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Economic Report on Coal Royalties Exposes Loopholes

GRAPHIC: A Headwaters Economics report examines the pros and cons of updating the federal coal mining royalty system. The Office of Natural Resources Revenue is considering changes. Graphic courtesy of Headwaters Economics.
GRAPHIC: A Headwaters Economics report examines the pros and cons of updating the federal coal mining royalty system. The Office of Natural Resources Revenue is considering changes. Graphic courtesy of Headwaters Economics.
January 28, 2015

CASPER, Wyo. - A report released today delves into the federal royalty system for coal mining on public land - and finds that the Office of Natural Resources Revenue is right in considering changes.

The Headwaters Economics calculations found that loopholes in the current system have meant about $850 million in royalty income was not collected from 2008 to 2012. Report author Mark Haggerty said the coal market also has changed.

"We might want to weigh higher royalty collections more heavily against wanting to provide cheap coal for market to Asia," he said.

Haggerty said federal coal leasing has several objectives, including a fair return for taxpayers, jobs and inexpensive domestic energy. A decision on changes in the royalty system is expected this spring.

Haggerty's report makes a recommendation for changing the royalty calculations as well as closing the biggest loophole, which allows brokers, sometimes affiliated with the mine owners, to sell the coal for a higher price without paying royalties.

"So, we think there's actually a more simple and elegant way to do it - move the point of royalty valuation from the mine to the market," he said.

The changes also may include reducing the deduction for transportation costs - currently at 100 percent. By comparison, oil and gas transportation deductions are at 50 percent. The federal royalties are split with states, so changes would mean more money for Wyoming, although the state also would see less money in severance and other taxes - but the report predicts the end result would be in the positive column for states.

The economic report is online at headwaterseconomics.org.

Deborah Courson Smith/Deb Courson Smith, Public News Service - WY