U.S. Selling Coal Mining Rights at Undervalued Prices

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In addition to the economic issues of the coal leases, environmentalists aee equally concerned about the environmental issues that arise from coal mining. Credit: Bigstock

In addition to the economic issues of the coal leases, environmentalists aee equally concerned about the environmental issues that arise from coal mining. Credit: Bigstock

WASHINGTON, Feb 5 2014 (IPS) – The U.S. government is violating federal leasing policies when it sells land to certain coal-mining companies, according to a new audit from an official watchdog agency.

The practice could be costing taxpayers millions of dollars even as mining operations degrade the environmental integrity of the Powder River Basin in the western U.S. states of Wyoming and Montana and lead to the production of large-scale carbon emissions. Although federal regulations stipulate that the Bureau of Land Management, a federal agency, must auction off coal tracts in a competitive bidding process, a Government Accountability Office (GAO) report released Tuesday found that this process wasn’t being followed.

“There are about five billion tonnes of federal coal somewhere in the leasing pipeline right now.” — Kelly Mitchell

Instead, for about 90 percent of the 107 leased tracts of land looked at by the GAO, only one company had bid on the land – typically the same company that submitted the application.

“[The GAO] offers a convincing argument that the programme lacks integrity,” Tom Sanzillo, the director of finance for the Institute of Energy Economics and Financial Analysis (IEEFA), a think tank, told IPS. “Because of a lack of independent oversight of 30 years of federal leases, they haven’t reviewed any of them.”

Sanzillo identifies two companies, Arch Coal and Peabody Energy, as the principle recipients of BLM leases. Critics worry that the lack of competitive bidding for coal mining firms undervalues the leases for publicly owned land, ultimately decreasing government revenues by effectively selling the land at discounted prices.

While an inspector-general for the U.S. Department of the Interior (BLM’s parent agency) indicated in a report last June that the U.S. had lost 60 million dollars as a result of undervalued leases, Sanzillo believes that the total revenue loss is far greater. In an analysis responding to those findings, Sanzillo noted that the inspector-general did not take into account the BLM’s methodological flaws in establishing the value of public coal.

The inspector-general “identifies at least three weaknesses in the BLM program,” he wrote, “no independent verification of engineering and geological data, no revenue estimates for projected export sales and a failure to use comparable sales data when setting bid prices.”

Furthermore, both the GAO and inspector-general reports note that the BLM has not included Arch and Peabody’s revenues from coal exports when determining the value of the publicly leased coal, further undervaluing its true worth. (The BLM did not respond to IPS’s inquiry by deadline.)

“They’re giving away federal access at a price that is far below what they should be giving it away for,” said Sanzillo. “Therefore the federal government, and particularly the states of Wyoming and Montana, are being short changed.”

The GAO did a similar review of coal leases in the Powder River Basin in 1983. At that time, the agency found that the government was losing some 100 million dollars as a result of undervalued coal leases, but the GAO’s recommendations to rectify the problem were never implemented.

The GAO’s more recent report recommends that the BLM use more than one method to determine the true value of its coal while taking export profits into account. It also suggests that the agency develop a reporting mechanism and post information about its lease sales on its website.

While the Department of the Interior has agreed with these recommendations, Sanzillo’s analysis indicates that BLM has been highly resistant to transparency.

Environmental degradation

In addition to the loss of revenue, coal-mining operations in the Powder River Basin have profoundly impacted the region and raised some serious concerns among local and national environmental advocacy groups.

“The Powder River Basin is one of the most significant contributors to carbon emissions in the U.S.,” Kelly Mitchell, a climate and energy campaigner with Greenpeace, an environmental advocacy group, told IPS. “Thirteen percent of U.S. carbon emissions are sourced from the Powder River Basin.”[More-IPS]