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Clean break

Federal coal leasing needs a major overhaul

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The winds of change are blowing hard across our Western coalfields. Competition from cheaper fuels such as natural gas, wind and solar has dampened domestic demand for coal. This trend—plus a bust in export markets after a brief boom—has driven five major coal companies into bankruptcy court. There, they seek protection from their creditors in order to "reorganize" by cutting costs and shedding debt.

At the same time, the Interior Department has started to face up to the longtime failure of its federal coal program. By law, it is supposed to provide taxpayers with a fair return on the sale of coal that is owned by the public. But over the last four decades or so, the American people have lost tens of billions of dollars because coal leases were undervalued by the federal government, and corporations often underpaid royalties.

And the bad news continues: At below-market prices, the Interior Department has already leased more than 20 years of future coal production. The Interior Department now seeks to remedy this failure with tighter royalty rules and a moratorium on any new leases while it reevaluates the coal program from top to bottom.

Coal industry promoters ask, "Why now? Isn't this the wrong time to fix the coal program when the industry is under so much stress?"

There are a host of good responses to the industry's laments. Reform is rarely easy, but in this case it's long overdue and there is never a wrong time to start following the law. The enormous hidden subsidies that have been given to the industry have not saved it from the current market-driven pressures. If anything, you can argue that those subsidies only discouraged the industry from responding more quickly to changing markets. There is no better time to pause and evaluate the leasing process than during a slow market.

But the best answers as to why the federal government should fix its coal program come from the industry's current economic struggles. The fact is that the nation is beginning a major energy transition. Coal will be produced for decades but will play a diminishing role in the nation's energy picture. Sooner rather than later, coal production will stabilize at a lower level consistent with supplying the newer coal-fired power plants built in the last 25 years or so. Meanwhile, natural gas, wind and solar will continue to displace coal. The federal coal program and a host of other public policies need to be retooled to accommodate a reduced coal future.

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The second thing to keep in mind is that federal and state governments need to help coal communities and workers remain productive and prosperous as this energy transition occurs. Bankruptcies take a serious toll on worker and retiree benefits and wages. That toll is an early warning sign to governments that they need to do more to prevent even greater economic distress in the years ahead for these workers and their communities.

New jobs and businesses need to be developed for displaced coal workers, most likely in wind and solar energy production, but also in other fields. Health care, job training, family education and other services should be a priority to help communities and workers adjust to the nation's new energy realities.

The third consideration is that as the industry restructures, the Interior Department has the duty and responsibility to reclaim its rightful control of the federal leasing process, making sure that the system functions correctly under the law. In 1990, Interior ceded to industry the ability to determine what coal tracts would be leased and on what terms. Interior must replace that failed process with policies guaranteeing a fair return to taxpayers, balancing coal leases with future needs and protecting the environment. Time is short. The companies that rise out of bankruptcy—leaner, tougher and perhaps fewer in number than before—could start a land rush for acquiring new coal leases at bargain-basement prices.

That's why it is so urgent for the Interior Department to control coal leasing on public land. If Interior fails to act decisively, the public interest will be betrayed yet again, and opportunities for a better energy future will be lost.

Interior is deciding now the issues it will analyze during its review of the coal program over the next three years. Ask Interior to ensure that the American people get paid the right amount for federal coal, the environment is protected, mines get reclaimed and revenues are generated to help coal communities and workers transition to a changing energy landscape.

Dan Bucks is a contributor to Writers on the Range, the opinion service of High Country News (hcn.org). He was director of the Montana Department of Revenue from 2005 to 2013.

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