Federal Lands
Financial Readiness
Regulation

Opportunity Lost? The Economic Value of Energy Resources on Federal Lands in Utah

A report released by the Sutherland Institute Center for Self-Government in the West finds that, based on high-, medium-, and low-usage scenarios, the state’s economy could add between about $1.2 billion and $6.7 billion and 9,400 to 58,000 jobs annually by developing oil, gas and renewable energy on federal lands within the state. Developing these resources could also contribute as much as $1.2 billion in annual taxes.

The report is based on a newly released study by University of Wyoming Professor Timothy Considine that models the economic values of energy resources on federal lands in seven Western states.

Based on past trends, current plans, and energy holdings on lands slated for development, the report estimates the full economic impact of developing oil, gas and renewable energy on federal lands within the state. It also compares the benefits of developing different energy resources, and finds a significant difference in the economic benefits of developing renewable versus nonrenewable energy on these lands.

While the most aggressive renewable development scenario could add as much as $123 million in economic value, $31 million in taxes, and about 1,800 jobs to Utah’s economy annually, aggressive oil and gas development could add $6.6 billion in economic value, $1.2 billion in taxes, and 56,000 jobs. The report notes that these types of energy are not mutually exclusive, but the differences between them may represent opportunity costs to be considered in a limited development environment.

POLICY NOTE

Opportunity Lost?

The Economic Value of Energy Resources on Federal Lands in Utah

 

September 17, 2013

A Question of Priorities

As in all Western states, federal lands management in Utah involves controversies between pro-development and conservationist forces. To a greater extent than private or even state-owned lands, development of oil, natural gas, and coal resources on federal lands often involves years of regulatory approval and litigation. Utah, like many other states, isalso concerned about the payoffs from development in terms of state revenues, employment, and tax revenues. In particular, several large renewable energy projects may be put on the fast track for approval while many oil and gas projects languish in a regulatory and legal bog. To assess the opportunity costs of such a regulatory posture, this Policy Note presents the payoffs from developing renewable and nonrenewable energy projects in Utah. These returns in terms of jobs, tax revenues, and gross state product, provide a basis for assessing the opportunity costs of regulatory delays or outright rejection of proposed energy projects on federal lands, as well as the tradeoffs between nonrenewable and renewable energy development in the state.

The geologies of oil and gas reservoirs on federal and private lands in the Rocky Mountains, including in Utah, share many similar features. Indeed most of the production growth of crude oil has occurred in well-established oil fields. These production gains are realized from the application of new technology, such as three dimensional seismic, directional drilling, and hydraulic fracturing. The Bureau of Land Management and other federal agencies are developing new rules for the use of these technologies on federal lands that may impact the ultimate production, and therefore potential economic benefit, of these lands. In addition to the existing layers of regulatory hurdles and related litigation, delays in the implementation of these rules may have contributed to the relatively slower growth of oil and gas production on federal lands already.

To estimate the costs of these delays, this Policy Note presents scenarios for fossil fuel and renewable energy development in Utah, developed by Dr. Timothy Considine at the University of Wyoming. The scenarios for oil and gas drilling are formulated on the basis of historical data on drilling activity on federal lands and the number of wells associated with projects proposed and awaiting federal approval. The economic impacts from the construction and operation of new energy production capacity under each of these scenarios are then estimated (see the multistate study at www.EndFedAddiction.org for full methodology). These impacts include the direct stimulus provided to Utah’s economy from these investments, additional gains from business-to-business or supply chain spending, and the induced impacts as households spend income earned from this additional commerce.

Two of the main findings presented in the pages below are that (1) energy resource development on federal lands holds the potential for significant economic gains for Utah’s communities and revenue gains to state coffers, and (2) that the economic benefits associated with oil and gas development are orders of magnitude larger than those arising from proposed renewable energy projects.

 

Energy Resource Development in Utah

 

Production of crude oil in Utah has increased in recent years.[1] In 2008, crude oil production averaged 60,000 barrels per day. During 2012, production of crude oil averaged 83,000 barrels per day (Figure 1). Natural gas production is up 12 percent over the same period. The shares of total Utah oil and gas production from federal lands are 38 percent and 61 percent respectively.

