Hidden federal subsidies for the coal industry are a huge story, but let’s start with this. The Powder River Basin, currently the source of more than 40% of U.S. coal production, is not a certified coal producing region under the Federal Coal Leasing Amendments Act of 1976. FCLAA followed a 1970s coal leasing moratorium brought about by rampant speculation on federal coal leases. Since then, a system put in place to earn fair market value for the public for the vast federal coal resources has steadily fallen apart.
The result is a huge hidden subsidy for coal production that drains billions from the U.S. Treasury, falsely bolsters coal’s competitiveness against cleaner forms of energy, and lines the pockets of the coal industry, which funds the most ardent and effective opponents of climate legislation with astroturf campaigns like the American Coalition for Clean Coal Electricity.
- Concentration of holdings;
- Fair return to the public;
- Environmental protection, planning, and public participation;
- Social and economic impacts;
- Need for information; and
- Maximum economic recovery of the resource.
FCLAA was to address these issues by requiring that coal leasing progress through three phases: (1) land use planning; (2) regional sale activity planning; and (3) lease sale activities.
The 1970s leasing moratorium ended in the early 1980s under James Watt and a 1982 sale of coal leases in the Powder River Basin quickly followed. The National Wildlife Federation, along with local resource councils, challenged the sale under the Administrative Procedure Act, alleging among other things that the bid price was below fair market value. The courts upheld the Interior Secretary’s interpretation of “fair market value” as only a fair return, not maximization of revenues. Meanwhile, a government investigation into the sale found that the shortfall on the leases was $60-100 million ($134-223 million in 2010 dollars), but the decision stands.
Since that first sale in the early 1980s, this giveaway to the coal industry has cost American taxpayers billions of dollars in lost revenues, along with all the hidden costs of making coal seem cheaper than it really is. One reason this is happening is that the certified coal production regions that should have been the basis for the coal leasing regulatory structure have all but evaporated.
The law does not define “coal production region”, and the Bureau of Land Management has developed a working definition that excludes the largest coal producing regions in the country (including the Powder River Basin and the large Fort Union Formation farther north). The coal production region designation is linked to significant interest in opening new mines, as opposed to expanding existing sites through a process called “lease by application,” which generally takes place without competitive bidding and virtually ensures lower-than-fair-market sales.
It works like this. A coal company that already has assembled at one strip mine site the massive infrastructure necessary for a modern western coal strip mine will identify a new tract for development next to that site. Through lease by application, the coal company proposes the new tract. The company with equipment in place will be able to mine the adjacent tract far more economically than a competitor who would have to recover start-up costs, so there is only one bidder.
This situation might have been avoided by the comprehensive planning process envisioned by FCLAA, but it never really had a chance.