Under current regulations, the U.S. is due 12.5% in royalties on sales of coal from federal land. The U.S. Department of Interior (DOI), which said the outlines were set in the 1980s, noted that the structure for coal as well as oil and gas has “not kept pace with the significant market changes that have occurred in the domestic…markets since that time.”

The government is specifically looking, in part, at a practice by companies to sell coal to an affiliate at domestic prices with royalties paid, with the affiliate subsequently selling the tonnage at a markup in the international marketplace.

In late December, the DOI released a draft federal regulations proposal through the Office of Natural Resources, following an investigation into royalty shortfalls in the federal coal program that it first opened up in early 2012. The Bureau of Land Management also wants to expand coal production guidance for mining on public lands that will provide clarity on fair market value determinations.

The DOI said that the initiatives “seek to provide greater clarity and certainty for the energy industry and are part of the department’s larger effort to help ensure the American public receives every dollar due for domestic energy resources.”

U.S. coal exports currently total about 100 million tons annually and the producers most impacted by the regulations, should they come into effect, include but are not limited to Arch Coal, Peabody Energy and Cloud Peak Energy.

“Coal produced on public lands is an important part of our domestic energy portfolio, but we have an obligation — and we are fully committed — to ensure that the American taxpayer receives a fair return for the production of domestic energy resources,” Deputy Secretary of the Interior Mike Connor said. “The initial steps we are taking are part of the larger effort to strengthen the management of coal production on public lands by providing greater certainty and predictability to the industry and helping to protect American taxpayers.”

The proposal, formally entitled “Consolidated Federal Oil & Gas and Federal and Indian Coal Valuation Reform Rule,” will be published in the Federal Register on January 6. A 60-day public comment period will commence at the time it is released.

Those interested in providing input on the proposal can submit input by mail, online or via hand delivery. More information can be found at www.regulations.gov, under the ID of ONRR-2012-0004.