Energy & Environment

Taxpayers get a bad deal with the federal coal program. Let’s fix it.

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The federal coal program is a quintessential bad deal for Americans. President-elect Donald Trump campaigned on a promise to end similar bad deals; his administration shouldn’t discard ongoing reform efforts that could add billions to the federal treasury and energy-producing states.

In the waning days of the presidential transition, the Department of the Interior is continuing efforts to modernize federal fossil fuel leasing to meet 21st-century needs. The recent release of the federal coal programmatic review scoping report is the latest step by the agency to fulfill its legal mandate to earn a “fair market value” for American taxpayers for fossil fuels produced on public lands.

Interior’s review ought to have broad bipartisan support. The federal coal program is decades overdue for programmatic assessment, having last been evaluated in 1986.

Studies by the Government Accountability Office, Interior’s Office of Inspector General and the Council of Economic Advisers have shown that the federal coal program is riddled with corporate loopholes and stagnant fiscal terms that shortchange federal taxpayers, to whom the nation’s mineral resources belong. The fiscal terms of federal coal leases, like minimum bids and rental rates, have not kept pace with inflation. And royalty rates lag far behind those for other resources, such as offshore oil and gas.

The incoming Trump administration has criticized Interior’s moratorium on new coal leasing while the current programmatic review is underway, and many believe that it will halt the review and back away from potential reforms.

But doing so would hurt taxpayers.

Scrapping the coal review would freeze the program in the 1980s, with fiscal terms that fail to account for modern, more efficient production methods, and fail to account for the cost of environmental pollution that is borne by the public. Bidding for coal leases is required to be competitive, yet the majority of auctions held in the last decade were structured so that they had only one bidder.

Production from existing coal leases can supply the nation’s coal needs through 2037; there is no defensible reason to abandon the programmatic review process that is underway and immediately return to leasing coal for new, 20-year terms at deflated valuations.

{mosads}A few coal companies may benefit in the short run, but taxpayers will lose in the long term.

There is a better way.

Interior’s programmatic environmental review, if completed properly, would provide information on the net social benefits or costs of federal coal production, and the effect of potential fiscal modifications to the program. New fiscal terms should also be analyzed to determine whether taxpayers are receiving a fair share, and how revising terms would affect coal production volumes and environmental outcomes, like greenhouse gas emissions.

For example, there is ample evidence — submitted through Interior’s scoping process — that increasing the royalty rate for federal coal from 12.5 percent to 18.75 percent or higher would significantly increase public revenue from coal leasing.

Increasing the federal royalty rate would also have a positive effect on state revenue in many states where federal coal production occurs. To solve problems with uncompetitive bidding, Interior could end the practice of allowing companies to nominate coal tracts for bidding, increase minimum bids, and consider additional reforms to the lease sale process, like moving toward a market-based system.

The effect of such reforms would likely be to lower coal production on more marginal tracts where the cost of production is highest, shifting some of that production to natural gas, renewables and increased energy efficiency and conservation.

This would benefit a wider range of companies in the U.S. energy sector, while reducing total greenhouse gas emissions. At the same time, coal production in the most in-demand areas (like low-sulfur Powder River Basin coal) would likely continue, and the public would receive more revenue from that production as a result of fiscal reform.

Interior should not lease federal coal at taxpayer expense by using outdated values that fail to meet the fair-market-value standard. That sounds like a bad deal.

Jayni Hein is the policy director at the Institute for Policy Integrity at New York University School of Law, where she also teaches natural resources law and policy.

The views expressed by contributors are their own and not the views of The Hill.

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