Tim McDonnell joined Climate Desk after stints at Mother Jones and Sierra magazine. He remains a cheerful guy despite covering climate change all the time. Originally from Tucson, Tim loves tortillas and epic walks.
Just a few days after President Barack Obama promised new actions on climate change during his final State of the Union address, his administration has unveiled a sweeping overhaul of how coal can be extracted from federal land.
Interior Secretary Sally Jewell announced on Friday that she was placing a moratorium on new coal-mining leases on public land and that her department would begin a multiyear review of how those lease contracts are awarded. The policy change is likely to make the leases more expensive for mining companies, to generate increased royalties for the government, and to offset the damage coal production and consumption do to the environment.
"We haven't done a top-to-bottom review of the coal program in 30 years," Jewell told reporters. She added that her department will search for ways "to manage [coal] in a way that is consistent with the climate change agenda."
This is a big win for environmental groups. But don't expect it to result in an overnight decline in coal use, the nation's No. 1 source of greenhouse gas emissions. Jewell said the lease moratorium will not "have any impact at all on coal production" and that the review will largely be carried out by the next presidential administration. All of the Republican presidential contenders have vowed to scale back Obama's climate legacy; the Democratic candidates have vowed to push it forward.
"This is the first time any administration has taken such a serious look at the management problems, and also the environmental costs, of fossil fuel production on public lands."
About 40 percent of all US coal extraction takes place on federal land, much of that in Wyoming, the nation's top coal producer. For years, environmentalists have complained that the coal industry enjoys royalty rates much lower than offshore oil or other publicly owned fossil fuels. Those low rates make it cheaper for coal companies to operate and may also be a raw deal for the public that has to deal with the impacts, from local environmental degradation to global climate change. While offshore oil companies typically pay a royalty rate of about 18 percent, Jewell said, the rate for coal is only 8-10 percent. A Government Accountability Office report in 2014 found that undervalued coal leases cost the US Treasury nearly $1 billion per year in lost revenue.
When the leasing policy was originally created decades ago, Jewell said, "our practice was really about getting as much coal as possible" to feed the nation's power plants. Now, many scientists agree that the exact opposite approach is needed to have any chance of limiting global warming. A 2015 study found that 92 percent of US coal reserves need to stay buried to have any hope of limiting warming to 2 degrees Celsius (3.6 degrees Fahrenheit), the cap enshrined in the international climate agreement brokered in Paris last month.
Jewell said there are about 50 pending coal leases that could be halted by the moratorium; leases that have already been approved will be allowed to go forward, and there will be no change to any current mining operation. There's enough coal in reserve under existing leases to continue production at its current rate for another 20 years, she said. Many of the leases that could be put on ice were unlikely to have gone into production anyway, said Matt Lee-Ashley, director of the public lands program at the Center for American Progress. That's because, with prices so low, big coal companies in the West routinely snatch up leases just to keep in their back pocket without necessarily developing them.
In effect, Lee-Ashley said, "it's a pause on adding additional stockpiles on coal."
The coal companies, he added, "are well resourced to continue mining for the foreseeable future."
Still, the announcement is yet another headache for an industry that has already had a very bad start to 2016. Coal has been battered over the last few years by competition from cheap natural gas and by new climate regulations from the Obama administration. US coal production is at a 30-year low, one of the country's biggest companies recently declared bankruptcy, and once-promising export markets in China now seem to be drying up.
The leasing reform quickly faced a backlash from Republican lawmakers who represent coal states.
"Once again the administration is circumventing Congress, the voice of the American people, to launch another unilateral attack on coal," Rep. Ed Whitfield of Kentucky said in a statement. "We will continue to fight to ensure our policies promote access to affordable, reliable energy."
Kentucky is among the two dozen coal-reliant states that are suing the Obama administration over its plan to limit greenhouse gas emissions from power plants.
Lee-Ashley countered that the reforms are "a giant step forward" on Obama's climate agenda. "This is the first time any administration has taken such a serious look at the management problems, and also the environmental costs, of fossil fuel production on public lands," he said. He cautioned that if a Republican follows Obama in the White House, he or she could impede the climate-oriented aspects of the reform. But he said the financial overhaul should enjoy bipartisan support, since it boils down to giving the American people a fair price for their natural resources.
"When you look at the money being lost to taxpayers through these loopholes, anybody who believes in good business should be able to carry it forward," he said.
In his State of the Union address this week, President Barack Obama gave an approving nod to the price of oil, which is now the lowest it has been in more than a decade.
"Gas under two bucks a gallon ain't bad, either," he said.
For motorists, that logic is unassailable. But depending on where in the country you live, the low oil price could come back to haunt you in unexpected ways. According to new federal data, half a dozen states with prominent oil drilling industries have taken heavy blows to their budgets. That could prompt a sweep of spending reductions and cuts to education, poverty programs, and other social services.
