Reforming the US Coal Leasing Program

by Emil Morhardt

Almost half of the coal mined in the US comes from lands, mostly in Wyoming and Montana in the Powder River Basin (PRB), owned by the federal government and which have nearly 10% of the world’s known reserves. Gillingham et al. review the social costs of this coal extraction, and weigh them against the revenues flowing to the government from the leases and the resulting relatively low energy prices paid by consumers. According to their calculations, the monetized climate change damages caused by combustion of this coal are about six times the coal price of $0.51 per million British thermal units, which is only about a third of the price of coal from other major producing basins.

That is to say, if one believes that climate externalities of coal use should be paid by the users—the energy companies and ultimately the users—then the coal is substantially underpriced and the price ought to be increased, and the authors think that the increase should be in the form of royalties paid to the US government. They also think that similar reforms would be well-advised for federal oil and natural gas leasing programs.

These prospects seem dim at the moment, since the incoming Trump administration seems not to believe in climate change, wishes to put displaced coal miners back to work, and to lower energy prices even further in the hope of stimulating the economy. About this, these authors have nothing to say, but the government’s likely-coming official denial the influence of coal and other fossil fuel combustion on climate change will likely exacerbate the problems these authors wish to reform

 

Gillingham, K., Bushnell, J., Fowlie, M., Greenstone, M., Kolstad, C., Krupnick, A., Morris, A., Schmalensee, R., Stock, J., 2016. Reforming the US coal leasing program. Science 354, 1096-1098.

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