The time is long overdue for Wyoming lawmakers to consider changing the way the state charges severance taxes on minerals produced here and sent out of state or overseas.

Reason for this is the impending surge in prices as coal soon becomes an international commodity shipped to countries like China and India.

Despite a black eye here in the USA due to its polluting capability, coal is in high demand all over the world, especially in growing economies.

It could be predicted that the biggest future opportunity for Wyoming coal is for it to be shipped out of Pacific ports to countries that are running out of locally produced coal.

Back here in Wyoming, coal severance taxes have not been raised in decades.

Gov. Matt Mead and the newly convened Legislators should at least look at what former Gov. Sarah Palin did in Alaska, in modifying that state’s severance tax rates.

My understanding is that the Alaska system involves indexing rates, which is what Wyoming should consider. As coal prices rise, so should the severance tax rate. As prices go down, so should the rate. This is fair and market-driven. With an outlook this promising, Wyoming citizens and  future generations of Wyomingites will benefit greatly.

In Wyoming, coal is a very big deal. Our state is the largest coal-producing region in North America and supplied 40 percent of the coal used in the USA. Some 13 mines in Campbell County’s Powder River Basin generated 97 percent of this production.

(source: Wolfram|Alpha — click to enlarge)

(source: Wolfram|Alpha — click to enlarge)

My friend Jeff Wacker, the futurist for Hewlett-Packard from Dallas, tipped me off to this impending worldwide coal boom.

There are two huge international reasons to look at raising coal severance taxes right now. Both of these reasons are causing the prices for coal to rise and the demand to soar worldwide.

First is the rapid growth of economies in China and India.

China is building a new coal-fired electrical power plant weekly. Right now, that country imports some 60 percent of all the coal produced in Australia. Recently, coal prices increased by 40 percent in that country.

Even though China mines a lot of its own coal, it cannot provide enough to satisfy its needs for the power plants and for its vast steel-making facilities.

China’s economy is expected to grow four times as fast as the USA in 2011, and its demand for more coal is unrelenting.

India’s economy is also growing rapidly and relies on coal for both electrical power and for making steel. At one point in 2010, 17 coal-fired plants in India were down to a seven-day supply of coal on-hand, which is considered a huge security risk for that country.

More than 75 percent of India’s coal is imported from Indonesia. Its importing of coal from South Africa increased by 75 percent this past year.

Second reason is a series of catastrophes in the world that are causing a shortage of coal.

Australia has been battered by floods that have negatively affected two-thirds of its coal mining capacity. It will take time to restore the mines and the ports that were damaged by record rains and storms.

In Russia, a horrible accident killed over 60 people in one of the country’s largest coal mines.

It will cost $200 million and years to bring that mine back into production. Russia was a net coal exporter before the accident, but now may need to import coal.

With the above scenarios, we now see state leaders from Montana meeting with Pacific states about expanding ocean ports so more coal shipments can be made to those far-off countries. Wyoming industry folks are also in the thick of these discussions.

Meanwhile, here we are, back in a windy corner of Wyoming, watching our legislators and our world-best lobbyists mingle and settle in for the legislative session.

Should severance tax reform be on the table?

For years our lobbyists have managed to convince our legislators and our governors to leave this golden goose alone.

“If it is not broken, why fix it?” is the oft-heard refrain by lobbyists and lawmakers, alike.

Well, we are not saying it is broken. In fact our severance tax system is the envy of every other state, except Alaska.

But well-meaning and good-intentioned leaders need to take a long, hard look at this system soon. Today is not soon enough.

Check out Bill Sniffin’s columns and blogs at www.billsniffin.com. He is a longtime Wyoming journalist and author from Lander. He has a Facebook page for William C. Sniffin and his Twitter address is Billwyoming.

Print Friendly

Published on February 8, 2011

{ 4 comments }

WyoWyo February 20, 2011 at 3:40 pm

Thanks for questioning my reading and comprehension ability. Of course no one could not agree with your tax, tax, tax philosophy, thus they must not be able to read or comprehend how wonderful a tax increase would be, especially when they falsely believe that “someone else” will have to pay it.

