A Critical Month for Climate Change at the Interior Department
On Friday, comments were due on a proposed rule to close a loophole that allows coal companies to avoid making proper royalty payments on taxpayer-owned coal by “laundering” the sales through affiliate companies.
And more importantly, at the end of the month the Interior Department is expected to announce a resource management plan for the Powder River Basin in Wyoming that will make 10.8 billion tons of coal available for sale. That’s eleven times the amount of coal the US burns in a year.
With coal companies that mine federal land in the region already sitting on at least a decade’s worth of stockpiles, that plan hardly makes sense. But more significantly, it’s well out of step with President Obama’s Clean Power Plan, and goals to cut US carbon pollution emissions from existing coal plants 30 percent over 2005 levels by 2030.
Through the Clean Power plan, vehicle fuel efficiency standards, tighter controls on hazardous pollutants from power plants, and moves to boost the development of renewable energy and energy efficiency, this Administration has done more to combat climate change than any other.
Secretary Jewell said recently it’s “time for an open and honest conversation” to deal with concerns around Interior’s coal leasing policies. She also said the question “[h]ow do we manage the program in a way that’s consistent with our climate objectives” needs to be addressed. We hope that conversation happens soon, and its outcome is a more economically and environmentally responsible way of doing the taxpayer’s business.
But let’s get to closing this loophole. The proposed rule is intended to stop companies from skirting appropriate royalty payments on federally owned coal by selling it to affiliate companies. The vast majority of this coal is on federal lands in the nation’s largest coal producing region, the Powder River Basin (PRB) of Montana and Wyoming. Currently, big coal companies operating in the PRB like Arch and Peabody are selling coal to subsidiaries for approximately $10 a ton and paying a royalty fee on that sale. But then those affiliates are turning around and selling the coal to power plants for at least three times that amount, or to exporters for more than $60 a ton. The new rule would stop these “non-arm’s length transactions.”
A recent analysis by the Center for American Progress found that Arch Coal has a total of 83 domestic and foreign subsidiaries, and Peabody Energy has 242. Of the other operators in the Powder River Basin (PRB), Alpha Natural Resources has 184 domestic and foreign subsidiary companies, Ambre Energy has 26 and Cloud Peak Energy has 31.
According to the US Energy Information Administration, 42 percent of all coal produced in Wyoming in 2012 was sold through a “captive transaction” — a sale between an affiliate and parent company — up from just 4 percent in 2004. Such practices saved companies $40 million in 2011. All Montana coal exported in 2013 was sold through captive transactions.
In this context, it’s almost amusing to note that the National Mining Association said of the rule late last year: “Changes to the existing regulations are not justified as there have been no significant market changes in the last 25 years and markets are even more transparent.”
The proposal to fix this problem doesn’t go far enough. BLM should consider changing the royalty collection to the “market price,” or final point of sale for end use. At the very least, the agency should eliminate these self-dealing transactions and limit the amount of transportation and similar deductions companies can take to 50 percent or to a “reasonableness” standard.
Coal shouldn’t be given an artificial advantage in the marketplace, especially when it’s coming at taxpayer’s expense.
New economic data from Headwaters Economics demonstrates that strengthening this rule would lead to hundreds of millions of dollars annually in increased revenue for coal-mining states, and no significant impact on production or prices for consumers. Recent polling indicates that by a two-to-one margin, Americans want to end coal subsidies on US public lands.
The Interior Department has received more than 210,000 public comments in support of strengthening the rule and closing loopholes that allow coal companies to dodge royalty payments by selling coal to themselves at depressed prices. That’s more comments than Interior’s Office of Natural Resource Revenue has received on any previous rulemaking.
Groups with diverse interests support changes to the rule, including Taxpayers for Common Sense, Western Organization of Resource Councils, the Project On Government Oversight, the Sierra Club, the National Wildlife Federation, the League of Conservation Voters, the Western Values Project, and Friends of the Earth.
The Center for American Progress as a helpful factsheet on the proposed rule here.
The good news is that no new coal lease has been issued in the nation’s largest coal producing region — Montana and Wyoming’s Powder River Basin — since 2012. Yet there are numerous lease sales and “modifications” pending in the Interior West.
Which brings us to the 10.8 billion ton Gorilla in the room, the innocuously titled Buffalo Field Office Resource Management Plan. This covers essentially all of the remaining economically recoverable coal in the Powder River Basin in Wyoming, which is saying something since the Wyoming/Montana PRB is the largest coal producing region in the nation, and the vast majority of coal from the PRB comes from Wyoming.
The Buffalo RMP and its proposed ten billion tons of coal development and thousands of new oil and gas wells continue to stand in opposition to the President’s climate agenda. Just last month, the President announced a new executive order that requires the federal government to cut greenhouse gas emissions by 40 percent by 2025 from 2008 levels. However, these reductions will be meaningless if they are dwarfed by the substantial emissions that will occur from the leasing, extraction, and combustion of coal, oil, and gas within the Buffalo planning area.
Interior’s Bureau of Land Management needs to conduct a separate programmatic coal analysis that supplements the Buffalo plan. That analysis should determine which areas should be withdrawn from coal leasing because of concerns related to air, land, or water quality, wildlife impacts, or lack of surface owner consent.
The process should be public, and make a realistic assessment of the coal markets — demand and supply constraints — that determines how much coal should be leased and in what years. Business as usual isn’t a solution to global warming.
At the Interior Department, it is indeed a crucial time to address questions around climate change and continued coal leasing.
Theo Spencer is a senior advocate for the Natural Resources Defense Council Climate Center in New York.
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