The Powder River Basin is a geological area covering roughly 24,000 sq. miles, located in Northeastern Wyoming and Southeastern Montana. It provides excellent habitat for elk, mule deer, wild turkey, and the threatened greater sage-grouse. It is also home to some of the largest coal reserves in the world. Rich with sub-bituminous coal and boasting an energy content greater than the oil reserves of Saudi Arabia, this region produces 40% of the nation’s coal and 14% of its carbon dioxide emissions. The coal in this area has a very low sulfur content, which makes it extremely desirable in the wake of the Clean Air Act. As expected with vast quantities of natural resources, there is significant economic interest in the Powder River Basin. In addition, the environmental issues surrounding this area are tightly interwoven into the economics. In the coming years we will be faced with a warming atmosphere, a complex global economy, and steadily increasing energy prices. The wealth that the Powder River Basin represents to the United States must not be squandered, but utilized efficiently. The Federal Government owns all the coal in the Powder River Basin, a third of U.S. coal reserves. The Department of the Interior oversees the Bureau of Land Management. The BLM is in charge of managing public lands, such as those in the PRB, for the benefit of future generations, in the nation’s best interests, and in an environmentally sound manner (not necessarily in that order).
A unique, and troubling, aspect of the Powder River Basin is the fact that it is not officially considered a coal-producing region. In 1990, due to “general lack of industry interest in new competitive Federal coal leasing and the condition of the coal market”, the Powder River Basin Regional Coal Team decertified this area as a coal-producing region. So regardless of the fact that this area produces 40% of the nation’s coal, it is not officially recognized as a coal producing region. Environmental groups such as the Sierra Club and Wild Earth Guardians believe the decision was made on faulty data and that the PRB Regional Coal Team had ulterior motives in decertifying the area. At the time of decertification, the region was producing 15% of the coal in the United States and demand was increasing. The Bureau of Land Management (BLM) informed the General Accounting Office (GAO) that they had no interest in leasing. Merely four months after decertification, four leases for 800 million tons were received from private companies. The decertification allowed the Lease-By-Application process to dominate the market and essentially eliminate competition. The Lease-By-Application process streamlines the sale of leases to private companies. It allows coal companies to delineate their own tracts of land, ignoring environmental impact analysis and regional leasing levels when determining prices. Since 1990, there have been 21 LBA’s. Of these 21, only 3 involved more than one company. This is a tremendous market failure. Without competition, prices paid for this coal will be considerably lower than Fair Market Value (FMV).
The Federal Coal Leasing Amendment Act of 1976 stated that coal lease sales should take place in a competitive market and the public must receive the fair market value for the coal resources. Unfortunately, the public has been receiving significantly less than FMV for these coal purchases. Coal prices have been artificially low for nearly two decades because of Lease-By-Application processes and the 1990 sale of 1.6 billion tons of coal after a 10-year moratorium on leases. The 1990 sale of 1.6 billion tons of coal lost the Treasury 100 million dollars and it is estimated that 28.9 billion dollars has been lost in revenue because of below fair market value sales of coal leases since then. The 1990 sale flooded the market with low-cost coal in an attempt to keep domestic energy prices low for electricity generation. As Asian economies expand their coal-use, these low domestic prices could trigger significant export interest. These exports could lead to greater producer surplus domestically, but also potentially hurt domestic consumers as this coal becomes more profitable in foreign markets.
The Powder River Basin has the potential to provide a substantial amount of government revenue and jobs to the American people, yet many of the largest mining companies involved in the PRB are looking towards Asian markets to get rid of excess domestic supply. Is exporting this precious resource to China the best option? Knowing that the combustion of these fuels is contributing to global warming and that the rate of coal consumption will undoubtedly increase with the burgeoning Asian economies, is it in our best interest to extract this coal primarily for export? United States coal consumption is decreasing because of cleaner energy options and a better understanding of greenhouse gas emissions from coal-fired power plants. As our demand decreases domestically, and foreign markets increase their demand, we must decide whether or not we want to get rid of our excess supply to these Asian countries. The current program in the PRB is driving the prices of coal down significantly, which makes exporting the best option. However, if the prices of coal were more accurately reflected, the incentive to export would more than likely decrease. It is vital that the market processes governing the sale of coal leases be checked both internally and externally to make sure that the public is receiving fair market value for these resources. If not, we could soon be faced with the American public essentially subsidizing Asian coal consumption.
References
Hamilton, Stephen F., Gerking Shelby, 2008, calpoly.edu, What Explains the Increased Utilization of Powder River Basin Coal in Electric Power Generation?, http://digitalcommons.calpoly.edu/cgi/viewcontent.cgi?article=1003&context=econ_fac, Nov. 24, 2012
Nichols, Jeremy, Nov. 23, 2009, Wild Earth Guardians, The Powder River Basin of the West: Key to Solving Global Warming http://www.wildearthguardians.org/Portals/0/support_docs/report_powder_river_11-23-09.pdf, Nov. 24, 2012
Sanzillo, Tom, January 10-11, 2012, Institute for Energy Economics and Financial Analysis, Public Financing: Federal Fair Market Value Coal Leases in the Powder River Basin are a Public Subsidy, http://policyintegrity.org/documents/6.1_Sanzillo_coal_lease_PDF_.pdf, Nov. 24, 2012
Sanzillo, Tom, June 2012, Institute for Energy Economics and Financial Analysis, The Great Giveaway: An Analysis of the United States’ Long Term Trend of Selling Federally-Owned for Less than Fair Market Value,Nov. 25, 2012
The Green Bulldog 