 

fig1

Figure 1: Utah oil and natural gas production, 2002-2012

 

During 2011, the minerals sector contributed $2 billion in value added to the Utah state economy(see Table 1). Given Utah’s relatively large economy in the region, the mineral sector comprises only 1.7 percent of gross state product. Within the Utah minerals sector, oil and gas is a major contributor, generating more than $1.3 billion in value added during 2011 (see Table 1). In total, oil and gas contributed nearly 1 percent of Utah’s gross state product.

 

Table 1: Economic contribution of mineral sector in Utah during 2011

 

Jobs

Gross

Output

Wages

Proprietor

Income

Other Property

Income

Indirect

Business Tax

Total Value

Added

Oil & Gas

Millions of 2013 dollars

        Drilling

836

533.3

64.1

0.4

115.6

8.9

189.0

        Support

3,816

710.6

235.5

2.6

41.6

11.9

291.6

        Extraction

3,709

1,630.9

178.2

16.7

456.2

135.0

786.1

        Sub-Total

8,361

2,874.8

477.8

19.7

613.5

155.8

1,266.8

Coal

2,294

753.3

168.3

5.1

136.9

52.2

362.4

Other Minerals

2,896

837.3

200.4

3.3

186.8

16.0

406.4

Coal & Other

5,190

1,590.6

368.7

8.4

323.7

68.1

768.9

Total Minerals

13,551

4,465

846

28

937

224

2,035.6

Total Utah

1,637,462

233,745.1

66,468.6

11,047.7

36,208.3

8,226.1

121,950.7

Oil & Gas Share

0.5%

1.2%

0.7%

0.2%

1.7%

1.9%

1.0%

Minerals Share

0.8%

1.9%

1.3%

0.3%

2.6%

2.7%

1.7%

Source: IMPLAN Inc.

 

 

Minerals also generate substantial tax revenue for local, state, and federal governments in Utah. The share going to state and local governments is represented above in Table 1 as indirect business taxes, which totaled $224 million, or roughly 2.7 percent of the state total. Gross tax collections and royalties from the oil and gas sector contribute an even larger share, which is revealed below in Table 2. For instance, during 2011, the minerals sector collected more than $373 million in taxes and royalties.

 

Table 2: Utah oil and gas tax and royalty collections during 2011

 

Millions of 2013 dollars

Oil and Gas Severance Tax 59.9
Ad Valorem Tax 44.0
Conservation Fees 5.8
Federal Royalties 263.7
Total 373.3
Sources: Utah State Tax Commission, Office of Natural Resources Revenues

Impacts from Developing Oil and Gas on Federal Lands in Utah

 

Based on estimated development levels, the impact of investments in oil and gas wells on the Utah economy is significant. Gross output forthe oil and gas drilling sector is increased by $4,387,260. This represents an exogenous investment in the oil and gas sector. A typical Utah oil and gas well generates $1,622,814 in annual gross output. The economic and fiscal impacts per welldrilled are presented in Tables A1 and B1 in Appendices A and B respectively. These parameters per well are used to estimate the economic and fiscal impacts of the drilling scenarios for Utah presented above in Table 2. The results appear in Table 3.

Under the medium scenario for drilling activity on federal land, well spuds average 373 over the next 10 years. This level of activity contributes $1.7 billion in value added or gross state product per annum. Corresponding with this activity is more than 14,000 of annual job equivalents, and more than $300 million in taxes and royalties.

