Mining Companies Pay Far Less Than They Should For Taxpayer-Owned Coal

The U.S. government is running a massive corporate welfare program for coal companies, prioritizing Big Coal's interests over the environment and taxpayers, according to a Greenpeace report released Thursday based on government documents.

Much of the country’s largest coal deposits west of the Mississippi River sit beneath federal land. That coal is owned by taxpayers and leased to coal companies by the government. Federally owned coal accounts for three-quarters of what’s mined by three of the largest U.S. coal companies -- Arch Coal, Peabody Coal, and Cloud Peak Energy -- according to documents obtained by Greenpeace recently through a Freedom of Information Act request. The companies have the right to mine that coal for a fraction of its real value.

A problem with charging companies so little to mine government-owned coal is that it doesn't account for costs to the environment. Coal is one of the dirtiest fossil fuels, causing smog, acid rain, and air pollution when it burned by power plants. It’s the world’s leading cause of carbon emissions, which cause climate change, and even in the short term can cause respiratory, cardiovascular, and nervous system issues for those exposed to its pollutants.

Adding the social cost of burning coal would bump up the price of leasing these mining rights by $5 billion to $55 billion -- depending on how you calculate damage to the environment -- to the totals paid to the government each year. And that’s just for the three largest coal companies, according to the report.

“Whatever logic may have held in the past, a federal program that has flooded the market with subsidized coal is clearly inconsistent with federal policy priorities to address climate change,” the report says.

Alissa Scheller

The American Coal Council, an industry group, noted in a statement in January that the industry has paid American taxpayers $12 billion over the last decade, or just over $1 billion a year. That means the industry should be paying five-fold what it does now, using the most conservative estimate of coal’s social cost cited by Greenpeace.

Coal deposits in the eastern U.S., where land was settled long before the Industrial Revolution, are largely private property. But in the mid-19th century, and even into the 20th century, the federally owned prairies of Wyoming and Montana were seen as mostly valueless and barren. 

“Generally there wasn’t any coal mining or much of a recognition that there was a vast resource of coal that underlay the surface of federal land” until about the 1970s, said Patrick McGinley, an environmental and administrative law professor at West Virginia University.

At that point, the government came up with the system it still uses to lease mineral rights to coal companies. The companies bid on plots of land, and pay royalties to the government on what they mine. The process is similar to how the government handles some major oil and gas deposits, according to a recent report from the Rainforest Action Network.

When it comes to coal, companies don’t pay as much in royalties as the government originally wanted them to. Royalty rates under the Mineral Leasing Act are supposed to be minimum of 12.5 percent. But coal companies are often granted rate reductions. “A report by Headwaters Economics found an effective royalty rate of just 4.9% for federal coal mined between 2008 and 2012, amounting to an average of $1.70 per ton,” according to Greenpeace. 

Meanwhile, coal companies pour millions into lobbying the government each year. Peabody Energy and Arch Coal regularly top the industry with their lobbying spending. In 2014, Arch Coal spent $1.77 million on lobbying, Peabody Energy spent $1.09 million on its own and $2.41 million through its affiliate Peabody Investments. Cloud Peak Energy spent $230,000, according to OpenSecrets.org.

In recent years, thanks to a loophole in the law governing the government's largest coal deposit in Wyoming's Powder River Basin, coal companies have generally been able to choose the plots of land they bid on. Companies tend to choose plots next to their existing mines, where it's cheapest for them to move, and often face very little competition.

The rather good deal for the coal companies has not completely escaped the federal government. In January, the Obama administration announced a moratorium on new coal leases, while it evaluates the three goals it has to fulfill: getting a fair price for the taxpayer, meeting the country’s energy needs, and battling climate change for future generations.