THE BLOG
07/31/2015 06:04 pm ET Updated Jul 31, 2016

It's Time to Update Coal Rules That Are Costing Taxpayers Millions

By MIA STEINLE

Royalties and other revenues that companies pay to extract natural resources from public lands constitute one of the federal government's largest sources of income -- a whopping $13 billion in 2014. However, considering that the rules governing coal royalties haven't been overhauled in over 25 years, there's a very good chance that the government isn't collecting all of the money that US taxpayers deserve.

In fact, policy experts ranging from independent analysts Headwaters Economics to the federal government's own watchdogs, the Government Accountability Office and the Interior Department's Inspector General, have raised concerns that massive loopholes in the federal coal program are allowing companies to game the system. Estimates of exactly how much revenue taxpayers are missing out on vary, but it's likely that millions of dollars are being left on the table.

The federal government has finally taken notice. Starting today, the Interior Department's Bureau of Land Management is beginning to follow through on Secretary of Interior Sally Jewell's set coal royalties for surface mines at 12.5 percent of the value of production. Royalty rates for underground mines are even lower at 8 percent. However, as a result of loopholes and exemptions, companies often pay far less. Headwaters Economics recently estimated that, from 2008 to 2012, companies actually paid a royalty rate of only 4.9 percent.

The coal listening sessions come at the same time that Interior is considering changes to the federal oil and gas program. The royalty rate for onshore oil and gas is also set at 12.5 percent, which is lower than the offshore rate of 18.75 percent, and far lower than the rates that many states set.

But the royalty rate is far from the only problem plaguing the federal coal program. As I wrote in April, some coal companies are taking advantage of a loophole that saves them -- but potentially costs taxpayers -- a lot of money. A company can sell its coal to a subsidiary at below-market value, at which point the company makes a small royalty payment to the federal government. The subsidiary company can then sell the coal for a huge mark-up to a non-affiliated company. This loophole will remain legal until Interior finalizes a proposed rule it introduced in January.

These coal public listening sessions indicate that there is real momentum in the Interior Department for modernizing outdated rules that don't serve the public interest. Americans deserve a fair share for coal extracted from public lands, and it's about time we got it.