 

Table 3: Impacts of proposed oil & gas projects on Utah federal lands

 

Wells Drilled per Annum

Low

Medium

High

Well Spuds

244

373

1,445

Millions of 2013 dollars

Gross Output

2,568.2

3,934.1

15,240.5

Value Added

1,111.8

1,703.2

6,598.0

Wages

506.3

775.6

3,004.6

Taxes
        State & Local

91.9

140.8

545.3

        Federal

91.7

140.5

544.4

        Ad Valorem

4.7

7.3

28.1

        Severance

4.4

6.8

26.3

Federal Royalties

8.0

12.2

47.4

Taxes & Royalties

200.8

307.6

1,191.5

Annual Job Equivalents

Employment

9,411

14,416

55,848

 

 

If all the proposed oil and gas projects on federal lands were undertaken, which is the high scenario presented in Table 3, the annual economic contribution from federal lands would more than triple to $6.6 billion with more than 50,000 jobs and $1.2 billion in government revenue (see Table 3). If the low scenario came to pass, drilling activity would decline to an average of 244 wells per year on federal lands. Under this case, the contribution from federal lands is much smaller, with only $1.1 billion of value added, 9,000 job equivalents, and $200 million in government revenue.

The high scenario for Utah represents a break from the historically modest level of drilling in Utah. While this scenario seems unlikely given current federal policy, it should not be dismissed as unrealistic, because it simply requires federal authorities to approved proposed projects. If approval is granted, the gains to the Utah economy are best approximated by the difference in the contributions from energy development on federal lands from the medium scenario. For example, approving these projects would contribute close to $5 billion in gross state product, 40,000 jobs, and $880 in government revenue. Over 10 years, these gains mount, approaching $50 billion in value added and $9 billion in government revenue.

Impacts From Developing Renewable Energy on Federal Lands in Utah

There are a number of renewable energy projects proposed in Utah, some of which are likely to be constructed on federal lands. In particular, federal officials in 2012 set aside 285,000 acres of public land for the development of large-scale solar power plants. The plan involves establishing 17 new solar energy zones, and three of these are located in Utah: 6,533 acres in Escalante Valley, 6,252 acres in Milford Flats South, and 5,873 acres in Wah Wah Valley. To estimate the economic and fiscal impacts from the development of renewables on federal lands, and the potential losses from their delay, the metrics reported in Table C1, Table D1, Tables E1-E2 and Tables F1-F2 in Appendices C, D, E and F respectively are applied to three possible development scenarios for wind and solar in Utah.

To form a business-as-usual or low projection for the development of renewables, this study assumes that the renewable electricity generation capacity in Utah grows at the same rate as that forecast for the Northwest Power Pool Area of the Western Electricity Coordinating Council by the EIA’s 2013 Annual Energy Outlook, Reference Case Scenario. These projections imply that over the next 10 years, wind-generating capacity in Utah will expand from 411 megawatts (MW)in 2012 to 455 MW in 2022. This implies an average annual growth rate of wind of 1%. This business as usual path does not include any build-out of solar.

The medium renewable energy scenario assumes a higher average annual growth rate for wind of 3 percent, with wind capacity reaching 553 MW by 2022. In addition, the medium renewable path assumes some development of the solar energy zones: 25 MW of PV coming online annually from 2016 onwards, reaching a total of 175 MW by the end of the forecast horizon.

Finally, the high renewable energy scenario is designed to reflect the possibility that large wind projects, such as the third phase of the Milford Wind project (which could include up to 300 wind turbines), go ahead. Hence, it is assumed that an additional 100 MW of wind power is installed annually from 2014 onwards, over and above the projected build-out under the medium development path. This implies by 2022 a wind capacity base of 1,453 MW in Utah. In addition, in the high renewable scenario there is also extensive development of the solar energy zones, with 50 MW of PV and 25 MW of central station power (CSP) coming online annually from 2016 onwards.

In the case of wind, these three development scenarios provide projections for the total build-out of wind in Utah (i.e., on both state and federal lands). Fifty-seven percent of land in Utah is federal land. Therefore, this study assumes that 57 percent of the build-out of wind and geothermal in each of the three development scenarios will take place on federal lands. In contrast, the build-out of PV and solar thermal is assumed to entirely take place within the solar energy zones, and since these zones are on federal lands, 100 percent of the solar build-out is on federal lands.

