The Economics of Western Coal Severance Taxes

Historical trends in American coal production and a possible future outlook

“…Montana suffers from a railroad monopoly, which gives high transport costs, making it less economic than coal from Wyoming and it does not appear that transportation access will improve in the future (Hedges, 2007). The coal production tax rates have been more than twice as high in Montana, compared to Wyoming (Alt et al, 1983). If Montana's coal production increased significantly, the environmental effects will need to be carefully monitored.…”

The Relative Ability to Tax Coal in the Western States

“…Previous work that focuses on the relative ability of western states to tax the extraction of coal includes Alt, Baumann, and Zimmerman [1] and Kolstad and Wolak [7;8]. The increase in oil and gas prices and the decline of nuclear power throughout the 1970s and early 1980s increased the competitiveness of coal as an alternative source of energy.…”

“…The results from Alt, Baumann, and Zimmerman (ABZ) [1] suggest that there is an incentive for Wyoming and Montana to form a mini-cartel. Limits to their taxing power primarily come from Utah and Colorado.…”

“…There are several important ways, however, in which our analysis differs from and improves upon that of ABZ [1] and KW [7; 8]. First, we carefully investigate which states should be included when defining the market for western coal in terms of interstate tax competition.…”

“…ABZ[1] focus on Wyoming and Montana but include a discussion of Utah and Colorado because of their ability to limit the market power of the two biggest producers. Quantities are given in millions of tons.…”