Revitalizing Appalachia

8/9/2019 Revitalizing Appalachia

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Revitalizing AppalachiaHow Congress Can Correct Distortions in the Coal Market

and Invest in Struggling Coal Communities

By Gov. Ted Strickland, Greg Dotson, and Matt Lee-Ashley February 2015


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Revitalizing AppalachiaHow Congress Can Correct Distortions in the Coal

Market and Invest in Struggling Coal Communities

By Gov. Ted Strickland, Greg Dotson, and Matt Lee-Ashley February 2015


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1 Introduction and summary

3 Market challenges facing Appalachian coal

7 The outdated federal coal program distorts the coal mar

11 Policy recommendations

15 Conclusion

16 About the authors & acknowledgments

17 Endnotes

Contents


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1 Center for American Progress | Revitalizing Appalachia

Introduction and summary

Te U.S. coal indusry is in he mids o a painul ransiion. Te number o

coal-mining jobs in he Unied Saes has allen seadily in recen years, a rend

ha has had a proound impac on communiies ha depend on he coal indusry

or employmen and ax revenue. Policymakers should manage his ransiion and

ensure ha coal communiies emerge sronger and more resilien o flucuaions

in he coal marke.

Numerous marke orces are driving he challenges acing he U.S. coal indusry.Over he course o several decades, mechanizaion has progressively chipped away

a he number o workers needed o mine a on o coal. More recenly, abundan

and cheap supplies o cleaner-burning naural gas have oucompeed coal as he

preerred ossil uel or new elecriciy-generaing capaciy.

Te coal indusry in Appalachiaa region ha spans porions o Kenucky, Ohio,

Pennsylvania, Virginia, and Wes Virginiaaces challenges ha are unique o a

coal basin in which he riches coal seams have been mined already. I is easier

and hereore cheapero exrac coal in oher U.S. coal basins, such as he

Powder River Basin, or PRB, in Monana and Wyoming or he Illinois Basin in

Illinois, Indiana, and wesern Kenucky. Tis creaes a dauning marke barrier or

Appalachian coal. In addiion o acing domesic compeiion, Appalachian coal

producers are losing marke share o low-cos impors and are sruggling o

compee in an oversupplied global expor marke.

Unorunaely, hese marke challenges have been exacerbaed by ederal coal

policies ha urher disor he marke and undercu Appalachian coal.

Te ederal program or leasing coal on publicly owned lands is undamenallynoncompeiive and does no ensure ha axpayers receive he rue air-marke

value or coal exraced rom public lands. Te disorionary effec is paricularly

sark in he PRB o Monana and Wyoming, where he vas majoriy o ederal

coal is mined. PRB coal is significanly undervalued and sells a a racion o he


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cos o coal produced in oher regions o he Unied Saesless han one-hird o

he price o Appalachian coal, even when accouning or Appalachian coals higher

hea conen. Some analyss argue ha hese low prices give PRB producers a near

monopoly, making i difficul or coal producers in oher U.S. basins o compee.

In his repor, he Cener or American Progress proposes ha Congress ac ocorrec he flaws in he ederal coal-leasing program ha creae hese marke

disorions. Specifically, CAP offers wo policy choices. Te firs is ha Congress

could raise he royaly rae ha mining companies pay on he value o surace-

mined coal hey exrac rom ederal lands. Tis change would prospecively apply

o new coal leases only, leaving he curren rae or exising leases unouched.

Alernaively, Congress could leave he exising rae unchanged bu require mining

companies o apply he exising royaly rae o he price o coal a is final poin o

sale raher han a he firs arms-lengh ransacion. Tis change would ensure ha

coal companies pay royalies on he rue marke value o ederal coal, and i would

apply o boh new and exising leases.

Boh o hese changes would achieve wo imporan goals. Firs, hey would

ensure ha axpayers receive a airer reurn on publicly owned coal resources.

Second, hey would creae a significan new revenue sream ha Congress could

direc o sruggling coal communiies in Appalachia in order o help hem rebuild

and diversiy heir economies. Policymakers and sakeholders have begun o

shape and implemen programs o provide economic developmen, job raining,

and employmen assisance in Appalachian communiies, bu securing adequae

unding or hese programs remains a challenge.

Te prosperiy o he PRB and Appalachian coal communiies are in some ways

linked. As he Appalachian coal indusry has declined, he PRB coal indusry has

grown. Ineffecive and oudaed ederal coal policy has depressed he price o ederal

coal and skewed he marke in avor o he PRB over ohers, including Appalachia.

Fixing his flawed policy can generae new revenue or invesmen in Appalachian

coal communiies in dire need o economic diversificaion and revializaion.


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Market challenges facing

Appalachian coal

Te U.S. coal indusry has changed significanly since he 1980s. Employmen in he

naions coal mines has allen as producion has shifed rom underground mining

o surace mining, which is more mechanized and less labor inensive. Coal producers

simply need ewer workers o produce each on o coal. Beween 1985 and 2008

he year U.S. coal producion peakedhe number o coal miners in he Unied

Saes ell by more han hal, while coal producion climbed by 32 percen.1

Te majoriy o hese jobs were los in Appalachia, where he number o coal-miningjobs ell rom 122,000 in 1985 o 58,750 in 2008 and o less han 58,000 in 2012.2

Some counies in his region are overwhelmingly dependen on he coal indusry

or jobs and ax revenue. As a resul, closing or idling even a single mine in one o

hese communiies can have a ripple effec ha is el across he local economy.

