Federal Court Reinstates Obama Royalty Rules

The Trump Administration’s attempt to cheat western communities out  of their share of energy royalties fails

A federal court in California dealt a big blow to the deregulatory energy agenda of the Interior Department on Friday, April 12. Two years earlier, the Trump Administration hastily rescinded an Obama Administration rule that closed a glaring loophole in how royalties for federal coal, oil, and gas are valued.

Royalties are paid to the owner of a resource, such as coal, as the resource is extracted. For resources that are owned by the federal government, such as coal, oil, or gas, half the royalty proceeds are returned to the state and in some cases the county in which the mining or drilling happened. This makes federal mineral royalties a very important stream of revenue for many local and state governments in the West.

The Obama Administration estimated that the rules it passed would increase royalty collections by between $71.9 million and $84.9 million. With half of those proceeds passed to states and counties, it is clearly in the best interests of coal communities to maximize royalties from public coal, oil, and gas, because they can only be mined or drilled once. If fossil fuel companies pay less, they cheat coal communities out of money that goes to build and maintain schools, roads, bridges, and other public infrastructure.

If fossil fuel companies pay less, they cheat coal communities out of money that goes to build and maintain schools, roads, bridges, and other public infrastructure.

The Obama rule charged the royalty rate of 12.5% on federally owned coal, which is set in law, on the first arm’s-length sale of the mineral, meaning the first sale between two buyers that were owned by different people. Previously, the royalty rate had been charged on lower priced sales between affiliates of the same company. The Obama-era rule would have likely netted significant funds from exported coal, where the price at which coal changes hands is much higher than the price at the mine mouth. Unfortunately, it was rescinded before it could take effect. Judge Sandra Armstrong of the Northern District of California vacated the Trump Administration’s rescission of the Obama-era rule, effectively reinstating it.

WORC partnered with Northern Plains Resource Council, The Wilderness Society, and Natural Resources Defense Council to intervene in the lawsuit challenging the rescission rule filed by the offices of the Attorneys General of California and New Mexico. The court’s ruling relied heavily on our arguments in its finding that the Trump Administration failed to adequately explain why the agency “completely reversed” the position taken on the rule under the Obama Administration, as it rescinded the royalty rules for reasons that the Obama-era agency had already rebutted in passing the rule in the first place.

The government has until the end of May to appeal the ruling, but the government has also declared that the agency that promulgated the rule, the Office of Natural Resources Revenue, will put out a new rule to rewrite the Obama-era rules now in effect.

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