Judge orders industries to pay royalties for public land extraction

Tens of millions more dollars will flow into Western communities after a federal court throws out the Trump administration’s industry-friendly deal.

 

A judge has ordered the Trump administration to follow the Obama-era valuation rule, which is estimated to bring in at least $71.9 million a year in mining and drilling royalties to communities that house extractive industries.

Editor's note: On June 13, the Department of the Interior ordered all companies with federal oil, gas, or coal leases to recalculate the royalties they owe under the Valuation Rule going back to January 1, 2017. Companies have six months to pay back these taxes.

When energy corporations produce oil, gas or coal on public lands, they make royalty payments to the federal government and the states where production takes place. In 2016, the Obama administration closed a loophole that allowed companies to dodge those fees. The valuation rule was set to provide tens of millions of dollars to taxpayers, until then-Interior Secretary Ryan Zinke repealed it shortly into his tenure in 2017.

Now, a federal judge has deemed that move illegal, putting the valuation rule into effect immediately. In a case brought by the states of California and New Mexico, U.S. District Court Judge Saundra Brown Armstrong found that Trump’s Interior Department failed to justify the repeal, which she called “arbitrary and capricious.”

One of the strongest rebuttals of the Trump administration’s energy policies to date, this case could have serious implications for the West, home to nearly all public-land mining and drilling.

Here are the key takeaways:

When energy industries profit from public lands, the public should benefit, too.

Under President Barack Obama, the Interior Department closed a loophole. Previously, companies would sell the oil, gas and minerals to their own subsidiaries at below-market value. Low prices meant low royalties. The valuation rule made sure that corporations paid full royalties, ensuring taxpayers received proper value for profit derived from public lands.

Obama’s Interior Department estimated the rule, which applies to both drilling and mining, would bring in at least $71.9 million annually, funding public institutions and infrastructure, including schools, roads, transit and parks in the states where the resources are extracted.

“The Valuation Rule attempted to ensure that the value of the coal and oil and gas was based on something that was more likely to be fair market value,” wrote Bruce Kramer, professor of oil and gas law at Texas Tech University, in an email.

When it comes to deregulation, the Trump administration does not do its homework.

This ruling joins a broad trend of legal losses for the administration: Earlier this year, a judge found that it did not properly consider climate change impacts when leasing public land for oil and gas production. And just last week, a different judge ruled that the administration ignored environmental regulations when it rolled back a moratorium on public land coal leases.

In this case, calling the rollback “wholly improper,” Armstrong found that the administration cut the rule without legally mandated justification or support. She questioned Zinke’s conclusion that the valuation rule posed an “unduly burdensome” obstacle to energy production. Armstrong also rejected the Interior Department’s reasoning that it would, at some point, write a replacement valuation rule, noting that “predicted future actions cannot be used to support a decision already made. 

“This particular repeal attempt was emblematic of other similar attempts by the Interior and other departments to overturn Obama-era regulations,” Kramer wrote. “They all share the same quality of being poorly drafted without the necessary background work that you need when you want to change or repeal a federal regulation.”

Fixing this loophole has been a bipartisan concern.

Western politicians of both parties long feared that the loophole was costing their constituents money. In 2013, the two highest-ranking members of the Senate Committee on Energy and Natural Resources, Ron Wyden, D-Ore., and Lisa Murkowski, R-Alaska, urged then-Interior Secretary Ken Salazar to deal with it.

“Royalty revenue collected by the U.S. Department of the Interior is an important part of both federal and state budgets, particularly in Western states,” the committee wrote.

There could be trouble ahead for the Trump administration’s energy policies.

Plenty of lawsuits have challenged the administration’s persistent environmental rule rollbacks, designed to boost fossil fuel production. But the valuation rule decision was the first time a judge found a regulation repeal illegal; until now, only delays or stays of Obama-era rules had been shot down. More court wins could be on the way, using similar reasoning.

“This can be cited as persuasive authority in many of the other cases involving deregulatory actions,” said Jayni Hein, natural resources director at New York University School of Law's Institute for Policy Integrity, which submitted an amicus brief and comments on the case.

Several ongoing lawsuits make similar claims of improper legal justification: The rollback of an Interior Department hydraulic fracturing rule and of the Bureau of Land Management’s methane rule were challenged in the same California district court that ruled against the valuation rule rollback.

Here’s what could come next.

The Trump administration, or possibly energy industry groups that supported the valuation rule repeal, have until mid-June to submit an appeal. The American Petroleum Institute, the largest oil and gas trade group, sued the Obama administration over the valuation rule in 2016. The legal process continues, but for now, the valuation rule is back on the books.