Several powerul marke orces have combined o creae his challenging economic

environmen or he U.S. coal indusry and he communiies ha depend on i,

paricularly in Appalachia.

Appalachian coal producers face significant market barriers

Appalachian coal producers ace a grim geological realiy. Te larges, easies-o-

access coal seams in he region have been mined already, making i more labor

inensive and expensive o produce a on o coal in Appalachia han in oher U.S.

basins. Te Energy Inormaion Adminisraion, or EIA, projecs ha Appalachian

coal producion will coninue o decline in he coming years as coal produced rom

he exensively mined, higher-cos reserves o Cenral Appalachia is supplaned by

lower-cos coal rom oher regions.3

Te high price o Appalachian coal makes is domesic marke share vulnerable o

compeiion rom he global marke. In addiion o coal produced rom oher U.S.

basins, Appalachian coal producers are compeing wih an influx o impored coal,


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paricularly rom Colombia. Te Naional Mining Associaion has said ha U.S.

power plans on or near Easern or Gul pors can access coal much more cheaply

rom radiional offshore exporing counries han hey can rom he U.S.

inerior.4Over he firs nine monhs o 2014, coal impors naionwide were 38

percen higher han impors over he same period o ime in 2013.5

In addiion, odays global coal marke is no avorable o expored U.S. coal.

Slower-han-expeced coal demand in Chinahe worlds larges imporer and

consumer o coaland a supply glu have depressed he global price o coal. As a

resul, U.S. coal producers have had o pull back: U.S. coal expors ell 16 percen

over he firs nine monhs o 2014 compared wih he same ime period in 2013.6

Tis is paricularly problemaic or Appalachian coal producers, as hey have become

increasingly dependen on oreign markes or revenue. Appalachian producers

expored 31 percen o he coal ha hey produced in 2012, up rom 25 percen in

2011 and 19 percen in 2010.7

Te naural gas resurgence in he Unied Saes has pu remendous pressure on

he U.S. coal indusry as a whole. Beween 2007 and 2012, naural gas producion

rom shale increased fiveold in he Unied Saes,8driving down naural gas prices

significanly.9Tese low pricescombined wih he air-qualiy benefis o burning

gas raher han coal or elecriciyhave eroded coals posiion as he go-o energy

source or power generaion.10

Appalachia is losing the competition with Powder River Basin coal

Appalachian coal is sruggling o compee wih PRB coal, which is produced in

norheas Wyoming and souheas Monana. PRB coal is easier o mine and sells

a a much lower price han coal exraced rom he older Appalachian coal fields.

PRB coal is less labor inensive o produce han coal rom oher U.S. basins because

he coal seams are hicker and relaively close o he Earhs surace. Producers in

he PRB can exrac more han 12 imes as much coal per employee hour as hose

operaing in Appalachia and almos seven imes as much as hose operaing in he

Illinois Basin, anoher coal basin ha has been aking marke share rom Appalachiancoal producers.11PRB coal sells or less han one-hird o he price o Appalachian

coal, even when accouning or Appalachian coals higher hea conenmeaning

ha Appalachian coal produces more energy when i is burned.12(see Figure 1)


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In 1999, coal producion wes o he Mississippi River surpassed producion in he

easern coal basins or he firs ime, a rend ha is unlikely o reverse given he

declining yields in he Appalachian coal fields.13Beween 2001 and 2012, coal

producion rom he PRB grew rom 35 percen o oal U.S. producion o 41

percen; during he same ime period, Appalachias share o U.S. coal producion

ell rom 38 percen o 29 percen.14

PRB coal also is relaively low in sulur and hereore releases less soo- and smog-

orming polluans han Appalachian coal when i is burned. Energy indusry

analyss have concluded ha PRB producers, wih heir low-cos, low-sulur coal

and high-capaciy mines, creae a monopoly ha makes i increasingly difficul or

Easern and Midwesern coal producers o compee.15During he firs nine

monhs o 2014, more han 150 power plans in more han 30 saes burned PRB

coal, including Appalachian saes such as Kenucky, Ohio, Pennsylvania, and

ennessee.16(see Figure 2)

FIGURE 1

Cost comparison of coal from the Appalachian, Illinois, and Powder

River Basins, as of December 12, 2014

Source: U.S. Energy Information Administration, "Coal News

and Markets, week ending December 12, 2014," available athttp://www.eia.gov/coal/news_markets/ (last accessed

December 2014).

Central Appalachia

Northern Appalachia

Illinois Basin

Powder River Basin

$56.10

$65.30

$44.55

$11.55

Central Appalachia

Northern Appalachia

Illinois Basin

Powder River Basin

$2.24

$2.51

$1.89

$0.66

Source: Authors' calculations are based on U.S. Energy Information

Administration, "Coal News and Markets, week ending December12, 2014," available at http://www.eia.gov/coal/news_markets/

(last accessed December 2014).

Coal spot prices measured in dollars per

short ton

Coal spot prices measured in dollars per

million British thermal units


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Powder River Basin

Appalachian Coal Basin

FIGURE 2

States with at least one power plant burning Powder River Basin coal,

first nine months of 2014

Source: U.S. Energy Information Administration, Form EIA-923 detailed data, January to September 2014, available at http://www.eia.gov/electricity/data/eia923/ (last accessed December 2014).


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The outdated federal coal program

distorts the coal market

The federal coal-leasing program provides an unfair advantage to

PRB coal

Te PRB consiss almos enirely o ederal lands, and producion in i accouns

or nearly 90 percen o all coal mined on ederal lands.17As a resul, he ederal

coal-leasing program plays a pivoal role in he exracion and pricing o PRB coal.

