Leasing moratorium’s bark worse than its bite

By Dylan Brown | 01/25/2016 01:11 PM EST

Coal companies and environmentalists agree — the Obama administration’s new moratorium on federal coal leasing is monumental, just not right now.

Coal companies and environmentalists agree — the Obama administration’s new moratorium on federal coal leasing is monumental, just not right now.

Mines won’t be shutting down during the roughly three years needed to complete a programmatic environmental impact statement of the Interior Department’s coal program, but potential changes stemming from the review terrify industry and coal-state lawmakers.

And it will almost certainly play out in the Powder River Basin. Forty percent of American coal is mined on federal land, most of it cheap PRB coal from Wyoming.


Last year, the Obama administration hosted "listening sessions" around the country and in the basin asking the same question it now wants to answer definitively: Are taxpayers getting a good deal for selling their coal (Greenwire, Jan. 16)?

The opposing viewpoints, with a sprinkling of landowners and residents on either side, weighed in during the sessions. Earlier this month, environmental and taxpayer groups and their allies praised the moratorium announcement as a first step toward "clearly" needed reform.

If royalty rates and leasing fees actually accounted for carbon costs, Jeremy Nichols, Climate and Energy Program director for WildEarth Guardians, said coal would not be affordable to mine.

"The only way that the American public truly gets a fair share is if coal is kept in the ground," he said.

Industry leaders have long said stopping coal production is what leasing critics have always really wanted. Companies immediately scorned the moratorium.

Cloud Peak Energy Inc., which focuses on mining in the PRB, chastised the Obama administration for pandering to environmentalists over "working class Americans" and state governors in states where coal has generated billions in revenue.

At the same time, CEO Colin Marshall said Cloud Peak did not expect "any immediate impact on our operations," thanks to "a strong coal reserve position" and private coal holdings.

James Stevenson, director of North American coal at IHS Energy, said that’s true industry wide as companies aren’t out leasing coal they plan to mine next year. The Obama administration estimated that 20 years’ worth of coal is already under lease.

The problem, Stevenson said, is the "clear message" in the administration’s language about incorporating environmental costs into leasing. Royalties and rent payments look set to rise.

"Changing cost structure isn’t going to put them out of business, probably," he said, but it could have at least some effect, even in the cheap reserves of the PRB.

A good deal?

Americans are already getting a good deal for coal mined on public lands, according to Travis Deti, assistant director of the Wyoming Mining Association.

"There are some areas that can be improved, like in the instance of transparency," Deti said. "But we feel that the way the BLM has been setting fair market values works, and we feel that royalty rates are very fair."

Cloud Peak said it paid $354 million in taxes and royalties and $69 million for leases in 2014 while only bringing in a net income of $79 million.

"The current leasing system provides significant benefit to American taxpayers and is not broken," Marshall said, adding, "As the country comes out of a deep and long recession, now is not the time to raise electricity costs and cut an important source of revenue."

If, as expected, the Obama administration sets minimum bid prices and raises royalty rates to include the social cost of carbon, "whatever that means," Deti said, the impact will be big.

"The ultimate outcome is going to be you’re going to make the coal uneconomical to mine," he said.

University of Colorado Law School professor Mark Squillace said he hopes the moratorium "signals the beginning of the end" for federal coal leasing because the public is already getting a raw deal.

The billions of dollars filling government coffers looks like a lot, but Squillace said it only represents a tiny fraction of coal’s actual market value.

Coal leases sell for 20 to 30 cents a ton, while even for cheap PRB coal, companies make for more about $13 a ton, said Squillace, long an advocate of reform.

"I think it’s pretty clear that a higher price could be sustained," he said, advocating for reasonable minimum bid prices — $1 per ton or maybe more.

"If the applicants don’t want to buy the coal for more than a minimum bid price, then that’s fine; the government should hang onto the coal until it’s really needed," he said.

Two previous presidents have put federal coal leasing on hold in response to similar concerns — Republicans Ronald Reagan and Richard Nixon.

Squillace said Nixon halted federal coal leasing amid rampant speculation in 1973, and three years later, Congress responded with the 1976 Federal Coal Leasing Amendments Act.

In 1984, Interior Secretary William Clark voluntarily suspended all coal leasing after his predecessor, James Watt, sold off massive tracts of public land at fire-sale prices, prompting Congress to form the Linowes Commission to investigate.

Watt resigned in 1983 after an uproar followed his comments to the U.S. Chamber of Commerce about the Linowes Commission, "I have a black, a woman, two Jews and a cripple. And we have talent."

Today, according to Squillace, most economists don’t believe coal can compete if it has to pay for its external costs. While more coal may need to be leased to supply power plants, Squillace said the shift away from coal is only going to continue as global demand wanes, as well.

"Short of some miracle technology that allows us to extract the carbon from this coal and to do it inexpensively … I just don’t see any way that this trend is going to be reversed," he said.

The ins and outs

While he applauded the moratorium, Squillace said he was "a little disappointed" about 18 pending leases that will be allowed to move forward, according to a list posted online by the Bureau of Land Management.

"Several of these had records of decision issued as late as December of last year … presumably when the government knew they were going to impose a moratorium, and I find that problematic and somewhat disingenuous," he said.

The BLM list also includes leases the agency may put on hold. But many of those have already been dormant, sometimes for years at the request of companies, amid the coal market slowdown.

In Colorado, for example, four out the five leases affected by the moratorium are related to closed, idled or nonexistent mines, according to Earthjustice Staff Attorney Ted Zukoski.

Included on the list are leases requested by coal companies that have filed for bankruptcy, including Arch Coal Inc. (Greenwire, Jan. 11).

"It is not in the public interest to sell publicly owned coal to bankrupt coal companies; I think that is a recipe for disaster," Nichols said. "That is essentially putting massive liabilities upon the American public."

All these issues could presumably be part of the programmatic environmental impact statement. For Squillace, the central issue is that individual coal companies can’t be expected to manage the fallout of their industry’s troubles.

"The government has a responsibility to manage how the decline of coal is going to occur, trying to help communities that are going to be affected by the decline, and manage the healthy economic transition," he said.

The Wyoming Mining Association’s Deti said coal companies are weathering "a perfect storm" as weak overseas demand and cheap natural gas deaden the market.

"I’m not necessarily sure that it’s simply a bust cycle, but I think we’re seeing a realignment of the industry," he said.

But uncertainty created by the moratorium and regulations can’t be overlooked, Deti said, as contracts with utilities rely on long-term forecasts.