Is the Coal Industry on Its Way Out?

The federal government's new moratorium on mining leases is just one of many setbacks for Big Coal.
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The federal government's new moratorium on mining leases is just one of many setbacks for Big Coal.
(Photo: Luke Sharrett/Getty Images)

(Photo: Luke Sharrett/Getty Images)

America's coal industry suffered yet another major blow last week following announcements that a federal moratorium will be placed on all new coal mining leases on public lands across the country.

The temporary freeze—which will last anywhere from 18 to 36 months—doesn't impact any existing mining leases, which generated about $1.3 billion last year. It does call into question, however, whether Big Coal is on its way out in the United States.

The announcement, delivered by Secretary of the Interior Sally Jewell, comes amid longstanding criticism from environmentalists, members of Congress, and the Department of the Interior's inspector general alike that coal companies have cheated taxpayers out of $30 billion in royalties over the last three decades. As coal plant closures continue around the country and the value of the clean energy economy rises, America's coal industry could be hard pressed to make a full recovery once the moratorium lifts.

"Given serious concerns raised about the federal coal program, we're taking the prudent step to hit pause on approving significant new leases so that decisions about those leases can benefit from the recommendations that come out of the review," Jewell said following last week's announcement. "During this time, companies can continue production activities on the large reserves of recoverable coal they have under lease, and we'll make accommodations in the event of emergency circumstances to ensure this pause will have no material impact on the nation's ability to meet its power generation needs."

The Dow Jones Coal Sector Index has suffered a 96 percent loss in value since its peak in 2011—from 500 to just 21 points.

Many of those "serious concerns" stem from loopholes allowing coal companies to reap more profits more than they really should. The Mineral Leasing Act of 1920 requires coal companies to pay a royalty back to the government of at least 12.5 percent of the value of surface-mined coal, and eight percent from coal mined underground. "Today, however, the DOI's federal coal program can hardly be held up as a model of American leadership in transparency or efficiency," write the authors of a 2015 Center for American Progress study. "U.S. taxpayers and the states that share in these royalty collections are receiving far less than the 12.5 percent royalty rate that is required to be collected from surface-mined coal."

According to researchers from the Center for American Progress, many coal companies have established affiliate companies to sell their coal to—a scam that allows them to essentially purchase their own coal back at a reduced price, and, in turn, skimp on the amount of royalties owed back to the government. "To keep the price of coal artificially low for royalty, tax, and, other valuation purposes, companies are allegedly cloaking sales to their network of subsidiaries and affiliates as arm's-length transactions when they are in fact captive, non-arm's-length transactions," the study's authors write.

And taking advantage of the loophole has only become more commonplace. "According to data from the U.S. Energy Information Administration, or EIA, 42 percent of all coal produced in Wyoming in 2012 was sold through a 'captive transaction'—a sale between an affiliate and parent company—up from just 4 percent in 2004," the report states. "This upward trend appears to have begun in 2004; captive transactions in Wyoming spiked 105 percent between 2004 and 2005 alone."

But even all that extra cash isn't enough to save some struggling coal companies. The coal industry lost roughly 50,000 jobs between 2008 and 2012, and the Dow Jones Coal Sector Index has suffered a 96 percent loss in value since its peak in 2011—from 500 to just 21 points. Last July, Alliant Energy's announcement to phase-out coal from six of its Iowa-based plants marked the 200th coal plant to shut down in the U.S. as well, a 40 percent decrease in coal plants since 2010. Most recently, Arch Coal, the second-largest coal producer in the country, filed for bankruptcy earlier this month, following reports that the company had postponed a $90 million interest payment in December, and experienced a $2 billion third-quarter net loss last November. Several other huge coal mining companies, including Walter Energy, Alpha Natural Resources, and Patriot Coal have also filed for bankruptcy.

Should the BLM decide to raise the costs of its new mining leases after the moratorium, coal companies could take an additional financial hit. BLM leases are responsible for about 40 percent of all the coal produced in the U.S., located mostly in the Powder River Basin of Wyoming and Montana. The agency's hold over coal is sizable compared to other energy sources; the BLM's Oil and Gas Management leasing program produces just 11 percent of the country's natural gas supply, and just five percent of the oil supply.

The moratorium on new leases also complements President Obama's ongoing push to prioritize clean energy, and will allow federal agencies to assess coal's impact on the environment and public health. For one, coal is more carbon-intensive than natural gas or oil. In 2013, burning coal for electricity was responsible for 77 percent of carbon dioxide emissions, and accounted for 39 percent of the electricity generated in the U.S., according to the Environmental Protection Agency. Even then, coal will likely remain a mainstay energy source for at least a while yet. According to the BLM, the number of coal reserves currently under lease on federal lands are large enough to sustain current production levels for about two more decades.

"Even as our nation transitions to cleaner energy sources, building on smart policies and progress already underway, we know that coal will continue to be an important domestic energy source in the years ahead," Jewell says. "We haven't undertaken a comprehensive review of the program in more than 30 years, and we have an obligation to current and future generations to ensure the federal coal program delivers a fair return to American taxpayers and takes into account its impacts on climate change."

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