I am a fan of the podcast Volts hosted by David Roberts.  On August 17, 2022, he posted a conversation with Dr. Jesse Jenkins and Dr. Leah Stokes about what’s in the Inflation Reduction Act (IRA).  While I admit that sometimes the numbers has my head spinning, overall it makes me smile to hear of the opportunities the bill offers the U.S. economic engine with government seed money to transition us away from fossil fuels.  

Among the topics discussed in the podcast was the provision dealing with leasing federal property for oil drilling (about 48 minutes in).  This is a controversial topic as some argue it will continue unnecessary fossil fuel burning and therefore add more CO2 into the atmosphere.  I think the impact of what some call a “poison pill” in order to get the bill passed is less than what most people think.  

The oil leases in question is payment by the oil industry to the Federal Government in exchange for exclusive rights to drill on the leased property.  As pointed out in the podcast, the drilling does not always takes place.  And if the lease is drilled, there is no guarantee oil is produced.  There are two basic reasons why.  

One is the well may be a dry hole — meaning no oil is found.  As of 2008, the U.S. government's Energy Information Agency (EIA) reports this happens about 7% of the time for all wells (including those not on federal land) drilled to develop an existing field and about 31% of the time when the well is drilled to explore for a new field.  (I would expect these numbers to be less today knowing the trend over time with better technology.)

The other reason is the well just simply is not profitable to produce.  In simplistic terms, the owner of the well must decide if the cost to get the oil to market is less than what the oil is selling for.  If solar and wind generated electricity and the needed auxiliary technology (e.g. energy storage) continues their favorable economic direction, then we can expect the demand for oil in just the transportation sector (67% of oil use) to go down.  The question then becomes,  why spend money drilling new wells on federal land?

So the bottom line is, just like economics is closing down unprofitable coal plants, it is economics that will render this “poison pill” a moot point.