Changes in Royalties from Mineral Extraction and Their Budgetary Allocation in Relation to Environmental Protection in the Czech Republic ^†

Abstract

This paper explores the evolution of royalty payments from the extraction of reserved mineral resources in the Czech Republic between 1992 and 2025, with a particular focus on their allocation for the reclamation of environmentally affected areas. It presents the legislative framework governing these payments, including Acts No. 44/1988 Coll., No. 61/1988 Coll., and No. 280/2009 Coll., as well as Government Regulation No. 354/2023 Coll., which collectively define the obligations of mining companies regarding royalty payments. The study addresses the adjustment of royalty rates in response to current economic conditions to ensure sustainable financing of environmental projects. It also emphasizes the importance of continuous evaluation of the regulatory system to maintain a balance between the economic capacity of extractive industries and the protection of the environment.

1. Introduction

The extraction of reserved mineral resources represents not only a significant industrial sector in the Czech Republic but also an area with important environmental and fiscal implications. In addition to traditional technical and safety aspects of mining operations, key roles are played by economic instruments used by the state to regulate and compensate for the impacts of extraction. Among these are royalties from extracted minerals and mining areas, whose legal regulation and budgetary allocation have undergone significant changes since the 1990s [1].

Royalties represent a specific form of financial levy that fulfills not only a fiscal but also a compensatory and motivational function. As their revenues flow into the state budget as well as the budgets of municipalities and, more recently, regional governments, the question of their fair distribution and efficient use has become increasingly important—especially in relation to the remediation of mining-related environmental impacts.

The aim of this paper is to analyze the development of the royalty system for mineral extraction in the Czech Republic between 1992 and 2025, with a focus on legislative changes, fiscal impacts, and methods of budgetary allocation. Attention is also given to international comparisons and proposals to enhance the current model in the context of ecological and economic sustainability.

2. Royalties and Their Legal Definition

Royalties have a long-standing tradition in Czech mining, dating back several centuries. Within the legislative framework, they represent a key instrument of mining law with significant interdisciplinary overlaps. From a legal perspective, they intersect with mining, administrative, financial, and environmental law. In practical terms, they influence the operations of mining organizations as well as the budgets of the state, municipalities, and regions. Due to their fiscal allocation, they serve as an important tool in addressing the legacy impacts of past mining activities.

In the Czech Republic, royalties are currently paid:

• from mining areas;
• from extracted minerals [1,2].

Extracted minerals are defined as those for which a mining area has been designated and which were, during the relevant payment period, extracted under a valid mining permit. This category also includes reserved minerals obtained during authorized geological exploration within a defined exploration area, as well as—under sanction provisions—minerals acquired through unauthorized extraction of exclusive deposits or unauthorized exploration activities.

Royalties are thus always linked to mineral deposits that are owned by the state as part of its natural resource wealth. Given their relatively high revenue potential and specific rules for budgetary allocation, royalties from extracted minerals are the main focus of this analysis.

In nature, royalties most closely resemble taxes, although their legal regime differs significantly. Primarily, royalties fulfill not only a fiscal function but also a compensatory and motivational one. As with taxes, they are monetary payments made by organizations to public budgets without any entitlement to direct compensation from the state, municipality, region, or other public body. Once paid, these funds cease to be the property of the payer. However, the rules governing their allocation and administrative management differ from those applied to conventional tax systems.

2.1. Historical Context

The historical precursor to modern royalties were levies on the extraction of precious metals paid to the sovereign during the Middle Ages, known as urbura. In the early modern period, these evolved into tithes and mining dues, as stipulated in the General Mining Act No. 146/1854 Imperial Law Gazette (§ 215 to 219 of the Act) [3]. Between 1957 and 1991, the issue of royalties was not explicitly addressed in legislation [4], which corresponded to the conditions of a state-controlled economy and the taxation system applied to economic entities at that time. Royalties were reintroduced into the Mining Act in 1991, where they have remained ever since.

The administration of payments made to the state in connection with mining activities necessitated the existence of a dedicated bureaucratic apparatus from an early stage. In the Middle Ages, this role was fulfilled by urburers (royalty collectors), and in later periods by other mining officials and mining authorities.