The average annual total economic impacts (i.e., impacts from construction and operation) over the next decade associated with each of these development scenarios are presented below in Table 4. Under the medium scenario, value added and taxes are $36 million and $8 million higher, respectively, and the employment level is 601 higher. This means that delays in the approval of renewable projects on federal lands forgo these gains. Hence, the annual average cost of delays is $36 million in terms of lost economic output, or value added. Under the low renewable scenario, the costs of delays could be $1.3 million, while under the higher wind scenario the costs of delays could be $123 million. The economic value of approving proposed oil and gas projects on federal lands in Utah are much greater than the gains that could be realized from developing renewable energy.

Table 4: Economic and fiscal impacts of renewable energy on Utah federal lands

 

Construction per Annum (MW nameplate)

Low

Medium

High

Wind

3

8

60

PV

0

18

35

CSP

0

0

18

Economic Impacts in millions of 2013 dollars

Gross Output

2.4

63.6

226.5

Value Added

1.3

35.6

122.7

Wages

0.9

24.7

88.2

Taxes
        State & Local

0.1

2.7

10.2

        Federal

0.2

5.3

20.2

        Severance

0.0

0.0

0.1

Total taxes

0.3

8.0

30.5

Annual Job Equivalents

Employment

19.7

601.4

1,839.2

Conclusion

 

Oil and gas development over the next 10 years could generate nearly $2 billion in value added per annum under the medium drilling scenario that envisions slightly under 400 wells drilled per year. This scenario also would support more than 14,000 job equivalents and generate more than $300 million in tax and royalty payments per year. This scenario assumes that a substantial proportion of the projects proposed on federal lands would be approved in a timely fashion so that drilling activity returns to levels above currently depressed levels. If drilling on federal lands remains at currently depressed levels, which are due in part to restrictive regulatory policies, then the gains under the medium scenario would not be realized. Hence, these foregone opportunities would represent the opportunity cost of restrictive regulatory policy.

If federal policy is accommodative and resource prices favorable, federal lands in the Utah could contribute more than $6 billion in value added and nearly60,000 jobs per annum. However one views the posture of federal policy, this scenario clearly demonstrates there is considerable upside potential from developing oil and natural gas on federal lands. These gains should be kept in mind in formulating regulatory policies affecting access and management of federal lands.

There is also a significant tradeoff between developing nonrenewable versus renewable energy projects on federal lands. Under the medium development scenario an average of 26 MW of renewable energy generation capacity is built each year. Under this scenario, the construction and operation of these facilities would on average generate $35.6 million in value added, support 600 jobs per annum, and provide $8 million in government revenues. Under the high development scenario, 113 MW capacity results in about $123 million in value added, just over $30 million in taxes, and 1,800 jobs. The net economic value of these projects would be lower because the relatively high cost of electricity produced from these projects would raise electricity rates and lower economic activity. Regardless, even the gross economic gains from building and operating renewable energy projects are orders of magnitude lower than the gains achieved from developing oil and gas on federal lands.

 

 

This Policy Note is based upon “The Economic Value of Energy Resources on Federal Lands in the Rocky Mountain Region” by Timothy Considine, Professor of Energy Economics and Director of the Center for Energy Economics and Public Policy (CEEPP) with School of Energy Resources and the Department of Economics and Finance at the University of Wyoming. The full study is available at the Sutherland Institute Center for Self-Government in the West, www.EndFedAddiction.org.

This report was prepared with the support of the Interstate Policy Alliance and in consultation with the Sutherland Institute Center for Self-Government in the West.

The opinions, findings, and conclusions expressed in the report are those of the author and are not necessarily those of the University of Wyoming.

