Undervalued BLM Coal (and Oil & Gas Leases): Loophole, Energy Security Socialism (State Capitalism), Subsidy, or All of the Above? And Billionaire Coal Exec and WV Governor Jim Justice's Call for an Eastern Coal Subsidy

Undervalued BLM Coal (and Oil & Gas) Leases: Loophole, Energy Security Socialism (State Capitalism), Subsidy, or All of the Above? And Billionaire Coal Exec and WV Governor Jim Justice’s Call for an Eastern Coal Subsidy

Whether it stems from a desire to fulfill campaign promises or some other cause the Trump administration seems determined to revive coal production and consumption. From an economic standpoint it makes little sense since gas is cheaper than coal. From an air quality standpoint it makes no sense since gas pollutes far less than coal. From a smog perspective gas is over 80% cleaner than coal. From a carbon emissions perspective gas power plants emit half the carbon of newer coal plants and far less than aging coal plants. From a baseload grid perspective increasing gas has no issues in key areas even if it was tripled. (PJM power market studies showed this). From a fuel supply perspective gas can be secured from multiple pipelines and other sources, including coal, if there is a disruption (at least in the PJM market which represents over 20% of GDP and high populations). From a national security perspective it has never happened (other than minor sabotage by anti-pipeline activists) and there is sufficient redundancy among utilities due to the possibility of demand spikes so that most disruptions can be mitigated quickly. Eastern coal is higher in sulfur and some other pollutants than Western coal. The Western reserves of high quality coal are much greater than in the East and Western coal is typically more economic to produce. 

Rolling back Obama’s executive orders on power plant pollution (the Clean Power Plan) and water pollution (Waters of the U.S. rule) has been a priority for the Trump administration. Restrictions on Arctic drilling, offshore drilling, and drilling on federal lands have also been rolled back. There are plans to sell off of a big chunk of the national petroleum reserve (not a bad idea but bad timing amidst a global oil glut that is showing little movement towards lifting, with associated low oil prices). They are trying to roll back the federal rule on methane emissions from oil and gas facilities. The latest is a move to reinstate leasing rules that strongly favor coal companies and some oil & gas companies on federally owned BLM lands by basically collecting royalties below market value. One argument is that favoring coal and other fossil fuels aids energy security. They also significantly cut the royalty rate for offshore leases from 18.75% to 12.5%. These cost reductions are hoped to spur domestic production but supply currently is having no difficulty meeting demand. BLM land is mostly in the West so basically Western coal and offshore drilling will be benefited and be able to compete more favorably with Eastern coal and onshore drilling. Certainly one can argue that Obama went too far on these restrictions and regulations. However, the decarbonization trend is well established worldwide in wealthy countries and now even in developing countries. Utilities too are geared towards decarbonization keeping in mind that Trump-era rollbacks are likely to be temporary. They must plan for the long-term, being cognizant of political and scientific trends. No new coal-burning plants are planned by any utility as they would absolutely be considered stranded assets. 

Downplaying the worldwide scientific consensus on climate change has been another priority apparently with government employees being instructed to replace the term “climate change” with “extreme weather.” This is concerning since it is the preferred terminology worldwide. Budget plans call for decreased spending on clean energy and anything related to climate change. This is in contrast to much of the rest of the world. Pulling out of the non-binding good-faith pledges of the Paris Accord is another situation where the Trump administration is at odds with the rest of the world. Certainly some pullback from Obama policies was/is to be expected but the current purge seems a bit extreme. Trump advisors like Myron Ebel, Steve Milloy, USDA chief scientist nominee Sam Clovis, and others have labeled climate change study as “junk science.” Ebel refers to the “climate-industrial complex” and considers climate change to be liberal propaganda in favor of income redistribution toward the poor. Obviously, the majority of the world’s scientists and citizens disagree. Is this a trend of censorship of science? It would seem so. There was some spin against climate change alarmism among the George W. Bush administration but nothing like this. Many find it disturbing. 

In terms of economic fairness the so-called “handouts” to fossil fuel interests are indeed subsidies as they offer terms ‘below market value.’ One might even see this as a form of corporate socialism or state capitalism. In any case it is favoring private interests over public interests.

West Virginia governor Jim Justice’s call for a $15 per metric ton federal coal subsidy is certainly suspect since he is also a coal company owner! That is basically a 37.5% subsidy since coal is going for around $40 per metric ton – so it is both huge and unprecedented. Did I mention that Justice, like Trump, is also a billionaire? He also switched parties just months after being elected. He is asking for a government handout, a subsidy, a bailout, for the state to take a stake in coal. His argument that less coal and more gas on the Eastern grid puts it at risk (presumably from terrorist attack) is bogus. He is trying to present this as a national security issue (as well as giving potential terrorists ideas). This should not be taken seriously. Maybe he should instead advocate for funds to help miners with black lung, those that have lost their pensions due to coal company bankruptcies, and retraining for unemployed miners. Justice’s proposal would cost taxpayers $4.5 billion per year (about 50 times the BLM leasing 'subsidy' amount). Those who consider climate change to be a real and very important consideration would be understandably devastated by such a move. He projects it would nearly quadruple West Virginia coal production. With the pollution potential of extreme forms of coal mining such as ‘mountain-top removal’ (MTR) this would create further environmental devastation. Environmentalists, both radical and moderate, would consider such a subsidy one of the worst environmental moves in history. Perhaps Justice should focus on paying his millions of dollars in unpaid fines for safety violations at the mines he owns and help keep him extremely wealthy. Perhaps one might call Trump’s and Justice’s ideas the Dirty Power Plan.

 A more recent report suggests that the Trump administration may offer Democratic WV senator Joe Manchin the job of Secretary of Energy, moving Rick Perry to another position. This would be done so that new Republican Justice could appoint Manchin’s replacement. This is assuming that “Blue Dog” Democrat Manchin would in essence abandon his party affiliation as Justice has done. However, Justice was only a Democrat for a year and half while Manchin has always been a Democrat, though often voting ‘across the aisle.’ If it happens it would be considered betrayal of the deepest sort.

The discounted BLM leases due to coal companies selling coal at below market prices to subsidiaries is effectively a federal subsidy for Western coal. So in essence the Trump administration wants to re-instate Western coal subsidies and Justice wants to establish Eastern coal subsidies. Meanwhile some utilities are calling for taxpayer/ratepayer subsidies to keep uneconomic coal plants (and uneconomic nuclear plants) running in the Midwest. Thus, direct subsidization of coal is ‘on the table’ in several forms.

References:

Trump administration refuses to close fossil fuel loophole, admits it will cost taxpayers millions – by Mark Hand, in Think Progress, Aug. 7, 2017

USDA Clamps Down on Staffers Using the Term Climate Change – by Oliver Milman, in Wired, Aug. 8, 2017

Gov. Justice announces plan to put tens of thousands of coal miners back to work – by WSAZ news staff, in WSAZ, Aug. 11, 2017

Manchin Emerges as Possible Pick for Energy Department – in Bloomberg Politics, Aug. 11, 2017