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How Obama's reforms of federal coal leasing could cut carbon pollution

coal mining truck
A coal truck fills up on filthy, taxpayer-subsidized lucre.
(Shutterstock)

In January, Interior Secretary Sally Jewell called for an immediate moratorium on new federal leases for private developers to exploit coal so that the program could undergo its first top-to-bottom review in 30 years.

Thirty years ago, the goal of the coal leasing program was explicitly to encourage coal extraction. And as long as it has been leasing coal, the federal government has been doing it on the cheap, giving US coal companies a leg up. The top US coal companies have come to depend on federal coal.

These days, things are different. The US is moving away from coal. Taxpayers no longer see the logic in subsidizing coal mining. And one of the country's two major parties has become aware of the enormous danger of climate change and coal's contribution to it.

So the program is being reviewed with, among other things, climate change in mind.


The question is as simple as it is difficult: Just how much does coal leasing contribute to carbon emissions?

Obviously, digging up coal and burning it generates lots of carbon emissions. But for any given lease, some amount of coal would have been dug up and burnt anyway — there would have been some amount of "substitution" from some other coal mine.

But how much? How much of an impact does the program have on emissions, and, conversely, how much might emissions be impacted by leasing reforms?

A study, published in February, takes a stab at answering those questions.

Funded by Paul Allen's Vulcan philanthropy and carried out by Vulcan's Spencer Reeder and Harvard's James H. Stock (a former Obama economic adviser), it uses the same same model the Environmental Protection Agency uses to project the effects of market and policy changes.

Forward-looking analysis gets a little tricky because there are two big unknowns.

The first is what the coal leasing reform will look like. Presumably royalty rates will increase, but by how much?

The second has to do with the Clean Power Plan, President Obama's program to reduce power plant carbon emissions. It was put on hold by the Supreme Court and is currently heading toward the DC Circuit Court. Assuming it survives, states could implement it with varying levels of stringency.

So there are a lot of variables.

The regions/states where US coal is produced.
The regions/states where US coal is produced.
(Vulcan)

The study models four different boosts to the coal leasing royalty rate. (The feds currently lease coal for as low as $1 a ton, which is criminally low.) One bumps it to $2.50, just to make taxpayers a little more money. The other three contain "carbon adders," meant to account for the impacts of climate change.

They are, respectively, 20, 50, and 100 percent of the US government's current assessment of the "social cost of carbon" (SCC).

"At 2016 values of the SCC," Reeder and Stock write, "these would correspond to royalty increases of $15.30, $38.30, and $76.70 per ton, respectively." They model these new royalty rates phasing in over 10 years.

With respect to the Clean Power Plan, the study models three scenarios: no CPP (in case it's struck down in court) plus "mass-based" and "rate-based" CPP compliance in the states.

I won't bore you with all the details; I'll just highlight what I think are some intriguing findings.

  • While a royalty rate bump to $2.50 a ton wouldn't have much effect, a more substantial boost — even 20 percent of the SCC — would reduce power sector emissions. (In other words, the effect is not zero, as BLM has argued in the past.)
  • There is some substitution of non-Western, non-federal coal in all scenarios, but the higher the royalty rate goes, the more likely the market is to switch to natural gas or wind. The more stringent the reforms are, the more they push the whole market away from coal.
  • In all carbon-adder scenarios, state leasing revenue increases, even as production declines, out through 2030, in some cases 2050. In other words, the states where the coal is leased would benefit from reforms.
Leasing revenue stays elevated even as production declines.
Leasing revenue stays elevated even as production declines.
(Vulcan)
  • If the CPP is implemented, rising royalty rates will have a noticeable, but not huge, additional effect on emissions. However, if the CPP gets scrapped, rising royalty rates could make up some (but not all) of the difference. A royalty rate that reflected 50 percent of the SCC would accomplish 40 percent of what the CPP would have. One that reflected 100 percent of the SCC would accomplish 70 percent of what the CPP would have.

That last bit, in bold, is the most interesting aspect of all this. It suggests that these coal leasing reforms might have an important political role to play.

To be sure, the DC Circuit Court is probably going to uphold the CPP, and the Supreme Court, divided 4-4, won't be able to overturn that judgment.

However, in the unlikely event that the CPP is scrapped and the EPA is sent back to the drawing board, substantial coal leasing reform could take a big bite out of US emissions in the meantime.

When Obama's effort to pass climate legislation was blocked, he fell back to EPA regulations. If those EPA regulations are blocked, he's not out of weapons. If worst comes to worst, he could fall back to coal leasing reform as his final line of defense. It wouldn't be pretty, but then, neither would unmitigated climate change.