————————————————————–

Appendices

 

 

Appendix A: Economic impacts of oil and gas wells in Utah

 

 

Table A1: Utah economic impacts per well drilled

 

 

Drilling & Completion

2013 dollars

 

Gross Output

Value Added

Wages

Jobs

Direct

4,387,260

1,533,414

522,971

6.6

Indirect

2,275,780

1,048,456

665,308

12.1

Induced

1,099,332

605,885

332,134

8.7

Total

7,762,372

3,187,755

1,520,413

27.4

Production

Direct

1,611,814

750,672

186,151

3.4

Indirect

776,630

409,256

252,990

4.7

Induced

396,264

218,419

119,726

3.2

Total

2,784,708

1,378,347

558,867

11.3

Total Impacts

Direct

5,999,074

2,284,086

709,121

10.0

Indirect

3,052,409

1,457,711

918,299

16.8

Induced

1,495,596

824,305

451,860

11.9

Total

10,547,080

4,566,102

2,079,280

38.6

 

 

Appendix B: Fiscal impacts of oil and gas wells in Utah

 

 

Table B1: Utah fiscal impacts per well drilled

 

 

Tax Category

Drilling

Production

Total

State Taxes

 

 

 

Dividends

377

166

543

Social Security – Employee Contributions

67

24

91

Social Security – Employer Contributions

120

43

163

Sales Tax

88,711

77,702

166,413

Business Property Tax

60,407

52,911

113,318

Business Motor Vehicle

2,927

2,564

5,491

Non-taxes

15,914

13,939

29,853

Other Business Tax

3,784

3,314

7,098

Personal Fines & Fees

4,651

1,714

6,365

Personal Motor Vehicle

2,588

954

3,542

Personal Property Tax

544

200

744

Other Personal Taxes

1,639

604

2,243

Personal Income taxes

29,955

11,039

40,994

Corporate Profits Taxes

12,685

5,591

18,276

Total State & Local Taxes

224,369

170,765

395,134

Federal Taxes

Social Security – Employee Contributions

61,373

21,920

83,293

Social Security – Employer Contributions

79,745

28,482

108,227

Excise Tax

14,479

12,682

27,161

Custom Duty

6,110

5,351

11,461

Proprietor Income

6,861

3,083

9,944

Corporate Profits Tax

93,805

41,342

135,147

Personal Income Tax

80,376

29,619

109,995

Total Federal Tax

342,749

142,479

485,228

Mining Specific Taxes & Royalties

State Severance Tax

59,155

59,155

Ad Valorem Tax

43,493

43,493

Conservation Fee

5,717

Federal Mineral Royalty

203,760

203,760

Total Mining Specific Taxes

312,125

312,125

Total All Taxes

567,118

313,244

880,362

 

 

Appendix C: Economic impacts of wind turbines in Utah

 

 

Table C1: Utah economic impacts per Utah 2 MW wind turbine

 

 

Construction

2013 dollars

 

Gross Output

Value Added

Wages

Jobs

Direct

882,768

470,559

398,330

7.7

Indirect

369,662

182,748

114,054

2.3

Induced

474,143

266,067

151,545

3.9

Total

1,726,573

919,374

663,929

13.8

Operation (annual)

Direct

21,089

12,165

6,220

0.1

Indirect

7,272

3,854

2,244

0

Induced

7,839

4,399

2,506

0.1

Total

36,200

20,418

10,970

0.2

Total Impacts

Direct

903,857

482,724

404,550

7.8

Indirect

376,934

186,602

116,298

2.3

Induced

481,982

270,466

154,051

4.0

Total

1,762,773

939,792

674,899

14.0

 

 

Appendix D: Fiscal impacts of wind turbines in Utah

 

 

Table D1: Utah fiscal impacts per 2 MW wind turbine

 

 

 

2013 Dollars

Tax Category

Construction

Operation

State Taxes

Dividends

51

2

Social Security – Employee Contributions

26

0

Social Security – Employer Contributions

46

1

Sales Tax

24,744

1,418

Business Property Tax

16,849

966

Business Motor Vehicle

816

47

Non-taxes

4,439

254

Other Business Tax

1,055

60

Corporate Profits Tax

1,733

55

Personal Income Tax

13,221

217

Personal Fines & Fees

2,053

34

Personal Motor Vehicle

1,142

19

Personal Property Tax

240

4

Other Personal Taxes

723

12

Total State & Local Taxes

67,140

3,087

Federal Taxes

Social Security – Employee Contributions

23,583

429

Social Security – Employer Contributions

30,643

558

Excise Tax

4,039

231

Custom Duty

1,704

98

Proprietor Income

5,819

61

Corporate Profits Tax

12,814

404

Personal Income Tax

35,475

582

Total Federal Tax

114,078

2,363

Wind Specific Taxes

State Severance Tax

607

35

Total All Taxes

181,825

5,485

 

