Powder River Basin not a ‘coal producing region’?

February 11, 2011 by Ken Ward Jr.

Now, I’m certainly no expert on western coal or on the process the government uses to lease all of that publicly owned coal in Wyoming’s Powder River Basin to the handful of companies that operate huge surface mines there.

But this announcement by the group WildEarth Guardians sure caught my eye:

The U.S. Bureau of Land Management today announced that the largest coal producing region in the United States is not a coal production region.

Huh?

I thought the Powder River Basin was the largest coal-producing region in the U.S., churning out nearly half of the nation’s production. How could the government classify it as not being a coal production region? Why would they do that?

Well, thanks to Coal Tattoo reader Andy Wildenberg for calling this Associated Press story on the issue to my attention in his comment on last week’s Friday Roundup. A longer version of the AP story explains:

The U.S. Bureau of Land Management has denied a petition by environmental groups to change its process for selling access to the nation’s most productive coal deposits.

Since 1990, the government has allowed the coal industry to nominate deposits it wishes to mine in the Powder River Basin in northeast Wyoming and southeast Montana. Such deposits typically are located next to existing strip mines in the basin.

At auction, the leases seldom attract more than one bidder apiece — the company that already has been mining next to the leases.

In 2009, the groups WildEarth Guardians and the Sierra Club asked the BLM to change the policy so the BLM alone would decide which coal reserves to sell.

Such a change would help create more competition for the leases while improving oversight of coal’s contribution to climate change, the groups said.

Coal from the Powder River Basin is burned in more than 200 coal-fired power plants in more than 35 states. Map by WildEarth Guardians.

You can read a copy of the WildEarth Guardians petition to the BLM here, and the agency’s decision on that petition is here. In a press release, WildEarth Guardians explained:

The 1990 decision in essence declared the region no longer produced coal. Director Abbey’s decision today reaffirms this declaration.

“Decertification” has allowed the Bureau of Land Management—the Interior Department agency that oversees federal coal leasing—to avoid following standard leasing procedures, allowing coal companies, rather than the federal government, to design lease boundaries that preclude competition.

As I understand this — and anyone with more detailed knowledge, please jump in with comments — the Interior Department did away with standard bidding procedures about 20 years ago, at a time when Powder River Basin coal production was down, and there were few bidders on new leases. But production has obviously skyrocketed in the area since then. And the Interior Department seems to be saying — at least in response to this WildEarth Guardians’ petition — that it wants to maintain the current lease process because doing so benefits the industry:

It is logical and prudent for the least tracts to be adjacent to one or more existing mines. These are production maintenance tracts and, as such, are located so that existing operations can pass onto these tracts without leaving tracts un-leased and undeveloped in between the existing Federal coal lease and the proposed production maintenance tract that would require significant additional disturbance and cost to the mine independently. Production maintenance leasing can only work in a decertified coal production region.

In other words, the process used now allows companies like Peabody and Arch to more easily propose and obtain leases to expand their existing operations in the PRB — and that’s just fine with the government. What’s not clear, from a business standpoint, is how this encourages competition in the form of new companies that might want to get in on the action.

Jeremy Nichols, Climate and Energy Program Director for WildEarth Guardians, said:

Once again, the U.S. Interior Department and its agencies are running interference for the fossil fuel industry. Instead of living up to their promises to restore trust and accountability in the wake of the Gulf oil spill, Interior and the Bureau of Land Management are protecting coal companies at the expense of American taxpayers.

Interestingly, WildEarth Guardians also points out that this leasing process allows the Interior Department to avoid taking a hard look at the global warming impacts of all of that publicly owned coal that is mined in the Powder River Basin Nichols said:

The government is literally shortchanging the public at the expense of our climate. This is borderline corruption and sadly, it’s our environment and our communities that stand to suffer most.

Why doesn’t BLM look more closely at this issue? Here’s what the agency says:

Specific regulated levels have not yet been established for GHG emissions. In each NEPA analysis, the BLM discloses that given the state of the science, it is not yet possible to associate specific actions with the specific global impacts such as potential climate effects. Since tools necessary to quantify incremental climate changes associated with specific GHG emissions are presently unavailable, the analysis cannot reach conclusions as to the magnitude or significance of the emissions on climate.


