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High time to reform the federal coal lease program

September 03, 2013


WYOMING-We recently visited with elected leaders, industry officials and concerned citizens from Montana and Wyoming to discuss coal and money. Our message is simple and clear. The federal lease program run by the Department of Interior Bureau of Land Management is shortchanging the public budgets in both states. When Montana and Wyoming are shortchanged by the federal government, the residents of each state pay for it through higher taxes or less money for education, highways and needed services.

MarkThe federal government owns most of the coal reserves in the United States, including about 5 million acres in the Powder River Basin of Wyoming and Montana, a region that produces more than 40 percent of the nation’s coal. Periodically, the coal, which belongs to American taxpayers, is auctioned off to mining companies by the Bureau of Land Management.

A number of studies, however, have shown that the BLM dramatically undervalues this coal and sells it at prices well below fair market value. In fact, a recent analysis by the Interior Department’s own Inspector General reported that the agency does not get a fair price for the coal it leases. The same report shows that income from royalties charged on coal leases is too low. The shortfall – measuring cumulatively in the billions of dollars – then trickles down resulting in decreased budgets for local and state governments in both Wyoming and Montana, which share revenue from the coal leases.

At a time of budget shortfalls , this substantial give-away to the coal industry makes no sense.

It’s no secret that the coal industry overall is facing tough times. But, Montana and Wyoming’s role in national coal production is only likely to increase as it competes with higher-priced coal from the Eastern and Midwestern coal mines. Powder River Basin production might slow a bit as a result of national and global trends away from coal, but it likely won’t decline significantly as seems inevitable in other areas of the country.

sanzilloIn light of changes sweeping the industry, continued mismanagement of our federal coal resources magnify lost revenue to the states.

Through our conversations with elected leaders, industry officials and citizens from Montana and Wyoming, we’ve come to the conclusion that an overhaul of the federal coal-leasing program is imperative. Here are four immediate actions that the Department of Interior must take.

First, to prevent any further losses to taxpayers, there needs to be a time-out on new coal leasing until necessary reforms are in place. A temporary halt to new coal leases will provide an opportunity for a healthy public discussion about how best to ensure that taxpayers receive adequate revenues from the sale of our federal coal.

Second, BLM must collect royalty payments on all revenue received by coal producers from the end user of the coal. Currently, the BLM allows mining companies to sell the coal to a strawman at highly subsidized prices rather than the significantly higher price it would receive in the global market. Because royalties are determined as a percentage of the sale price, this cheats taxpayers and states out of millions and perhaps billions of dollars.

Third, BLM must take a hard look at how it calculates fair market value for its coal. Currently, the agency does not account for the export market, or even the national domestic market, when valuing federal coal, even though Powder River Basin coal is clearly a global commodity.

Finally, and perhaps most importantly for the long-term prosperity of Montana and Wyoming, state leaders must seize this opportunity to make plans to protect their revenue and employment bases as overall coal production continues its trend of declines. A time-out on leasing offers a chance to think ahead and ensure that our federally owned coal is managed wisely.

The history of federal coal policy is one of repeated mistakes and policies that benefit the coal industry. The American public owns the coal and is a partner with the coal industry. When the market is bad everyone shares the pain, that is only fair. When the market is good we should all share in the gain. Right now Montana and Wyoming do not receive a fair share of the gain. This needs to be fixed.

By Mark Squillace and Tom Sanzillo, Wyofile
Mark Squillace is Director of the Natural Resources Law Center at the University of Colorado Law School. Tom Sanzillo is Director of Finance for the Institute for Energy Economics and Financial Analysis, and author of “The Great Giveaway: An analysis of the costly failure of federal coal leasing in the Powder River Basin.”
Published in the following papers:
The Missoulian, Missoula, MT



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