Republicans need big offsets for tax cuts. Drilling may not deliver.

By Garrett Downs | 01/22/2025 06:50 AM EST

President Donald Trump and congressional Republicans say “drill, baby, drill” will help foot the bill for their expansive agenda.

Rep. Bruce Westerman walking on Capitol Hill.

House Natural Resources Chair Bruce Westerman (R-Ark.) is helping craft his party's big tax and spending legislation. Francis Chung/POLITICO

Republicans are counting on oil and gas revenues to help plug the massive hole their tax cuts would blow in the federal budget. They may end up disappointed.

Lawmakers crafting Trump’s “big, beautiful” budget reconciliation bill to cut taxes and accomplish agenda items are scrambling for ways to pay for it. Boosting oil and gas leasing is a popular menu item and a reliable redux: In 2017, Republicans opened up portions of the Alaska National Wildlife Refuge for drilling to pay for about $1 billion of Trump’s tax first cuts.

But oil and gas companies already producing record amounts of fuel nationwide and disappointing lease sales are warning signs for a GOP eager to push more lease sales.

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“The tried and true one for resources is mandatory lease sales,” House Natural Resources Chair Bruce Westerman (R-Ark.) said recently when discussing offsets for reconciliation, pointing to Alaska, the Gulf of Mexico and the Bering Sea as potential options.

And it’s not just Westerman — the de facto House leader for the energy portion of the party-line reconciliation bill — who thinks fossil fuel production can help Republicans cut taxes, increase defense spending and address the deficit.

House Republican Policy Committee Chair Kevin Hern (R-Okla.) said energy is “where we’re going to get a big pay-for.” House Appropriations Chair Tom Cole (R-Okla.) told POLITICO’s E&E News that “there’s a lot of revenue to be had there in terms of just opening up for exploration, particularly in federal lands or offshore.” And House Budget Chair Jodey Arrington (R-Texas) specifically pointed to ANWR, saying “we’ve done it before with ANWR, and we’re going to do it again.”

But the GOP may have an Alaska-sized problem: The two lease sales they mandated in ANWR flopped. The first lease there only netted the government about $15 million before being canceled by then-President Joe Biden. The second received no bids at all.

Making matters worse, oil and gas production are at record highs, but the government only pulled in about $13 billion last year — a fraction of what they need.

That raises questions about how much lawmakers can expect energy to pay down a bill that could end up costing trillions. Already, some Republicans are warning the math won’t add up.

“I don’t think there’s a lot there quite frankly in the near term,” said Rep. Ryan Zinke (R-Mont.), Trump’s first Interior secretary. “Oil and gas revenues are not immediate, you’re talking about at the best a year. … I think everything’s on the table, [but] I don’t think there’s a lot there.”

Zinke, like many Republicans, was quick to point out that the leases offered in ANWR may have bombed for reasons beyond that the oil and gas industry didn’t want them.

They note the Biden administration was clearly hostile to drilling in Alaska. Republicans also claim the portions of ANWR offered were less desirable. The region holds billions of gallons of oil underneath the surface.

“That 1002 section was segregated out when the bill was put together to look at development when the time was right, and no one would do it under Biden,” Zinke said, referring to a provision in the 2017 reconciliation bill.

Still, analysts say the potential for ANWR and other oil and gas drilling to make up significant holes in the federal budget is still far from likely.

“I’ve seen the numbers thrown around that $5 trillion is needed, but the amount of revenue you get from oil and gas leasing is tiny compared to that,” said Brian Prest, an economist and fellow at Resources for the Future. “What’s also important to note … [is] it’s almost all coming from royalties.”

‘Lots of risks’

The Kaktovik Lagoon and the Brooks Range mountains of the Arctic National Wildlife Refuge are seen in Kaktovik, Alaska.
The Kaktovik Lagoon and the Brooks Range mountains of the Arctic National Wildlife Refuge are seen in Kaktovik, Alaska, on Oct. 15, 2024. | Lindsey Wasson/AP

ANWR is highly remote, largely undeveloped for oil and gas extraction and unforgiving in climate — making it a costly and risky venture for potential prospectors.

