The case for reforming the federal coal program

President Obama has overseen the most sweeping and successful reforms of federal energy policies in recent memory.  From strengthening environmental standards for oil and gas drilling and cutting pollution from power plants to accelerating the construction of large-scale solar and wind projects on public lands, the Obama administration has worked to modernize nearly every element of U.S. energy policy.

The remaining exception is the federal coal program.

{mosads}No element of the federal government’s energy program is more outdated, more unfair to taxpayers, and more inconsistent with our nation’s energy and environmental goals than the Department of the Interior’s coal leasing policies.

Forty percent of U.S. coal is mined on taxpayer-owned public lands, primarily in the Powder River Basin.  Through a fundamentally non-competitive process that has been criticized by independent investigators, coal companies are able to buy the rights to strip-mine taxpayer-owned coal for about a dollar per ton.  Taxpayers are shortchanged a second time when coal companies use loopholes to dodge royalty payments that are owed from production.

What’s more, when this artificially cheap federal coal is burned in power plants, it contributes to respiratory illness, distorts U.S. energy markets, and is a major source of climate change – accounting for one-tenth of all U.S. greenhouse gas pollution.

Secretary of the Interior Sally Jewell is absolutely right: it is time to reform the federal coal program.

In a landmark speech this spring, Secretary Jewell called for “an honest and open conversation about modernizing the federal coal program,” citing concerns about fairness to taxpayers and climate change.

Starting today, this conversation will unfold in a series of listening sessions in Washington DC, Billings, Montana, Gillette, Wyoming, Denver, Colorado and Farmington, New Mexico.  It will be the first time in more than thirty years that the Department of the Interior has conducted a high-level review of how it manages taxpayer-owned coal.

At these listening sessions, the Obama administration will undoubtedly hear the coal industry’s case for the status quo, and the continuation of policies that are intended to maximize production with little regard to external costs or the fair return that is owed to taxpayers.

The Interior Department will also hear from reformers: ranchers in Wyoming who worry about who will clean up the mines in their backyards; sportsmen who are seeing development cut up big game and other wildlife habitat; Western mayors who know that fewer loopholes and higher royalties will bring much-needed revenues to their communities; and taxpayer advocates who argue for parity between coal royalties and other federal energy policies.

Jewell should use the listening sessions to develop a clear and comprehensive plan for reform that incorporates the best ideas that were heard. A top appointee should present this plan to the Secretary within 60 days of the end of the Interior Department’s public comment period for coal reform.

Four ideas, in particular, deserve consideration in this reform plan.

First, the Obama administration should modernize the revenue policies for federal coal to ensure taxpayers get a fair return and account for coal’s carbon costs. Interior should establish a minimum bid required to buy a coal lease and increase the royalty rate for surface mining production from 12.5 percent to a minimum of 18.75 percent – the rate applied to offshore oil and gas drilling. Payments by companies mining taxpayer-owned coal also need to account for its high carbon content and climate change impacts.

Second, the Interior Department’s Bureau of Land Management (BLM) should rethink how it conducts lease sales in the Powder River Basin to restore competitiveness among companies and to clearly identify areas that are too special to mine.  No comprehensive environmental and economic review has been undertaken in more than 30 years; BLM and the Department of Energy should launch one now.

Third, the Interior Department should immediately evaluate whether coal companies that are mining on federal lands have adequate resources to pay to clean up their own mines.  With some coal companies facing financial troubles – largely as a result of competition with natural gas – there is growing concern that taxpayers could be left to foot the bill if there are defaults or bankruptcies.  Help also is needed for coal communities who are bearing the brunt of the falling demand for coal.

Finally, and importantly, the Interior Department should call a time-out from selling new coal leases or renewing old leases until it completes its internal review of the program and announces a comprehensive suite of reforms. Taxpayers deserve a fair deal from any new coal leases that are sold on their public lands.

To be sure, the task of reforming the federal coal program will not be easy nor will it be met with enthusiasm from the coal industry.  The reality is, however, that America’s energy markets are changing fast and – like the federal government’s oil, gas, and renewable energy programs – it is time to bring federal coal policy into the 21st century.

Hayes is the former deputy secretary of the Department of the Interior.  He is a visiting senior fellow at the Center for American Progress.