How Much Clarity Does IRA Provide US Leasing Policy?

The US Inflation Reduction Act (IRA) includes some prescriptive language around oil and natural gas leasing, but how much assurance the new law provides on upstream access going forward remains an open question.

Immediately after Biden signed the new law earlier this week, an appellate court ruling muddied the waters by scrapping a lower court's decision to block the Biden administration's 2021 pause on new oil and gas leasing in federal land and waters.

The ruling on its face seems like it could conflict with the directives of the IRA. The new law instructs the Department of the Interior to validate the results of the Nov. 17 Gulf lease sale that were vacated by a separate court decision, and hold two more previously canceled sales in the Outer Continental Shelf by end of 2023.

The law also has provisions mandating that offshore lease sales offering a total of 60 million acres for the year prior must be held before Interior can issue any offshore wind leases.

Legal Tensions

Meanwhile, Wednesday’s ruling by the US Court of Appeals for the Fifth Circuit vacated the Louisiana district court's decision to block Interior's leasing freeze, faulting the district court injunction for lacking “specificity.”

The appeals court reversed the earlier injunction on procedural grounds rather than the merits, according to Kyle Tisdel, an attorney with the Western Environmental Law Center.

“So while not explicitly in conflict with the IRA, the leasing provisions of the IRA are certainly in tension with the stated purpose” of the Biden administration’s March 2021 pause on leasing while it studied the climate impacts of the federal oil and gas program, Tisdel said.

However, the Louisiana district court, along with a federal court in Wyoming, are still reviewing the merits behind the arguments made by producing states and industry that the leasing pause was unlawful, so a procedural ruling may not have a dramatic impact.

Mark Barron, an energy attorney with the firm BakerHostetler, said the ruling may not have much of an effect, noting that the district court’s injunction fell short of compelling Interior to develop a comprehensive leasing program.

In the meantime, the US District Court for the District of Louisiana swiftly clapped back, issuing a fresh injunction late last week meant to head off the appeals ruling. However, that order narrowly applies to the 13 states challenging the leasing freeze, and only through March of 2021, when the litigation was filed. The states are: Louisiana, Alabama, Alaska, Arkansas, Georgia, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah and West Virginia.

What does the IRA change?

Interior is broadly expected to follow the directives to reinstate the high bids from the Nov. 17, 2021 lease sale and hold the three remaining sales in the Gulf of Mexico and Alaska’s Cook Inlet by the end of 2023.

But there may be more wiggle room on the directive stating that 2 million onshore acres and 60 million offshore acres must be offered for oil and gas leasing in the previous year before Interior can issue rights-of-way for wind and solar projects or offshore wind leases.

One environmentalist noted that the language does not include a very strong enforcement mechanism. Barron said that while the linkage to renewables development offers the Biden administration an “incentive” to hold oil and gas lease sales, that should not be read as a statutory obligation.