After SOTU, preparing for the next fossil fuel fight

Source: Brittany Patterson and Evan Lehmann, E&E reporters • Posted: Friday, January 15, 2016

Environmentalists and industry groups alike are speculating on what the president has in store next for oil and coal after a seemingly nebulous statement he made during Tuesday night’s State of the Union address.

“Rather than subsidize the past, we should invest in the future — especially in communities that rely on fossil fuels,” Obama said. Offering his only climate change policy prescription of the evening, he added, “That’s why I’m going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.”

Reading between the lines, some see the president’s statement as a signal that the administration will try to push through reforms to federal leasing programs for oil, gas and coal on public lands.

A White House official could not confirm Obama’s plans and said the administration will provide additional details in the coming weeks.

Two decades-old pieces of legislation — the Mineral Leasing Act of 1920 and the Mineral Leasing Act for Acquired Lands of 1947 — give the Department of the Interior’s Bureau of Land Management responsibility for minerals leasing on more than 550 million acres of federally owned public lands, as well as state and private lands where mineral rights have been acquired by the federal government.

About 40 percent of U.S.-produced coal comes from 310 active coal leases managed by BLM. Eleven percent of the country’s natural gas and 5 percent of its oil come from onshore oil and gas wells on federal lands. BLM collects more than $1 billion each year in bonus bids and royalty revenues from coal-mining operations alone on federal lands.

Echoes of ‘keep it in the ground’

One former official interpreted Obama’s remarks as being aimed at either raising the cost of coal through BLM’s leasing process or making it off-limits to coal companies altogether. Neither of those methods would require lawmakers’ consent, he said.

The latter seems to echo Obama’s increasingly frequent message about leaving fossil fuels untouched underground. In his address, he alluded to the idea of hastening the nation’s departure from “dirty energy.”

Currently, about 475,000 acres of federal land is leased out for coal mining, according to BLM records. One way the president could reduce emissions is to prevent additional land from being used for extraction, said Bob Abbey, a former director of BLM under Obama.

“There’s some discretion to the agency itself on which lands, if any lands, they would like to lease for that particular use,” Abbey said in an interview yesterday. “If they decided they would like to lessen the amount of coal that’s available to the markets, they would certainly have that discretionary authority to not offer as much land, or tonnage of coal, to companies through the leasing process.”

Obama could also reduce the amount of mining by raising its costs. BLM has been criticized for charging below-market rates to companies that are increasingly selling coal in more expensive markets in Asia. If, for example, a company were planning to sell the federal coal in the United States, where coal prices are low, BLM would theoretically charge it less than if the company planned to sell it in more lucrative markets. More coal now is being sold overseas, but critics contend that BLM often fails to charge those companies more.

“And the coal companies, at least some, could say that they’re making a sizable profit that wasn’t incorporated into the appraisal process,” Abbey said. “I think based upon the information that has come to light over the last couple years, the Department of the Interior already has the authority to make changes in the way they appraise coal, and to adjust those appraisals to reflect the market. That in itself I think would raise the cost for leasing.”

Gale Norton floats price adjustment theory

Industry groups balked at yet another example of presidential action on climate, carried on the backs of reducing U.S. dependence on fossil fuels.

“The president is obviously on the wrong path,” said Luke Popovich, vice president of external communications for the National Mining Association. “He’s targeting the largest share of coal production from an energy source that provides the largest share of U.S. electricity even now — removing coal will create a far less diverse energy supply and damages economies in coal states.”

Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance, a group that represents oil and natural gas companies that operate on public lands in the Western states, said the administration “basically wants to drive oil and gas producers off federal lands.”

“It’s one thing to update regulations, but it’s another to change the nature of production,” she said. “For Western producers and Western communities, oil and gas is extremely important.”

Others interpreted Obama’s meaning differently. Gale Norton, former Interior secretary under President George W. Bush, thinks that Obama could be talking about adjusting the price of federal coal to reflect the costs of releasing greenhouse gases.

In essence, that would require throwing out the traditional appraisal process used by BLM to set royalty prices.

“For the administration to go an entirely different direction and try to use something besides ordinary appraisal approaches seems like it would take congressional action,” Norton said.

That scenario might be unlikely, given Obama’s tendency to sidestep the Republican Congress.

Instead, he might be considering a change to the environmental review process that is required before new mines can be approved. If it includes a requirement to consider the life-cycle effects of greenhouse gases associated with the coal to be extracted, it might tip the scales against the new mine.

Norton said it’s unclear if Obama could do that without proposing a new rule, which might not be done before he leaves office.

“I’m sure that’s one that would be litigated one way or the other, with some saying there should be a rulemaking and others saying a secretarial order could require Interior agencies to consider climate change impacts,” Norton said.

Congress questions the federal leasing programs

Yesterday, Democratic Reps. Alan Lowenthal of California and Raúl Grijalva of Arizona introduced legislation that would raise the rate oil and gas companies pay for leasing public lands to “ensure that the American people are being fairly compensated for the extraction of resources on public lands.”

The bill would push the minimum bid companies have to pay for federal lands to $4 per acre and the rental rate to $3 per acre per year. It also would mandate that values be adjusted for inflation. Rates were last set by Congress in the 1980s and have not been adjusted since.

The Sierra Club’s lands protection program director, Athan Manuel, said additional regulations on the federal program ultimately benefit the climate.

“The oil and gas industry has benefited from outdated royalty rates for leasing our public lands, while the American people are forced to suffer the consequences of fossil fuel extraction,” he said.

Sen. Ed Markey (D-Mass.), who called on the Government Accountability Office to look into the federal coal leasing program in 2012, said, “Leading on climate change means leading by example in how we manage the oil, gas and coal resources that belong to the American people.”

“I welcome the president’s call to implement reforms that I have been fighting for to ensure that we are not worsening climate change by giving away these fossil fuel resources at bargain-basement prices,” he said.

Publicly released in 2014, the GAO report found coal production from federally leased land leveled off in 2002. One of the report’s recommendations was that BLM require state offices to use more than one approach to estimate fair market value where practicable.

Last summer, Interior launched a series of listening sessions on the coal program, aimed at making leasing “more transparent and more competitive” (E&ENews PM, July 29, 2015).

Speaking at the first meeting, Interior Secretary Sally Jewell said she wanted leasing to meet the administration’s “climate objectives.” The department has not said when final recommendations will be made.