand side,” says Lazarus. “This suggests that the leadership aspect is perhaps similarly important – if the U.S. can help move other countries to join in gradually phasing out fossil fuels, then the impact of each incremental action is even greater.”

Read the working paper summarized in this brief »

Read a policy brief summarizing the paper »

Learn more about the SEI Initiative on Fossil Fuels and Climate Change »