Obama Leaves Decisions to Successor With Coal Leasing Halt

  • Obama administration to study coal's environmental impacts
  • Moratorium announced Friday is limited to new coal leases

President Barack Obama has set in motion a potentially significant overhaul of the nation’s program for permitting coal mining on federal lands but has left the key decisions up to his successor.

A halt in leasing federal land for mining, announced Friday, will allow the Interior Department to study the environmental impact of how the mining contributes to climate change and where it should take place, if at all. Regulators also will weigh changes in how the U.S.-owned coal is valued and the royalty rates energy companies pay.

The pause is slated to last while the environmental study is underway, a process the Interior Department said would take three years. That revives the future of coal -- and the workers who toil in mines -- as a political issue heading into the presidential election.

Coal miners blasted the move, but the moratorium is limited to new coal leases on federal and Indian land -- with exceptions for the metallurgical coal used in steel production. Companies that already hold federal coal leases, such as Peabody Energy Corp. and Cloud Peak Energy Inc. can continue to mine those reserves during and after the moratorium. And at today’s production levels, those reserves won’t run out for about 20 years, according to the Interior Department.

Immediate Impact

"There’s not much immediate impact because most of the coal mines in the West have at least 5 years, if not 10 and 20 of coal reserves already under lease," Dale Hazelton, a senior research manager at Wood Mackenzie Ltd., said by phone.

As it stands, coal companies haven’t been clamoring to add new federal leases to their portfolios. The government last sold a coal lease -- spanning nearly 9,000 acres -- in October 2012 to BTU Western Resources. Antelope Coal asked to buy new territory last year, the first request for a sale in four years.

About 40 percent of U.S. coal now comes from federal land, much of it from the Powder River Basin in Wyoming and Montana. The Wilderness Society and the Center for American Progress estimated that coal extracted from federal lands there accounts for more than 10 percent of all U.S. greenhouse gas emissions.

"In the long-term, this pause has the potential to negatively impact Powder River Basin producers most which rely on the federal program to acquire new reserves," Lucas Pipes, an analyst with FBR Capital Markets, said in a research note for clients.

Shares Fall

Peabody, the largest American coal producer, closed down 28 cents, or 6.7 percent, to $3.93 in New York. The Standard & Poor’s 500 Coal & Consumable Fuel Sub-Industry Index tumbled more than 11 percent to the lowest level in records going back to June 2006.

Peabody Energy counts more than 20 years of production through its leases in the Powder River Basin, said spokeswoman Beth Sutton by e-mail.

"Nonetheless, the Administration’s actions represent poor policy and a flawed way to accomplish carbon goals," Sutton said. "The way to a lower-carbon future is through technology, not by attempting to deprive Americans of the low cost reliable electricity that coal represents."

Carbon Database

The Interior Department will begin instituting some changes immediately. Responding to calls from environmentalists, the government will roll out a publicly available database tracking the carbon dioxide emissions tied to oil, gas and coal extracted from public lands. The Bureau of Land Management, which oversees the program, also will be required to publicly post requests to lease coal or reduce royalties.

Senator Ed Markey, a Democrat from Massachusetts, who has been scrutinizing the coal leasing program since the 1980s, wants the Interior Department to hike royalty rates and change coal valuations immediately, without waiting for the completion of the programmatic environmental impact statement.

"We know the problems; we know the solutions," Markey said in a telephone interview. "All of it can be done this year, right now. None of this has to wait for three years."

Federal Land

Obama, who has made combating climate change a top priority, is facing mounting calls from conservationists to thwart new fossil fuel development as part of a “keep it in the ground” movement.

Environmentalists cheered the move, with Natural Resources Defense Council president Rhea Suh calling the existing program a "handout to big coal companies."

The coal leasing program has come under scrutiny from public interest groups and government investigators, who fault the government for selling coal for less than its full market value. Many government lease sales have had a single bidder.

Oil Rate

Currently, companies pay royalty rates of 8 percent or 12.5 percent on coal, depending on whether it is underground or surface mined. 

Those rates were set three decades ago when the goal "was really about getting as much coal out of the ground as possible," Interior Secretary Sally Jewell told reporters on a conference call Friday. But that may not best serve the needs and priorities of today, she said.

By contrast, offshore oil royalty rates are 18.75 percent.

Improperly Valued

The Government Accountability Office said in 2014 that the bureau was not fully considering future market conditions and potential coal exports in determining the value of its leases. Friends of the Earth, an environmental group, and the Western Organization of Resource Councils, a network of community groups, filed a lawsuit two years ago in a bid to force a comprehensive review of the program, arguing that the last big assessment was in 1979.

"If there were any lingering questions about whether the Obama administration is intent on decimating America’s coal industry, this should answer them," said Senator Lisa Murkowski, a Republican from Alaska who heads the chamber’s energy committee.

Jewell said last year it was time to modernize the leasing program to make it more transparent and more competitive, while ensuring taxpayers are getting a fair return from the coal extracted on public lands.

Weakened Demand

“Leasing federal energy is already costly and time-consuming, and President Obama wants to make it worse, jeopardizing billions of dollars for Wyoming, Montana and other states,” said Rick Curtsinger, a spokesman for Cloud Peak.

Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, sees a silver lining.

"President Obama is doing for the coal industry what it cannot do for itself," Sanzillo said in an e-mailed statement.  "A federal lease moratorium allows the federal government, as owner of the coal, and stakeholders to establish a new business model for coal. The old model of supplying cheap coal on any terms the coal industry wanted is not working anymore."

Before it's here, it's on the Bloomberg Terminal. LEARN MORE