Federal Coal Royalty Valuation: Current Structure, Effective Rates, and Reform Options

This report reviews problems with the current federal royalty system, estimates current effective royalty rates, and offers several reform options.

  • Coal extracted from federal land is an important source of energy and revenue in the United States, and the federal government owns roughly one-third of total coal reserves.
  • The royalty structure is costly to administer, and the average current reported tax rate (10.9%) is less than the average statutory rate (12.3%). Measured as a share of the delivered costs, the effective coal royalty rate is 4.9 percent, which is lower than the comparable effective rates paid by oil and natural gas.
  • Moving valuation from the mine price to the market price simplifies the process, creates transparency, lowers administrative costs, and allows for a more accurate assessment of whether taxpayers are receiving a fair return.

coal mining operation
The Obama Administration currently is considering possible changes to the federal coal royalty valuation policy. This report analyzes how revenues from federal coal are obtained, reviews problems with the current system, estimates current effective royalty rates, and offers several reform options.

Today, coal extracted from federal land is an important source of energy and revenue in the United States, and the federal government owns roughly one-third of total coal reserves.

Despite the importance of federal coal resources, the current royalty structure is opaque and costly to administer, and the returns to the U.S. public are unclear.