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NMA: Administration’s Coal Leasing Moratorium and Review Based on Contrived Reasons


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Washington, D.C. – The Obama administration’s purported rationales to impose a moratorium on federal coal leasing while it considers an overhaul of the program rest on politically contrived reasoning that will result in less federal and state revenue and the loss of high-wage jobs as well as an indispensable source of affordable electricity for millions of families.

In comments today to the Department of the Interior (DOI) on the appropriate scope of its review of the coal leasing program, the National Mining Association (NMA) highlighted these and related objections to the reasoning behind the January 2015 moratorium and review of the federal coal leasing program.

“The administration’s justifications mirror the activist wish list for ‘keeping coal in the ground’ and lack any marks of a responsible, fact-based assessment of the current federal coal program,” said NMA President and CEO Hal Quinn. “If the administration was sincerely interested in increasing revenue, it would lift the moratorium on federal lease sales and commit to an efficient process that optimizes, rather than reduces, the benefits that flow to every American from the development of the nation’s federal coal resources.”

A report prepared by the Norwest Corporation and NMA, available on NMA’s website later this afternoon, discloses the fictional narrative that underpins the moratorium. Altogether, the administration’s characterizations of royalty rates for federal coal, valuation measures, the lease-by-applications method and the impact of carbon taxes will result in a deeply flawed market distorting policies with none of the intended benefits.

For its new leasing moratorium and related rationale for the federal program review, the administration curiously reverses itself and relies almost entirely on advocacy papers from activist critics of fossil fuels rather than engage in its own honest assessment. The Department previously rejected calls for a moratorium—a position upheld by the courts on several occasions. The same Secretary who defended the department’s coal leasing program now cites pressure group reports to justify ending it.

Without explaining its change in position, DOI appears to blithely accept these groups’ contentions on a range of issues.  For example, DOI entertains the long-rejected notion that the current leasing system fails to deliver a fair return. But bonus bids paid for leases have outpaced the increase in coal prices and the most recent bids in the Powder River Basin are 700 percent higher than when the Department began the lease-by-application process. Also inaccurate are NGO estimates of coal royalty rates and equally mystifying is that the administration would accept them. Federal rates are 30-65 percent higher than prevailing rates for private coal in the East, where bonus bids are seldom paid as they always are on federal coal. In the major federal coal leasing region, the combination of fees and taxes amount to $4.28 on every $11.00 worth of coal sold for an effective tax rate of 39 percent.

The administration’s rationale also founders by accepting a definition of market value by the Center for American Progress which misleadingly includes the transportation costs paid by utilities in order to suggest coal companies are not paying royalties on the sales price they receive for the coal from their customers.  Finally, the politically contrived rationale for the administration’s actions is revealed by DOI’s own leasing data:

  • Total lease revenue (bonus bids, royalties and surface rentals) in 2014 was twice the amount received in 2003;
  • Recently, bonus bids for coal lease sales in the Powder River Basin have increased substantially, by 700 percent, since the DOI used the lease-by-application method of leasing;
  • Royalty revenue is 88 percent higher despite coal production increasing by only 2 percent;
  • Total revenues per acre under lease have increased by 40 percent despite recent lower coal prices.

The department’s own records underscore the wide gulf between reality and the NGO-scripted rhetoric of the administration’s coal lease policy.

The report will be available here later this afternoon.

 

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