Two decisions, one just made and the other pending by the Interior Department, are likely to cut state royalties from coal produced on federal lands but reduce the cost of Western coal and boost its sales.
The department's Office of Mineral Management just published in the Federal Register a rule that will allow coal producers to deduct certain costs from the sale value of coal before they calculate the the royalties due.No longer will charges for black-lung benefits and abandoned mine land reclamation, or severance taxes, be added to the price of the coal for royalty calculations. The reduction could lower federal royalties by up to 10 percent. Since states get half of the mineral income from public lands, the change could cost states millions of dollars.
On the other hand, by lowering the cost of U.S.-produced coal, the change might encourage coal sales.
A second rule change, affecting deep-mined coal, could also lower royalties and boost coal sales. Deep-mined coal now pays an 8 percent royalty, compared to the 12.5 percent margin on strip-mined coal, which is cheaper to extract. Most Utah coal is underground-mined, whereas coal in Wyoming and Colorado is largely shallow and mined by strip methods.
Under direction of a federal court, the Bureau of Land Management has been studying whether to set all underground mined coal royalties at the current 8 percent, or lower them to as little as 5 percent because of the higher costs on deep mining.
Deep-mined coal is now more costly and therefore less competitive than strip-mined coal, and a lower royalty could change that.
The royalty decision is expected later this year. If it trims the rate, it could also lower state mineral income unless higher sales offset the lower rate.
An aide to Sen. Jake Garn, R-Utah, said he believed a lower royalty on deep-mined coal would boost Utah coal sales enough to increase royalty revenues.