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Mineral Royalties: Historical Uses and Justifications

29 Pages Posted: 16 Feb 2017 Last revised: 27 Aug 2017

Jayni Hein

NYU School of Law; Institute for Policy Integrity, NYU School of Law

Caroline Cecot

George Mason University - Antonin Scalia Law School, Faculty

Date Written: February 16, 2017

Abstract

Governments and private landowners have collected royalties on mineral resources for centuries. When comprehensive measures to account for the environmental externalities of mineral extraction are politically or practically unavailable, federal and state governments might consider adjusting royalty rates as an expedient way to account for these externalities and benefit society. One key policy question that has not received attention, however, is whether a royalty rate can and should be manipulated in this way, notwithstanding statutory discretion to do so. This Article fills that gap in the literature, evaluating the argument for increasing federal or state fossil fuel royalty rates through historical, theoretical, and practical lenses: by considering the meaning of royalties, the economic justifications for royalties, the legislative history of the implementation of federal royalties, and the considerations that private landowners have relied upon in setting royalties. This Article concludes that royalties have been used as pragmatic policy tools from almost their inception, and federal and state governments should exercise their existing statutory discretion to adjust mineral royalty rates to promote public welfare. In particular, it would be reasonable for governments to adjust mineral royalty rates to account for negative externalities that are not otherwise addressed by regulation or to pursue royalty rate reform to meet other policy goals.

Keywords: natural resources, environmental economics, government policy, royalty payments

JEL Classification: Q38, Q48, Q58, H23, H25, H27, H71, H75, K32

Suggested Citation

Hein, Jayni and Cecot, Caroline, Mineral Royalties: Historical Uses and Justifications (February 16, 2017). Available at SSRN: https://ssrn.com/abstract=2918357

Jayni Hein

NYU School of Law ( email )

139 MacDougal St.
New York, NY 10012-1099
United States

Institute for Policy Integrity, NYU School of Law ( email )

139 MacDougal St.
New York, NY 10012-1099
United States

Caroline Cecot (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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