Congressman Fights To Preserve Loophole Allowing Coal Companies To Sell Coal To Themselves

First published on ClimateProgress.org, a project of the Center for American Progress Action Fund, which was recently named one of Time magazine’s Top 25 blogs of 2010.

Before leaving Washington D.C. last week for a 4th of July break, a Montana Congressman quietly proposed a budget rider that would allow some of the world’s biggest coal companies to continue to dodge royalty payments owed to U.S. taxpayers.

The amendment from Representative Ryan Zinke (R-MT), offered on a spending bill that the House is expected to vote on in July, would block the Obama Administration from implementing a forthcoming rule that would close a loophole in how royalties are collected from coal mined on federal lands.

As previously reported by ThinkProgress, coal companies are using a regulatory loophole to sell coal to their own subsidiary companies at intentionally depressed prices to avoid royalty payments. These so-called “captive transactions”, or inside deals between coal companies and their own subsidiaries, are shortchanging Western states on revenue that could be used for schools, roads, and other priorities.

“When coal companies underpay their federal royalties, state and local governments suffer nearly half that loss,” wrote Dan Bucks, the former director of the Montana Department of Revenue in May. “That is because the federal government shares its royalty receipts from Montana coal with the state of Montana, and the state splits its share with the counties where the production occurs.”

The rule that the Obama administration’s Department of the Interior proposed in January would require coal companies to pay royalties based on the price at which they sell coal to an independent, third-party purchaser.

Taxpayer watchdog groups, however, are urging the Obama administration to strengthen the proposed rule, arguing that coal companies would still be able to pay royalties on a price that is below the true market value. Independent economic analysis has shown that by strengthening the proposed rule, Montana could see an increase in revenue of nearly $19 million annually.

Montana ranchers, mayors from Western mountain towns, school board members, and conservation organizations have also called for the Department of the Interior to strengthen and finalize its rule to close loopholes and cut coal subsidies on federal lands.

Rep. Zinke’s amendment is the latest addition to a wishlist of fossil fuel industry priorities that some members of Congress are trying to attach as riders on the Interior appropriations bill. Other fossil fuel industry-supported proposals would roll back recent conservation efforts to protect the sage grouse and halt a rule to apply safety standards for hydraulic fracturing on public lands.

A recent review by the Western Values Project (WVP) found that three major coal companies have been providing thousands of dollars in campaign contributions to Rep. Zinke.

“The math is pretty clear,” WVP wrote last week. “Coal companies can spend a little to back a Congressman who will protect their massive taxpayer-funded subsidies. That’s a good deal for coal companies and Rep. Zinke, but it’s bad for the rest of us.”

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