Energy industry groups are warning a new Interior Department rule dealing with how to value energy production royalties on federal lands will drive producers away, even as the government insists it will help ensure the government gets all the money it’s due.
Secretary of the Interior Sally Jewell announced that the value of oil, natural gas and coal leases will be evaluated closer to the time of the lease, and that gross proceeds are the best indication of the market value of the lease. The new rule eliminates old benchmarks, and the department argued the newer method will be simpler for industry.
Jewell said the changes mean the government would be able to collect more of the royalties it’s owed for energy production on lands owned by the public, and cast it as an effort to collect money for taxpayers. The rule is the result of a five-year process and applies to oil, gas and coal leases on federal land and on Native American land, and it will take effect on Jan. 1.
But the new rule was immediately dismissed by the coal industry as one that would simply raise taxes on energy companies, and consumers.
“Current royalties, bonus bids and fees amount to an effective 40 percent tax rate on federal coal, undermining the specious claim that somehow taxpayers are being cheated,” said Luke Popovich, a spokesman for the National Mining Association. “This valuation policy is election-year politics that does a disservice to American consumers and taxpayers and to the hundreds of thousands of Americans whose livelihoods rely on coal production.”
Oil and gas producers also ripped the new rule for potentially hurting their business.
Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance, said the new rule would have the opposite effect that Interior wants. Instead of increasing royalty payments, it will drive companies away and decrease the amount of money collected by the government, she said.
“There are no ‘dollars due’ if you drive production off federal lands by making it too time-consuming, complex and costly,” Sgamma said. “The administration continues to further discourage development on federal lands with this and other adversarial regulations that re-interpret laws contrary to the will of Congress.”
However, environmentalists cheered the decision as a step forward toward making sure energy companies don’t cheat the government.
Melinda Pierce, legislative director at the Sierra Club, said the new rules will make sure fossil fuel companies won’t get rich at taxpayers’ expense.
“Closing loopholes that hurt taxpayers and prop up failing coal, oil and gas companies is essential progress,” she said. “When the full cost of extracting and burning fossil fuels is measured, it’s clear that they are bad for our economy, our health and our planet, which is why we need to continue this momentum to keep dirty fuels in the ground and permanently protect special wild places.”
