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Federal Royalty Loophole for U.S. Coal Companies Is Back

April 05, 2017

GQ Magazine:

The loophole works like this: Coal companies often mitigate paying royalties they owe the federal government by, for example, selling the coal to their own subsidiary at a low price. The subsidiary company then resells it at a much higher price, but royalties are only paid on the below-market self-dealing. As the Center for American Progress noted in a 2015 report, the result is coal companies pay an effective royalty of 4.9 percent, instead of the official 12.5 percent rate.

Obama’s Interior Department attempted to put an end to the shenanigans just before leaving office with the “2017 Valuation Rule,” which calculates the royalty rate by ignoring sales to affiliates. In February, Trump’s DOI quietly suspended the rule and on Monday DOI proposed to revise or repeal it.

Trump, in other words, is intent on preserving the status quo in which coal companies cheat the public out of at least $1 billion per year, according to the Institute for Energy Economics and Financial Analysis, an energy policy think tank. About half that money would go into the federal treasury, benefiting all Americans, and half to the state where the coal was mined. (Typically states then send along some of that money to the community immediately adjacent to the land where the mining took place.)

While all Americans are being cheated, it’s really Trump’s rural base that is paying the highest cost. “When royalties are underpaid, the federal taxpayers lose, the states lose, and the coal communities lose,” says Dan Bucks, former director of revenue in Montana, one of the states that produces the most coal from federal land. “Coal communities need the money to diversify their economy and remedy environmental problems from coal production.”

The impetus for the 2017 Valuation Rule was partly that coal companies sell their product abroad for vastly higher prices than the what they pay royalties on. Rather than promoting energy independence, DOI’s repeal of coal leasing reform will just marginally help coal remain artificially cheap so that it can better compete with cleaner domestic energy sources such as natural gas, wind, and solar. Meanwhile, most sane analysts predict coal will keep losing market share, anyway.

The motivation is politics, not economics. “These very technical, wonky rules have been turned into these huge statements,” observes Jeremy Nichols, climate and energy program director at WildEarth Guardians, an environmental advocacy organization. “They’re throwing red meat to their coal miner constituency that supported Trump.”

How Donald Trump Is Making It Easier for the Coal Industry to Cheat

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