2.2. Legal Regulation

In the Czech Republic, royalties are primarily governed by Act No. 44/1988 Coll., on the Protection and Use of Mineral Resources (the Mining Act). However, this legal framework has undergone substantial amendments over the years. The most significant changes occurred in 1992, 2000, 2016, 2021, and 2023 [2,5].

The authority of mining offices to manage royalties is further defined by Act No. 61/1988 Coll., on Mining Activities, Explosives, and the State Mining Administration [6]. As a supporting procedural regulation, the Tax Code—Act No. 280/2009 Coll.—applies, providing detailed provisions on the administration of royalty payments [7,8].

In addition to statutory laws, implementing regulations have played a crucial role in the royalty system. These include Decree No. 617/1992 Coll. [9], as well as two government ordinances: Government Decree No. 98/2016 Coll. [10] and Government Decree No. 354/2023 Coll. [11].

3. The System of Royalties and Their Administration

3.1. Royalties Between 1992 and 2016

Starting in 1992, royalties from mining areas and extracted minerals in the Czech Republic were collected in accordance with the version of the Mining Act in force at the time (§ 32a) and Decree No. 617/1992 Coll., on the Details of Royalty Payments from Mining Areas and Extracted Reserved Minerals. The procedural framework for the administration of these payments was governed by Act No. 337/1992 Coll. [12], on the Administration of Taxes and Fees. The district mining authorities were responsible for administering the royalties, while the Czech Mining Authority served as the superior tax administrator.

For mining areas, mining organizations were required to pay a royalty ranging from CZK 100 to CZK 1000 per hectare. The system for royalties on extracted minerals was different, as the amount payable was determined using a specific formula set out in Decree No. 617/1992 Coll.:

U = (N_d/N_c) · T · (S/100)

(1)

where

• N_d = costs of mineral extraction (in thousands of CZK)
• N_c = total production costs of the organization (in thousands of CZK)
• T = revenues from product sales (in thousands of CZK)
• S = royalty rate (%)
• U = total amount of the royalty (in thousands of CZK)

The royalty rate was set by the cited decree with different values for 28 groups of minerals.

The allocation of royalty revenues was based on provisions of the Mining Act. Initially, the proceeds from royalties on extracted minerals were divided equally between the state and municipalities (50%:50%). In 2000, this ratio was adjusted in favor of municipalities, which began receiving 75% of the revenue, while the state’s share was reduced to 25%. For royalties from mining areas, the full amount was allocated to the municipality in which the respective mining area was located [13].

Around 1995, the Czech government began addressing the targeted use of royalty revenues by the state. A more precise allocation scheme was introduced in 2008 through Government Resolution No. 69 of 23 January 2008, which stipulated that proceeds from royalties on extracted minerals would be divided equally between the budget chapters of the Ministry of the Environment and the Ministry of Industry and Trade. These funds were to be used primarily for the remediation of environmental damage resulting from past mining activities.

During this period, the dominant source of royalties was surface-mined brown coal. Other mineral resources, such as deep-mined coal, oil, natural gas, construction stone, and others, contributed significantly less.

The royalty calculation system, which was based on a relatively complex formula tied to commodity prices, began to be perceived as inefficient after 2010. The state regarded the resulting revenues as insufficient, prompting a review of the legal framework. The inclusion of mining companies’ internal costs and actual sale prices in the calculation was particularly problematic, as it allowed for lower royalty payments than originally intended. Additionally, the gradual decline in extraction volumes of certain commodities—particularly hard coal and radioactive minerals—further contributed to reduced royalty revenues.

3.2. Royalty System Between 2017 and 2023

The model of royalty collection and administration that had been in place since 1992 was fundamentally revised by the amendment to the Mining Act introduced through Act No. 89/2016 Coll. [14]. This amendment completely restructured the legal regulation of royalties: the original single Section 32a was replaced by a comprehensive set of provisions, Sections 33a to 33w. Decree No. 617/1992 Coll. was repealed and replaced by a new implementing regulation—Government Decree No. 98/2016 Coll. The administration of royalties remained under the authority of the district mining offices.

