The Financial Page DECEMBER 7, 2015 ISSUE
Money to Burn
BY JAMES SUROWIECKI
CREDITILLUSTRATION BY CHRISTOPH NIEMANNThese are tough times for the coal industry. Coal-burning plants generate less than forty per cent of the electricity in the U.S., down from more than half just a few years ago. At least twenty-six coal companies have gone bankrupt since 2008. The Obama Administration's Clean Power Plan requires power companies to cut carbon emissions, which almost certainly means using less coal. And if this week's climate-change summit in Paris succeeds in establishing firm goals for cutting emissions coal will undoubtedly be the biggest loser. So it's no surprise that congressional Republicans, who cast a symbolic vote last week to scuttle the Clean Power Plan, complain of a "war on coal." But if there really is a war the U.S. government doesn't seem to know what side it's on.
Consider, for instance, the Powder River Basin—an immense area of northeastern Wyoming and southeastern Montana, which contains the richest coal deposits in the U.S. In the past few decades, Powder River has become our most important coal-producing region. More than forty per cent of the coal we burn is mined there—nearly five hundred million tons every year. According to the Center for American Progress, that makes Powder River responsible for thirteen per cent of America's energy-related greenhouse-gas emissions.
Unlike the Appalachian coal fields back East, almost the entire basin belongs to the government, which leases the coal rights to mining companies. You might think that regulators would manage this land with an eye toward the coal's impact on the environment in the U.S., or at least would insure that the government was getting a fair price for its assets. But you'd be wrong. Back in 1990, the Bureau of Land Management declared that the Powder River Basin was not a "federal coal-production region." That decertification meant that, instead of the government's picking which tracts of land it would lease and then putting them up for bid, coal companies could effectively do the picking themselves. As Mark Squillace, a professor of natural-resources law at the University of Colorado, told me, "This turned a program that was supposed to be proactively managed by the government into one that is entirely reactive to the demands of the coal industry." And while the law stipulates that all mining leases are subject to competitive bidding, the Center for American Progress found that, since 1990, nearly ninety per cent of federal coal leases have had just one bidder. That's held down the price of leases, in effect handing the coal industry a giant subsidy. A study released in September by a coalition of research groups found that production subsidies in the basin amount to nearly three billion dollars a year.
Besides costing the taxpayer billions, these subsidies have had a dismal impact on the environment: by artificially holding down the price of coal, they've encouraged utilities to use more of it than they otherwise would, slowing the transition to natural gas and renewables. The September study concluded that simply making coal companies in Powder River pay fair-market value for their leases would lead to a substantial reduction of carbon emissions. But we should go further than that. The federal coal program doesn't consider what economists call the "social costs" of burning coal—most obviously, its impact on air pollution and climate change. These costs may be hard to quantify—though the Center for American Progress estimates them at sixty-two dollars per ton of Powder River coal—but they're plainly real. "We've known for a long time that emissions from coal burning were a serious problem," Squillace says. "Yet we have never tried to account for those social costs when we think about how much coal we're going to lease."
What this means is that we've ended up with a coal policy that's totally incoherent. The Clean Power Plan aims at getting U.S. power plants to use less coal, but we're still subsidizing coal companies to produce more of it. And though the Bureau of Land Management has taken steps to reform the bidding process, it continues to lease coal rights to companies at the same old rates. Meanwhile, with U.S. demand for coal steadily declining, companies are hoping to ship Powder River coal abroad to satisfy demand from India and, especially, China, where coal prices are significantly higher. In other words, even as we're trying to cut our use of coal at home, we're planning to send it off to pollute the world's atmosphere from China or India instead. And while the Obama Administration is killing the Keystone XL pipeline, it is letting mining in Powder River proceed apace.
What's needed is a fundamental transformation in the government's relationship to the coal industry. Instead of trying to maximize the amount of coal mined on federal lands, we should be trying to minimize it. That means not just charging more but leasing less. And it means taking the social costs of coal seriously. Last week, the British government announced that it planned to phase out all coal-burning plants by 2025. That's more than we can reasonably expect in the U.S., where coal will likely remain a part of the energy mix for many years. But the British decision makes clear that we can, and should, be doing much more than instituting competitive bidding. In the end, the best plan for a lot of the coal we own is also the simplest: just leave it in the ground. ♦
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