The federal government issued a new rule Thursday increasing the cost energy producers must pay to extract coal, oil, and gas leased on public land, in a move bound to roil energy markets and raise fears the Obama administration has struck another blow against the coal industry.
The Department of the Interior changed the rules governing royalty rates that oil and coal companies must pay to the federal government to extract gas and coal from public lands. The regulation essentially uses the gross proceeds from a sell, not a percentage, to determine the royalty rates energy producers must pay to use public lands to extract oil and coal. There will be modest reductions taken into account, based on transportation and processing costs.
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Up until now, royalty rates did not take into account the supposedly high costs associated with climate change, environmentalist group Friends of the Earth wrote in a press statement announcing the rule change.
The new rule essentially seeks to wring money out of energy providers who use public lands to extract oil and coal, as well as natural gas. Energy analysts also fear a royalty tax would stunt oil and coal production.
The government justified the rule change by suggesting that it would help taxpayers receive every dollar due for the production of domestic production.
“As the steward of America’s oil, natural gas and coal production on public lands, Interior has an obligation – and is fully committed – to ensuring that the American taxpayer receives every dollar due for the production of these domestic energy resources,” U.S. Interior Secretary Sally Jewell said in a press statement explaining the rule change.
Environmentalists are generally in favor of the regulation change.
“This rule is an important step in ensuring that fossil fuel companies pay the full costs of extracting fossil fuels from public lands and waters,” Marissa Knodel, a Friends of the Earth Climate Campaigner, said in a press statement.
Knodel went on to note how Friends of the Earth believe that the rule “falls short by not factoring in the significant costs that federal fossil fuel leasing policies have on our climate.”
Knodel added: “If royalties truly reflected their climate and social costs, it would become clear that the only safe and responsible thing to do with public fossil fuels is leave them in the ground.”
The White House, for its part, issued a report on June 23 arguing that raising the rates would actually “improve economic efficiency.”
“Although the focus of this report is on ensuring a fair return to the taxpayer, there is strong economic evidence of large external costs from coal production, transportation, and consumption,” the White house reported.
“For example, incorporating the social cost of carbon in coal royalties would imply a royalty rate greater than 100 percent, implying that an increase in royalty rates could improve economic efficiency both due to fair return to the taxpayer and environmental externality considerations,” officials wrote.