Interior launches national conversation on federal coal

Should royalties be higher to account for social costs of climate change?


Top Interior Department officials got an earful in their first of five listening sessions on the future of the federal coal program, which produces about 40 percent of our nation’s coal.

Most of the dozens of people who spoke at the Washington, D.C. event called on Interior to raise the royalty rates it charges so that taxpayers get a better return on coal. Many speakers went further, advocating that royalties should reflect the cost to society of climate change, since burning coal for electricity is a major source of greenhouse gas emissions.

Surface Mining in Wyoming.
Greg Goebel

The Sierra Club’s Marni Salmon said that a true accounting of the costs of climate change would show that coal is too expensive to use.

“If the United States is serious about meeting the Obama administration climate reduction goals, we need to keep this dirty coal in the ground,” said Salmon.

A handful of speakers – primarily representatives of the coal and utility industries – defended the current royalty rates, arguing that higher rates would stifle production and reduce revenues for federal, state and local government. They also could increase prices for electricity for companies and for the average electricity user.

“America is the envy of energy-hungry nations around the world and the vast majority of these reserves, as you know, are on public lands,” said Thomas Altmeyer, vice president of federal affairs for Arch Coal, the nation’s second largest coal producer. “It seems imprudent and unwise to saddle American manufacturers with higher energy costs at a time when the growth in the economy is still struggling to return.”

Interior Secretary Sally Jewell called for a national conversation on the coal program during a speech four months ago, as HCN reported. She addressed the more than 100 people gathered for the listening session Wednesday in an ornate auditorium in one of the marble buildings that line Constitution Avenue. She posed several questions that she hopes will be addressed in this series of public discussion sessions, including: “How do we manage our coal program in a way that is consistent with our climate change objectives?”

Jewell also outlined Interior’s recent efforts to modernize the coal program:

  • updating guidance on determining the fair-market value for coal during the leasing process.
  • publishing a draft rule aimed at better assessing market rates when it calculates royalties for coal.
  • proposing a rule to protect waterways from coal mining.

No members of Congress made the trek across town for the session, but Democratic Sens. Ron Wyden of Oregon and Tom Udall of New Mexico spoke with reporters before the event. Interior’s royalty reform proposal does not go far enough to “stop companies from ripping off taxpayers,” Wyden said. A bill that the senators introduced this week would remedy the various ways companies suppress royalties, such as by selling the coal at a low price to a subsidiary, which then resells or exports it at a higher price.

A report from Headwaters Economics concluded that taxpayers lost roughly $850 million between 2008 and 2012 because companies pay royalty rates that are below market prices.

The senators’ bill does not consider increasing royalties to reflect the cost to society of climate change. A so-called social cost of carbon would calculate the damage caused by effects of global warming such as more intense and frequent storms, wildfires and droughts. Although it wasn’t included in the bill, Udall said making the price of federal coal reflect the costs of climate change “is something we should be taking a look at.”

The one thing everyone seemed to agree on is the importance of federal coal, most of which comes from the West. Over the last ten years, federal coal generated about $12 billion in royalties and other revenues, which the federal government split with the states where the coal was extracted. The Government Accountability Office and the Interior Department’s Inspector General also have recommended reforms.

The rest of the listening sessions will be in the West, where the vast majority of federal coal is mined. Sessions are scheduled over the next few weeks in Denver, Colorado; Billings, Montana; Gillette, Wyoming; and Farmington, New Mexico.

Elizabeth Shogren is HCN's Washington, DC correspondent. 

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