Big Coal Just Saw One Of Its Favorite Loopholes Closed

A coal train in the Powder River Basin. CREDIT: FLICKR USER HUDDLESTON
A coal train in the Powder River Basin. CREDIT: FLICKR USER HUDDLESTON

The Obama Administration last week took a closely-watched first step in its effort to reform the federal coal program by issuing a rule that will make it harder for coal companies to dodge royalty payments when mining on taxpayer-owned public lands.

The rule, issued by the U.S. Department of the Interior’s Office of Natural Resources Revenue (ONRR), closes a loophole that enabled coal companies to sell coal to their own subsidiaries — and then pay royalties on that artificially depressed price. Through these self-dealing transactions, coal companies have been able to shortchange U.S. taxpayers and state governments millions of dollars in royalty payments that are owed on federal coal.

“It’s quite simple: If the value established for minerals is too low, royalty receipts will be too low,” said Ryan Alexander, president of Taxpayers for Common Sense, in a statement about the ONRR rule.

Obama Ends New Coal Leases On Public LandsCREDIT: shutterstock The Obama administration announced Friday that it is stopping most new coal leasing on America’s…thinkprogress.orgDan Bucks, a former director of the Montana Department of Revenue, said “although these rules still leave some loopholes open for excessive deductions and exclusions, there is no doubt they represent the most substantial improvement in coal royalty administration in several decades.”

A 2015 review by the Center for American Progress found that self-dealing appears to be particularly rampant in the Powder River Basin in Wyoming and Montana, which produces the most coal of any region in the United States. In 2012, 42 percent of coal produced in Wyoming was sold through so-called “captive transactions,” or from a parent company to a subsidiary, potentially depriving the state’s taxpayers millions of dollars in royalty revenue.

Notwithstanding the fiscal benefits to coal states of closing the loophole that allows self-dealing, a handful the coal industry’s allies in Congress immediately criticized the rule. Rep. Ryan Zinke (R-MT) for instance claimed that the Obama administration has “no interest in keeping Montana’s communities, schools, and infrastructure funded.”

Three Things To Know About Obama’s Overhaul Of The Federal Coal ProgramClimate CREDIT: AP Photo/Matthew Brown In his final State of the Union address in January, President Obama made an…thinkprogress.orgRecent data from the U.S. Energy Information Administration, however, suggests that Montana is among the states that will benefit most from the new rule. Nearly one-third of coal tonnage sold in Montana in 2013 and 2014 was through self-dealing transactions, indicating that the closure of the loophole will result in higher royalty collections, which are then split evenly between the federal and state government.

The Obama administration is in the midst of reevaluating the federal coal program. So while this loophole closure could begin to give taxpayers a closer approximation of their fair share come January when the rule is slated to go into effect, the program on the whole is receiving serious scrutiny by the federal government for the first time in 30 years. (Learn more about the program’s overhaul here.)

Business leaders from across New Mexico want to see the federal coal program reformed. Coal companies must pay their fair share for mining resources on public lands that belong to all of us,” said Alexandra Merlino, executive director of the New Mexico Partnership for Responsible Business. “Interior’s announcement [on Thursday] of new rules that will improve valuation and revenue collection for our nation’s coal is a step in the right direction. There’s still more to do to reform the federal coal program- no longer should coal companies be able to pay less than the price of a Big Mac for a dozen tons of coal.”

Mary Ellen Kustin is the director of policy for the Public Lands Project at the Center for American Progress. You can follow her on Twitter at @mekustin.