ACC's Statement on the White House Council of Economic Advisors Report on Federal Coal Leasing
Monday, June 27, 2016
Posted by: Ingrid Abrom
The administration’s economic assessment of the federal coal leasing program is ‘extremely troubling’
American Coal Council Statement Date: June 27, 2016
The recent report on the economics of federal coal leasing issued by the Obama administration’s Council of Economic Advisors (CEA) is extremely troubling. This government modeling exercise addresses the question of whether an increase in royalty rates by the Department of the Interior will increase or decrease government revenues. The CEA’s answer is that it will increase them. However, the conclusions reached by CEA in answering ‘yes’ to that question show a complete disconnect between its theoretical modeling results and the way the real-world coal marketplace functions. The CEA therefore misrepresents the outcome of such a policy change and its report must not be relied on.
As an example of the problematic nature of the report, one of the CEA’s conclusions is that increasing the cost to produce coal under federal leases (which mainly occurs in the Powder River Basin) through higher royalty payments will raise the market price of coal nationally. This conclusion is incorrect, and it demonstrates a failure to appropriately analyze the competitive market forces at play in the various coal-producing regions of the U.S., as well as the greater energy marketplace.
The Department of the Interior’s Bureau of Land Management (BLM) is the steward of the coal mineral resource on lands owned by the federal government, and has responsibility for the federal coal leasing program. BLM collects revenues from the program in three ways – a bonus payment made when BLM issues the lease, an annual rental payment, and royalties paid on the value of the coal. The federal coal leasing program has been very successful under its current structure. According to the Interior Department’s Bureau of Land Management, nearly $12 billion was generated over the past ten years from royalties, rents, bonuses, and other payments under the program.
It would be a grave mistake for American taxpayers to believe that increasing royalty rates under this program will be beneficial for them. The economics are clear. It would reduce coal investment and decrease the amount of coal mined on federal lands. That means fewer federal and state revenue dollars and a lower, not higher, return for taxpayers. And while not improving the lives of everyday Americans, such a policy change would be devastating to an industry already burdened by weak markets and oppressive governmental regulation.
The American Coal Council calls on the Department of the Interior to fulfill its obligation under the Mineral Leasing Act to provide for the maximum economic recovery from coal on federal lands. Keeping coal in the ground most certainly will not accomplish that.
 Bureau of Land Management, Federal Coal Leasing Program 2015 National Listening Sessions Powerpoint, August 7, 2015. Available at http://www.blm.gov/wo/st/en/prog/energy/coal_listening_sessions.html