One liberal think tank has an idea for helping hard-hit Appalachian coal communities: Raise the royalty rates for federal mines in the West.
The Center for American Progress said that federal Powder River Basin coal in Wyoming and Montana amounts to a market distortion that’s made Appalachian coal less attractive to extract. The think tank proposed ending what they called favorable terms for private companies to “balance” the coal market.
“Powder River coal companies we believe are not paying a fair share,” said CAP counselor Ted Strickland, the former Democratic Ohio governor who is exploring a Senate bid against Sen. Rob Portman, R-Ohio.
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The CAP proposal called for two options: raising the federal leasing rate on new Powder River Basin surface mines for the first time in 42 years to match the rates paid by offshore oil and gas developers, or assessing the royalty fee at the end-user price rather than at the point of sale.
The changes would have brought $5 billion in additional federal revenues the past five years, half of which would have gone to the states, according to an analysis by Headwaters Economics. The CAP plan proposes shifting some of those federal revenues toward economic development and job retraining efforts in Appalachia.
Strickland said the federal policies have kept Powder River Basin coal prices below true market value, fetching $13 per ton compared with $60 per ton for Appalachian coal. Brad Markell, executive director of the AFL-CIO Industrial Union Council, said the changes wouldn’t result in job loss out West because Powder River Basin coal would still remain some of the cheapest in the country.
Some of the price difference is structural. The federal government owns Powder River Basin land, so coal companies pay to lease it. In Appalachia, private companies have to buy the land; much of what’s left after decades of mining easier-to-access coal isn’t economical given competition from the West.
Federal coal royalty fees also contribute to the divide, and have come under scrutiny from both sides of the aisle.
The royalties are assessed at the point of sale, rather than by the ultimate user of that coal. A 2012 Reuters investigation showed coal companies sold Powder River Basin coal to subsidiaries they owned and then flipped the coal to Asian markets at a profit, shorting potential state and federal revenues. The Interior Department floated a rule in December to end that loophole.
Rep. Matt Cartwright, D-Pa., said he planned to introduce legislation mirroring the CAP report that he said would “eliminate loopholes that right now are allowing private companies to game the system.” It will likely be a tough sell for Western lawmakers who have touted the Powder River Basin’s booming coal industry, which more than doubles the Appalachian region’s production.
Raising royalty rates, especially on land for energy production in the West, has been a sticking point for the GOP. Republicans have viewed such actions as trying to curtail fossil fuel development, which they say stems from President Obama’s climate change agenda.
“The administration is always talking about fee increases, jacking up fees here and there as if that’s an executive authority, which it never has been,” House Natural Resources Chairman Rob Bishop, R-Utah, told the Washington Examiner, speaking on a different topic but of the general sentiment on federal energy fees.
