Putting a Carbon Charge on Federal Coal: Legal and Economic Issues
| Date | 01 July 2016 |
| Author | Alan Krupnick, Joel Darmstadter, Nathan Richardson, and Katrina McLaughlin |
46 ELR 10572 ENVIRONMENTAL LAW REPORTER 7-2016
A R T I C L E S
Putting a Carbon
Charge on
Federal Coal:
Legal and
Economic Issues
by Alan Krupnick, Joel Darmstadter,
Nathan Richardson, and
Katrina McLaughlin
Alan Krupnick and Joel Darmstadter are senior fellows, Nathan
Richardson is a visiting fellow, and Katrina McLaughlin
is a research assistant, all at Resources for the Future.
U.S. policy to limit greenhouse gas emissions is
driven, in part, by the U.S. Environmental Protection
Agency’s proposed Clean Power Plan, which seeks a
drop in carbon dioxide (CO2) emissions from fossil-
fueled power plants—a “downstream” approach to
regulation. An alternative, or possibly complementary,
approach is to consider the legal and economic feasi-
bility of imposing an “upstream” CO2 charge on coal
production at its extraction site, and specically on
leased coal from federal lands managed by the Bureau
of Land Management (BLM). is Article argues that
BLM has the statutory and regulatory authority to
impose such a charge, and that it would be best to
add it to the royalty rate; but that a large fee that dra-
matically reduced revenues could invite judicial con-
cern. e economic case is weaker than the legal case
because coal production on nonfederal lands (60% of
total production) would not be subject to the charge
and so could ramp up in response to the new policy.
Best would be a comprehensive set of charges on roy-
alties for all fossil fuels, irrespective of ownership.
Burning coal for electric power generation is the
second largest source of U.S. carbon emissions
by fue l (second only to bur ning of pet roleum for
transportat ion, althou gh as a se ctor electricity is a larger
emitter than the transportation sector). C oal combus-
tion has a wide variet y of other health and environmen-
tal impacts, as does coal ext raction, shipment, and was te
dispos al. While the coal mining and power generation
sectors are heavily regul ated, signicant negative exter-
nalities persist, perhaps most sig nicantly in the form
of c arbon emissions that contribute to climate change.
In this A rticle, we analyze the opt ions available under
current law for internalizing climate externa lities for the
large share of coal extracte d from federal lands ad min-
istered by t he Bureau of L and Man agement (BL M),
focusing on the i mposition of a “carbon charge.” We
furt her analyze t he economic implication s of such a
policy move, including some con founding or possibly
perver se consequences.
e Barack Oba ma Administration has clearly sig-
naled an interest in reeva luating the le asing process for
fossil fuel extract ion on federal land s and under fed-
eral waters based on both environmental and adminis-
trative concerns.1 In January 2016, the Ad ministration
announced a tempora ry moratorium on new federal coal
leases until a new review of leasing rules and practices
is completed.2 A carbon charge like the one we discuss
here is a possible compromise policy option bet ween a
permanent extension of this ban and a return to past
leasing p olicy. Further, sinc e our analysis i ndicates that a
large carbon cha rge would m ake new federal coal lea ses
uneconomic, our e conomic analysis is applicable to the
Admini stration’s moratorium.
1. Press Release, U.S. Dep’t of the Interior (DOI), Secretary Jewell Launch-
es Comprehensive Review of Federal Coal Program (Jan. 15, 2016).
2. Press Release, DOI, Bureau of Land Managem ent (BLM), Order No.
3338, Discretionary Programmatic Environmental Impact Statement to
Modernize the Federal Coal Program ( BLM 2016), available at http://
www.blm.gov/style/medialib/blm/wo/Communications_Direc torate/pub-
lic_aairs/news_release_attachmen ts.Par.4909.File.dat/SO%203338%20
Coal.pdf.
Copyright © 2016 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.
7-2016 NEWS & ANALYSIS 46 ELR 10573
I. Overview
ere are many ways to internalize the climate-related dam-
ages from carbon dioxide (CO2) (termed the social cost of
carbon, or SCC) and other greenhouse ga ses (GHGs) that
result from fossil fuels. Most approaches tend to fall into
two categories: downstream (focusing on the uses of fossil
fuels) or upstream (focusing on the sources of fossil fuels).
