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December 26, 2014
Heartening Developments in the War on Coal
    by Robert Kropp

The Department of the Interior proposes that coal companies pay royalties on federal leases, and the Environmental Protection Agency announces new regulations for coal ash disposal. First of a two-part series.

The lackluster results of the recently concluded climate change talks in Lima, Peru, effectively ensure that global temperatures will increase by more than the 2ºC limit beyond which worsening effects of climate change become inescapable. And as long as coal—presently responsible for one-third of the planet's greenhouse gas (GHG) emissions, and more than 70% of those of the energy sector—remains a primary source for the production of electrical power, the possibility of meaningful action becomes even more remote.

With a number of executive actions intended to reduce air emissions from the energy sector, President Obama has incurred the wrath of industry-friendly Republicans who charge him with unleashing a war on coal. However, while proposed Environmental Protection Agency (EPA) regulations that would reduce power plant emissions by one-third will help the Administration reach its emissions reduction goals, the same Administration continues to subsidize coal mining through royalty-free leases of public lands.

In 2012, the Institute for Energy Economics and Financial Analysis (IEEFA) produced a report revealing that “the failure of the federal Bureau of Land Management (BLM) to get fair market value for US-owned coal mined in the Powder River Basin, which currently produces 44 percent of the nation’s coal,” has resulted in taxpayers losing out on almost $30 billion in revenues over the past 30 years.

“The coal boom in electric power generation in America has been fueled by artificially cheap coal from the Powder River Basin,” report author Tom Sanzillo said. “Now, there is the prospect that US taxpayers are effectively subsidizing the expansion of other nations, including China, with underpriced coal that is being exported.”

The two years that have passed since IEEFA published its report have not been kind to the coal industry, and the reasons for the challenges coal has faced are not always attributable to Obama's war. The current glut of natural gas has made it a much cheaper source of energy production; also, more recently, China—which is the world's largest consumer of coal—has taken steps toward emissions reduction policies that should reduce its reliance on it for production of its power.

Yet, until this month, the Bureau of Land Management under Obama has persisted in subsidizing the coal industry's mining activities in the Powder River Basin, as a Greenpeace report published earlier this year points out.

“The Bureau of Land Management has leased 2.2 billion tons of publicly owned coal during the Obama administration,” the report states, “unlocking 3.9 billion metric tons of carbon pollution.” A single ton of coal represents a social cost of carbon of as much as $237.15, Greenpeace reported; yet, the average price per ton for coal leases on federal lands is only $1.03.

Calling for “a moratorium and comprehensive review of the federal coal leasing program, including its role in fueling the climate crisis,” the report concludes, “The Bureau of Land Management and Interior Department have continued to ignore the carbon pollution from leasing publicly owned coal, and have failed to pursue meaningful reform of the program.”

While the Interior Department has thus far resisted calls for a moratorium, it did announce last week a proposal to strengthen federal valuation rules, which would require coal companies to pay standard royalties on federal leases.

“We have an obligation – and we are fully committed – to ensure that the American taxpayer receives a fair return for the production of domestic energy resources,” said Deputy Secretary of the Interior Mike Connor.

A few days before the Interior Department announced its proposal, Sanzillo of IEEFA wrote, “By law, the US government—as the owner of the coal—is supposed to get a 12.5 percent royalty payment on all coal sold off federal coal reserves. The federal loophole lets the companies get around that.”

“Federal taxpayers and host states are due their share of compensation on what they own,” Sanzillo continued.

In response to the Interior Department's proposed rule changes, Sanzillo stated, “Ending the royalty waiver is a fiscally responsible move. It's a significant step toward having a coal industry better rooted in reality, and it's good national energy-security policy.”

Next: the Environmental Protection Agency announces new regulations for coal ash disposal.


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