Until now, claims that the federal government was waging a “War on Coal” were little more than attempts to pin blame on the usual suspects (the Obama Administration and its environmental allies) for economic woes inflicted almost entirely by shale gas. Not even the Clean Power Plan is all that bad for coal. EPA estimates that, when fully implemented in 2030, coal would still have a 28% share of U.S. electricity production, down from roughly 34% in 2015. A 6% reduction over 15 years is hardly a skirmish, let alone a war.
But that changed dramatically with the Interior Department’s announcement last week that it was pausing all new steam coal leasing activities while it conducts a “Programmatic Environmental Impact Statement.” Suspending new leasing activities is warranted, the Administration argues, because “Continuing to conduct lease sales or approve lease modifications during this programmatic review risks locking in for decades the future development of large quantities of coal under current rates and terms that the PEIS may ultimately determine to be less than optimal.”
First things first. There is predictable outrage from coal’s partisans that this hiatus is the Administration’s latest attempt to (choose one: “destroy America’s energy independence”; “raise every working/middle class American’s electricity bill by hundreds of dollars every month”; “undermine Western industrial civilization,” etc.). But suspending new leasing activities will do none of that. As Interior noted, “The recoverable reserves of Federal coal currently under lease are estimated to be sufficient to continue production from federal leases at current levels for 20 years, which does not take into account projections from the Energy Information Administration (EIA) showing that demand for coal is declining.”
Far more interesting is what this process will actually do. The most germane of the many aspects of federal coal leasing to be examined are “how best to assess the climate impacts of continued Federal coal production and combustion” and “whether the bonus bids, rents, and royalties received under the Federal coal program are successfully securing a fair return to the American public for Federal coal, and, if not, what adjustments could be made to provide such compensation.” While ostensibly different issues—climate change and whether the feds are charging enough for the coal—the PEIS will almost certainly link them together by pointing out that even if the feds are getting market rates for the coal, that price does not include the most notorious of coal’s “externalities,” CO2.
In other words, the PEIS sets the stage for federal coal pricing to include some amount to compensate for its climate impacts, and is the blueprint for how coal produced on federal land could eventually become subject to a climate damages fee—a de facto carbon tax—without Congress taking any action. Even more importantly, this opens the door for Interior to try and apply this fee to existing leases, which comprise 41% of U.S. coal production. Federal coal leases explicitly warn that the government “reserves the power to assent to or order the suspension of the terms and conditions of this lease in accordance with, inter alia, Section 39 of the Mineral Leasing Act, 30 U.S.C. 209.” The cited provision acknowledges that “in the interest of conservation,” the Secretary of the Interior can order “the suspension of operations and production under any lease granted under the terms of this chapter.” While there would undoubtedly be a legal battle royal, anyone who thinks that there is no way for Interior to apply that fee to existing coal leases is whistling past the graveyard.
To put this in stark perspective, 80% of Powder River Basin coal is produced on public lands and sells currently for about $10/ ton. Every ton of PRB coal burned produces about 1.85 tons of CO2. So using the government’s last estimate of the social cost of carbon (in round numbers, $45/ton CO2 in 2015$), a fee based on the SCC would be about eight times the current price of coal, i.e., prohibitive to any further production, let alone new development.
Of course it would not stop there. The same logic could be applied to oil and gas production on Federal lands, but because oil and gas are less carbon intensive, the impact is not quite so stark. The pain, however, would be real. If the Administration uses the SCC as the point of departure, the fee would be about $ 15/barrel on oil—currently selling for $30 or less—and $2.50 or so per Million Cubic Feet of natural gas—currently selling for around $2.
Of course, compared to coal, proportionally much less of both is produced on Federal lands (even including offshore leases), and that proportion has been declining steadily since 2009. But the impact would still be substantial. Even if a carbon fee was not applied to current production, it would effectively kill any future development.
If Congress wishes to become relevant in the area of U.S. energy and climate policy, it needs to wake up and get serious about a national carbon tax to replace the increasingly costly, piecemeal, and irrational system of federal regulation and subsidies.