The Oil Industry Must Clean Up Its Mess
By Alan Zibel, research director for Public Citizen
It’s a lesson we all learned in kindergarten: If you make a mess, you should clean it up. The oil and gas industry is no exception.
But fossil fuel companies don’t always clean up their mess. Their executives are ditching the responsibility of paying the bill for cleaning up old and decrepit oil wells. They’re forcing taxpayers to pay the cost of cleanup — everywhere from Appalachia to Texas to Colorado to New Mexico.
It’s unfair for oil companies to stick taxpayers with their cleaning bills. That’s why Public Citizen joined Taxpayers for Common Sense and the Project on Government Oversight to call on the Biden administration to fix a broken oil and gas leasing system, urging the Department of Interior to update 60-year-old federal bond requirements and raise royalty rates.
For decades, the U.S. government has failed to force the industry to provide adequate guarantees that oil wells drilled on public lands will be cleaned up. The government allows companies to purchase a single bond of as little as $150,000 to cover cleanup costs for hundreds or thousands of wells. That is peanuts compared with the average cleanup costs of between $20,000 and $140,000 to plug a single well.
It’s just one example of how the fossil fuel industry is a poster child for corporate welfare, benefiting unfairly from generous federal subsidies and tax breaks, including artificially low royalties and below-market rates to lease property for drilling from the U.S. government.
In the coming years, millions of unplugged onshore wells in the United States will need to be cleaned up. Without proper cleanup, abandoned and idle wells become a major environmental risk. They spew methane, a potent greenhouse gas far more powerful at warming the planet in the short term than carbon dioxide, leak toxic chemicals and contaminate groundwater.
Oil drillers, rather than taxpayers, should pay to clean up these drilling sites. But U.S. taxpayers are already on the hook to the tune of $250 million to clean up the mess that oil and gas companies have left on public lands. with the federal government now providing funding for oil well cleanup, risks are increasing that taxpayers will ultimately be stuck with an even bigger bill.
Fossil fuel companies may be rolling in cash these days, but the industry goes through frequent boom and bust cycles and is vulnerable to severe downturns. Most recently, hundreds of oil and gas companies filed for bankruptcy when oil prices crashed at the start of the pandemic. The Biden administration has acknowledged this problem, writing in a report last year that outdated rules “increase the risk that taxpayers will be required to cover the cost of reclaiming wells if the operator refuses to do so or declares bankruptcy.”
According to the Government Accountability Office, the average value of bonds held by the Bureau of Land Management in 2019 was only $2,122 per well, far lower than reclamation costs, which range from $20,000 to $145,000 per well. In fact, 84 percent of bonds covering the vast majority of wells on federal lands are not enough to cover even the lower estimate of $20,000 per well. These egregiously low bond minimums incentivize operators not to abandon wells because it is often less costly to forfeit the minimum bonded amount than to pay for cleanup costs.
The oil and gas industry has enjoyed huge profits over the past year as Americans have paid more to fill up their cars and heat their homes. The least the industry can do is pay a fair price for exploiting public resources and ensure that taxpayers aren’t stuck with the bill when oil and gas companies decide to take their profits and run.