17 Responses to “Powder River Basin not a ‘coal producing region’?”

  1. Clem Guttata says:

    Here’s another relevant picture: http://www.flickr.com/photos/wvablue/3938764472/. (IIRC, Ken posted this here many months ago, too.)

    It’s the “Surface mining regional productivity” table from USGS Professional Paper 1625-F, pubs.usgs.gov/pp/1625f/ Chapter E. It shows that area has the highest regional surface mining labor productivity in the country.

    Decertification was questionable back in 1990 and makes even less sense now.

    This is a great issue for free market loving members of our West Virginia congressional delegation to make a lot of noise about, since it is a government subsidy to reduce the cost of Western coal.

  2. watcher says:

    With western coal companies” allowed to side step rules that mine leases must follow in Appalachia” and not be tethered by environmental laws that apply ‘only’ in Appalachia, it’s not suprising that Warren Buffett and Bill Gates are interested in investing in Powder River Basin coal. After all the vast majority of western coal reserves are held by the federal goverment.

  3. Jim Sconyers says:

    This is very similar, too, to how the BLM handles oil and gas leases in the Monongahela National Forest. The company tells the BLM what land to lease, then BLM decides whether or not to do so.

  4. tetercreek says:

    One thing we must always keep in mind when talking about the Powder River is that the so-called “Public Land” involved here used to be part of the Sioux reservation allotted to them by treaty. Once the white people discovered that there was something valuable under the surface, we stole it back.

    Its really not our coal to sell; it belongs to the Indians who could use the money since they live in the poorest areas of the United States. In fact the only poor county in the eastern US comparable to the Sioux reservation is McDowell County, West Virginia.

    In other words they have stolen the coal wealth of the Powder River from the Native Americans just as they have stolen the coal wealth of West Virginia.

  5. Monty says:

    Gotta love the BLM’s logic, which is akin to the “how long is a string?” question. Rather than setting parameters, they just state there’s no way to measure it, so there’s no way to reach a conclusion!

  6. rhmooney3 says:

    13 surface mines in a 80-mile stretch of WY produce over 400 million tons of coal each year — about 40% of the total U.S. production, providing electricity to 20% of the U.S. homes.

    Arch Coal Black Thunder mine‏: http://www.youtube.com/watch?v=BvUbU1auBCA

    Wyoming Coal: http://www.wsgs.uwyo.edu/coalweb/WyomingCoal/default.aspx

  7. FactsFirst says:

    Ken,

    To answer your question, I checked with some folks in Washington and out in Wyoming. Here is my translation of what I was told. Under the Mineral Leasing Act, there are two types of leasing process, but both are competitive leasing and the bids must meet or exceed the government’s predetermined assessment of what is fair market value. Under regional leasing, a regional coal team comprised of representatives of the states in the production region, tribes, and several federal agencies nominate tracts and put them out for bid. Under the lease by applicaton process, a company will propose a tract and then the regional coal team will evaluate the tract and make any adjustments before it decides whether to puts it out for bid. Anyone can bid on that tract just as if in the other process anyone can bid on it. Under both processes, the winning bid is the highest and it must meet or exceed the federal government’s assessment of fair market value. My understanding is that the powder river basis was allowed to go to a lease by applicatoin process was because it was a mature production region with many large mines and there were few expressions of interest or bidders on individual tracts that were being nominated by the regional coal team. So they figured why not let those interested in bidding on tracts make the initial move of proposing tracts and then the team would decide whether and what to put out for a lease sale by public bid. I’ve been told that on a number of occssions that bids have been rejected under this process where the bid did not equal fair market value as determined by the Dept of Interior. The bid is just the intial payment and they often exceed $100 million dollars and once production starts after permitting etc they pay 12.5% production royalties. Both the bid and the royalties are shared between the federal government and the state. One comment I received in checking into this was that if states thought they were being shortchanged on the bids, they would be seeking to return to the other process, but apparently they think this works quite well from the standpoint of getting fair market value and keeping the existing mines competitive and producing. From an economic standpoint this seems right since the powder river basis in fairly mature and there would be few new entrants who could compete with existing mines for a new greenfield operation that is not attached to an existing mine. After looking at the Wildlife Guardian petition, it appears to be less about fair market value and more about slowing or stopping the orderly development of coal on federal and state lands in that region. There does not appear to be any different outcome on their concerns about considering climate change impacts under the lease by application process or the former process. The Department of Interior has addressed those comments in each of their decisoins to lease the tracts according to folks I called. Watcher’s comments seem underinformed. The process used for these federal leases go through NEPA before they are considered. And then later on they go through another one when the area is permitted by OSM and BLM. Tetercreek may have an interesting historical point. But in some areas the Indian tribes do have the coal held in trust for them by DOI and they receive royalties etc., e.g., Navajo, Crowe, Hopi etc.

