Notice & Comment

More on Federal Coal Leasing

Late last week President Obama announced a three-year moratorium on new coal leases on federal land. The moratorium was effected by an order from the pen of Interior Secretary Sally Jewell, and it has already come under attack by congressional Republicans (I know! I was shocked, too). Several days ago, I wrote some introductory comments about federal coal leasing and the regulation of public resources in general. Today, a bit more background to the moratorium.

The federal government owns a lot of coal. A LOT of coal. The Powder River Basin in eastern Wyoming is probably the largest coal production region in the world, yielding some 40% of U.S. coal production in recent years. Most of this land is owned by the United States and managed by the Bureau of Land Management (BLM). On a recent road trip I drove through this region, and the scale of the operation is pretty stunning. Coal mines there are measured in square miles. Rail-loading elevators can be seen from miles away and each day fill up numerous trains, 110 cars long or longer, for shipment to points as far away as Illinois and the Pacific Coast.

There are a couple of reasons for the Wyoming coal boom, which began in earnest in the 1980s. Advances in mining technology—really, in earth-moving technology like trucks and cranes—made it cheaper to strip-mine large coal deposits that are close to the surface. (Old-school, Pennsylvania coal mining, by contrast, relies on inserting human beings deep into the belly of the earth.) Environmental law played a role, too. Wyoming coal tends to be lower in sulfur than eastern coal, so when federal law cracked down on sulfurous emissions from coal-fired power plants, many of those plants complied simply by switching to Wyoming coal—much to the chagrin of other coal states.

For as long as anyone can remember, the federal government has been willing to sell its coal to pretty much anyone who wants to buy. And unlike, say, gold or copper or uranium, which always seem to show up in beautiful places like the Grand Canyon or the Sierra Nevada, Wyoming coal is most abundant in parts of the state that are otherwise fairly, er, unattractive. I’d use the word “moonscape” if it weren’t so cliché. So historically, until climate change reared its ugly head, there wasn’t all that much opposition to federal coal leasing on the basis of its interference with environmental or scenic amenities.

But there has long been a great deal of frustration with federal coal leasing practices on account of the return that “We The People” fetch on “our” coal. Shortly after Reagan’s election in 1980, James Watt’s Interior Department made one of the largest coal leases in history, but something smelled fishy to observers on account of the bargain basement price. A few investigations later, it was revealed that the Department had leaked some numbers to the coal industry in a way that allowed it to game the lease sale. The federal government lost out on millions in revenue.

In the last few years, something started to smell fishy again. And investigations have followed. This time, there have been no hints of shady under-the-table deals. But what’s been found instead is a regulatory system that is perfectly tailored to yield rock-bottom prices for coal firms. Federal law requires that coal sales fetch “fair market value,” but the devil is in the details. The BLM’s determination of fair market value, for example, doesn’t take international coal demand into account. So the BLM has continued to sell coal for roughly a dollar a ton, even though it’ll fetch $30 a ton in China and Japan and elsewhere. (Coal export terminals, anyone?)

More egregiously, BLM practices have made a farce of federal requirements that coal sales involve “competitive bidding.” The overwhelming majority of “competitive” coal sales in the last several decades have had just ONE BIDDER. Very competitive, no? And when the BLM has to justify its fair market value determinations, it points back to … previous lease sales, which also involved just one bidder. “How do we know our prices are fair? Because they’re the same as the prices we charged last time.”

All of this is detailed in my law review article published last month in the California Law Review. It’s not a pretty picture, but it is, I hope, illuminating—it’s an interesting area of regulatory practice that too often flies beneath the analytical radar.

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