With little fanfare, on June 30 the Obama administration overhauled how it calculates royalties for fossil fuel extraction on federal land closing what it referred to as a “loophole.”
Current regulations allow coal and other fossil fuel companies can sell what they produce from public lands to their own affiliates or subsidiaries for a lower price than they would charge to outside buyers reducing the royalty payments they owe the federal government.
Increasing Revenue or Reducing Fossil Fuel Use?
The rule comes from the Department of the Interior’s Office of Natural Resources Revenue as part of a broad effort in recent years to increase revenues for selling federally owned fossil fuels. Royalties will now be calculated based on the cost of the coal, oil or gas at the first “arm’s length” transaction by the mining or drilling company. Environmentalists had wanted a more expansive rule, one basing royalties on the price power plants or other end users paid for the minerals.
In a statement announcing the change, Interior Secretary Sally Jewell said, “As the steward of America’s oil, natural gas, and coal production on public lands, Interior has an obligation — and is fully committed — to ensuring that the American taxpayer receives every dollar due for the production of these domestic energy resources.”
Coal industry officials say because the the rule will increase their costs, energy prices will rise. They also expressed doubts this change was primarily targeted at increasing public revenues rather than another move in what many politicians and analysts have called the Obama administration’s “War on Coal.”
“While claiming action in the name of the American taxpayer, this latest assault on the coal industry is nothing more than another covert operation in the administration’s ‘keep it in the ground’ campaign,” the National Mining Association said in a statement. “The casualties will be an industry that has worked diligently to provide Americans with low cost, reliable energy, and the low-income families who rely on that energy.”
H. Sterling Burnett, Ph.D., ([email protected]) is the managing editor of Environment & Climate News.