Powder River Coal: Strange Government Dichotomy

imgresTo quote Shakespeare somewhat irreverently, “there is something rotten in the state of Wyoming”. Well, it depends on your viewpoint and your political affiliation. But the Obama administration can be said to not really be serious about world GHG reduction, as it pledged to do so in Paris recently, because it is not considering the total picture.

The Powder River basin (partly in Montana) contains the most prolific and most easily mined coal in the world – a 100-foot seam of coal that accounts for about 40 percent of coal burned in the U.S. and 13 percent of U.S. GHG emissions. Almost the entire seam is on public lands and is made available to coal producers under uncompetitive coal leases (96%  of coal contracts were signed with a single bidder). And while most of the coal is burned in the U.S. an increasing amount is being exported to China, India and elsewhere. Exports will increase sharply when new port facilities now being constructed come into use. And the final point: the U.S. Government is selling this coal to producers/exporters at $ 13 per short ton when China is paying $ 69 per ton for Powder River coal(!).

So, what is “rotten”about that? Firstly, Powder River coal is greatly underpriced, even when considering its lower BTU content than that for Appalachian and other coal: Current coal prices in the U.S. are around $ 50 per ton. The government receives a royalty of 12.5% on each ton mined and sold. A recent study showed that taxpayers would have received $30 billion more over the past 30 years in royalties if Wyoming coal had been priced competitively. With exports scheduled to rise rapidly, there is no sign that Powder River coal prices will rise.

Now, this “giveaway” seems unnecessary and its implementation is totally uncompetitive. But now let’s look at Obama’s goal to reduce global emissions. He points out rightly that the U.S. has reduced emissions by switching some utility coal burning to natural gas and by increasing electricity production to unconventional sources, such as solar and wind. But pricing Wyoming coal at $ 13/ton is not only creating windfall profits for coal companies and for utilities buying the coal, but is additionally causing countries like China and India to burn more coal and increase CO2 emissions as Powder River coal reduces the average price of coal in these countries. So, we are encouraging these countries to burn more coal by selling them Wyoming coal at prices below the local market while still providing high markups to exporters.

A new leasing program is being considered by the government, in line with greatly increasing Wyoming coal exports. A study has estimated that the carbon emissions from the coal covered by this program – mostly for coal exports – will exceed the estimated carbon cuts from the new power plant rules by a factor of three(!).

Readers of this blog are strongly encouraged to comment on this strange part of U.S. energy policy.

 

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