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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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U.S. Senator Calls For Suspension Of Coal Leases

A prominent U.S. senator wants to halt all sales of coal mined on federal lands in the western United States because he says the government is getting ripped off.

The decline in demand for coal in the United States has producers looking to overseas markets, and pushing for the construction of export terminals in Oregon and Washington State. Much of the coal that will be loaded on ships heading for Asia will come from federal land in the American west.

And in the west, the federal government owns a lot of land. Some 42 percent of the coal produced in 2012 – about 1.05 billion tons – was leased under the Bureau of Land Management’s (BLM) federal coal leasing program. Revenues from the program bring in around $1 billion per year. But BLM’s leasing program is outdated and riddled with problems that cost taxpayers money.

Related: Coal Exports from West Coast Running Out of Time

For years, the federal agency – housed within the Department of Interior – has leased coal tracts in auctions that have only one bidder, and accepted bids at rock bottom prices, according to a report published by the Government Accountability Office earlier this year.

The report, which came at the request of Sen. Ed Markey (D-MA), found that BLM undervalued the worth of the coal reserves it was leasing. The agency often failed to consider future market conditions – such as the potential for exports – when it approved sale prices.

BLM assumes coal companies will sell their coal domestically. But often, that coal is shipped overseas where it can earn a much higher price. For example, a coal company can purchase a lease on federal land for just $1.11 per ton, but then sell it for $80 per ton or more to a foreign buyer. If BLM factored in the possibility of exports, it would have to lease coal tracts at higher prices. The difference is a windfall for coal companies and a bad deal for taxpayers.

BLM has also approved leases without any significant competition. The GAO found that since 1990, 90 percent of the 107 coal tracts leased by BML had only one bidder.

The systematic failure to properly value coal reserves held by the government has cost taxpayers at least $30 billion over the last three decades.  

Sen. Markey has pressed BLM in the past to overhaul its leasing program for coal on federal lands. In February 2014, after the publication of the GAO report, he called for a temporary suspension of coal lease sales. In response, BLM promised to overhaul its leasing program by changing lease rates, improving revenue collection, and applying stricter enforcement of lease terms.

But now, Sen. Markey has grown frustrated with the slow pace of reform. On Sept. 16, he renewed his call for a suspension of coal leases, and this time said he will propose legislation to do so. BLM Director Neil Kornze said that a suspension was not needed because his agency was already in the midst of making changes, but the senator’s office says BLM has been “noncommittal” on what specifically BLM will do and when.

Despite Sen. Markey’s persistence on the issue, the possibility of getting legislation through Congress that would halt coal sales is pretty slim. The coal industry still has a lot of allies in the U.S. Capitol, even though its influence is on the wane.

Related: A Flagship U.S. Coal Project Gets Quashed

While the senator’s legislation will probably not garner much support, the spotlight on the issue could compel BLM to speed up its reform efforts.

For the coal industry, if and when BLM does overhaul its process of evaluating “fair market value,” it would see sharply rising costs to acquire coal reserves on federal land.

In an unrelated development that adds more criticism to BLM’s record, a court recently found that the bureau has failed to account for impact of coal burning on greenhouse gas emissions. The judge invalidated a coal lease as a result. While the implications are far from certain, environmentalists said the decision could lead to the government being forced to account for the “social cost of carbon,” which would raise lease rates, if not invalidate them. For an industry already facing weak demand and falling prices, the prospect of higher costs from the government seems like piling on.

By Nick Cunningham of Oilprice.com

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  • Lynden on September 18 2014 said:
    Seems like piling on? This has been going on for too long.

    "a coal company can purchase a lease on federal land for just $1.11 per ton, but then sell it for $80 per ton or more to a foreign buyer"
    "since 1990, 90 percent of the 107 coal tracts leased by BML had only one bidder."
  • Calmtruth on September 19 2014 said:
    Yet another example of DC. subsidizing a large corporate cartel...at the expense of taxpayers, of course.
  • Phil McCracken on September 19 2014 said:
    $80 per ton? On what planet?

    Western thermal coal sells for $12 per ton at the mine. Their real margin is about $5 per ton. Get it to a port and it sells for more, but only to recover the transportation costs. Markey obviously knows nothing about mining and markets.
  • armst on September 22 2014 said:
    Another know nothing progressive Democrap from back east who wants to tell everyone how to live their lives under his control. Fine. Wait till electricity is a luxury....
  • Tim Bilsky on September 25 2014 said:
    Why even publish Markey's suggestions on anything? What does he know about energy? He's a typical hater of self-sustaining, truly profitable energy. And why does the federal government own more land than all private citizens combined? A government of the people, you say?

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