In conras, he Appalachian regions coal is produced primarily on privaely owned

lands. Approximaely one-enh o 1 percen o Appalachian coal producionoccurs on ederal lands.18

High labor produciviy and economies o scale help make PRB coal lower cos

han coal rom oher pars o he counry. Bu PRB coal also enjoys a significan

advanage ha has litle o do wih labor coss or mining echniques: Te ederal

coal-leasing program subsidizes PRB coal and disors he domesic coal marke.

Te Bureau o Land Managemen, or BLM, is responsible or he managemen o

he ederal coal program, which includes he leasing o ederally owned coal in he

PRB. Te Mineral Leasing Ac o 1920 requires ha ederal coal leases be offered

compeiively.19However, he BLM has run a noncompeiive program ha lacks

ransparency, undervalues and sells PRB coal a a loss o he American axpayer,

and serves o disor he domesic coal marke.20

Separae invesigaors have raised serious concerns abou how ederal coal is priced.

Te Governmen Accounabiliy Office, or GAO, and he U.S. Deparmen o he

Ineriors Office o Inspecor General boh released repors in 2013 ha were deeply

criical o he ederal coal-leasing program. Boh invesigaions idenified flaws in

he leasing program ha arificially depress he price o coal mined on publiclyowned lands. Since 40 percen o all U.S. coaland almos all PRB coalis

produced on public lands,21hese flaws inroduce significan price disorions ino

he U.S. coal marke.


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Te GAO ound ha he BLMs lease sales have been noncompeiive or decades,

wih roughly 90 percen o all ederal coal-lease sales since 1990 atracing only

one bidder.22In ligh o his inheren lack o compeiion, he GAO highlighed

he BLMs criical responsibiliy o obain air-marke value or ederal coal leases

and o ensure ha he American axpayer receives a air reurn or a publicly owned

resource.23

Te GAO concluded, however, ha he BLMs process or assessinghe air-marke value o ederal coal lacks sufficien rigor and oversigh, making i

likely ha coal mined rom ederal lands is consisenly undervalued.24

A hird-pary review o he ederal coal program ound ha he undervaluaion o

coal may have cos axpayers upward o $30 billion in los revenue over he pas 30

years.25Similarly, he Office o Inspecor General ound weaknesses in he curren

coal sale process ha could pu he governmen a risk o no receiving he ull, air

marke value or he leases.26Boh he GAO and he Office o Inspecor General

recommended ha he BLM improve is processes or esimaing he air-marke

value o coal mined rom ederal lands o ensure ruly air bids on coal leases.

Coal companies pay a royalty rate that has not changed in almost 40 years

Coal companies mining on ederal lands are no paying heir air share or he

resources hey exrac. Te BLM receives revenue or ederal coal hrough hree

avenues: paymens, called a bonus bid, made by coal companies or he righ o

mine or coal on ederal lands; royalies paid on he value o any coal mined; and

annual renal paymens o $3.00 per acre. Royalies accoun or wo-hirds o he

oal revenue rom ederal coal leases. Bonus bids accoun or abou one-hird o

he oal revenue rom ederal coal leases.27

In 1976, he Federal Coal Leasing Amendmens Ac se a minimum royaly rae o

12.5 percen or surace-mined coal.28Ta rae sill applies oday, even hough he

Deparmen o he Inerior has he discreion o raise i. Te rae or surace-

mined coal is significanly lower han he royaly rae colleced or oher axpayer-

owned naural resources, such as offshore oil and gas, boh o which generae

royalies o 18.75 percen.29Onshore oil and gas royaly raes are also 12.5 percen,

bu boh he GAO and he Deparmen o he Inerior have acknowledged heneed o revisi hese raes.30Te Deparmen o he Inerior began o raise he

royaly rae or offshore oil and gas incremenally in 2007 due o a number o

acors, including increased oil and gas prices, improvemens in exploraion and

producion or offshore oil and gas, and he compeiive marke or offshore


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leases.31Mos imporanly, ormer Secreary o he Inerior Ken Salazar said

increasing he offshore rae was necessary o ensure ha he American axpayer is

geting a air reurn or he oil and gas ha he American people own.32

Coal royalties are collected based on the wrong coal price

Under curren law, coal companies pay royalies on he price obained or ederal

coal sold in he firs arms-lengh ransacion, which is equivalen o he firs sale o

a nonaffiliaed hird pary.33Bu he price obained a he firs arms-lengh ransacion

does no reflec he rue marke value o he coal or hree primary reasons.34

Firs, recen evidence suggess ha coal companies are manipulaing he royaly

process o avoid paying he ull amoun o royalies due on ederal coal. Companies

are engaging in capive ransacions, by which hey sell coal o heir own affiliaes

a lower prices han hey would ge on an open marke. Tis means ha hey payhe 12.5 percen royaly rae on a depressed price, lowering he amoun o royalies

hey owe o he ederal governmen. Tese companies hen resell he coal on he

marke a higher prices, dodging a larger royaly paymen.35

Second, he BLMs minimum bonus bid requiremen is inadequae. Curren

ederal regulaions, which have no been updaed in decades, require ha companies

ha wan o obain he righs o mine or coal on ederal lands mus submi a

minimum bonus bid o $100 per acre or is equivalen in cens-per-on.36Bu

recen aucions o ederal coal show ha he curren, minimum bid requiremen is

grossly deficien because ederal coal is being sold a prices ha do no reflec he

coals rue air-marke value. A he July 2014 Spruce Somp lease sale in wesern

Coloradohe mos recen ederal coal saleederal coal was aucioned off o

only one bidder a a mere $0.36 per on.37Tis sale illusraes he deflaionary price

impac o he BLMs noncompeiive leasing process.