The main objective of the amendment was to increase the volume of funds flowing into public budgets. The new system came into effect in 2017. For royalties from mining areas, a fixed rate of CZK 1000 per hectare was introduced for so-called active (mined) areas and CZK 300 per hectare for inactive (non-mined) areas. The exclusive recipients of the proceeds from this royalty remained the municipalities in whose territory the respective mining areas are located.

A major change also occurred in the method of calculating royalties on extracted minerals. Instead of the previous formula, which considered the costs and revenues of mining organizations, a simplified approach was adopted based on the scheme “rate × extraction volume”. In the case of brown coal (also referred to as lignite in some international contexts), the formula was further modified to include the calorific value of the extracted material: “rate × extraction × calorific value”. Brown coal remained the dominant mineral in terms of total royalty revenue [15]. The specific rates for each type of mineral were established by Government Decree No. 98/2016 Coll.

Significant changes were also made to the budgetary allocation of revenues from royalties on extracted minerals. The previous fixed model—allocating 75% of the revenue to municipalities and 25% to the state—was replaced by a differentiated system in which the percentage shares among recipients varied depending on the type of mineral extracted, as summarized in

Table 1. Percentage Shares of Royalty Revenue Recipients from Extracted Minerals, 2017–2023 [14].

Mineral	Share of Municipalities	Share of the State
Surface-mined brown coal	33%	67%
Deep-mined brown coal and hard coal	75%	25%
Radioactive minerals	75%	25%
Oil and natural gas	75%	25%
Other minerals	38%	62%

[14].

Since 2016, the legal framework has included provisions for the earmarked use of revenues from royalties on extracted minerals, specifically defining how these revenues are to be allocated within the chapters of the state budget, as show in Table 1 [14].

The Ministry of Industry and Trade is entitled to 28% of the state’s share of royalty revenue. These funds may be used exclusively for the following purposes:

• the elimination of damage caused by the extraction of both reserved and non-reserved mineral deposits;
• the securing and liquidation of abandoned mine workings;
• the remediation, reclamation, and revitalization of land owned by the state.

The Ministry of the Environment receives 12% of the state’s share of royalty revenue. The ministry may allocate these funds to:

• the identification, registration, securing, and liquidation of old mine workings and abandoned exploration works;
• the performance of the state geological service, particularly in connection with the protection and inventory of mineral wealth and raw material sources, the provision of related information systems, and support for the implementation of the national raw materials policy, including addressing geological risk factors and mining waste issues.

The remaining 60% of the state’s share of royalty revenue is transferred by the district mining authorities to the state budget administered by the Ministry of Finance.

The earmarking of royalty revenues for post-mining environmental remediation reflects the state’s effort to address past ecological damage and to support the reclamation of landscapes affected by mining. Royalties thus represent an important financial instrument for fulfilling national environmental and social policy objectives.

3.3. Royalties System After 2023

In connection with the reform of the royalties system, regional governments began to seek a share of revenues from royalties on extracted minerals. Their efforts culminated successfully with the amendment to the Mining Act introduced through Act No. 349/2023 Coll. [13], part of the so-called consolidation package. This amendment expanded the list of beneficiaries of the royalties from extracted minerals to include the regions and modified the percentage shares among municipalities, the state, and regions, as summarized in

Table 2. Percentage distribution of royalties revenue from extracted minerals since 2023 [16].

Mineral	Municipalities’ Share	State’s Share	Regions’ Share
Surface-mined brown coal	40%	40%	20%
Underground-mined coal, oil and natural gas	64%	15%	21%
Other minerals	40%	50%	10%

Data from ref. [4]: Act No. 44/1988 Coll., Section 33n, as amended in 2023.

[16].

Following this amendment to the Mining Act, a new Government Regulation No. 354/2023 Coll. was issued, setting new royalty rates for extracted minerals and repealing the previous Government Regulation No. 98/2016 Coll.

According to the new rules, regional governments may use their share of royalty revenues exclusively for the following purposes:

• remediation of direct and indirect damage caused by the extraction of both reserved and non-reserved mineral deposits (including transport-related impacts);
• revitalization of land;
• improvement of residents’ quality of life and environmental conditions in municipalities located outside of designated mining areas.

