Photograph by Robb Kendrick, Nat Geo Image Collection
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Most of the sought-after coal in Wyoming's Powder River Basin, above, is federally managed.

Photograph by Robb Kendrick, Nat Geo Image Collection

Why Does So Much U.S. Coal Come from Federal Land?

The Obama administration is taking a new look at what companies pay to mine some of the public's fossil-fuel stores.

By hitting “pause” on granting new federal coal leases, the Obama administration is facing up to an uncomfortable reality in its drive to meet climate targets: Nearly 41 percent of American coal comes from government-owned land.

The price industry pays to mine that coal hasn’t changed in more than 30 years. Now, the Interior Department plans for the first time to factor impacts on the environment and human health into the deal. The shift announced Friday aims to bring a decades-old leasing policy more in line with global efforts, recently solidified at UN-led talks in Paris, to cut planet-warming fossil-fuel emissions.

That’s likely more bad news for the ailing coal industry, which depends significantly on the government’s reserves and saw one of its largest companies, Arch, file for bankruptcy this week. It’s also a blow for one state in particular: Wyoming accounts for more than three quarters of all coal production from federal lands, with the rest mostly coming from Montana, Colorado, Utah, and New Mexico.

“The federal coal program is frozen in time in the 1980s,” said David J. Hayes, senior fellow at the think tank Center for American Progress, noting that the current leasing rules “were written when you could still smoke on airplanes and dump sewage in the ocean.”

Back then, there was also no official Social Cost of Carbon, the government benchmark that puts a price tag (currently $37 per metric ton of CO2) on increased flood risk, changes in farm productivity, and other effects of burning fossil fuels.

Public lands deliver a much bigger share of coal than of oil (21 percent) or natural gas (14 percent) because they happen to overlap Wyoming and Montana’s Powder River Basin. PRB’s surface-mined coal is cheaper to mine than underground stores in Appalachia, for example, so its price is one fourth that of other regions. Its low sulfur content also makes it appealing to power plants needing to limit pollutants.

“The federal government really does have market share,” says Jayni Hein, policy director for New York University’s Institute for Policy Integrity and co-author of a recent report, “Illuminating the Hidden Costs of Coal.” While a similar move for oil and gas leases might simply shift more of the production to private land, she says, the coal industry doesn’t have that flexibility.

Condemning Interior's plans, Wyoming Mining Association Executive Director Jonathan Downing says Obama knows “full well that this measure will make federal coal uneconomical to mine, thereby locking up America’s most abundant and reliable source of electricity generation.”

The minimum bid for a federal coal lease has remained at $100 per acre since 1982, the NYU report says: “Accounting for inflation, alone, would raise the minimum bid to $247 per acre.”

Leaseholders pay a rental fee of $3 per acre and, in the case of Powder River Basin coal, a 12.5 percent royalty. The report advocates a rate of 18.7 percent, but in many cases, companies aren’t paying even the lower current rate, Hein says, because state officials can authorize reductions on a lease-by-lease basis.

“In effect,” she says, those reductions “allow the federal government and taxpayers to subsidize coal mining.”  Indeed, one analysis from the nonprofit Taxpayers for Common Sense found nearly half the leases between 1990 and 2013 paid out below-minimum royalties. The environmental group Natural Resources Defense Council estimates the current policy cost taxpayers $30 billion over three decades.

The Interior promised more transparency Friday, requiring royalty reduction requests to be posted online and establishing a public database showing carbon emissions from fossil fuel development on federal land.

It's too early to tell exactly how coal lease costs will change or just how hard Wyoming will be hit, given that existing leases aren't affected by the announcement, Hein says, but adds, “It’s a pretty dramatic policy change.”

The story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

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