Administration issues new coal leases amid uncertain policy landscape

Interior Secretary Ken Salazar trekked to Wyoming on Tuesday to announce major new coal leases in the state. Yet there are no plans to build new coal-fired power plants there because of the uncertainty surrounding the Obama administration's climate-change regulations.

The coal from the leases will be used to generate electricity in coal-fired power plants already built within the state's border and around the country. Coal provides almost half of the nation's electricity, and that will likely continue for at least the next couple of decades.

But in the long term, the lease sales illustrate the conundrum that the industry faces because of the Environmental Protection Agency's climate rules: Companies can mine the coal, but federal policies make it economically difficult to use it within the United States. That reality is compelling companies to export coal overseas, and sales like this will only encourage more of it.

Wyoming's Powder River Basin, where the new leases are located, is the largest coal-producing region in the country and accounts for 40 percent of all coal mined in the United States. Salazar said on Tuesday that the new leases contain an estimated 758 million tons of coal.

"The leases we're announcing today should be a strong demonstration of the fact that we are moving forward with coal-lease opportunities," Salazar said.

Yet Republican Wyoming Gov. Matt Mead, who stood with Salazar when he made the announcement at a high school in Cheyenne, said "there are no plans to build more new coal-fired plants."

Mead pointed to lawsuits surrounding EPA's carbon rules, which officially went into effect this January, that are winding their way through the 10th U.S. Circuit Court of Appeals. Other states and interest groups have launched similar legal battles with the Obama administration on these rules. Companies "need to know before they invest the time and the money what the outcome is going to be," Mead said. "As a state, we're trying to help define what the rules are, and my hope is that we get to a point where these companies can make a decision and say this is a financially sound decision to move forward or not."

Republican Sen. John Barrasso of Wyoming has been leading the charge on Capitol Hill for upending those rules with legislation he introduced earlier this year. Senate GOP leadership has decided to move forward with similar legislation authored by Environment and Public Works ranking member James Inhofe, R-Okla. Both measures would stop the administration from regulating carbon emissions that cause climate change. Industry groups have predicted that the carbon rules, coupled with other regulations the EPA is rolling out under its Clean Air Act authority, could knock out as much as 20 percent of the coal-fired electricity generation in this country.

As long as coal companies can extract coal within the United States, they probably will. The economic reality facing them in terms of EPA's rules, however, is making them rethink where to actually use the coal.

The United States already exports nearly 60 million short tons of coal, according to 2009 numbers from the U.S. Energy Information Administration. From 2008 to 2009, the amount of exports to Asia increased by 32 percent (India being America's largest importer) to 5.6 million short tons.

"Several terminals are looking to expand in order to be able to hedge their bets if the administration manages to shut down a bunch of coal plants," said Jeff Holmstead, who was the EPA's assistant administrator for air and radiation under President George W. Bush.

Salazar underscored on Tuesday that the administration realizes coal will be an integral part of America's energy landscape for a long time. He said the administration is funding research and development for "clean coal" technology.

"We need to recognize that coal is a very abundant resource in the United States, and we will continue to move forward to find a way we can burn coal cleaner than we do today," Salazar said.

Yet "clean coal" technology is nowhere near commercially viable. It probably won't be without any major federal energy policy incentivizing it, such as a price on carbon emissions. And that's not happening any time soon.