Frank February 13, 2011 at 5:07 pm

Fact is, severance taxes are a pretty effective way to obtain funding for things like…I don’t know schools, roads, law enforcement and other “government spending” gimmicks. If you had read this article correctly (I’m guessing you just read the headline), you would have been able to tell the difference between SEVERANCE TAXES on multinational corporations that extract natural resources from public land (and make an enormous private profit at the expense of the public), and INCOME or PROPERTY TAXES; taxes that actually involve my, your, or “our” money. In fact re-structuring our severance tax policy could mean that we won’t ever have to raise taxes on people who actually live in Wyoming and make a living here (just as long as coal stays in high demand, which it will for a long time in all likelihood), and still be able to fund our public schools and maintain safe roads and streets.

Bill and Dewey are both keen to point out that Wyoming finds itself in a great position here; at the center of a huge global industry involving the trade of a commodity that is in extremely high demand in both fully developed and growing economies. There are environmental (could be read as aesthetic) consequences to open-pit mining (all of the mines on BLM mining leases in the Powder River Basin are open-pit), which reduces acres of land into hideous barren wastelands–but frankly, there is too much money to be made for us to squander this opportunity. So…we better make a lot of money out of this deal instead of letting carpetbagging industrialists use OUR land to extract OUR natural resources and ship them overseas for other people to use. The demand for coal in China and elsewhere is simply too high, these companies (a good portion of which are not even American-owned or US-based) are dependent on our coal deposits and will agree to pay more to access them, and they will still make enormous profits. So where at any point in Bill’s article do you find him proclaiming that the “government” should spend “our” money for us? He doesn’t do that, it would be a pretty hard sell….But in my mind so is letting outsiders mine our public lands and not compensate us properly for the damage they do the landscape and the local economies (just ask any rancher in the Powder River Basin what they think of the recent proliferation of coal mines in the region, a good deal of them aren’t too thrilled about it). We need to make as much money as we can while coal is in such high demand and then invest that money in other industries (both inside and outside the resource economy) so we as a state can have a more diversified and stable economy to produce and maintain long-term prosperity instead of short-term gain from boom-bust cycles.

WyoWyo February 11, 2011 at 4:40 pm

Yea Bill, of course we need more taxes. Government always does a better job of spending our money than we can.

DeweyV February 8, 2011 at 10:00 am

I’d like to briefly append Bill’s excellent column here. The Wyoming severance tax on coal used to be 10.5 percent , but was reduced down to less than 2/3rds that when the price of coal fell back 70 (percent) $7-8.00/ton from near $ 20.00 in the 1990′s, exactly in the fashion Sniffin et al proposes here. However, when coal prices stabilized then largely climbed again , to their present high near a steady $ 60+ ($14 per ton for Wyoming Powder River Basin) , the severance tax did not track along with that. If lowering the sev tax was justified due to lower coal prices, the converse is also true when those prices rise, n’est -ce pas?

Back around the year 2000 , just as coalbed methane was gestating big time, the Legislature commissionerd the UW economics department a detailed study of the impact of taxes on actual exploration , development, and priduction of minerals. I believe to this day that the conservative Republicans ( most of the Lej) beholden to energy and mineral interests expected that study to cast some silver bullets that said taxes hurt business. The stidy came back otherwise. It clearly showed that taxes are merely a pass-thru cost of doing business and as such have little effect on the market of Wyoming’s coal, old oil, and new gas plays.

That study was promptly buried. Probably down in some old coal shaft.

Dan Neal was the Editor of the Casper Star Tribune at the time. He is now the director of the Equality State Policy Center , who advocates exactly what Sniffin is saying here. Wyoming’s mineral severance tax is way too low. The so-called ” Alaska Model” of mineral adn energy taxation , which gives Sarah Palin entirely too much credit for policies developed by her predecessors up north , is worth a serious comprehensive look here in Wyoming…and needs to have wind energy brought into the mix. The Alaska model incentivizes the exploration and development of resources with lower taxes up front, but recoups a fair return on actual production and sale of those resources once up and running. Wyoming policy has embraced some of the firs half of that , but none of the second half at all. That buried study has been forgotten. Dan Neal and Sarah Gorin at ESPC have plenty of material about this issue online at http://www.equalitystate.org

Bottom Line: The Severance Tax on Wyoming coal needs to be at least 15 percent ( or more). The arguments against doing that are pretty thin , and mostly ideological , not pragmatic. Wyoming has nothing to lose here, and coal’s days are numbered, in spite of the current boom in demand and price.

The coal market has us right where we want them.

Previous post:

Next post: