Are U.S. taxpayers subsidizing Asia’s coal use?

October 18, 2012

There's a lot of coal buried beneath public lands in the United States. And, for decades, the federal government has offered mining companies access to those lands on generous terms—some might say too generous. Lately, however, more and more of that cheap coal has been getting shipped off to places like Asia, as Americans switch to natural gas for their electricity. 


Westmoreland Resources' Absaloka Mine in southeastern Montana (Adam Tanner/Reuters)

Add it all up, and you get headlines like this one from Reuters: "U.S. taxpayers poised to subsidize Asian coal demand." This isn't an entirely new story, but it offers some excellent insights into some of the lesser-known aspects of U.S. energy policy. So let's dive deeper.

About 44 percent of America's coal comes from the vast Powder River Basin that stretches across Wyoming and Montana. Much of that land is owned by the federal government, which in turn leases different regions to mining companies. In June, Peabody Energy paid $793 million for the right to mine 721 million tons of coal from Wyoming’s North Porcupine tract.

Now, here's where things get tricky: The Bureau of Land Management is supposed to obtain "fair market value" when it auctions off its coal reserves. But in recent years, these auctions have attracted criticism for giving away the coal too cheaply with little oversight.

In June, a report by Tom Sanzillo of the Institute for Energy Economics and Financial Analysis argued that the federal government had foregone as much as $28.9 billion in revenue over the past 30 years by getting below-market value for its coal. Part of the problem, Sanzillo argued, is that most of the government's auctions are non-competitive, with only a single company bidding for mineral rights in 22 of the past 26 auctions since 1991. (Peabody was the sole bidder on the North Porcupine tract.)

Defenders of the program say there's a good reason why auctions are frequently non-competitive. There are only four companies that operate in the Powder River Basin—Peabody, Alpha Natural Resources, Arch Coal and Cloud Peak Energy. And many of them confine themselves to discrete areas. Mining equipment isn't easy to lug around, so often there's only one company competing for a given lease. 

Now, back when coal provided half the electricity in the United States, this wasn't a glaring political issue. If Powder River Basin coal was leased out too cheaply, American consumers still reaped the benefits. But the energy landscape has shifted. Cheap natural gas is rapidly displacing coal as America's preferred source of electricity. So, in response, mining companies are moving to export the Powder River Basin coal overseas, particularly to Asia:

All of the sudden, even former Interior Department officials are wondering if it's really such a good idea to have such lax oversight over these coal leases. Here's Reuters:

Former officials said the coal lease program was seen more as an energy policy tool than a way to generate big revenues.

"Our guiding philosophy was: How do we serve the public interest?" said John Leshy, the top attorney for the Department of the Interior under President Bill Clinton, who said domestic power plants counted on steady, low-cost coal supplies.

Now that coal giants are using the conventions of the domestic coal economy to reach eager Asian markets, the government should give the program a closer look, say former officials who oversaw it.

That means, they say, it's time to revisit the question of whether the Bureau of Land Management is truly getting "fair market value" for the coal it sells. It's a difficult question to answer, not least because BLM doesn't make its data or methods public. Rep. Edward Markey (D-Mass.) recently asked the Government Accountability Office to conduct an investigation into this issue.

Bear in mind that this leasing policy is something that the president could push to change without Congressional approval. Coal auctions don't get nearly as much attention as other aspects of energy and climate policy. But with coal use and greenhouse-gas emissions soaring in countries like China, this is an underrated one.

Further reading:

—My colleague Juliet Eilperin took a longer dive into the criticisms of BLM's coal leases in the Powder River Basin.

—What happens to U.S. coal if we don't burn it? It gets shipped abroad.

—How the U.S. could influence China's coal habits--with exports.

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October 18, 2012

There's a lot of coal buried beneath public lands in the United States. And, for decades, the federal government has offered mining companies access to those lands on generous terms—some might say too generous. Lately, however, more and more of that cheap coal has been getting shipped off to places like Asia, as Americans switch to natural gas for their electricity. 


Westmoreland Resources' Absaloka Mine in southeastern Montana (Adam Tanner/Reuters)

Add it all up, and you get headlines like this one from Reuters: "U.S. taxpayers poised to subsidize Asian coal demand." This isn't an entirely new story, but it offers some excellent insights into some of the lesser-known aspects of U.S. energy policy. So let's dive deeper.

About 44 percent of America's coal comes from the vast Powder River Basin that stretches across Wyoming and Montana. Much of that land is owned by the federal government, which in turn leases different regions to mining companies. In June, Peabody Energy paid $793 million for the right to mine 721 million tons of coal from Wyoming’s North Porcupine tract.

Now, here's where things get tricky: The Bureau of Land Management is supposed to obtain "fair market value" when it auctions off its coal reserves. But in recent years, these auctions have attracted criticism for giving away the coal too cheaply with little oversight.

In June, a report by Tom Sanzillo of the Institute for Energy Economics and Financial Analysis argued that the federal government had foregone as much as $28.9 billion in revenue over the past 30 years by getting below-market value for its coal. Part of the problem, Sanzillo argued, is that most of the government's auctions are non-competitive, with only a single company bidding for mineral rights in 22 of the past 26 auctions since 1991. (Peabody was the sole bidder on the North Porcupine tract.)

Defenders of the program say there's a good reason why auctions are frequently non-competitive. There are only four companies that operate in the Powder River Basin—Peabody, Alpha Natural Resources, Arch Coal and Cloud Peak Energy. And many of them confine themselves to discrete areas. Mining equipment isn't easy to lug around, so often there's only one company competing for a given lease. 

Now, back when coal provided half the electricity in the United States, this wasn't a glaring political issue. If Powder River Basin coal was leased out too cheaply, American consumers still reaped the benefits. But the energy landscape has shifted. Cheap natural gas is rapidly displacing coal as America's preferred source of electricity. So, in response, mining companies are moving to export the Powder River Basin coal overseas, particularly to Asia:

All of the sudden, even former Interior Department officials are wondering if it's really such a good idea to have such lax oversight over these coal leases. Here's Reuters:

Former officials said the coal lease program was seen more as an energy policy tool than a way to generate big revenues.

"Our guiding philosophy was: How do we serve the public interest?" said John Leshy, the top attorney for the Department of the Interior under President Bill Clinton, who said domestic power plants counted on steady, low-cost coal supplies.

Now that coal giants are using the conventions of the domestic coal economy to reach eager Asian markets, the government should give the program a closer look, say former officials who oversaw it.

That means, they say, it's time to revisit the question of whether the Bureau of Land Management is truly getting "fair market value" for the coal it sells. It's a difficult question to answer, not least because BLM doesn't make its data or methods public. Rep. Edward Markey (D-Mass.) recently asked the Government Accountability Office to conduct an investigation into this issue.

Bear in mind that this leasing policy is something that the president could push to change without Congressional approval. Coal auctions don't get nearly as much attention as other aspects of energy and climate policy. But with coal use and greenhouse-gas emissions soaring in countries like China, this is an underrated one.

Further reading:

—My colleague Juliet Eilperin took a longer dive into the criticisms of BLM's coal leases in the Powder River Basin.

—What happens to U.S. coal if we don't burn it? It gets shipped abroad.

—How the U.S. could influence China's coal habits--with exports.

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Ezra Klein | October 18, 2012