Plans to Increase Coal, Oil Royalty Payments Expected

Energy and Climate Report provides current, thorough coverage of clean energy, efficiency, and climate change legislation, regulation, policy, legal developments, and trends in the U.S. and...

By Ari Natter

Jan. 13 — The Obama administration is expected to move forward with proposals that would increase the royalty rates that coal and oil and gas companies pay for the right to use federal land following the president's State of the Union pledge to “accelerate the transition away from dirty energy.”

“That's why I'm going to push to change the way we manage our oil and coal reserves, so that they better reflect the costs they impose on taxpayers and our planet,” Obama said during his address.

While the White House hasn't provided any specifics, environmental groups said his remarks are almost certainly a reference to an ongoing fight over the Interior Department's coal leasing program, which critics on and off Capitol Hill say is leasing coal at below fair market value and doesn't take climate change into account (211 ECR 211, 11/2/15).

Federal lands provide about 40 percent of U.S. coal production, according to Sen. Maria Cantwell (D-Wash.), who has led efforts to make changes to the program.

Calculating ‘True Costs.'

“I am pleased the president noted the need to recalculate the true costs of federal coal and ensure that the American taxpayer gets proper value for this resource,” Cantwell said in a statement following Obama's address. “I've urged the administration to reform the outdated, unbalanced coal leasing program and I'll work with them to address the fact that coal off of federal lands is a sweetheart deal and a taxpayer rip-off. We must better account for carbon pollution here at home.”

Others who have called for changes to the Interior Department's coal program include the Center for American Progress and the New York University School of Law, which released a report in October that said the department should update its definition of “fair market value,” raise minimum bids and infuse coal market price into royalty calculations. 

Interior to Finalize Rule on Valuation

The Interior Department plans to finalize this year a rule proposed in January 2015 by the Office of Natural Resources Revenue that would modernize existing valuation regulations for coal, oil and natural gas on public lands, Jessica Kershaw, a spokeswoman for the Interior Department, told Bloomberg BNA (248 ECR, 12/29/14).

The department also has taken other action to address criticisms of its coal program, including revising the program's manual and handbooks “to increase clarity regarding how the agency determines fair market value, provide guidance on independent review of appraisal reports and make improvements that will enable the [Bureau of Land Management] to account for export potential through analysis of comparable sales and income,” Kershaw said.

Oil, Gas Payments Could be Increased

Separately, the Obama administration is considering increasing royalty rates and other fees paid by oil and gas companies using federal lands in the form of an advanced notice of proposed rulemaking (RIN 1004 - AE41) issued by the Interior Department in April (74 ECR, 4/17/15).

While many royalty rates are fixed by statute at 12.5 percent, Interior has the discretion to raise royalty rates for competitive leases and questioned in the rule whether levels were adequate to provide a fair return to taxpayers for the use of public lands.

The role of climate in the government's management of public fossil fuel resources has been a burgeoning issue that could have implications for the already struggling coal industry and an oil industry struggling to cope with plummeting oil prices.

Climate Fight Ahead

“The issue of fossil fuel extraction on public lands is going to be a key fight over the coming months,” May Boeve, executive director of the environmental group, said in a statement. “We welcome President Obama's full throated endorsement of clean energy and his pledge to take a close look at how we can get off fossil fuels. The President's top priority during his last year in office needs to be keeping that coal, oil and gas in the ground.”

“Undeniably, imposing more burdens on federal coal production will yield less, not more, revenue to the federal, state and local governments,” National Mining Association President and Chief Executive Officer Hal Quinn said in a statement provided to Bloomberg BNA. “All of these proposals are obvious proxies for denying Americans the value of low-cost reliable energy and high-wage jobs generated by coal.”

The Washington-based trade group represents companies such as Arch Coal Inc. and Peabody Energy.

Bad Timing

“With the current low price environment and the onslaught of regulations aimed at America's oil and natural gas industry—an industry that has been widely credited with revitalizing our economy—this president has gone out of his way to dramatically increase the burdens on independent producers to continue responsibly developing America's abundant energy resources on our public lands,” Neal Kirby, a spokesman for the Independent Petroleum Association of America, told Bloomberg BNA in an e-mail.

“Now is the worst time to raise fees on America's independent producers,” Kirby said. “Increasing operating fees and adding layers of bureaucratic red tape during a time of market volatility will not only shut down production on public lands it will rob American taxpayers from much-needed tax breaks in the form of additional revenue through royalties and other payments to the U.S. Treasury.”

The group represents companies such as ConocoPhillips, XTO Energy, Marathon Oil Corp., Chesapeake Energy, Range Resources and Encana Corp.

To contact the reporter on this story: Ari Natter in Washington at

To contact the editor responsible for this story: Larry Pearl at