These funds must not be used to finance activities covered by the mandatory financial reserves created by mining operators for mine damage compensation.

The other elements of the royalty system introduced in 2016 and implemented since 2017 remain unchanged after 2023. This includes the method of calculating the royalty as “rate multiplied by extracted quantity” and the continued administration by the State Mining Authority.

4. Effectiveness of the Regulation of Royalties from Extracted Minerals

To document the development in the availability of funds from royalties,

Table 3. Royalties and Economic Indicators [15,17,18,19,20,21,22,23,24,25,26,27].

Year	Royalties from Extracted Minerals (CZK million)	Environmental Protection Expenditures in the Mining and Quarrying Sector (CZK Million)	Quantity of Extracted Minerals (Million Tonnes)	Gross Value Added in the Mining and Quarrying Sector (CZK Million)	Share of Mining and Quarrying in National GVA (%)	Royalties as % of Environmental Expenditures	Royalties as % of GVA	Environmental Expenditures as % of GVA	Royalties per 1 Tonne (CZK/t)	Environmental Expenditures per 1 Tonne (CZK/t)	GVA per 1 Tonne (CZK/t)
1999	429.60	N/A	138.50	27,864.00	1.40	N/A	1.54	N/A	0.0031	N/A	0.2012
2005	602.51	N/A	147.86	36,937.00	1.20	N/A	1.63	N/A	0.0041	N/A	0.2498
2010	580.14	3025.16	131.19	45,280.00	1.20	19.18	1.28	6.68	0.0044	0.0231	0.3452
2012	629.69	3947.96	125.04	42,913.00	1.20	15.95	1.47	9.20	0.0050	0.0316	0.3432
2016	434.32	2954.19	121.11	31,551.00	0.70	14.70	1.38	9.36	0.0036	0.0244	0.2605
2017	398.37	3415.94	121.90	32,799.00	0.70	11.66	1.21	10.41	0.0033	0.0280	0.2691
2020	863.21	2978.69	113.81	26,612.00	0.50	28.98	3.24	11.19	0.0076	0.0262	0.2338
2021	735.53	2761.15	117.97	29,444.00	0.50	26.64	2.50	9.38	0.0062	0.0234	0.2496
2022	755.10	3241.65	120.27	35,900.00	0.60	23.29	2.10	9.03	0.0063	0.0270	0.2985
2023	802.13	3201.74	105.78	N/A	0.50	25.05	N/A	N/A	0.0076	0.0303	N/A

Year 2017 is highlighted because it represents a turning point when the legislation was changed.

presents selected data that illustrates key trends over the past two decades. The years included have been chosen to provide a general overview of developments in several indicators, with a specific emphasis on the turning point when the discussed legislative change occurred.

The individual columns show:

• the total revenue from royalties on extracted minerals;
• the expenditures related to environmental protection in the mining sector, including both investment and non-investment expenditures across public and private actors;
• the volume of extracted minerals in the Czech Republic (in million tonnes, regardless of commodity value);
• the gross value added (GVA) of the mining and quarrying sector (including domestic, foreign, and public ownership structures);
• derived ratios that contextualize royalty revenues and environmental expenditures relative to GVA and volume extracted.

Despite the structural complexity of the underlying data and the impossibility of fully capturing the financial flows between extraction and environmental mitigation, several conclusions can be drawn:

• Royalty revenues clearly increased, even amid declining extraction volumes and sectoral contraction (with a minor exception in 2017);
• Environmental expenditures in the mining sector fluctuated, but remained relatively stable in magnitude;
• Both the amount of extracted materials and the gross value added of the mining sector show a declining trend;
• The calculated ratios illustrate that the legislative change has resulted in greater public revenues, which can be channeled into environmentally oriented policies, even though the sector itself is shrinking.

These findings raise further questions—such as how environmental expenditures are supplemented from other sources, or whether there is room to shift more of the financial burden onto mining companies. However, answering such questions would require a broader dataset and a different analytical approach, which lies beyond the scope of this paper.

In terms of addressing environmental damage, reclamation, and related processes, the earmarking of revenue shares for specific ministries is of great importance. It enables these ministries to plan relevant actions, set sectoral priorities, and announce targeted grant schemes.