Tird, he process he BLM uses o deermine he air-marke value o coal ofen

does no capure he coals rue value. Mos ofen, he BLM deermines he

air-marke value o he coal based on previous noncompeiive lease sales wihin

he same region raher han on he marke prices or where he coal is shipped anduilized.38In he case o PRB coal, he delivery price or he poin o end use is

commonly much higher han he mine-mouh price o he coal, or he marke

price or he coal a is poin o origin. As a resul, companies requenly win

single-bid aucions wih botom-o-he-barrel bids and proceed o sell he same


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coal a much higher prices, in urn reaping huge profis. For example, he average

mine-mouh price o PRB coal is $11.55 per on, bu i is sold or more han riple

ha priceroughly $37 per onwhen i ulimaely reaches marke downsream

in he Midwes.39

By collecing ederal coal royalies on hese arificially low mine-mouh pricesraher han he delivery price a he final poin o sale, he ederal governmen is

losing ou on significan revenue. For example, a 12.5 percen royaly rae or a on

o coal priced a $60 per on yields a royaly o as much as $7.50 per on, assuming

ha he coal company does no receive addiional ransporaion and processing

subsidies. In conras, a on o coal sold a $13 per on yields a royaly o only

$1.63 per on. Tese royaly losses are magnified when applied o he millions o

ons o ederal coal sold annually.


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Policy recommendations

Correct distortions in the coal market to generate new revenue for

coal communities

Alhough separaed by housands o miles, he Appalachian and Powder River Basin

coal regions are inexricably linked. Te rise o he PRB coal indusry coincided

wihand even expediedhe decline o he Appalachian coal indusry. A broken

and oudaed ederal coal-leasing program has led o an abundance o cheap PRB

coal ha has undercu coal economies in Appalachia and oher regions. Tismisguided ederal policy exacerbaes he marke challenges ha Appalachias coal

fields already ace.

Federal policymakers canno change many o he marke orces conroning he

Appalachian coal indusry, bu hey can ake acion o eliminae marke disorions

creaed by ederal policy ha provides a governmen-subsidized advanage o PRB

coal. Secreary o he Inerior Sally Jewell has he auhoriy o implemen needed

reorms o he ederal coal-leasing program. Tese reorms will generae new

revenue no only or he ederal governmen bu also or he saes where mining

akes place, which receive approximaely hal o he royalies colleced.40Bu he

secreary does no have he auhoriy o direc he new revenue o where i is mos

needed: Appalachian communiies ha have been hardes hi by he flucuaions

o he coal marke.

CAP recommends ha Congress ake on he responsibiliy o fixing he curren

flaws in he ederal coal-leasing program ha give an unair advanage o PRB coal

a he expense o Appalachia. In order o accomplish his, CAP offers wo policy

opions. Congress could increase he long-sagnan royaly rae or surace-mined

coal. Tis would apply only o coal mined rom new leases; he royaly rae assessedon coal rom exising leases would no change. A more comprehensive approach

would be o change he applicaion poin o he exising royaly rae o he final

poin o sale, generaing royaly paymens on he rue marke value o ederal coal

raher han on below-marke prices closer o he mine-mouh. I Congress ails o

ac, Secreary Jewell should use her auhoriy o modernize he royaly sysem.41


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In eiher case, Congress should direc he new revenue generaed rom hese

reorms oward economic developmen, job raining, and employmen assisance

programs in Appalachia. Te goal o his proposal is o provide relie or sruggling

Appalachian coal communiies. Wih his objecive in mind, Congress may wish

o exemp he very small amoun o coal producion ha occurs on ederal lands

in Appalachia rom any revenue-relaed policy changes.

Option 1: Increase the royalty rate, minimum bids, and rental rates for

federal coal sales

Royaly raes or he ederal coal program have remained sagnan or decades.

Congress could ac o raise he royaly rae or surace-mined ederal coal o align

i more closely wih he royaly rae or oher publicly owned resources, such as oil

and gas on he Ouer Coninenal Shel. Noably, he new royaly rae or surace-

mined coal would only apply o new leases or leases renewed in he uure, no oexising leases.

In addiion, Congress could raise he minimum bid and renal rae or ederal

coal sales, which have no been updaed in decades, o beter reflec inflaion and

movemens in he coal marke.42Tese changes would be unlikely o generae

significan revenue relaive o an increased royaly rae, bu hey would help ensure

ha ederal leases beter reflec he coals rue value.

Option 2: Assess royalties based on the true market value of federal coal

o deliver a airer royaly sysem on boh new and exising coal leases, Congress

could require he Deparmen o he Inerior o change how exising royalies are

assessed. Because i would apply o boh exising and new leases, his opion is

likely o generae more near-erm revenue han increasing he royaly rae on coal

sales rom uure leases alone.

Te Bureau o Land Managemen currenly assesses royalies on ederal coal a he

firs sale o a nonaffiliaed hird pary, wih he majoriy o hese sales generallyaking place a he mine mouh. Tis mehod undervalues he coal because i does

no accoun or he price paid a he final poin o sale o he end user, such as a

coal-fired power plan. o correc his problem, Congress could change he poin

o applicaion or he exising 12.5 percen royaly rae o require mining companies

o pay royalies on he rue marke value o ederal coala value deermined by

he final sale price o he end user.


