Coal companies harvest subsidy cash while the taxpayer gets stiffed

Also: Little Colorado dam proposals withdrawn

THE NEWS: Even as reports showed the Biden Administration had significantly reduced Arch Resource’s royalty rate on coal it extracted from its West Elk Mine in Colorado and Coal Creek Mine in Wyoming, company executives reported a $40 million second-quarter profit from the same mines.

THE CONTEXT: Last year, as repercussions from the initial wave of the COVID-19 pandemic rippled through the economy last year, oil demand—and prices—crashed. Electricity use also plummeted, hitting the already beleaguered coal industry hard. In order to help its favored fossil fuel industries stay afloat, the Trump administration offered to slash federal royalty rates for companies battered by the pandemic, granting deep reductions on 555 oil and gas leases across the West. 

Arch Resources and Peabody, the nation’s largest coal companies, also asked for relief, but the Trump Interior Department denied them. So early this year the companies tried their luck with the Biden administration. This time, Arch got its wish: The royalty rate at West Elk was reduced from an already discounted 8 percent to 5 percent, and Coal Creek’s went from 12.5 percent to just 2 percent. The new rates are to remain in place for the next two years. Peabody’s requests reportedly are still pending. 

Even at the standard 12.5 percent rate, the companies are getting a steal. Now the government essentially is giving away Americans’ coal, amounting to a multi-million dollar subsidy coming at the expense of taxpayers, vital government services funded by royalty revenue, and the environment. It throws Biden’s pledge to end fossil fuel subsidies into question. 

The most baffling aspect of this is that the coal industry has recovered from the pandemic-related downturn and then some. Both Arch Resources and Peabody reported a major jump in coal production and revenues during the second quarter of the year, and Arch posted a $30 million profit. “Arch expects to harvest healthy levels of cash” from the mines this year, its quarterly report says.  

Ironically, the industry’s revival—however temporary—is attributable to global warming: This summer’s extreme heat has driven electricity demand through the roof. That, in turn, has pushed up natural gas prices, so utilities are switching back to more affordable coal, which means more greenhouse gas emissions, which means, yes, more global warming—a bizarre economic and environmental feedback loop.

1.04 million tons; 927,340 tons: Amount of coal mined at the West Elk in Western Colorado and Coal Creek in Wyoming during the first half of 2021. 

$13.50: Average sale price for one ton of coal during the second quarter of 2021. 

$26.6 million: Arch’s approximate gross coal-sale revenues from those two mines during the first half of 2021. 

$3.3 million: Royalties Arch would have paid on that coal under the standard rate of 12.5%.

$952,381: Royalties paid on that coal under the new, reduced rates of 5% for West Elk and 2% for Coal Creek. 

$2.35 million: Amount Arch saved—and federal coffers were deprived of—under the new royalty rate. Half of this money would have gone to Wyoming and Colorado, 40% to the national Reclamation Fund, and the remainder to the U.S. Treasury. 

$39.8 million: Arch’s net profit from sales of coal from its Black Thunder, Coal Creek, and West Elk mines during the second quarter of 2021, assuming a cash margin per ton of $2.62 (as reported by Arch)

***

THE NEWS: A Phoenix-based company proposing to build three pumped hydroelectric storage projects on the Little Colorado River have surrendered federal permits for two of the projects, citing opposition from the Navajo Nation, the Hopi Tribe, and environmental groups. It’s just the most recent volley in the battle over clean energy, its potential impacts on land and cultures, and where and how it should be deployed.

THE CONTEXT: Together, the projects would have included two dams on the Little Colorado River, and two reservoirs near the rim of the gorge. Using excess solar or wind energy, pumps would move water from the lower reservoirs to the upper ones. Then, when demand for power increased and solar generation waned, the water would be released through turbines back into the lower reservoirs, generating electricity in the process.

In essence, the projects would act like big batteries, storing up energy when it wasn’t needed and releasing it back into the grid when necessary, thereby smoothing out the variability of wind and solar without firing up a natural gas plant. Energy storage is a critical component in decarbonizing the electricity grid, and pumped hydro storage is time-proven, can store huge amounts of potential power, and is relatively affordable. Several projects are currently in the preliminary phases around the West.

But when Pumped Hydro Storage LLC first proposed the two projects in 2019, it struck many as tone-deaf, at best. The main-stem dams would be constructed in a deep gorge on the Navajo Nation on a fragile river, just outside Grand Canyon National Park and upstream from the Hopi place of emergence. The dams potentially would sully the aquamarine waters of the Little Colorado and harm imperiled humpback chub, a fish native to the stream.

After running into intense waves of opposition, Pumped Hydro Storage LLC floated a third, similar project on Big Canyon, a tributary of the Little Colorado, that would use groundwater to replace evaporated reservoir water rather than surface water. This proposal is still alive, but is facing equally stiff headwinds, not least because it would entail pumping billions of gallons of groundwater each year from an arid, and growing-more-so, place. And since it’s on the Navajo Nation, it would require tribal approval, which seems unlikely.

Opposition to clean energy developments, due to their impacts on ecosystems, sacred sites, and public lands, has mounted in recent years. Lithium is a necessary component of electric vehicle batteries, but several projects proposed for Nevada, Arizona, and California are facing resistance because the extraction process can be destructive. Wannabe developers of what would have been the biggest solar facility in the nation recently dropped their plans due to intense opposition over its impacts to Mormon Mesa in southern Nevada, recreation, and an iconic piece of land art. And another solar plan proposed for outside of Butte, Montana—home of the gaping, toxic, Berkeley Pit—recently was kiboshed, in part due to aesthetic concerns.

These fights will only intensify with the Biden administration vowing to combat climate change by opening up more public lands to renewable energy development. It’s quite the conundrum. The push to electrify everything, from cars to stoves to heaters, will put even more demand on the already-strained power grid. But a bulk of the power on the grid is still generated by burning fossil fuels. So unless the fossil fuel generation is replaced by clean energy—solar, wind, and storage—then the electrification of everything will mean more fossil fuels are burned, not less.

That will require a massive deployment of renewable energy generation. It’s up to the developers, and regulators, to site these developments responsibly, be it on rooftops or brownfields, on fallowed farmland or other less-sensitive areas. And it’s contingent on environmentalists to work with the developers to help them find appropriate locations. The Colorado River Gorge is not such a place.

***

And also… some wacky weather mixed with burn scars and a major interstate at the bottom of a big canyon resulted in this carnage:

###

Share The Land Desk