“I think there’s a lot of risks in ANWR and Alaska more generally,” Prest said. “If you look at where the growth in oil development is coming from, particularly on federal lands, it’s really coming from the Permian Basin. … I would expect the changes in development there to be way bigger than what you might get from ANWR, especially in the near term.”

But the area remains the apple of Trump’s eye when it comes to drilling. Just hours after being sworn-in as president, Trump issued an executive order titled “Unleashing Alaska’s Extraordinary Resource Potential.”

The order requires incoming Interior Secretary Doug Burgum to pursue overturning Biden-era regulations protecting ANWR from drilling, restore canceled leases and pursue new ones in the refuge.

As he was handed the executive order to sign, Trump asked his aide: “What about ANWR?”

Those moves could take time, given that Interior will have to go through burdensome agency processes to revoke Biden’s protections.

Republicans in Congress are hoping to expedite the process and are clearly eyeing ANWR and other locations to open up for drilling as part of the reconciliation bill — whether it pays or not.

“We’re gonna attack this again in budget reconciliation,” said Sen. Dan Sullivan (R-Alaska), who is a staunch supporter of expanded drilling in Alaska and has railed against the Biden administration’s actions in ANWR. “We’re gonna do [it] in ways in which the Democrats can’t come in and screw my state like they usually do.”

Sullivan blamed the Biden administration for the flop of the initial ANWR lease sales and for the prior budget estimates being so far off.

“When we did the pay-for estimates, nobody anticipated that you’d have a federal government that would come in and proactively make sure there would be no bids,” Sullivan said. “But we got a new sheriff in town, and it’s gonna be better.”

Donald Trump's hand holding a marker.
President Donald Trump signs executive orders in the Oval Office of the White House on Monday. | Evan Vucci/AP

‘Highly valued’

The budget reconciliation process allows lawmakers to pass spending-related legislation by simple majority. But first, they must approve a budget resolution and give different committees instructions.

The initial opening of ANWR In 2017 came from a reconciliation instruction to the Senate Energy and Natural Resources Committee to reduce the deficit by $1 billion.

When the new bill is drafted, it will be scored by the Congressional Budget Office to determine its impact on federal spending and revenues. The Senate parliamentarian will be able to toss provisions that don’t directly apply to the budget during a procedure known as the “Byrd bath,” making CBO’s estimates particularly important.

Environment and Public Works Chair Shelley Moore Capito (R-W.Va.) said leases in ANWR should still garner a good score from CBO.

“The value there for potential leases still exists, so it should score as a revenue generator,” Capito says. “Circumstances change, world circumstances change — those leases could be highly valued biddable property.”

But Democrats see the failed ANWR lease sale as an opening to hammer Republicans for bad math. Senate Energy and Natural Resources ranking member Martin Heinrich (D-N.M.) said in an interview that using energy leasing as a pay-for is “smoke and mirrors.”

“We’ve seen this before, right? Like what did they promise for the Arctic Refuge sale?” Heinrich quipped. “I fear that that is an effort to say you’re going to pay for things when you know you’re not.”

Even Westerman, who is bullish on energy’s role in the reconciliation bill, tempered expectations on how much money exactly the GOP can expect to make.

He argued that large portions of the revenue for reconciliation will not come from royalties or other direct forms of payment, but from economic growth and taxation instead.

“You’re talking billions of dollars, but you’re not talking hundreds of billions of dollars,” Westerman said. “But that gets into the overall economics of growing the economy, and what I’ve been saying is about 17 percent of the GDP ends up in tax revenue.”

Prest wasn’t convinced that would work.

“Directionally, sure,” he said. “But the magnitude is probably gonna be tiny.”

This story also appears in Energywire.