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Stakeholders are already crafting programs to help Appalachian

coal communities

In ligh o he linked aes o he Appalachian and Powder River basins, i is

appropriae or policymakers o consider how reorming he policies ha unairly

benefi one basin could help alleviae he problems acing he oher. Policymakerscan dedicae revenue generaed by reorming disorionary policies in he ederal

coal program o programs ha provide assisance o sruggling coal communiies

in Appalachia.

An effecive coal-communiy ransiion program could ake several orms, bu i

should provide incenive or long-erm economic developmen while providing

shor-erm relie o unemployed coal miners and affeced communiies. Some sae

and ederal policymakers and key sakeholders already have begun o develop and

implemen programs designed o help coal communiies in Appalachia. For example:

In Kenucky, Gov. Seve Beshear (D) and Rep. Hal Rogers (R) launched he

Shaping Our Appalachian Region, or SOAR, iniiaive in lae 2013. Tis iniiaive

has he goal o revializing and diversiying he regions economy. Te Mounain

Associaion or Communiy Economic Developmena nonprofi organizaion

dedicaed o promoing susainable economic developmen in easern Kenucky

and Cenral Appalachiais urging SOAR and sae policymakers o pursue a

five-pronged sraegy ocused on enrepreneurship, energy efficiency, local oods,

oresry, and argeed public and privae invesmen.43

In December 2013, he W hie House designaed an eigh-couny region in

easern Kenucky as a ederal Promise Zone. Te goal o he Promise Zones

iniiaive is o parner wih local communiies and businesses o creae jobs,

increase economic securiy, expand educaional opporuniies, increase access

o qualiy, affordable housing, and improve public saey.44Te Kenucky

Highlands Invesmen Corporaion is leading he process o develop a sraegic

plan or he region, ocusing on economic diversificaion, small-business

developmen, worker raining, and career-readiness programs.45

Rep. Peer Welch (D-V) and Rep. David McKinley (R-WV) inroducedlegislaion in he 113h Congress called he Healhy Employee Loss Prevenion

Ac o 2014, or HELP Ac.46Te bill, modeled afer he rade Adjused Assisance

Ac ha offered suppor o workers affeced by rade liberalizaion, ses up a

commission o direc assisance o coal indusry workers who have los heir

jobs. Eligible workers would receive moneary benefis or up o wo years, as

well as worker raining and oher employmen suppor services.


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Policymakers can also look o models rom he pas in order o craf a srong

coal-communiy redevelopmen and assisance program. For example, he U.S.

Deparmen o Energy, or DOE, operaed a worker ransiion program rom 1994

o 2004 wih he goal o minimiz[ing] he social and economic impacs o

changes in he Deparmens aciviies.47Tis included supporing communiies

where employmen was harmed by disconinued DOE aciviy, such as hedecommissioning o nuclear aciliies.48Te program helped laid-off workers find

new jobs and provided ransiion allowances or a cerain period o ime. Te

DOE program also worked wih economic developmen organizaions in he

affeced communiies o ideniy public and privae invesmen opporuniies and

o spur new, local job creaion.49


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Conclusion

Appalachian coal communiies have aced decades o job losses. oo ofen, poliicians

have resored o blaming healh and environmenal proecions or he coal indusrys

sruggles raher han recognizing he pervasive and inracable marke orces ha

have been building or decades. Coninuing his dead-end poliical debae will no

help sruggling communiies. Insead, policymakers should ocus on finding ways

o revialize and diversiy Appalachian coal communiies in order o make hem

less vulnerable o flucuaions in he coal marke.

Sae and ederal policymakers and sakeholders are developing programs o renew

Appalachian coal communiies, bu dedicaed unding or hese programs remains

a challenge. Congress has a unique opporuniy o help. By fixing flaws in he ederal

coal-leasing program, Congress can correc marke disorions ha have given

Powder River Basin coal an unair advanage over Appalachian coal or decades.

Tis would generae new revenue, which Congress could inves in economic

developmen, job raining, and employmen assisance programs in Appalachia.

Noably, Secreary o he Inerior Jewell could use her exising auhoriy o reorm

he royaly sysem i Congress ails o ac. Bu only Congress has he auhoriy o

decide where o direc he new revenue. As such, Congress has boh he power

and he responsibiliy o fix he flawed ederal policies ha have disadvanaged

Appalachian coal communiies and o creae new opporuniies or economic

growh across he region.


19/22


About the authors

Gov. Ted Stricklandis Counselor o he Cener or American Progress. He served

six erms in Congress and became Ohios 68h governor in 2006.

Greg Dotsonis he Vice Presiden o Energy Policy a he Cener. Prior o hiscurren posiion, Doson was he Democraic energy and environmen saff direcor

or he House Energy and Commerce Commitee.

Matt Lee-Ashleyis a Senior Fellow and he Direcor o he Public Lands Projec a

he Cener, ocusing on energy, environmen, and public lands. Prior o joining he

Cener, Lee-Ashley served as depuy chie o saff a he Deparmen o he Inerior,

overseeing policy, exernal, communicaions, and legislaive maters on behal o

Secreary Ken Salazar.

Acknowledgments

Te auhors hank Alison Cassady, Direcor o Domesic Energy Policy a he

Cener, and Nidhi Takar, Depuy Direcor o he Ceners Public Lands Projec,

or heir conribuions o his repor.


