Coal Leasing and Self-Bonding Warnings Finally Heeded
Brief Overview:
After years of pressure from a coalition of groups including Clean Energy Action, the Obama administration initiated two critical reforms to the nation’s coal program, placing a moratorium on new federal coal leases and increasing scrutiny over Wyoming’s “self-bonding” policy. A review of the 32-year-old federal coal leasing program is long overdue as lack of reform has failed to address climate change and has cost taxpayers billions of dollars.While state and federal regulators ignored repeated warnings to take a hard look at “self-bonding” policies, the formerly second and third largest U.S. coal companies have gone bankrupt, potentially leaving hundreds of millions in mine reclamation costs to taxpayers. Geologic facts underlie coal companies’ increasing production costs and financial insolvency, underscoring both supply concerns and the opportunity to take advantage of cleaner and more cost-effective sources of renewable energy.
Coal Reforms from the Rockies
How long does it take for a message to get from the Rocky Mountains to the halls of power in D.C.? In mid-January, after years of pressure from a broad coalition of environmentalists and landowner advocacy groups, the Obama administration took two critical steps to reform the nation’s coal leasing and mine reclamation policies. Decision makers in D.C. may seem a far cry from Colorado yet these two decisions trace their origins to our state. Colorado groups including Clean Energy Action helped to initiate both reform campaigns, repeatedly warning state and federal regulators that, in addition to the devastating effects of climate change, the fiscal costs of inaction could rise to hundreds of millions – if not billions – of dollars.In both reform efforts, Clean Energy Action played a catalytic role. In 2007, Clean Energy Action began to draw the attention of allied groups to legal frameworks for keeping carbon in the ground by opposing new federal coal leases. As early as 2012, Clean Energy Action began urging state and federal regulators to scrutinize “self-bonding” programs that allow coal companies, including some now in bankruptcy, to ensure reclamation obligations by passing financial stress tests.
Review of Reagan-Era Coal Leasing
On January 15th, the Obama administration announced a moratorium on new leases of coal mined from public lands. The Department of the Interior will begin a sweeping review of federal coal leasing, modernizing a program that hasn’t been updated in over 30 years.
In 1984, when the last review concluded, few understood the threat of global warming. Now, in 2016, it is clear that burning coal has a significant impact on climate change and federal coal, in the words of Interior Secretary Jewell, “contributes roughly 10% of U.S. greenhouse gas emissions.”
In 1984, coal companies had yet to begin driving the process, in the words of CU coal expert Mark Squillace, deciding “whether, where, and how much coal they want to lease.” In particular, more than three quarters of federal coal sales had only one bidder.
Bankruptcies and “Self-Bonding”
On January 22nd, prompted by a citizen’s complaint filed by the Powder River Basin Resource Council and the Western Organization of Resource Councils, the Department of the Interior gave the state of Wyoming 10 days (plus a short extension) to certify that the state’s mine clean up program satisfied federal reclamation laws. These laws require mining companies to provide adequate financial assurances that they will be sufficiently solvent to return mines to a usable or natural condition once mining at a site has ceased.
Wyoming’s “self-bonding” program has allowed coal companies to ensure future mining clean up costs on the strength of their balance sheets alone. This has become a risky proposition as the nation’s formerly second and third largest coal companies, Arch Coal and Alpha Natural Resources, have filed for bankruptcy. Their insolvency threatens to leave mines, including one larger than the City of San Francisco, scarring the Wyoming prairie.
At over 47 square miles, Arch Coal’s Black Thunder Mine is slightly larger than the City of San Francisco.
In order for companies to continue mining operations, Wyoming’s self-bonding program requires companies to demonstrate a “history of financial solvency” that appears to be at odds with Arch and Alpha’s Chapter 11 bankruptcies. Disturbingly, the nation’s largest coal producer, Peabody Energy, also faces potential bankruptcy, having lost 99% of its market value since 2011.
The Full Cost of Coal
While the administration’s actions to address coal leasing and self-bonding are laudable, it is hard not to imagine how different things could have been had this administration or previous administrations addressed these issues. According to a 2012 study from the Institute for Energy Economics and Financial Analysis that called for a moratorium on new coal leases, 22 of 26 coal sales since 1991 had only a single company bidding on publicly-owned coal. As a result of lack of competition, taxpayers lost out on billions of dollars in tax revenue.
The administration’s programmatic review of coal leasing promises to “provide a fair return to taxpayers” and to “account for the environmental and public health impacts” of the federal coal program.
The full cost of coal must reflect public health impacts from air pollution that damages the brains of our children, and the hearts and lungs of our families, as well as the disturbance of our lives and livelihoods from increased natural disasters and a changing climate. Placing a price on federal coal that promises a “fair return to taxpayers” must include a strong accounting of coal’s external impacts.
Who’s left on the hook?
The collapse of faulty self-bonding programs represents further potential losses for the public. States’ failures to heed repeated warnings may leave taxpayers on the hook for the unpaid reclamation liabilities of bankrupt coal companies.
In Wyoming, the state has struck a deal with bankrupt Alpha Natural to allow the company to continue mining while securing only $61 million of Alpha’s $411 million in reclamation obligations. The math isn’t pretty – that’s less than 15 cents on the dollar.
In Colorado, $100 million of future reclamation work is self-bonded. The state has given assurances that it is “moving away from self-bonding” but has not yet offered details on how quickly.
Coal & Renewables: Very Different Prospects
As coal’s role in society is re-evaluated, state and federal regulators would do well to heed warnings that they have thus far been quick to write off. In particular, regulators need to understand that beyond the threat coal poses to our health and environment, intractable geologic facts underlie the insolvency of our largest coal producers.
When any substance is mined, the easiest deposits are extracted first. Succeeding layers are more and more difficult to access, with more and more rock and soil to remove. Because of this inexorable logic, Powder River Basin coal productivity declined 25% between 2002 and 2013. From 2002 to the end of 2015, Powder River Basin coal prices have risen 72%. Consequently, increasingly expensive coal is increasingly unable to compete with renewables and natural gas.
Powder River Basin coal has increased in cost 72% from 2002 through the end of 2015. 2014 and 2015 data were not yet available in the Energy Information Agency’s coal data browser.
The coal industry’s unprecedented rate of insolvency should concern the regulators who oversee fuel resource planning decisions, customer rates and reliability. Coal still provides 30% of the nation’s power and nearly double that in Colorado. Yet the prospects for mining coal profitably appear terribly bleak.
In contrast, wind and solar are more cost-effective than ever. Recently renewed federal tax credits for wind and solar offer an opportunity to phase out coal power and replace it with more cost-effective sources of energy that do not contribute to air pollution and climate change. Combined with the falling cost of energy storage, a renewable-powered grid becomes a viable possibility. Let’s hope that this time the message gets through more quickly.