Moratorium on Federal Coal Leasing Issued by Secretary Jewell

By Denise A. Dragoo

On January 15, 2016, Interior Secretary Jewell halted federal coal leasing on public lands. Western coal companies are attempting to sort out the implications of the moratorium and exemptions set out in Secretarial Order 3338.  The Order places a “pause” on leasing for an indefinite period while the Secretary undertakes a comprehensive review of the Federal Coal Program and a Programmatic Environmental Impact Statement (“PEIS”).  The Order was released only days after President Obama announced in the State of the Union Address his intent 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.”  The Department’s review will address climate change, declining coal production and fair market value. BLM Director Neal Kornzie has confirmed that the moratorium will last at least three years and impact some 50 pending lease applications (“LBAs”), including a dozen operations in Utah and Colorado. The moratorium could have a significant impact on the availability of coal nationwide. The Secretarial Order  recognizes that “over the last few years, approximately 41% of the Nation’s annual coal production has come from Federal land” and that some 85% of that production comes from the Powder River Basin in Montana and Wyoming. Order at 2.  In addition to removing available  federal coal reserves, the moratorium will reduce the lease revenues of Western states. Fifty percent of federal coal lease revenues are returned to the States in which the coal is mined and these funds are used to address the community impacts and develop infrastructure.

Upon closer examination, the Secretarial Order is not an across-the-board ban on federal coal leasing. Not all public lands are subject to the Order. Tribal and allotted land is not affected.  The Bureau of Indian Affairs regulates these leases, and  most of the federal coal reserves within the State of Arizona are located on Tribal lands.  The moratorium applies exclusively to steam coal (used to fuel coal-fired power plants) and exempts metallurgical coal (used for steel production). Rather than imposing the moratorium at the point of a new application, the Secretary chose to halt any pending application without a record of decision recommending a lease.  This has significant economic impacts on applicants who have borne the cost of environmental analysis but now cannot proceed to a final decision on the lease.  It is difficult to see how the Interior Department is harmed by proceeding with pending lease applications.  Climate change and the direct and indirect impacts of greenhouse gas emissions resulting from coal leasing can be fully considered in the NEPA analysis of a specific lease tract. Environmental stipulations can be added to lease terms and conditions.  The leasing process involves public comment, competitive bidding and confirmation that the bid accepted meets fair market value and is not anti-competitive.  The pending lease applications have already met the suitability criteria for leasing under the Federal Mineral Leasing Act, the Federal Land Policy and Management Act and the Surface Mining Control and Reclamation Act.  Despite the considerable discretion of the Secretary to control environmental impacts and assure a fair return on value, 33 pending LBAs remain subject to the moratorium.

The coal industry is carefully studying exceptions to the moratorium under Section 6 of the Secretarial Order. Based on BLM’s projections, approximately 17 LBAs for steam coal may proceed to lease sale where records of decision have already issued, lease modifications do not exceed 160 acres or a lease will avoid the bypass of federal coal reserves.  The operators of existing coal mines may qualify for emergency leasing if federal coal is needed within 3 years to maintain existing operations. However, while the moratorium is in effect, federal coal reserves will not be available to applicants seeking to start new mining operations. The Secretarial Order provides for clear exceptions under Sections 5 and 6 and states that these exceptions, although limited, will be applied during the moratorium to minimize economic hardship. The Secretarial Order recognizes that a significant portion of national coal production comes from Federal land in the west. Clearly, the Secretary’s judicious use of these exceptions may be necessary to maintain coal production in the west and to meet the needs of the nation. Secretarial Order 3338 can be accessed at the following link:

http://www.blm.gov/style/medialib/blm/wo/Communications_Directorate/public_affairs/news_release_attachments.Par.4909.File.dat/SO%203338%20Coal.pdf

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