The Federal Coal Leasing Moratorium

The Federal Coal Leasing Moratorium

Recent Events

The Trump Administration issued an Executive Order on March 28, 2017, that would amend or withdraw Secretarial Order 3338 and lift "any and all" moratoria on federal coal leasing.

On January 11, 2017, the Obama Administration published its scoping report (Bureau of Land Management, Federal Coal Program: Programmatic Environmental Impact Statement—Scoping Report, Volumes I and II, January 2017) as a prelude to the comprehensive Draft and Final PEIS. After six public meetings and over 214,000 comments, the BLM concluded that modernizing the federal coal leasing program was necessary. The scoping report is designed to provide an overview of the PEIS process, a summary of public comments, fundamental information on the federal coal leasing program, and potential options for modernization. BLM presented three modernization options centered on four main categories (in alignment with the Secretarial Order): A fair return to the public, climate change and resource protection, the federal leasing system, and community assistance. In addition to the three possible options, the BLM discusses no action and no leasing alternatives.

In a separate coal-related announcement (unrelated to the March 28th Executive Order), the coal valuation rules implementation (scheduled for January 2017) was postponed by the Office of Natural Resources Revenue (ONRR) on February 22, 2017.

Background

On January 16, 2016, President Obama announced the latest moratorium on federal coal leasing. There were two recent moratoriums on federal coal leasing: one from 1971 to 1981 and the second from 1984 to 1987. The purpose of the current moratorium is to examine the federal coal leasing program and to determine whether it needs to be "modernized." The Secretary directed (Secretarial Order 3338) the Bureau of Land Management (BLM) to prepare a programmatic environmental impact statement (PEIS) of the coal leasing program as the basis for a comprehensive review. The Department of the Interior conducted comprehensive reviews under the two previous moratoriums.

Concerns raised by various interest groups include the question of whether the public was getting "fair market value" for the sale of coal leases. There has been little or no competition at most coal lease sales; thus, bonus bids were often at minimum levels. Some argued that the minimum bid levels of $100 per acre and the royalty rate levels (8% on the value of production for underground mines and 12.5% for surface mines) are too low. There have been concerns over lease modifications that could allow coal mining operators to lease adjacent tracts for development without competition. According to the BLM, many of these tracts would otherwise go undeveloped. Another major concern expressed by critics of the program is that the environmental pollution caused by coal's greenhouse gas emissions conflicted with the Obama Administration's climate policy. Critics of the moratorium state that there would be major impacts on coal communities, coal markets, and reclamation efforts. There are some exceptions to the "pause," including (1) if a mine has less than three years of reserves, (2) if a mine could be easily expanded to adjacent sites, (3) for leases that are pending final approvals, and (4) metallurgical coal which is used for making steel. There has been both support and opposition in Congress to the moratorium.

Unrelated to the coal leasing moratorium, on July 1, 2016, the DOI (under the Office of Natural Resources Revenue—ONRR) published its final rule regarding federal coal. The final coal valuation rule reaffirms the idea that the value of coal for royalty purposes is near or at the lease (the source of production) and that the gross proceeds from an arms-length transaction best reflect fair market value. There were no changes to the valuation of arms-length sales, but for non-arms-length coal transactions, ONRR eliminated the current benchmarks which include comparable arms-length sales, prices reported for that coal to a public utility commission, prices for that coal reported to EIA spot market prices, or a netback method. Instead, ONRR would value coal on the gross proceeds received from the first arms-length sale minus allowable deductions.

U.S. Coal Production, Reserves, and Federal Leasing

There are large amounts of federal coal reserves under lease, about 7.75 billion short tons, about 9% of total federally held reserves (listed at about 87 billion short tons, according to the National Mining Association). The federal government is the largest holder of U.S. coal reserves, accounting for about 34% of the total. Federal coal leases accounted for 42% of U.S. coal production in 2015.

Coal production has been trending downward over the past seven years (since 2008 when production peaked in the United States at about 1.2 billion short tons). Production fell by 11% in 2015 over 2014, a record single-year decline. The EIA projects declining coal production in 2016 and 2017, using their short-term projection model. Their long-term projections to 2040 show annual coal production roughly flat at about 900 million short tons without clean power plan (CPP) regulations, and less than 600 million tons if the CPP is implemented. Factors contributing to lower coal demand in the United States include low electricity demand, low natural gas prices, coal plant retirements, and environmental policy. The BLM administers coal leasing on all federal lands. All BLM coal leasing is done competitively except in cases where a party holds a "prospecting permit" issued prior to the Federal Coal Leasing Amendments Act of 1976 or where contiguous acres are added to existing leases.

Coal leasing (similar to oil and gas leasing) is governed by Section 2 of the Mineral Leasing Act, as amended. There are two processes by which federal lands may be leased for coal production. The first is "regional coal leasing," in which BLM selects tracts for leasing as needed to meet regional requirements, which are outlined by "regional coal teams" composed of BLM officials and interested state and local parties. The second is leasing on application, whereby mining companies submit an application to lease certain tracts. Nearly all federal coal is leased by application.