For the first time in decades, the federal government has majorly overhauled the way it determines how much money taxpayers receive from oil, gas, and coal extracted from federal lands.
In a press release from June 30, the Interior Department said that the updated federal rules will ensure that “the American taxpayer receives every dollar due for the production of these domestic energy resources.”
POGO has been calling on Interior to update its rules for years, based on concerns from experts that the outdated royalty valuation system allowed industry to grossly underpay the federal government for public resources. We reported last year on how coal companies in particular could be taking advantage of a loophole in the law:
Under federal regulations dating from 1989, a coal company pays royalties to the federal government based on the amount of money it receives from the coal’s first point of sale. However, while the federal government sets royalty rates, the market dictates the value of coal. This means that a coal company can game the system by selling its coal for cheap to an affiliate or subsidiary company, thereby paying a low royalty fee to the federal government. Then, the affiliate or subsidiary can sell the coal for a considerable profit to a nonaffiliated company, making a hefty profit that’s not subject to royalty payments.
The new Interior rules close that loophole, which is not only good news for taxpayers, but as the Interior press release notes, actually reduces compliance costs both for the government and for industry.
POGO applauds the Interior Department for modernizing the way it manages public resources and for strengthening its laws to protect taxpayer interests.