The Obama administration has announced a moratorium on new coal leases on federal lands, citing concerns regarding pricing and pollution. This followed on the heels of the president’s final State of the Union address, in which he said the United States must improve the way it manages its fossil fuel resources and move towards a clean energy economy.
The programmatic review will examine concerns about the federal coal program that have been raised by the Government Accountability Office, the Interior Department’s Inspector General, Members of Congress and the public. It will take a careful look at issues such as how, when, and where to lease; how to account for the environmental and public health impacts of federal coal production; and how to ensure taxpayers are earning a fair return for the use of their public resources.
The change won't affect existing leases, which generated nearly $1.3 billion for the government last year. The Obama administration says there will be “limited, commonsense” exceptions to the pause, including for metallurgical coal (typically used in steel production), small lease modifications and emergency leasing, including where there is a demonstrated safety need or insufficient reserves.
Coal Industry Blocks Climate Change Action
“President Obama has taken a major step to move us away from coal and accelerate the transition to clean, renewable energy, and we applaud his leadership,” Greenpeace Executive Director Annie Leonard said in a statement.
“The federal coal program has undermined President Obama’s efforts to address climate change by giving away our coal at subsidized rates, propping up this outdated energy source without regard for the damage done to communities or our climate,” Leonard said. “An honest, comprehensive review will show that we don’t need to prop up desperate and outdated coal companies with any more giveaways, and instead should keep coal in the ground.”
Federal coal has recently been sold for only $1.03 per ton on average, while each ton will cause damages estimated at between $22 and $237, using the federal government’s social cost of carbon estimates, according to a 2014 Greenpeace report.
U.S. Coal in ‘Terminal Decline’
The market for thermal coal is in structural decline in the U.S, according to a 2015 report by the Carbon Tracker Initiative. In recent years, U.S. coal markets have been pounded by a combination of cheaper renewables, energy efficiency measures, increasing construction costs and a rash of legal challenges, as well as the rise of shale gas.
In the past five years alone, the U.S. coal industry lost 76 percent of its value, and at least 264 mines were closed between 2011 and 2013, the report said. The world’s largest private coal company, Peabody Energy, lost 80 percent of its share price. These declines came in spite of the Dow Jones industrial average increasing by 69 percent during the same period.
While historically economic growth in the US has consistently driven increased coal use, there is now evidence of a decoupling of the two. Despite GDP continuing to rise, domestic coal use peaked in 2007 and has been on a declining trend since.
In addition to the influx of renewables, coal has been weakened by cheap shale gas flooding the market in the U.S., causing the price of natural gas to fall by 80 percent since 2008. These two drivers served to reduce coal’s share of electricity supply by approximately 10 percent over the same period, the report said.
In 2014, the EPA released the Clean Power Plan proposal, which for the first time cut carbon pollution from existing coal-fired power plants. The proposal is designed to protect public health, move the United States toward a cleaner environment and fight climate change while supplying Americans with reliable and affordable power.
Preparing Coal for the Future
“President Obama is doing for the coal industry what it cannot do for itself,” Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis (IEEFA), said in a statement. “With the recent bankruptcy filing of Arch Coal, the U.S. has now seen 50 coal company bankruptcy filings since 2012.”
Sanzillo said the federal coal moratorium is “welcome, long overdue and in the best interest of taxpayers.”
A federal lease moratorium allows the federal government, as owner of the coal, and stakeholders to establish a new business model for coal. The old model of supplying cheap coal on any terms the coal industry wanted is not working anymore.
Markets have changed since the 1980s — the coal industry is shrinking, and it will continue to shrink for the foreseeable future.
“It will be a much less important source of energy for the nation’s electricity grid going forward," Sanzillo said. “However, coal has a future — a future that includes fewer companies and less mining to supply a much smaller number of coal-fired power plants.”
But the coal industry is unprepared for this new market. The federal government, as owner of almost 50 percent of the coal produced for electricity in the U.S., can step in to discipline production, restrict supply and provide better management for this national resource.
“The coal industry, once a critical player in the energy future of the U.S., is now little more than a self-interested party seeking a bailout,” Sanzillo said. “The industry has forfeited its claim to protected status by failing to innovate and by pursuing a series of failed business strategies that have left the industry — and more important, the people of the U.S. — without strong corporate leadership in this sector of the energy economy.”