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September 19, 2013

Record Low Bid a Sign of the End for Coal

PRBYesterday was a harsh reminder of just how far the value of coal has fallen.

The Kiewit coal company placed an extremely low bid of just 21 cents a ton to mine publicly-owned coal in the Powder River Basin in Wyoming, the biggest coal-mining region in North America. "We submitted a bid to the BLM that we believe accurately reflects the fair market value for this lease," said Kiewit spokesman Tom Janssen. At 21 cents a ton, apparently they don’t think that coal is worth much. Most of us have more than 21 cents floating around between the seat cushions of our couch at home, and we usually don’t expect to receive a metric ton of taxpayer-owned coal for it. To its credit, the Bureau of Land Management (BLM) turned down the offer.

Beneath this incredibly low auction-offer is a basic truth: coal is on the way out. Overall coal prices are down, as demand has decreased and aging coal plants in the U.S. have been retired. Earlier this week, the Gillette News Record reported that three of the largest coal companies operating in the Powder River Basin had lost $25 billion in value since April 2011.The last Wyoming lease sale received no bidders for the first time ever, and yesterday's auction is the second time in as many months that a Powder River Basin coal auction did not result in any coal sales.

The lack of interest in Powder River Basin coal is partly due to reduced interest in exporting coal overseas. As coal demand has continued its decline across the U.S. in recent years, big coal companies have told their investors that exporting coal abroad to countries like China could form a possible escape hatch. But recent developments have shown that exit may be closing.

Financial analysts like Goldman Sachs, Citigroup, and Bernstein Research have said they expect demand for coal in China to begin declining within the next few years. Amid environmental and health concerns, including a recent report that showed that coal pollution reduces life expectancy by five years for people living in southern China, the Chinese government has forbidden building new coal plants near major industrial areas and has begun looking for alternatives. And the coal industry's plans to build coal export terminals in the Pacific Northwest -- a critical piece of infrastructure needed in order to cost-effectively ship coal to markets in Asia -- have run into unexpected roadblocks as thousands of people have organized in opposition across the region. Polls show solid majorities in both Washington and Oregon are now against the coal export terminals, state governments are calling for comprehensive environmental reviews (including examining impacts to climate change), and as investors begin to back out, three out of the original six proposed terminals have been canceled.

Coal companies are starting to get squeezed from the supply side as well. Yesterday's record-low bid on Powder River Basin coal, and its subsequent rejection by the Bureau of Land Management, shows that changes may finally be coming to the seriously flawed coal leasing program, and the days of coal companies getting coal from the U.S. taxpayer for next to nothing may be over.

A recent report by the Department of Interior's Inspector General's Office found numerous flaws with the Bureau of Land Management's leasing program, including non-competitive bidding and substantial under-valuation of coal that allowed coal companies to walk away with winning bids that were insultingly low to the U.S. taxpayer. As a result, American taxpayers have been fleeced out of $30 billion by coal companies. This financial pain is further compounded by the high costs incurred to our health, environment, and climate once the coal is burned.

While the BLM's rejection of Kiewit's lowball bid is a positive step toward ensuring the coal industry pays a fair price for public resources, a thorough evaluation and revamping of the leasing program is still needed. With markets in flux and BLM leasing procedures still under examination, the best way for the BLM to fix the problem is to impose a moratorium on coal leasing on public lands until the leasing program is revised.

-- Nathan Landers, Beyond Coal Campaign

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