A bill proposed by two northeastern Wyoming lawmakers would lower taxes on coal and eliminate a tax exemption on flaring from oil and natural gas operations.
Political observers said the proposal faces an uphill climb in a legislative budget year, when bills must clear a higher hurdle just to be considered.
But it illustrates the growing concerns of coal-country lawmakers worried about the industry’s long-term health amid low gas prices.
It also reflects the increasing clamor over flaring, the process in which excess natural gas is burned off at drilling or well sites. The practice has drawn the ire of some residents in the Powder River Basin, which is witnessing an increase in oil and gas production.
“Here we have two hydrocarbon groups which 20 years ago weren’t in competition for electricity generation. But they certainly are now,” said state Rep. Eric Barlow, a Gillette Republican and the bill’s co-sponsor. “Let’s have a discussion about this. Are we treating these industries equitably? It is worthwhile to have a discussion once in a while to make sure the tax structure reflects good policy.”
Coal companies currently pay a 7 percent severance tax on the coal they sell from surface mines. The rate is 3.75 percent for underground mines. The vast majority of coal in Wyoming comes from surface mines.
Oil and gas companies pay a 6 percent severance tax. Barlow’s bill would reduce the tax on surface coal to 6 percent and the tax on underground coal to 3 percent.
It would also cut the severance tax on coal mined from leases purchased after Jan. 1, 2014, to 5.5 percent.
Combined, the two reductions would cost Wyoming an estimated $58 million annually, but Barlow said he hoped the measure would encourage more coal mining, which would, in turn, boost state coffers.
He described the challenge facing coal like this: “We’ve got regulatory pressure from the east and export challenges on the west. And in the middle, what’s the big sucking sound? It might be Wyoming taking a bigger chunk from one energy source than another.”
The bill, co-sponsored by Barlow and State Sen. Ogden Driskill, R-Devil’s Tower, muddled traditional political alliances.
Coal industry advocates praised the proposal to lower coal severance taxes but opposed the provision eliminating the severance tax exemption on flaring.
Environmentalists opposed the reduction in the severance tax on coal but applauded the plan to eliminate the severance tax exemption on flaring.
And oil and gas advocates said they had no position on the tax decrease, but they said they will oppose the severance tax exemption on flaring.
“It would help if we could reduce some of those costs: taxes, royalties, fees, the cost of doing business in Wyoming,” said Marion Loomis, executive director of the Wyoming Mining Association. “The idea that you would tax something that is not sold causes me concern.”
Removing the severance tax exemption on flared gas could set a precedent for taxing coal that is mined but not sold, Loomis said.
Richard Garrett, an energy analyst at the Wyoming Outdoor Council, an environmental group, expressed concerns about the fiscal impact of lower taxes on coal.
“I’d want to see some modeling of the effect that would have on the state’s budget,” Garrett said. “On the other hand, I’d certainly be in favor of ending the severance tax exemption on flared natural gas.”
Wyoming would become the first state in the country to tax flaring if the exemption were eliminated, said Bruce Hinchey, president of the Petroleum Association of Wyoming. The association opposes the bill on the flaring exemption alone, he said.
"It would hasten the demise of some marginal wells," Hinchey said. "It's a cost of doing business you've never had before."
The Petroleum Association has not position on the coal severance tax, he said.
Barlow said his intent is not to favor coal over oil and gas but to make sure both industries are treated fairly. Constituents' concerns about flaring prompted him to look into the issue, he said.
Last year, the state Revenue Committee debated and ultimately rejected a proposal to tax natural gas flared at oil and gas operations. But residents in his district, which encompasses Campbell and Converse counties, remain concerned about the issue after the vote, Barlow said.
“Some of them are coal miners, and they said ‘Gosh, coal couldn’t get away with this,'” Barlow said.
In addition to the provision on flaring, the bill would eliminate the tax exemptions on venting, injected or consumed oil and gas as well as coal consumed prior to sale.
Wyoming voters said they wanted to collect tax revenue on minerals produced in the state when they approved the Permanent Mineral Trust Fund in the 1970s, Barlow said, arguing that the bill would fulfill the intent of that law.
“It is being used; it has a value,” he said. “I’m not asking for its full value but for 1.5 percent of it.”