20/22


Endnotes

1 Federal Reserve Bank of St. Louis, All Employees: Miningand Logging: Coal Mining, available at http://research.stlouisfed.org/fred2/series/CES1021210001 (last accessedJanuary 2015); Energy Information Administration,AnnualEnergy Review 2011(U.S. Department of Energy, 2012),p. 201, table 7.2, available athttp://www.eia.gov/totalenergy/data/annual/pdf/sec7_7.pdf.

2 Energy Information Administration, Coal Data Browser,available at http://www.eia.gov/coal/data.cfm(lastaccessed January 2015); Energy Information Administra-tion, Coal Industry Annual 1994(U.S. Department ofEnergy, 1994), p. 60, available athttp://www.eia.gov/coal/annual/archive/05841994.pdf.

3 Energy Information Administration,Annual EnergyOutlook 2014(U.S. Department of Energy, 2014), p. MT-31,available at http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf.

4 Wendy Koch, U.S. coal imports surge while exportsplummet, USA Today, August 2, 2014, available athttp://www.usatoday.com/story/money/business/2014/08/02/us-coal-imports-up-but-exports-down/13368199/.

5 Energy Information Administration,Short-Term EnergyOutlook (STEO) (U.S. Department of Energy, 2014), table6,available athttp://www.eia.gov/forecasts/steo/archives/Dec14.pdf.

6 Ibid.

7 Energy Information Administration,Annual CoalDistribution Report 2012 (U.S. Department of Energy,2013), Domestic and Foreign Distribution of U.S. Coalby State of Origin, 2012, available athttp://www.eia.gov/coal/distribution/annual/pdf/o_12foreign.pdf;Energy Information Administration,Annual CoalDistribution Report 2010 (U.S. Department of Energy,2011), Domestic and foreign distribution of U.S. Coalby State of origin, 2010, available athttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdf.

8 Energy Information Administration, Natural Gas Gross

Withdrawals and Production, available at http://www.eia.gov/dnav/ng/NG_PROD_SUM_DCU_NUS_A.htm(last accessed December 2014).

9 Prices fell from a 10-year high of $8.86 per millionBritish thermal units, or BTUs, in 2 008 to an average of$2.75 per million BTUs in 2012 and to $3.73 per millionBTUs in 2013. See Energy Information Administration,Henry Hub Natural Gas Spot Price, available at http://www.eia.gov/dnav/ng/hist/rngwhhdA.htm (lastaccessed December 2014).

10 Coal accounted for half of the countrys net generationof electricity in 2004, compared with the 18 percentprovided by natural gas. Coals share dropped to 39percent by 2013, with natural gas accounting for 27percent of the nations electricity generation. See EnergyInformation Administration, Electric Power Monthly(U.S.Department of Energy, 2014), table 1.1, available at

http://www.eia.gov/electricity/monthly/current_year/november2014.pdf.

11 Energy Information Administration,Annual Coal Report2012(U.S. Department of Energy, 2013), table 21,available at http://www.eia.gov/coal/annual/pdf/table21.pdf.

12 Energy Information Administration, Coal News andMarkets, week ending December 12, 2014, available athttp://www.eia.gov/coal/news_markets/(last accessedDecember 2014).

13 Energy Information Administration,Annual EnergyReview 2011, table 7.2.

14 Energy Information Administration, Coal Data Browser:Aggregate coal mine production: 20012012, availableathttp://www.eia.gov/beta/coal/data/browser/(lastaccessed December 2014).

15 Clyde Bergemann Power Group, Benefits of BurningPRB Coal, available at http://www.cba-ssd.com/Applications/knowledgeBase/PRBcoal/BenefitPRB.htm(last accessed December 2014).

16 Energy Information Administration, Form EIA-923detailed data: 2014M: EIA-923 through October,available at http://www.eia.gov/electricity/data/eia923/(last accessed December 2014).

17 Authors calculations are based on 2012 data from theEnergy Information Administration and the U.S.Department of the Interiors Office of Natural ResourcesRevenue. For data on production in the Powder RiverBasin, see Energy Information Administration, Coal DataBrowser. For data on coal production on all federal lands,see Office of Natural Resources Revenue, StatisticalInformation, available ath ttp://statistics.onrr.gov/ReportTool.aspx(last accessed January 2015). The authorfiltered this data by Reported Revenues - Sales Volumes,Sales Year, FY2012, All Land Categories, All States andOffshore Regions.

18 Between 2003 and 2013, 0.06 percent of Appalachiancoal production occurred on federal lands. Authorscalculations are based on data from the EnergyInformation Administration and the U.S. Department ofthe Interiors Office of Natural Resources Revenue. Fordata on production in the Appalachian coal basin, seeEnergy Information Administration, Coal Data Browser.For data on coal production on federal land in Kentucky,the only Appalachian state to report federal coal

production, see Office of Natural Resources Revenue,Statistical Information. The author filtered this data byReported Revenues - Sales Volumes, Sales Year, FY2003to FY2013, All Land Categories, Kentucky.

19 Bureau of Land Management, Coal Operations, availableathttp://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.print.html (last accessed January 2015).

20 For a history of the federal coal-leasing program, seeNidhi Thakar, Modernizing the Federal Coal Program(Washington: Center for American Progress, 2014),available at https://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/.

21 Office of Inspector General, Coal Management Program,U.S. Department of the Interior:Report No.: CR-EV-BLM-0001-2012 (U.S. Department of the Interior, 2013), p. 3,

available at http://www.doi.gov/oig/reports/upload/CR-EV-BLM-0001-2012Public.pdf.

