It’s the End of the Beginning of the End for U.S. Coal

The government has just suspended new coal leases on federal land. The coal industry may never recover.

Photo: Ryan Dorgan/Casper Star-Tribune/APA shovel loads haulers with coal at Cloud Peak Energy's Antelope Mine north of Douglas, Wyoming.

The U.S. Bureau of Land Management has just announced a long-term moratorium on new leases to mine coal on federal lands. While the 18- to 36-month moratorium is in place, the government will launch a suite of studies to determine how to make coal leases fair to U.S. taxpayers and consistent with the country’s commitment to climate change mitigation.

Given the beleaguered state of the U.S. coal industry, it’s probably inaccurate to call today’s announcement the beginning of the end. It’s more like the middle of the end. Or the end of the beginning of the end. Or … you get the idea. By the time the moratorium lifts, there may be little left of the coal industry.

The BLM’s move applies a set of pincers to coal, with economic challenges pressing in on one side and environmental ones tightening on the other.

The financial hit is the more immediate worry for the industry. Coal producers have long been cheating the government out of its fair share under the BLM leases. They’re required to pay a percentage royalty to the government, based on the price they get for the coal. Over the past decade, however, the producers have set up a series of affiliated companies to which they sell coal. Since they’re essentially buying the coal from themselves, the coal companies can artificially depress the price, which lowers the royalty they pay to the government. Over the past 30 years, the trick has cost taxpayers more than $30 billion.

It’s a pretty obvious scam, but the BLM has been slow to close the loophole. Between 2004 and 2014, these phony transactions have increased from just 4 percent of coal sales to more than 42 percent.

Ending this shell game will be central to the reforms developed over the next two years or so. It’s not clear, however, that the coal industry can afford to pay what they legitimately owe. In the past few years, 26 coal companies have filed for bankruptcy. Arch Coal, the nation’s second-largest producer, joined that list on Monday, citing crushing debt and the “current depressed coal market.” The Dow Jones Coal Sector Index, which peaked at nearly 500 points in 2011, has since fallen to 21 points—a nearly 96 percent loss in value.

If coal companies can’t pay their debts now, how will they turn a profit once the BLM starts demanding its fair share? Remember, coal companies rely heavily on mining government land. Approximately 40 percent of the coal produced in the United States comes from BLM leases, compared with 11 percent of natural gas and just 3 percent of oil. When the government insists on more money for its coal leases, it will rattle the entire industry.

Photo: Jeremy Buckingham/FlickrAn aerial view of Wyoming's Black Thunder coal mine, one of the largest coal mines in the world

Over the long term, however, the government’s decision to analyze the climate and health impacts of the leasing program may give the coal industry even more reasons to worry. Coal is a highly carbon-intensive source of energy. It’s responsible for 77 percent of the greenhouse gas emissions from the U.S. electricity sector but generates just 39 percent of the energy. Worldwide, coal supplies less than 30 percent of energy while accounting for 44 percent of greenhouse gas emissions. If the FBI maintained a “most wanted” list for climate change criminals, coal would be suspects one through five. Put simply, confronting climate change means phasing out the coal industry.

Most observers have recognized the incompatibility of coal and climate for a long time. Renowned climatologist James Hansen calls coal-fired power plants “the single greatest threat to civilization and life on our planet.” Public relations giant Edelman announced last year that it would no longer work for coal companies because the association was too embarrassing. Pause for a moment on that. Edelman worked for the tobacco industry long after the health dangers of smoking became apparent, so the company’s threshold for embarrassment is very high.

In recent months, the government has been living a paradox. The Clean Power Plan and the Paris climate change agreement showed that the administration is committed to limiting and eventually eliminating coal from the U.S. energy mix. At the same time, the BLM was inviting miners onto federal lands to extract massive amounts of coal. Just last year, the bureau announced a management plan that would result in the extraction of 10 billion tons of coal from western lands—that’s 11 years’ worth of U.S. coal consumption.

Viewed through this lens, today’s announcement was inevitable. The government could not continue to give to the coal industry with one hand while taking with the other. The question now is how the BLM will square this circle after the moratorium ends. The most honest and responsible move for the government would be to convert the moratorium into a permanent ban, because leasing out its land for coal mining is incompatible with climate change mitigation.

Of course, by that time, it may not matter. There may not be anyone left to buy the leases. 


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