CONGRESS long ago established a basic principle governing the extraction of coal from public lands by private companies: American taxpayers should be paid fair value for it. They own the coal, after all.
Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976. Forty years later, those payments remain stuck there, with actual collections often much less. Studies by the Government Accountability Office, the Interior Department’s inspector general and nonprofit research groups have all concluded that taxpayers are being shortchanged.
This is no small matter. In 2013, approximately 4o percent of all domestic coal came from federal lands. A recent study by the independent nonprofit research group Headwaters Economics estimates that various reforms to the royalty valuation system would have generated $900 million to $5.6 billion more overall between 2008 and 2012.
This failure by the government to collect fair value for taxpayer coal is made more troubling by the climate-change implications of burning this fossil fuel. Taxpayers are already incurring major costs in responding to the effects of global warming. Coastal infrastructure is being battered by sea rise and storm surges; forests are being devastated by climate-aided pest infestations; and studies are suggesting that temperature rises have increased the likelihood of devastating droughts in California.
Moreover, as the Council of Economic Advisers documented in a report last July because of the long-lived nature of greenhouse gases in the atmosphere, these costs will continue to rise.
The Interior Department, which manages energy resources on federal lands, has acknowledged that reforms are needed. In January, the department took a first step by proposing more scrutiny on the self-reported sales that coal companies use as the basis for royalty payments. It also must address other well-documented problems, including large discounts routinely applied to these payments, and noncompetitive lease sales.
But the department should not stop there. The federal government should also take into account the economic consequences of burning coal when pricing this fuel. The price for taxpayer-owned coal should reflect, in some measure, the added costs associated with the impacts of greenhouse gas emissions.
This is not a novel concept. Some utilities and other businesses already are applying a so-called carbon adder to account for the environmental costs of greenhouse gas emissions. These adders are used for planning purposes to compare the costs of fossil fuel and renewable electricity generation and have not been charged to consumers.
But the Interior Department should take a cue from the private sector and go a step further by imposing a carbon adder on coal sales. Money collected from the adder could be phased in to avoid sharp price disruptions and used to help defray the growing, uncompensated costs that the government is incurring in responding to climate change.
Computing the appropriate carbon adder will not be easy, but that should not deter the Interior Department from accounting for a meaningful portion of coal’s climate impact when updating the federal coal royalty rate.
Industry is sure to oppose this, even though coal is the planet’s most carbon-intensive energy source. Others will argue that an across-the-board carbon tax is a more efficient way to account for climate impacts. With no near-term prospects for such legislation, however, the Interior Department should set a royalty that provides fair value to taxpayers by addressing the climate costs of burning coal.
The greenhouse gas burden from coal taken from government lands can no longer be ignored. Using a carbon adder to increase the royalties that taxpayers receive is a sensible step in the right direction.Continue reading the main story