"It could be hugely problematic for some of these states," said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities.
The data show a steep drop in revenue from severance taxes, which natural resource companies pay to states when they extract oil, coal, or natural gas. When oil prices drop, oil production drops next, followed by severance tax revenue. And for states such as Alaska, Wyoming, and North Dakota, which draw a majority of their income from severance taxes, that means the budget can quickly implode. Now, policymakers in those states are scrambling to make up the shortfall in other ways and decide which state programs could face the chopping block.
Alaska's decline in revenue has been especially severe:
The Energy Information Administration report notes that Alaska's severance tax income—which provides three-quarters of the state's budget—went from $5 billion in 2012 to practically zero in 2015. As the New York Timesreported, that drop has the state's governor considering re-instating an income tax for the first time in 35 years. Meanwhile, legislators in North Dakota are considering cutting $100 million in spending after tax revenues came in nearly 10 percent lower than expected. Even though oil production there hasn't changed much, the EIA found that "total severance tax revenues fell from more than $3.5 billion in 2014 to $2 billion in 2015 as oil prices declined."
A similar story is playing out in Oklahoma, where, the EIA notes, "collections from state sales taxes and individual and corporate income taxes are also significantly affected by oil and natural gas prices":
Trying to predict oil prices far out into the future is a fool's errand, so it's hard to say how lasting the damage to these states could be. Still, there's reason to think that the oil market is in for a bumpy road ahead, thanks to a growing market for electric vehicles, increasing fuel efficiency standards, and high volumes of oil coming out of Saudi Arabia and other OPEC countries. According to Bloomberg, oil demand in the US is flatlining even as nationwide oil production increases:
The current tax crisis could signal an urgent need for oil-reliant states to diversify their tax base, Leachman said.
"There's no question it's not sustainable in Alaska," he said. Other states are at risk of following suit. "You're going to have to rethink your strategy for funding public services if you think oil and gas prices are going to stay really low levels."
During his State of the Union address Tuesday night, President Barack Obama reiterated his call to eliminate federal subsidies for fossil fuels in an effort to speed up the transition to cleaner energy sources. It's something he's asked for nearly every year of his presidency, and it hasn't happened yet. But this year, he added something new: a plan to charge oil and coal companies more for leases on federal land, to offset the damage their products do to the climate.
It was just the latest piece of bad news for the coal industry, which is the nation's No. 1 source of greenhouse gas emissions. Everywhere you look, there are signs that 2016 is shaping up to be one of the worst years coal has had in recent memory.
The onslaught started at the end of December, when China announced plans to close 1,000 coal mines as part of its campaign to reduce crippling air pollution and the world's highest greenhouse gas emissions. China also plans to reduce its share of electricity production from coal to 62.6 percent by next year, down from 64 percent now, according to Bloomberg. That's great news for Chinese citizens, who have recently been subjected to air pollution up to 40 times higher than what the World Health Organization considers safe. But it's a big letdown for coal producers in the United States, who have been increasingly desperate for new foreign markets for their product; coal demand in the United States has dropped 10 percent just in the last three years. The assumption that China's seemingly insatiable growth is a safe long-term bet for coal is vanishing—in fact, the latest official estimate is that Chinese coal consumption already peaked back in 2013.
As domestic and foreign demand dip, US coal production has also crashed to a 30-year low, according to federal data released this week. It's the latest low point of a trend that has been heading downhill since Obama took office:
That trend is being driven somewhat by electricity companies' anxiety about the Clean Power Plan, Obama's new rules to limit emissions from power plants. But even more importantly, coal is getting hammered by competition from cheap natural gas. Since Obama took office, natural gas production in the United States has jumped 20 percent, and prices have correspondingly fallen to record lows. As a result, the obvious choice for utilities is to burn natural gas instead of coal. And despite protestations from Republican legislators, coal country seems to be preparing for the fact that its historic lifeblood isn't coming back anytime soon. An editorial in this week's Lexington Herald-Leader argued that "no one should expect a revival of Eastern Kentucky coal jobs when not even Kentucky's electric utilities can afford to buy the region's coal."
Read more here: http://www.kentucky.com/opinion/editorials/article54352645.html#storylink=cpy
All of this is devastating for coal companies' bottom lines. One recent study found that in the last five years, US coal producers have lost 76 percent of their value. The latest casualty is Arch Coal, the country's second-largest coal company, which filed for bankruptcy on Monday in the hopes of eliminating more than $4.5 billion in debt. As Think Progress reported, "In early 2011, stock in Arch Coal peaked at $260 a share—on Monday, shares in Arch Coal were worth less than a dollar."