22 Government Accountability Office, Coal Leasing: BLMCould Enhance Appraisal Process, More Explicitly ConsiderCoal Exports, and Provide More Public I nformation,GAO-14-140, Report to Congressional Requestor,December 2013, p. 16, available at http://www.gao.gov/assets/660/659801.pdf.
http://research.stlouisfed.org/fred2/series/CES1021210001http://research.stlouisfed.org/fred2/series/CES1021210001http://www.eia.gov/totalenergy/data/annual/pdf/sec7_7.pdfhttp://www.eia.gov/totalenergy/data/annual/pdf/sec7_7.pdfhttp://www.eia.gov/coal/data.cfmhttp://www.eia.gov/coal/annual/archive/05841994.pdfhttp://www.eia.gov/coal/annual/archive/05841994.pdfhttp://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdfhttp://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdfhttp://www.usatoday.com/story/money/business/2014/08/02/us-coal-imports-up-but-exports-down/13368199/http://www.usatoday.com/story/money/business/2014/08/02/us-coal-imports-up-but-exports-down/13368199/http://www.eia.gov/forecasts/steo/archives/Dec14.pdfhttp://www.eia.gov/forecasts/steo/archives/Dec14.pdfhttp://www.eia.gov/coal/distribution/annual/pdf/o_12foreign.pdfhttp://www.eia.gov/coal/distribution/annual/pdf/o_12foreign.pdfhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/dnav/ng/NG_PROD_SUM_DCU_NUS_A.htmhttp://www.eia.gov/dnav/ng/NG_PROD_SUM_DCU_NUS_A.htmhttp://www.eia.gov/dnav/ng/hist/rngwhhdA.htmhttp://www.eia.gov/dnav/ng/hist/rngwhhdA.htmhttp://www.eia.gov/electricity/monthly/current_year/november2014.pdfhttp://www.eia.gov/electricity/monthly/current_year/november2014.pdfhttp://www.eia.gov/coal/annual/pdf/table21.pdfhttp://www.eia.gov/coal/annual/pdf/table21.pdfhttp://www.eia.gov/coal/news_markets/http://www.eia.gov/beta/coal/data/browser/http://www.cba-ssd.com/Applications/knowledgeBase/PRBcoal/BenefitPRB.htmhttp://www.cba-ssd.com/Applications/knowledgeBase/PRBcoal/BenefitPRB.htmhttp://www.eia.gov/electricity/data/eia923/http://statistics.onrr.gov/ReportTool.aspxhttp://statistics.onrr.gov/ReportTool.aspxhttp://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.print.htmlhttp://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.print.htmlhttps://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/https://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/https://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/http://www.doi.gov/oig/reports/upload/CR-EV-BLM-0001-2012Public.pdfhttp://www.doi.gov/oig/reports/upload/CR-EV-BLM-0001-2012Public.pdfhttp://www.gao.gov/assets/660/659801.pdfhttp://www.gao.gov/assets/660/659801.pdfhttp://www.gao.gov/assets/660/659801.pdfhttp://www.gao.gov/assets/660/659801.pdfhttp://www.doi.gov/oig/reports/upload/CR-EV-BLM-0001-2012Public.pdfhttp://www.doi.gov/oig/reports/upload/CR-EV-BLM-0001-2012Public.pdfhttps://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/https://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/https://www.americanprogress.org/issues/green/report/2014/12/09/102699/modernizing-the-federal-coal-program/http://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.print.htmlhttp://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.print.htmlhttp://statistics.onrr.gov/ReportTool.aspxhttp://statistics.onrr.gov/ReportTool.aspxhttp://www.eia.gov/electricity/data/eia923/http://www.cba-ssd.com/Applications/knowledgeBase/PRBcoal/BenefitPRB.htmhttp://www.cba-ssd.com/Applications/knowledgeBase/PRBcoal/BenefitPRB.htmhttp://www.eia.gov/beta/coal/data/browser/http://www.eia.gov/coal/news_markets/http://www.eia.gov/coal/annual/pdf/table21.pdfhttp://www.eia.gov/coal/annual/pdf/table21.pdfhttp://www.eia.gov/electricity/monthly/current_year/november2014.pdfhttp://www.eia.gov/electricity/monthly/current_year/november2014.pdfhttp://www.eia.gov/dnav/ng/hist/rngwhhdA.htmhttp://www.eia.gov/dnav/ng/hist/rngwhhdA.htmhttp://www.eia.gov/dnav/ng/NG_PROD_SUM_DCU_NUS_A.htmhttp://www.eia.gov/dnav/ng/NG_PROD_SUM_DCU_NUS_A.htmhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/coal/distribution/annual/archive/2010/o_10foreign.pdfhttp://www.eia.gov/coal/distribution/annual/pdf/o_12foreign.pdfhttp://www.eia.gov/coal/distribution/annual/pdf/o_12foreign.pdfhttp://www.eia.gov/forecasts/steo/archives/Dec14.pdfhttp://www.eia.gov/forecasts/steo/archives/Dec14.pdfhttp://www.usatoday.com/story/money/business/2014/08/02/us-coal-imports-up-but-exports-down/13368199/http://www.usatoday.com/story/money/business/2014/08/02/us-coal-imports-up-but-exports-down/13368199/http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdfhttp://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdfhttp://www.eia.gov/coal/annual/archive/05841994.pdfhttp://www.eia.gov/coal/annual/archive/05841994.pdfhttp://www.eia.gov/coal/data.cfmhttp://www.eia.gov/totalenergy/data/annual/pdf/sec7_7.pdfhttp://www.eia.gov/totalenergy/data/annual/pdf/sec7_7.pdfhttp://research.stlouisfed.org/fred2/series/CES1021210001http://research.stlouisfed.org/fred2/series/CES1021210001


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23 Ibid., p. 46.