Nick Bowlin is an editorial intern at High Country News. Email him at [email protected] or submit a letter to the editor.

High Country News Classifieds
  • CONSERVATION ASSOCIATE - OKANOGAN LAND TRUST (NORTH CENTRAL WA)
    Do you enjoy rural living, wild places, and the chance to work with many different kinds of people and accomplish big conservation outcomes? Do you...
  • CARDIGAN WELSH CORGIS
    10 adorable, healthy puppies for sale. 4 males and 6 females. DM and PRA clear. Excellent pedigree from champion lineage. One Red Brindle male. The...
  • A CHILDREN'S BOOK FOR THE CLIMATE CRISIS!!
    "Goodnight Fossil Fuels!" is a an engaging, beautiful, factual and somewhat silly picture book by a climate scientist and a climate artist, both based in...
  • DIGITAL ADVOCACY & MEMBERSHIP MANAGER
    The Digital Advocacy & Membership Manager will be responsible for creating and delivering compelling, engaging digital content to Guardians members, email activists, and social media...
  • DIGITAL OUTREACH COORDINATOR, ARIZONA
    Job Title: Digital Outreach Coordinator, Arizona Position Location: Phoenix or Tucson, AZ Status: Salaried Job ID Number: 52198 We are looking for you! We are...
  • DESCHUTES LAND TRUST VOLUNTEER PROGRAM MANAGER
    The Deschutes Land Trust is seeking an experienced Volunteer Program Manager to join its dedicated team! Deschutes Land Trust conserves and cares for the lands...
  • ASSOCIATE DIRECTOR OF DEVELOPMENT
    The Nature Conservancy in Wyoming seeks an experienced fundraiser to join our team. We're looking for a great communicator who is passionate about conservation and...
  • INDIAN COUNTRY FELLOWSHIP
    Western Leaders Network is accepting applications for its paid, part-time, 6-month fellowship. Mentorship, training, and engaging tribal leaders in advancing conservation initiatives and climate policy....
  • MULESHOE RANCH PRESERVE MANAGER
    The Muleshoe Ranch Preserve Manager develops, manages, and advances conservation programs, plans and methods for large-scale geographic areas. The Muleshoe Ranch Cooperative Management Area (MRCMA)...
  • ARTEMIS PROGRAM MANAGER
    Founded in 1936, the National Wildlife Federation (NWF or Federation) is America's largest and most trusted grassroots conservation organization with 52 state/territorial affiliates and more...
  • ASSISTANT OR ASSOCIATE PROFESSOR OF ENVIRONMENTAL HUMANITIES
    Assistant or Associate Professor of Environmental Humanities Whitman College The Environmental Humanities Program at Whitman College seeks candidates for a tenure-track position beginning August 2023...
  • ANNUAL FUND MANAGER
    Working closely with the Foundation's leadership, the Annual Fund Manager is responsible for the oversight and management of the Foundation's annual operating fund. This is...
  • DATABASE ADMINISTRATOR
    Looking for someone who loves public land and understands the value and importance of data in reaching shared goals as part of a high-functioning team....
  • EXECUTIVE DIRECTOR
    High Country Conservation Advocates (HCCA) in Crested Butte, CO is seeking an enthusiastic Executive Director who is passionate about the public lands, natural waters and...
  • ASSOCIATE DIRECTOR OF VOLUNTEER PROGRAMS
    Are you passionate about connecting people to the outdoors? The Pacific Crest Trail Association (PCTA) is looking for someone with volunteer management experience to join...
  • EXECUTIVE DIRECTOR
    The conservation non-profit Invasive Species Action Network seeks an executive director. We are focused on preventing the human-caused spread of invasive species by promoting voluntary...
  • NEW BOOK: A FEAST OF ECSTATIC VERSE AND IMAGERY
    Dynamic fine art photographer offers use of images to raise funds. Available for use by conservation groups. Contact at www.anecstaticgathering.com.
  • WANTED: TALENTED WRITER
    Write the introduction to A Feast of Ecstatic Verse and Imagery, a book concerning nature and spirituality. Contact at www.anecstaticgathering.com. Writer who works for conservation/nature...
  • MT STATE DIRECTOR- THE WILDERNESS SOCIETY
    The Montana State Director is a member of The Wilderness Society's (TWS) Conservation program team who plays a leading role in advancing the organization's mission...
  • HIGH COUNTRY NEWS EDITORIAL INTERNS
    High Country News, an award-winning magazine covering the communities and environment of the Western United States, is looking for its next cohort of editorial interns....