  8. Alan Gregory says:

    There goes Wild Nature. Bye, bye. Same thing happened here in northeastern Pennsylvania in the heydays of anthracite coal mining. Someday, the Adirondacks of New York State will look a heckuva lot different than they do now — thanks to the burning of coal.

  9. Andy Wildenberg says:

    FactsFirst said “From an economic standpoint this seems right since the powder river basis in fairly mature and there would be few new entrants who could compete with existing mines for a new greenfield operation that is not attached to an existing mine.”

    I think this is where the party-line argument falls apart. The government contends that you don’t need competitive leases in the PRB because its market is mature, whereas the market in Appalachia is still in its infancy?!

    At this point there is tremendous demand for PRB coal, pressure to increase production, mergers and acquisitions to leverage every existing mine and a backlog to permit new mines/extensions. You don’t have to have a new operator come in to have a competitive bid. This is a small space with a number of major operators already present, so choose a large space separate from existing mines so that the majors (or a new player) can all bid on it instead of always choosing plots that ensure a predetermined outcome of a single bidder.

    The argument that the states can back out if they’re unhappy is fatuous. Opposing coal development in Wyoming is an electric fence; anyone who even hints at it will find their political career dramatically shortened. So they just aren’t going to oppose. Similarly, a veto by the DOI on low bids stops the worst abuses but doesn’t guarantee a fair price.

    The Otter Creek tracts in Montana (where it’s politically easier to defend the public interest in mining) are a case in point. Through a convoluted history the Otter Creek tracts have an private/state ownership that looks like a chess board. When Arch Coal acquired the rights to the private squares of the property, it wasn’t a surprise that they would be the only one bidding on the public squares. But when the state of Montana set what they considered a fair price, nobody bid, so the state had to keep lowering its “fair price” until its single bidder agreed — at a 40% discount from what the state had originally said was fair.

    Fair market value assumes there’s a market. A single bidder doesn’t qualify as a market. A price veto does not guarantee fair prices. If the lease by application process is so great, why isn’t it used everywhere?

  10. coalguy says:

    Sorry guys….a few facts may help here.
    PRB coal reserves have been competive in the past. About 5 years ago, Arch outbid Kennecott for a reserve that Kennecott needed to keep their mine going. Arch ended up selling some of the reserves to Kennecott at a profit. The going price for a LBA is about $1.00/ton which recently cost Peabody $0.5 billion for 5 years worth of reserves. The overall tax rate on PRB coal is about 35% (which includes lease costs, royalties, property taxes, etc.). Sounds to me like the current LBA process is working just fine.
    And to those that think the PRB mines are ruining the landscape in Wyoming, you obviously have never been there. The reclaimed areas are better for both land use and wild life than the unmined areas.

  11. WildEarth Guardians’ report on the Powder River Basin provides a great overview of the 1990 “decertification” and the climate impacts of coal mining in the PRB, http://www.wildearthguardians.org/site/DocServer/report_powder_river_11-23-09.pdf?docID=590&AddInterest=1058.