5. Overview of Approaches of Selected Other Countries to Mineral Extraction

International experience demonstrates a variety of approaches to the issue of extraction charges and royalties, with emphasis not only on fiscal revenue but also on the environmental responsibility of mining entities.

Germany applies a decentralized model in which mineral extraction levies fall under the jurisdiction of individual federal states. Each state independently sets the rules for the use of these funds and for the reclamation of areas affected by mining. As part of permitting procedures, mining companies are required to conclude reclamation agreements, with financial security provided in the form of a deposit or a reserve fund. These funds remain tied until full compliance with the reclamation obligations is achieved. Although the system is not centralized, it is strictly monitored and enforced [28].

Poland requires mining operators to pay geological and extraction fees under the Geological and Mining Law. These fees are allocated between the national budget and the budgets of municipalities where the extraction takes place. Since 2012, the legal framework allows annual indexation of the fees based on inflation, subject to a decision of the government. The fees are defined as fixed rates per unit of extracted mineral, with the possibility of adjusting the rates in response to the current economic situation [29,30].

Canada employs a system of mining royalties, with each province establishing its own rules. For example, the province of Alberta applies a progressive calculation model known as a “sliding-scale royalty system.” In the early phase of a project (the so-called pre-payout period), when the company has not yet recovered its initial investments, a lower rate is applied. After reaching profitability (post-payout), the rate gradually increases—up to a maximum of 40% of net profit. In addition, mining companies are obligated to establish reclamation funds, the amount of which is determined based on the scale of land disturbance and the estimated cost of land restoration [31,32].

6. Discussion

The presented analysis shows that changes to the system of payments from extracted minerals, particularly after 2016, have led to greater efficiency in the collection of fees and enabled more stable revenues for public budgets, despite declining extraction volumes of certain raw materials. The introduction of a simplified calculation formula (“rate × extraction volume”) in place of the original model reflecting mining companies’ costs and revenues has eliminated some problematic aspects of the previous legislation, such as the potential for manipulation of cost items.

The expansion of eligible recipients to include regional governments and the more precise specification of the earmarked use of funds have contributed to greater transparency of the system and strengthened regional responsibility for addressing the impacts of mining. In the Czech Republic, this measure was legislatively established through an amendment to the Mining Act in 2023. As a result, the overall acceptability of the system has increased, along with a fairer allocation of payment revenues according to the intensity of mining impacts on individual territorial units.

Unlike some foreign systems, which incorporate profitability into the calculation of royalties or apply varying regional rules (e.g., Canada), the Czech model has not adopted this approach. In the Czech Republic, the calculation of royalties from extracted minerals is based on the quantity of extracted material (in tonnes) and legislatively defined rates, or, in some cases, on the calorific value of the mineral. This enhances the predictability and administrative simplicity of the system.

At the same time, the Czech approach maintains a clear delineation of responsibilities—costs related to the reclamation of areas affected by mining are borne by the mining organization itself, in accordance with the requirements of the Mining Act [33]. The state intervenes in reclamation processes primarily in cases of historical environmental burdens or abandoned sites. The financing of such expenses may be provided through budgetary chapters or specific programs. Payments from extracted minerals therefore do not serve as a direct instrument for funding the obligations of mining companies but rather function as a tool of the state’s fiscal and environmental policy, with revenues being redistributed according to the territorial impacts of mining activities.

7. Conclusions

The adopted changes in the system of charges for extracted minerals in the Czech Republic, particularly after 2016, have contributed to greater transparency, efficiency, and predictability of the fiscal framework. The introduction of a simple calculation based on the volume of extraction and the statutory rate eliminated problematic aspects of the previous legislation. The legislative expansion of the range of beneficiaries to include regional governments and the more precise earmarking of funds have strengthened regional responsibility for addressing the consequences of mineral extraction. The Czech model thus represents an administratively simple and stable tool of state fiscal and environmental policy, ensuring the redistribution of revenues in relation to the territorial impact of mining while maintaining a clear distinction of responsibilities for land reclamation on the part of the extractive companies.