U.S. Halts Issuing Leases of Federal Land for Coal Mining

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

The Obama administration will stop leasing federal land to coal developers for three years while it studies the fossil fuel’s environmental impact and considers bigger changes such as raising royalty rates paid by mining companies.

The decision brings more bad news to a battered coal industry that’s reeling from dropping demand as environmental regulations and lower-priced natural gas lure power utilities away from the fossil fuel.

But the moratorium is limited to new coal leases on federal and Indian land -- with exceptions for the metallurgical coal used in steel production -- so the immediate impact on the industry is modest. Companies that already hold federal coal leases, such as Peabody Energy Corp., can continue to mine those reserves during and after the moratorium. And at today’s production levels, those reserves wouldn’t run out for about 20 years, according to the Interior Department.

"Given serious concerns raised about the federal coal program, we’re taking the prudent step to hit pause on approving significant new leases," Interior Secretary Sally Jewell said in an e-mailed statement.

Shares Fall

Peabody, the largest American coal producer and also a major miner in Wyoming’s Powder River Basin, slumped 43 cents, or 10.2 percent, to $3.78 at 11:16 a.m. in New York. The Standard & Poor’s 500 Coal & Consumable Fuel Sub-Industry Index sank 6.7 percent to the lowest level in records going back to June 2006. 

Even as it conducts a sweeping environmental review of the federal coal program, expected to last three years, the Interior Department will begin instituting some changes. 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.

The environmental review, expected to span three years and ultimately be overseen by the next presidential administration, will include an evaluation of how extracting and burning coal affects climate change and assessments of where future coal leasing should take place, if at all.

Federal Land

It’s the latest move by President Barack Obama to combat climate change and follows a pledge he made in Tuesday’s State of the Union address “to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.”

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

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 in the Powder River Basin accounts for more than 10 percent of all U.S. greenhouse gas emissions.

Environmentalists cheered the move.

Greenpeace Response

Greenpeace Executive Director Annie Leonard said Obama was taking "a major step to move us away from coal and accelerate the transition to clean, renewable energy."

The federal 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.

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.

"Our practice, again driven by that last coal program review 30 years ago was really about getting as much coal out of the ground as possible," Jewell said. But that may not best serve the needs and priorities of today, she said.

By contrast, offshore oil royalty rates are 18.75 percent.

Frozen in Time

“The federal coal program is frozen in time in the 1980s,” Former Deputy Secretary of the Interior David J. Hayes, said in an e-mailed statement. “The current rules, which were written when you could still smoke on airplanes and dump sewage in the ocean, neither deliver a fair return to taxpayers nor account for the pollution costs that result from coal mining.”

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.

“There seems to be no limit to the number of job-crushing regulations, executive orders and insults Secretary Jewell and President Obama will throw at America’s middle class,” Senator John Barrasso, a Republican from Wyoming, said in a statement. “This administration is in a full-scale war with coal communities and families.”

Senator Maria Cantwell, a Democrat from Washington, has pressed the Interior Department to factor the costs of coal’s carbon dioxide emissions into the fossil fuel’s market value. Senator Ed Markey, a Democrat from Massachusetts, has introduced legislation that would halt coal leasing on public lands altogether.

Modernizing Leases

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.

“We’re talking about a program that shortchanged taxpayers more than $30 billion over the last three decades,” Theo Spencer, a senior advocate at the Natural Resources Defense Council, said in a telephone interview. “We need to align the use of our public lands with our obligation to protect future generations from the growing dangers of climate change.”

Weakened Demand

Coal companies already have been battered by weakening demand, as environmental regulations and lower-cost natural gas entice utilities to shift away from the fossil fuel. Arch Coal Inc., the second-biggest U.S. coal producer, declared bankruptcy on Monday, joining Alpha Natural Resources Inc., Walter Energy Inc. and Patriot Coal Corp.

“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 Energy Inc.

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."

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