The Federal Coal Moratorium – Politics Masquerading As Policy

Some Americans may not realize it, but coal still provides roughly 35% of all the electricity generated in the United States. That’s the largest share of affordable electricity from any one energy source. States that rely on coal as their primary source of power enjoy the lowest electricity costs nationwide.

Partly for that reason, coal-generated power enables them to serve as major hubs for America’s domestic manufacturers. Basic industry needs cheap, reliable power. In states with primarily coal-based power, industrial electricity prices can be two to three times lower than the power prices of competing countries. The coal advantage extends to employment; energy-intensive industries tend to offer high-wage jobs.

Unfortunately, affordable power faces a surprising opponent: our own government. The Obama Administration has announced a three-year moratorium on the leasing of coal reserves located on federal lands. Because the coal mined from these reserves accounts for 42 percent of total U.S. production, such a moratorium could eliminate a major portion of domestic coal supplies, creating less fuel diversity—with serious consequences for power generation.

A moratorium on federal coal would also deprive U.S. taxpayers of billions of dollars in revenue. Coal currently leased from federal lands has generated more than $12.6 billion in royalties, rents, and bonus payments over the past decade. States with federal coal leases would also see revenue drop, draining state budgets and forcing higher taxes or painful reductions in services. Wyoming has already warned that school funding may be cut due to falling coal revenue.

Beyond the revenue it generates, the greatest value of federal coal may be its central role in anchoring a stable, reliable mix of electricity sources. A study by IHS Energy found that the current base load generation mix anchored by coal saves ratepayers roughly $93 billion in annual electric bills while also reducing utility bill volatility by 30 percent.

The risk posed by this moratorium is bad enough but it’s all the more reckless for being unnecessary. The current coal leasing program doesn’t need major reforms, let alone a work stoppage. The present system meets standards that guarantee taxpayers receive fair market value for coal leased at auction. Multiple reviews by federal and state agencies ensure the environment is protected.

In fact, the argument that taxpayers are somehow denied a fair return from the current federal coal program falls flat. The 12.5 percent royalty paid on coal leased from federal land is approximately 40 percent higher than rates paid for coal mined on private land in the Midwest and Appalachia. Companies pay additional fees based on the coal under lease. Small wonder recent investigations by the Government Accountability Office and the Department of the Interior’s Inspector General found no reason to overhaul the program.

Undaunted, the Obama Administration has floated the idea of increasing the royalty rate for leased coal. But doing so would squeeze coal producers already operating on a tight margin. Higher royalties will discourage production, keeping affordable energy off the market and revenue from taxpayers.

Without a defensible rationale for its coal lease moratorium, we’re left with the Obama administration’s political rationale. It wants to keep faith with climate change activists who want fossil fuels to stay in the ground. But keeping faith with climate alarmists will break faith with taxpayers and consumers. They will derive zero benefit, let alone a “fair” return, when coal is locked underground.

The federal coal leasing program fairly values an important public resource and generates substantial revenue for America’s taxpayers. A move to replace the current program with costly new fees and higher royalties, or with a flat-out moratorium, serves no legitimate public purpose.