Fact-checking One of the Coal Industry’s Biggest Whoppers About Coal Leasing on Public Lands

Aug 10, 2015

By Center for Western Priorities

Officials from the U.S. Department of the Interior are currently in the midst of a West-wide tour to hear from communities about perennial issues with coal leasing on public lands, and how to better ensure taxpayers receive a fair return from mining.

During the first coal listening session held last month in Washington, D.C., Interior Secretary Sally Jewell and Bureau of Land Management Director Neil Kornze heard from approximately 35 members of the public, policy experts, and industry representatives. Nearly 30 of those advocated for reforms to Interior’s coal program, while only five advocated for the status quo.

Opponents of reform marched out many of the same talking points we’ve heard in the past ‚Äì that we recently debunked ‚Äì but one argument stuck out as particularly egregious. As Tom Altmeyer, Vice President of Government Affairs at Arch Coal, said:

Our effective royalty exceeds 20 percent, comprised of the right-to-mine royalty or ‘bonus bid,’ that has averaged around $1 a ton in recent years, and an additional 12.5 percent on every ton mined.

In reality, independent analysts have shown that the royalty coal companies pay to operate on U.S. public lands ‚Äì after accounting for tax loopholes and subsidies ‚Äì is effectively 4.9 percent. That’s much, much lower than the alleged 20 percent and more than half the reported royalty rate of 12.5 percent set for surface mined coal.

So where is Arch Coal’s 20 percent estimate coming from? There are two key problems with its statistic.

First, coal companies are exaggerating the bonus bids paid to win coal leases. Arch Coal’s claim partially hinges on its assertion that the company pays a bonus to acquire coal leases that typically approaches $1 per ton. But in fact, coal companies are bidding well below $1 per ton to win leases on U.S. public lands.

In Colorado, for example, companies have bid an average of $0.23 per ton for the right to mine coal on public lands since the year 2000. In Montana the average was $0.12 per ton. The only state where bids come anywhere close to $1 per ton is in Wyoming, but even there the average bid is well below that, as seen in the graph below.

coal lease bid graph.001 (1)

The bonus bid is supposed to create a competitive process for gaining access to publicly owned coal. But coal leasing on public lands is anything but competitive, with roughly 90 percent of all coal leases having only one bidder since 1990.

Not surprisingly, the Government Accountability Office has found that the bidding process for coal leases on public lands “lacks sufficient rigor and oversight.” That coal companies can acquire the rights to mine coal for well below a dollar per ton is a stark reminder of the outdated policies governing coal mining on public lands.

Second, this statistic doesn’t account for subsidies and loopholes in the royalty. Arch Coal makes a major ‚Äì and flawed ‚Äì assumption that coal companies actually pay a royalty rate of 12.5 percent on the value of coal sold.

The problem with their math is that American taxpayers are, in effect, receiving a royalty that falls well below the 12.5 percent set by law. Recent independent economic studies have shown that coal companies effectively pay a royalty of only 4.9 percent due to tax breaks and other subsidies.

This is the result of a series of inefficiencies in the law, which gives the government authority to hand out royalty rate reductions and also provides loopholes for companies to pay a royalty on below-market rates for the coal they’re selling.

As the listening sessions move to towns in the West this week and next, we expect to hear more misinformation. Arch Coal, and other companies operating on U.S. public lands have strong business incentives to minimize their bids and royalties paid to American taxpayers. It’s the Interior Department’s obligation to ensure that companies aren’t shortchanging American taxpayers.