The Crested Butte News Serving the Gunnison Valley since 1999
“At the top it’s like they’re laughing all the way to the bank”
By Alissa Johnson
A report released this summer found that the effective royalty rates for coalmining in Colorado are among the lowest in the nation. Released by the White House Council of Economic Advisors, the report is part of a programmatic review of the national coal-leasing program—the first such review in 30 years.
“Obviously a lot has changed since then,” said Matt Reed, public lands director for High Country Conservation Advocates (HCCA). “Climate change wasn’t on folks’ radar 30 years ago.”
The review was initiated in January of this year. President Obama announced a moratorium on coalmining leases and the U.S. Department of the Interior (DOI) announced a review of the federal coal-leasing program in the form of a programmatic environmental impact statement (PEIS) conducted in conjunction with the Bureau of Land Management (BLM).
According to a January press release from the DOI, the review seeks to address how, when and where to lease federal coal, how to account for environmental and public health impacts of federal coal production, and how to ensure that taxpayers are earning a fair return on public resources.
The report released this summer, The Economics of Coal Leasing on Federal Lands, addressed the latter. It outlined three types of coalmining revenue for federal and state governments: bonus bids from auctions for the right to lease land with coal; land rental payments; and royalty payments that are calculated as a percentage of the sale price of coal that is produced.
“A review of these features finds that they have not fostered an efficient, competitive system that provides a fair return to taxpayers,” the report stated.
For example, the bonus bid auctions typically see only one to two bids submitted near the lowest possible selling price. For royalty rates, the report uncovered incentives for companies to reduce their reported coal sales prices and found that companies lower the selling price without losing revenues.
“All of these factors lead to lower returns to the taxpayer from the coal leasing program,” the report read.
Reed emphasized that these findings have local implications, where Gunnison County benefits financially from coal mining in the North Fork Valley.
“It’s not an external thing out there; it’s having an impact on Gunnison County and it will have an impact on Gunnison County…
“That paper is talking about the fact that 40 percent of coal now produced is federal coal. That federal coal is significantly lower in price than private coal, and yet, because of this very low royalty rate, taxpayers and communities and local governments are getting short-changed,” Reed said.
Ted Zukowski, Earthjustice attorney, explained that the royalty rate in Colorado is effectively less than 6 percent. The statutory minimum royalty rate for strip mining is 12.5 percent and for underground mines—which Colorado has more of than states like Wyoming—the rate can be set as low as 8 percent. Yet the BLM has also granted royalty rate reductions to companies like the West Elk Mine in the North Fork Valley, where the royalty rate was 5 percent from 2010 to 2015.
Zukowski said that reduction was granted because of “a number of engineering challenges in getting at the coal.” And Arch Coal, which owns the West Elk Mine, also has an application pending with the BLM to renew that rate reduction.
Zukowski sees a contradiction between that kind of subsidy and the publicity that Arch Coal has received for paying executives and lobbyists exorbitant amounts.
On July 6, The Daily Sentinel in Grand Junction reported that the company waived $6 million in incentive pay for top executives as part of a bankruptcy reorganization plan.
“The concession by the owner of the West Elk Mine in Somerset comes as Arch, Peabody Energy and other coal companies have come under increasing criticism over the amount of money that has gone to executive pay at a time when they are taking actions including filing for bankruptcy, laying off miners and cutting retiree benefits,” the article read.
And in June, the Western Values Project, an environmental group that focuses on energy development, found that five coal companies that went bankrupt—including Arch Coal—spent $100 million on lobbying over the last 10 years.
Logan Bonacorsi, spokeswoman for Arch Coal, Inc., responded to the report and coal reform efforts by pointing out that in recent decades, public coal reserves have generated billions of dollars in revenues for federal and state programs, provided livelihoods for thousands of families and delivered affordable, reliable energy to the United States.
“In the Powder River Basin, the single biggest source of federal coal, royalties, taxes and fees approach 40 percent of the selling price of the coal. Few industries generate such a high percentage of value for the public good,” Bonacorsi said by email.
“‘Reform’ efforts intended to keep federal coal in the ground are counter-productive, and are almost certain to reduce or eliminate, rather than increase, the value the public receives for this essential national resource.
“We strongly urge the department to protect the many benefits of this valuable resource and make the coal mined on public land more competitive, not less,” Bonacorsi continued.
The Economics of Coal Leasing on Federal Lands report considered four potential approaches to changing royalty rates, examining whether they would increase or decrease government revenues.
“We find that the answer to this is unambiguous: increasing coal royalty payments for Federal leases could bring in substantially greater revenue for States and the Federal government,” the report stated.
The report found that modestly increasing coal royalties would lead to a slight decline in federal coal production and a slight increase in non-Federal coal production. It would also lead to a slight reduction in aggregate coal production across the United States, leading to emissions reductions.
“The results for the other scenarios mirror these, with larger decreases in Federal coal production, but considerably increases in government revenue. These findings highlight the potential of royalty reform to provide a fair return to taxpayers while simultaneously reducing the environmental effects of coal extraction and combustion,” the report stated.
The report did not consider the full range of impacts, such as development benefits, employment impacts, or effects on natural resources such as water and wildlife habitat.
According to Zukowski, the full review of the federal coal-leasing program is expected to take three years to complete. “They’re committed to completing the first phase by the end of this year, which is scoping,” Zukowski said.
The agency will compile a report by December detailing what it heard back from the public this summer and what will happen next—just in time for a new president to take the helm of the nation. And that could influence the future of the report.
For now, however, Reed keeps focusing on what he sees as royalty abuse, knowing that environmentalists and concerned citizens tend to get involved when there are outrageous things happening.
“Miners are losing their jobs and [coal-mining] communities are going through significant transitions, and at the top it’s like they’re laughing all the way to the bank,” he said.