 

Appendix E: Economic impacts of solar installations in Utah

 

 

Table E1: Economic impacts per 2 MW photovoltaic solar in Utah

 

 

Construction

2013 dollars

 

Gross Output

Value Added

Wages

Jobs

Direct

3,640,576

2,168,682

1,855,982

56.3

Indirect

1,453,792

729,238

729,238

10.0

Induced

2,137,371

1,199,401

1,199,401

17.5

Total

7,231,738

4,097,320

2,991,611

83.9

Operation (annual)

Direct

44,260

18,651

6,975

0.1

Indirect

17,237

8,329

5,118

0.1

Induced

11,216

6,294

3,585

0.1

Total

72,713

33,274

15,678

0.3

Total Impacts

Direct

3,684,836

2,187,333

1,862,957

56.4

Indirect

1,471,029

737,567

457,594

10.1

Induced

2,148,587

1,205,695

686,737

17.6

Total

7,304,451

4,130,594

3,007,289

84.2

 

 

Appendix F: Fiscal impacts of solar installations in Utah

 

 

Table F1: Fiscal impacts per 2 MW photovoltaic solar in Utah

 

 

 

2013 Dollars

Tax Category

Construction

Operation

State Taxes

Dividends

234

3

Social Security – Employee Contributions

126

1

Social Security – Employer Contributions

223

1

Sales Tax

87,966

1,908

Business Property Tax

59,900

1,299

Business Motor Vehicle

2,903

63

Non-taxes

15,780

342

Other Business Tax

3,752

81

Corporate Profits Tax

7,862

116

Personal Income Tax

59,224

309

Personal Fines & Fees

9,195

48

Personal Motor Vehicle

5,117

27

Personal Property Tax

1,075

6

Other Personal Taxes

3,240

17

Total State & Local Taxes

256,597

4,221

Federal Taxes

Social Security – Employee Contributions

114,275

637

Social Security – Employer Contributions

148,484

828

Excise Tax

14,358

311

Custom Duty

6,058

131

Proprietor Income

19,189

67

Corporate Profits Tax

58,138

854

Personal Income Tax

158,908

828

Total Federal Tax

519,410

3,658

PV Specific Taxes

State Severance Tax

2,159

47

Total All Taxes

778,166

7,926

 

 

Table F2: Fiscal impacts per 2 MW central station solar in Utah

 

 

2013 Dollars

Tax Category

Construction

Operation

State Taxes

Dividends

277

8

Social Security – Employee Contributions

123

2

Social Security – Employer Contributions

218

3

Sales Tax

104,541

4,783

Business Property Tax

71,187

3,257

Business Motor Vehicle

3,450

158

Non-taxes

18,754

858

Other Business Tax

4,459

204

Corporate Profits Tax

9,319

278

Personal Income Tax

61,278

811

Personal Fines & Fees

9,514

126

Personal Motor Vehicle

5,295

70

Personal Property Tax

1,112

15

Other Personal Taxes

3,352

44

Total State & Local Taxes

292,881

10,617

Federal Taxes

Social Security – Employee Contributions

111,906

1,630

Social Security – Employer Contributions

145,405

2,118

Excise Tax

17,063

781

Custom Duty

7,200

329

Proprietor Income

24,899

211

Corporate Profits Tax

68,911

2,053

Personal Income Tax

164,421

2,176

Total Federal Tax

539,805

9,298

CSP Specific Taxes

State Severance Tax

2,566

117

Total All Taxes

835,252

20,032

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