The Interior Department today announced it has agreed to a settlement with environmental groups to revisit a George W. Bush administration plan to offer oil shale leases on 2 million acres of public land in the West and set royalty rates designed to attract research into developing the resource.

Interior Secretary Ken Salazar said the department will reconsider its environmental review in fall 2008 that led to eight land-use plan amendments in Utah, Wyoming and Colorado. Interior will also review and accept public comment on what royalty rate will balance industry interests while ensuring a fair return to the American taxpayer.

The Bush rules offered a 5 percent royalty and gave leaseholders the opportunity to expand commercial development up to 5,120 acres, Salazar said.

"We need to move forward, but we need to do it in a wise way and a smart way that addresses key issues such as water and gets a fair return back to taxpayers," Salazar said, adding that companies were still years away from developing commercial projects. "We have time to update the oil shale development rules and get them right."

The settlements, filed today in the U.S. District Court for the District of Colorado, seek to resolve two lawsuits filed in 2009 that claim Interior did not allow the public to protest the land-use plans and failed to consider a range of alternatives exploring impacts on wilderness lands and important wildlife habitat.

As a Democratic senator for Colorado in 2008, Salazar criticized the Bureau of Land Management's oil shale review, saying "the [Bush] administration seems bent on tuning out the voices of Coloradans, ignoring the BLM's own conclusions about oil shale, and rushing ahead with a last minute fire sale of commercial oil shale leases at any cost."

In a conference call this afternoon, Salazar cited an October 2010 Government Accountability Office report that found oil shale development could have significant impacts on the quantity and quality of water resources in the West.

"They put the cart before the horse," Salazar said, adding that the U.S. Geological Survey would be assisting Interior in evaluating the impacts of oil shale development on water supplies in the arid Colorado River watershed.

Environmental groups have long warned that commercial development of oil shale -- which requires intense heat to extract kerogen from shale rock -- would require new coal-fired power plants that would siphon scarce water supplies.

"This is an opportunity to review these critical issues and protect our diverse economy and environment," said David Abelson, an oil shale policy consultant for Western Resource Advocates, one of more than a dozen plaintiffs in the two lawsuits.

Industry has pointed to estimates from USGS that the United States may hold half of the world's oil shale reserves -- equal to about 2 trillion barrels of oil.

Salazar said the settlements, which await approval from the court, would not affect a handful of companies that currently hold oil shale research and development leases. BLM under the Bush administration accepted six leases covering up to 30,000 acres and is in the process of reviewing three additional lease proposals in Colorado and Utah.

Under the terms of the settlement, Interior must complete its review of the oil shale leasing rules, including the royalty rate, as well as the land-use plan amendments by January 2013, Abelson said.

"We're not sure that 2 million acres should be allocated for this type of use," said BLM Director Bob Abbey.

The settlement drew praise from Salazar's successor in Colorado, Sen. Michael Bennet (D), who said the decision reflects a "mindful" approach to protecting land and water and providing a fair return on public resources.

"This announcement is a welcome step forward in our efforts to ensure thoughtful, responsible development of Colorado's natural resources while protecting the land, water and way of life we in the West hold dear," he said in a statement. "Our approach to oil shale development should be both measured and responsible given the potential effects extraction could have on Colorado's precious water supplies, farmers, ranchers and local communities in the arid West."

But House Natural Resources Chairman Doc Hastings (R-Wash.) blasted Interior's decision and suggested it was part of a plan to halt oil shale development and create more uncertainty for industry.

"This redundant step is yet another example of the Obama administration proactively stopping American job-creating energy projects before they can begin," Hastings said in a statement. "The current commercial rules for oil shale leasing were adopted under a rigorous and open public rule making process."

Holly Hopkins, policy adviser for the American Petroleum Institute, one of two intervenors in one of the cases, said the group is encouraged by the administration's approach to oil shale development and that companies have made strides in economic and environmentally sustainable technologies.

"API is encouraged by the administration's interest in developing our domestic oil shale resources, and we look forward to participating in the public process," Hopkins said in an e-mail. "Our companies have made technological advancements in oil shale production and are committed to continued research and development in this area."

Click here to read the settlement over oil shale regulations.

Click here to read the settlement over land-use plans.