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Steam Coal at an Arm's Length: An Evaluation of Proposed Reform Options for US Coal Used in Power Generation

45 Pages Posted: 9 Jul 2015 Last revised: 11 Aug 2015

Jason Pearcy

Montana State University - Bozeman - Department of Agricultural Economics and Economics

Mark Haggerty

Headwaters Economics

Megan Lawson

Headwaters Economics

Date Written: August 10, 2015

Abstract

The ONRR has proposed to reform federal coal valuation policy for royalty assessment and in this paper we estimate the expected changes associated with different reform options. We find that if royalty revenues are determined using the delivered price of coal instead of prices used in non-arm’s length transactions, royalty revenues from domestic sales to power generators would increase by $141 million per year. The associated price effect is an increase of 23 cents per ton (0.89%) and the effect on the quantity is a decrease of 971 thousand tons per year (-0.17%). In addition to using delivered prices for royalty valuation if transportation costs that exceed 50% of the net delivered price are included in royalty payments, royalty revenues from domestic sales to power generators are expected to increase by $517 million per year. This change would increase the average price of coal by 88 cents per ton (3.36%), decrease the quantity extracted by 3.7 million tons per year (-0.65%), and reduce severance and income tax collections by $13 million per year.

Keywords: Coal, Royalty Revenue, Policy Evaluation

JEL Classification: D4, H2, L7, Q3

Suggested Citation

Pearcy, Jason and Haggerty, Mark and Lawson, Megan, Steam Coal at an Arm's Length: An Evaluation of Proposed Reform Options for US Coal Used in Power Generation (August 10, 2015). Available at SSRN: https://ssrn.com/abstract=2627865 or http://dx.doi.org/10.2139/ssrn.2627865

Jason Pearcy (Contact Author)

Montana State University - Bozeman - Department of Agricultural Economics and Economics ( email )

Bozeman, MT 59717-2920
United States

HOME PAGE: http://www.montana.edu/jpearcy/

Mark Haggerty

Headwaters Economics ( email )

Bozeman, MT 59715
United States

Megan Lawson

Headwaters Economics ( email )

Bozeman, MT 59715
United States

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