With all that said, coal isn't quite out of the game yet. Even with Obama's climate plan, the United States is on track to get 26 percent of its power from coal in 2040. And we're still a ways off from being on track to meet the ambitious global warming limit agreed to in Paris. But the year is young—there's plenty of time for coal's prospects to get even worse.
If history is any guide, climate change is likely to make a prominent appearance when President Barack Obama gives his final State of the Union address Tuesday night. He's brought it up in every one of his previous SOTU speeches, most strongly in 2015, when he said that "no challenge—no challenge—poses a greater threat to future generations than climate change."
Along with dire warnings about rising sea levels, droughts, and other climate impacts, Obama has made an evolving series of commitments to the American people and demands to Congress regarding climate action. He has called repeatedly for a cap-and-trade bill, for an end to fossil fuel subsidies, for federal investment in renewable energy, and for American leadership in the international fight against global warming.
It's safe to say that his speech Tuesday, at 9 p.m. EST, will revisit some of these ideas. Obama is likely to bring up his administration's success in shepherding the Paris Agreement—the first global pact to fight climate change—that was adopted in December. And he might mention some of the remaining items on his climate change to-do list, which include setting new emissions standards for heavy-duty trucks and fending off Republican attacks on his new regulations restricting power plant emissions.
For some clue about what we might expect to hear this year, we took a look back at the climate-related statements from Obama's previous SOTU speeches. Then we compared his proposals to what actually happened. Turns out, while Obama has pretty clearly done more on climate change than any of his predecessors, there are plenty of goals that remain unfulfilled. Watch the video above for a complete rundown.
In November, environmentalists were ecstatic when President Barack Obama decided not to grant a permit for the Keystone XL pipeline. But TransCanada, the company behind the project, was not so happy. On Wednesday, it filed a lawsuit against the federal government seeking to overturn the permit rejection. At the same time, it gave notice that it plans to pursue compensation under the North American Free Trade Agreement, to the tune of $15 billion.
In its NAFTA complaint, TransCanada alleges that "the politically-driven denial of Keystone's application was contrary to all precedent; inconsistent with any reasonable and expected application of the relevant rules and regulations; and arbitrary, discriminatory, and expropriatory."
In other words, TransCanada thinks it got misled and ripped off by the Obama administration, just to satisfy a wacky cabal of tree huggers. Now, it wants the US Treasury to cough up an apology in cash.
"It's very troubling if every time the president makes a decision in the interest of the people, he's risking an enormous liability of this sort."
NAFTA is a trade agreement between the United States, Canada, and Mexico that's meant to protect trade between those countries. One provision of the agreement, Chapter 11, allows a corporation in one country to sue the government of another country if it feels that country's regulations unfairly discriminate against it. It's a provision that has always been highly controversial with environmentalists, since it provides an avenue for corporations to contest another country's environmental policies, as TransCanada is doing now.
That strategy is unlikely to succeed, according to David Wirth, a professor of international trade law at Boston College and a leading expert on international environmental disputes. Wirth said he actually used this very question—could TransCanada win a NAFTA case against the United States?—on a recent exam, and the answer was pretty clearly no. First off, although TransCanada claims to have spent around $3 billion preparing to build the Keystone XL pipeline, it's not clear that this would actually count as an "investment" that was illegally taken from the Canadian company by the US administration.
"They knew that without the permit approval the project wouldn't go forward," Wirth said. "So any money spent in advance is purely speculative."
Second, although the complaint claims that "environmental activists…turned opposition to the Keystone XL Pipeline into a litmus test for politicians—including US President Barack Obama," it's not clear how that really constitutes a legal problem.
"The president, in making a decision in the national interest, has to weigh a variety of factors, including arguments of environmentalists," Wirth said. "Just because there was political disagreement doesn't mean the process was defective."
But most importantly, Wirth said, TransCanada's complaint doesn't distinguish between a bureaucratic trade decision that treated a foreign company unfairly—the kind of action NAFTA is supposed to prevent—and a decision made by the president for the benefit of public health and the environment.
"The intent of NAFTA was not to require governments to pay every time they take an action that's in the public interest," Wirth said. "It's very troubling if every time the president makes a decision in the interest of the people, he's risking an enormous liability of this sort."
The US has a good track record on NAFTA suits brought by foreign corporations, having lost just one of 14 since the agreement came into effect in 1994. Wirth said NAFTA tribunals have tended to set a pretty low bar for the minimum standard of treatment foreign companies should expect to receive. In other words, TransCanada would have to prove that it was treated exceptionally unjustly by the Obama administration, not just that it had a frustrating experience.
As for TransCanada's federal lawsuit seeking to reverse Obama's ruling, the odds for that aren't great either, since US courts have previously found that cross-border pipelines really are the president's decision to make, according to Reuters.
Sorry, TransCanada. Maybe try for the permit again in 2017 if a Republican wins the White House. Until then, you might be out of luck.