    Amazingly, the BLM “decertified” every coal producing region in the United States in the late 1980’s and early 1990’s. This was truly a concerted effort by the Agency to do away with its competitive coal leasing program nationwide.

    To those who say that the program is working just fine, just consider that in the last 20 years, the BLM has held 21 “lease by application” sales and only three have garnered more than a single bid. In those three sales, the BLM’s lease reports show that they have brought in millions more than they would have otherwise, including a record bid in 2005. All this info. is in our report.

  12. Soyedina says:

    Interesting stuff from out west and I have enjoyed thinking about the differences.

    But whenever I hear someone claim this,

    And to those that think the PRB mines are ruining the landscape in Wyoming, you obviously have never been there. The reclaimed areas are better for both land use and wild life than the unmined areas.

    it’s hard not to be skeptical. After all, we’ve heard the same thing about other places where it turns out that this actually isn’t true, like in central and southern Appalachia. How improbable is that that industrial land uses can have beneficial across the board effects for wildlife? I think close to nil.

    But cows seem to do OK sometimes. And big pet deer and elk sometimes. Hybrid trees sometimes. I suppose it all depends on what you wish to call “land use” or “wildlife” I suppose.

    Coalguy do you have any good links to some stuff about that in the PRB? When you say “better for wildlife than the unmined areas”, what specifically does that mean?

  13. Monty says:

    Reclamation, like many things, is a matter of perspective. And what is “better” to one person may be “worse” to another person.

    I have lived in both areas – the Powder River Basin and southern WV. And I have to say that, by and large, ANYTHING the companies do to “reclaim” land for post-mining use in the PBR could be considered an improvement or “better” for the simple fact that by and large the land isn’t much to begin with. When you’re starting at “1,” it doesn’t take much effort to bring things up to a “2” or, heck, even a “5.” Some intensive fertilizing and irrigation can work wonders on ground that isn’t used to such luxurious treatment. And adding more water catchment areas is of course going to make things “better” for the wildlife.

    It’s apples and oranges – not unlike comparing the “mountains” of WV to the “mountains” of Wyoming. Until you’ve seen them both, firsthand, you really can’t wrap your head around them.

  14. Coalguy says:

    Soyedina,
    I am sorry you are skeptical and I don’t know if I can prove it to you. But I know it to be so. I worked in the engineering/environmental department of a large Wyoming coal mine and saw first hand how much better the reclamation was. The mines in Wyoming are required to meet the specific plant species densities before bond clearance and one of the problems we had was keeping the wild life from eating all the plants from our reclaimed areas. We had a herd of wild horses that basically lived on our reclaimed areas because the feed was better (at least that is the only explanation we could come up with….I didn’t ask them). We had and maintained habitat for many Golden Eagles, Horned Owls and Red Tailed Hawks. They were comfortable and prospered on the minesite.
    All that being said, the landscape in Wyoming is not exactly lush to start with. It takes a lot of effort to return the land to it’s original plant species. But, at the end of the day, I feel comfortable saying that the reclaimed areas were better than the original.

  15. Soyedina says:

    Hey coalguy I can’t always help my skepticism but I can appreciate the big difference between mesic temperate deciduous forests around here and upland desert or steppes that are out West.

    All too often what counts as “wildlife” is in the eye of the beholder. Some people using the word mean “birds and mammals which you may hunt”, others mean “wildlife” to encompass every species of organism in the site. In Wyoming that often may mean a fewer total number of species, since the environment is so different from the southeastern US. I have never been to a reclaimed western surface mine. But I would *love* to see some of those ridiculously thick coal seams i keep hearing about that are out there.

  16. There are a lot of photos of coal mines in the PRB and other places in the country here: http://coaldiver.org/photos
    This specific set has some good PRB-specific photos: http://coaldiver.org/photos/powder-river-basin-aerial-photos
    However, it can actually be fairly hard to see the seams: they’re aerial photos for one thing so the angle isn’t great, the shadows can make it hard to distinguish the seam from the overburden, and frankly the seams are thick enough in places you think “that can’t possibly all be seam”.

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