DOI to “Modernize” Coal Program, Halts New Leases in Meantime

Acting on President Obama's desire to improve fossil fuel resource management and push the country toward a "clean energy" economy, the U.S. Department of the Interior (DOI) announced on January 15 that it is launching a comprehensive review of the federal coal program.

The review will be conducted in the form of a Programmatic Environmental Impact Statement, looking at, among other things, how, when, and where to lease land to coal mining companies. The DOI hopes to identify and evaluate potential reforms that would ensure the program provides a fair return to taxpayers while reflecting its effects on the environment.

A comprehensive review has not been completed in more than 30 years, but as was the case during reviews in the 1970s and 1980s, a pause on the issuance of new coal leases will be instituted while the review is in progress, with some exceptions, such as for metallurgical coal and emergencies. The pause does not apply to existing coal production activities either.

"Given serious concerns raised about the federal coal program, we're taking the prudent step to hit pause on approving significant new leases so that decisions about those leases can benefit from the recommendations that come out of the review," said DOI Secretary Sally Jewell.

In March 2015, Jewell called for "an honest and open conversation about modernizing the Federal coal program." The Bureau of Land Management (BLM) held five listening sessions-one each in Washington, D.C.; Billings, Mont.; Gillette, Wyo.; Denver, Colo.; and Farmington, N.M.-during the summer, hearing from 289 individuals and receiving more than 92,000 written comments.

The comments included support for both increasing and decreasing the coal royalty rate. Arguing for an increase in the rate, some people said that taxpayers are not currently receiving a fair return, suggesting that the rate should match the rate for offshore federal leases and should account for environmental costs associated with coal production. The arguments for decreasing the rate included that rates are too high given the current market conditions and that raising rates would reduce production and revenues, costing jobs and hurting communities.

The BLM is responsible for leasing approximately 570 million acres where the federal government owns coal mineral estate. The federal government and the state where the coal is leased share the revenues. As of September 30, 2014, there were 310 leases in effect with 475,692 acres under contract; more than three-quarters of that acreage is in Wyoming, Colorado, and Utah.

Revenues are received from coal leasing at three points: A bonus is paid at the time the lease is issued, a rental fee of $3 per acre is paid annually, and production royalties equaling 12.5% of the gross value for surface-mined coal or 8% for coal severed by underground mining methods are paid. However, lease modifications and rate reductions can reduce the royalty rate as low as 2%.

The DOI review is expected to take about three years to complete.

For more analysis of the changing coal industry, see "The Shifting Fates of Coal Markets, Coal Mining, and Coal Power."

-Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)

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