Outcomes of Higher Federal Coal and Natural Gas Royalty Rates

Analysis shows that proposed federal royalty reforms will increase the cost of delivering natural gas to domestic power plants by a greater amount than coal.

  • The Department of Interior (DOI) is proposing a number of reforms to federal leasing, bonding, and royalty regulations on fossil fuels.
  • This analysis finds that higher royalty rates and valuations would increase federal royalty costs for natural gas by a larger amount compared to coal.
  • These reforms are unlikely to cause additional fuel switching from coal to natural gas in the electric power sector.

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The figure above, from the full report, shows that federal royalty costs are already a larger share of total delivered costs for natural gas (9.3%) compared to coal (4.2%).

Had proposed royalty rate and royalty valuation reforms been in effect during 2010-2014, royalty costs would have been between 6.2 and 6.9 percent of the gross price of coal delivered to the electric power sector and between 12.1 and 13.4 percent of the gross price of natural gas delivered to the electric power sector.

Increased transparency of the federal royalty program is a stated goal of proposed federal reforms and an important goal of our work. This report makes the data and analysis on federal coal leases utilized in this report available to the public.