24 Ibid., p. 28.

25 Tom Sanzillo, The Great Giveaway: An Analysis of theCostly Failure of Federal Coal Leasing in the PowderRiver Basin (Washington: Institute for Energy Economicsand Financial Analysis, 2012), p. 3, available athttp://www.worc.org/userfiles/file/Coal/062512_IEEFA_PRB_coal_report_FINAL2.pdf.

26 Office of Inspector General, Coal Management Program,

p. 1.

27 Government Accountability Office, Coal Leasing: BLMCould Enhance Appraisal Process, More ExplicitlyConsider Coal Exports, and Provide More PublicInformation, pp. 23, 25.

28 See 30 U.S.C. 207(a); 43 C.F.R. 3473.3-2(a)(1)-(2). TheFederal Coal Leasing Amendments Act specificallyprovides that surface-mine leases will be charged aminimum royalty rate of 12.5 percent and that thesecretary of the Interior sets by regulation the royaltyrate for underground mine leases: A lease shall requirepayment of a royalty in such amount as the Secretaryshall determine of not less than12 1/2 per centum ofthe value of coal as defined by regulation, except theSecretary may determine a lesser amount in the case ofcoal recovered by underground mining operations. See30 U.S.C. 207(a).

29 Bureau of Ocean Energy Management, Gulf of MexicoLease Terms and Royalty Relief Summary (U.S. Departmentof the Interior, 2012), available at http://www.boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Energy_Economics/Fair_Market_Value/GOMLease-

TermsRRSummary.pdf.

30 Ben Geman, Are Taxpayers Getting Their Fair Share ofOil Royalties?, National Journal, December 17, 2013,available at http://www.nationaljournal.com/energy/are-taxpayers-getting-their-fair-share-of-oil-royal-ties-20131217.

31 Government Accountability Office, Oil and GasResources: Actions Needed for Interior to Better Ensurea Fair Return, GAO-14-50, Report to the Chairman,Committee on Energy and Natural Resources, U.S.Senate, December 2013, pp. 1314, available at http://

www.gao.gov/assets/660/659515.pdf.

32 Ken Salazar, Interior, Environment, and Related AgenciesAppropriations for 2013, Testimony before the HouseCommittee on Appropriations, Subcommittee on Interior,Environment, and Related Agencies, February 16, 2012,pp. 4647, available at http://www.gpo.gov/fdsys/pkg/CHRG-112hhrg74739/pdf/CHRG-112hhrg74739.pdf.

33 30 C.F.R. 1206.257.

34 Thakar, Modernizing the Federal Coal Program.

35 Matt Lee-Ashley and Nidhi Thakar, Cutting Subsidiesand Closing Loopholes in the U.S. Department of theInteriors Coal Program (Washington: Center forAmerican Progress, 2015), available athttps://cdn.americanprogress.org/wp-content/uploads/2015/01/CoalSubsidies-brief.pdf.

36 43 C.F.R. 3422.1(c)(2).

37 Bureau of Land Management, BLM competitive coallease sale in Delta County nets $2.9 million, Pressrelease, July 30, 2014, available at http://www.blm.gov/co/st/en/BLM_Information/newsroom/2014/blm_competitive_coal.html.


39 Energy Information Administration, Coal News andMarkets, week ending December 12, 2014. Average

Midwest market price is based on authors analysis ofdata obtained from Energy Information Administration,Form EIA-923 detailed data.

40 Bureau of Land Management, Coal Operations,available at http://www.blm.gov/wo/st/en/prog/energy/coal_and_non-energy.html(last accessedJanuary 2015).


42 The minimum bid of $100 per acre or the equivalent incents per ton was set by regulation in 1982. See 43 3422.1 (c)(2). The rental rate of $3 per acre was set in1979. See 43 3473.3-1 (a).

43 Mountain Association for Community EconomicDevelopment, Strategies for Appalachian Transition(2014), available athttp://www.maced.org/files/

Strategy%20Briefs%20Report%20web.pdf.

44 The White House, Fact Sheet: President ObamasPromise Zones Initiative, Press release, January 8, 2014,available at http://www.whitehouse.gov/the-press-office/2014/01/08/fact-sheet-president-obama-s-promise-zones-initiative.

45 Ibid.

46 Healthy Employee Loss Prevention Act, H.R. 5529, 113Cong., 2 sess. (Government Printing Office, 2014),available at https://www.congress.gov/113/bills/hr5529/BILLS-113hr5529ih.pdf.

47 Office of Strategic Planning and Program Evaluation,Annual Performance Plan for Fiscal Year 2002(U.S.Department of Energy, 2003), p. 81, available at http://www.paducaheic.com/media/39813/lb09900-0167-

grc01.pdf.

48 Ibid.

49 Robert Pollin and others, Green Growth (Washingtonand Amherst, MA: Center for American Progress andPolitical Economy Research Institute, 2014), p. 309,available at http://cdn.americanprogress.org/wp-content/uploads/2014/09/PERI.pdf.
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Documents

Revitalizing Appalachia