It may come as a surprise to learn that much of the coal that is mined in this country is mined under lease arrangement on federal land. The Bureau of Land Management (BLM) maintains coal leases, primarily in the West, on 570 million acres of land. If that sounds like a lot, it is. That constitutes an area larger than Alaska, California and Georgia combined, or about a quarter of the entire country
That includes, among other things, most of the Powder River Basin in Wyoming and Montana, which currently supplies 40 percent of all the coal produced in this country. Because this land belongs to the American people, its commercial uses should be generating revenue to help offset taxes, in the form of rents and royalties.
It does indeed do so, though some have questioned whether the amounts collected represent the true market value of the coal, or if, in fact, artificially low prices are not only depriving the American people of fair revenues, but also encouraging more coal mining and coal burning than might otherwise occur if the coal were priced fairly.
A report produced by Sightline Institute, entitled Unfair Market Value, alleges that the BLM does not include the substantial markup that coal companies receive when they sell coal overseas, in assessing the value upon which royalties are based. This, they claim, leads to millions of dollars of lost taxpayer revenue each year.
Even as the U.S. is moving away from coal, both in response to the increased availability of domestic natural gas, as well as the call to reduce carbon emissions, exports of coal, particularly Western, coal have soared from 7.6 million tons per year during 2006-2009, to 19 million tons per year in 2010-2012.
While much of that coal was sold in Asia for as much as $60 per ton, coal companies paid less than a dollar per ton for most of it, with some being sold for as little as 18 cents per ton, despite the fact the federal law says that the companies must pay fair market value. While the regulations require that the coal be sold at auction, the vast majority of the auctions attracted a single bidder.
Anyone who has ever bid on eBay knows that if you are the only bidder and the minimums are near-zero, you can get a very good deal. That is really the key, the minimum price — which in this case is referred to as the fair market value (FMV) — is set at the discretion of the BLM.
The report is filled with tales of sweetheart deals where coal companies are making tremendous profits on Asian sales and then coming back to the well for more. Total Western coal exports from 2006-2012 exceeded 86 million tons.
“Given the coal industry’s clearly stated intention to expand coal exports,” state the authors, “federal officials now have both a duty and an opportunity to conduct a comprehensive review of the economics of coal exports when assessing the ‘fair market value’ of federal coal sold to private firms.”
This is not a particularly new trend. Since 1990, the BLM has approved 2.4 billion tons in coal sales at industry-friendly prices ranging from less than a penny to 25 cents per ton. The highest price on record for BLM coal was $1.35 per ton.
The Sightline report was not the first to question these practices. Sen. Ron Wyden (D-Ore.) sought an investigation when he first became chairman of the Senate Energy and Natural Resources Committee last year. The investigation is still underway, but a preliminary report released back in February stated that the Interior Department, to which the BLM reports, “appears to have repeatedly shortchanged taxpayers by underestimating the volume of coal contained in reserves that is sold to lessors.”
A 2012 report by Reuters also suggested that some questionable accounting by major coal firms could have cost the U.S. government as much as $100 million.
No one has suggested why the BLM has been so lenient, though cozy relations between government regulators and those they are charged to regulate is certainly nothing new, sometimes at considerable expense to the American people.
Image credit: Mark Merton: Flickr Creative Commons