Some current federal policies in the United States inter-
vene downstream. For example, the U.S. Environmental
Protection Agency (EPA) has plans to partially internal-
ize power plant CO2 emissions through its Clean Power
Plan (CPP).3 EPA and the National Highway Trac Safety
Administration have issued rulemak ings signica ntly
increasing fuel economy standards (and therefore reducing
CO2 emissions) for light- and heav y-duty vehicles. Before
that, another attempt to use a downstream approach—a
cap-and-trade program introduced by Congressmen Henry
Waxman (D-Cal., ret. 2015) and Ed Markey (D-Mass.)—
failed in the U.S. Congress.4
At the same time, there have been calls, particularly from
the environmental community, to internalize externali-
ties upstream at the wellhead or the mine, or even farther
upstream to the oil, gas, and coal resources in the ground.5
ese calls have joined a series of lawsuits by environmen-
tal groups regarding BLM’s handling of a Colorado coal
lease, which included concerns about methane emissions
upstream at the mine,6 and the need for BLM to develop
programmatic planning documents and include climate
change considerations within them.7 Further, the Obama
3. Standards of Performance for Greenhouse Gas Emissions From New, Modi-
ed, and Reconstructed Stationary Sources: Electric Utility Generating
Units, 80 Fed. Reg. 64510 (proposed Oct. 23, 2015) (to be codied at 40
C.F.R. pt. 60).
4. American Clean Energy and Security Act of 2009, H.R. 2454, 111th Cong.
(2009).
5. Greenpeace USA (2014) uses the social cost of carbon (SCC) to calculate
potential emissions from all federal coal leased during the Obama Admin-
istration, and argues that the program is incompatible with stated Admin-
istration climate goals. Nidhi aker, Modernizing the Federal Coal
Program, C. A. P (Dec. 9, 2014), https://www.american
progress.org /issues/gree n/report/20 14/12/09/1 02699/moder nizing-the-
federal-coal-program; Claire Moser et al., Cutting Greenhouse Gas From
, C. A. P-
(Mar. 19, 2015), https://www.americanprogress.org/issues/green/re-
port/2015/03/19/108713/cutting -greenhouse-gas-from-fossil-fuel-ext rac-
tion-on-federal-lands-and-waters/. e Center for American Progress has
alternately called for a carbon charge at the bonus bid, see akar, supra, or
royalty stage, see Moser et al., supra. But see Bill McKibben, Global Warming’s
, R S, July 19, 2012, http://www.rolling-
stone.com/politics/news/global-warmings-terrifying-new-math-20120719
(350.org argues for a carbon charge large enough to keep most company-
held fossil fuel resources in the ground).
6. High Country Conservation Advocates v. U.S. Forest Serv., 52 F. Supp.
3d 1174, 1189, 44 ELR 20144 (D. Colo. 2014); Western Org. of Res.
Councils v. Jewell, No. 14-1993, 2015 WL 5076976 (D.D.C. Aug. 27,
2015).
7. At least one of these suits was recently dismissed.
Councils, 2015 WL 5076976. Disclosure: e lawsuit is being underwritten
Administration has shaped this issue by releasing new draft
guidance8 on how federal agencies and departments should
consider climate change impacts in their National Envi-
ronmental Policy Act (NEPA)9 reviews. Most recently, the
Administration ha s suspended issua nce of new coal leases
on federal lands pending a review of the leasing process,
including environmental impacts.
With prospects for the CPP uncertain, and given the
need to nd a way to internalize global warming exter-
nalities, it is worth taking a closer look at an upstream
approach that would target fossil fuels as t hey come out of
the ground. Coal is the most CO2-intensive energy sector.
With coal on federal lands accounting for 40% of U.S. coal
production in 2013,10 imposing an upstream carbon charge
on federal coal production seems like a logical target for
launching a federal carbon pricing policy.
is A rticle explores the legal a nd economic questions
raised by implementing a carbon charge on federal coal
that takes into account GHGs over the entire coal life cycle.
e goal of such a policy would be to internalize the social
cost of GHGs at the coal leasing and production (that is,
the upstream) sta ges through terms and conditions estab-
lished by BLM as part of its federal coal leasing program.
is approach would be only a partial policy solution.
While coal on federal lands accounts for a signicant por-
tion of U.S. production, the remainder of coa l on private
(possibly tribal) and state lands would not be subject to
added regulation. is limitation in scope has signicant
economic costs and could even elim inate any benecial
eects of such a program. Moreover, a policy aimed at the
climate externalities of coal alone does not address emis-
sions from other fuels and activities, which in total amount
to greater CO2 emissions than the coal sector.
On the positive side, addressing climate externalities
of coal on federal lands would be consistent with the fed-
eral government’s duties to protect the public interest and
its stated commitment to leadership on climate change.
Such a step would also establish precedent for more sub-
stantive and broadly applied upstream carbon charges in
the future. If BLM can address these carbon externalities
by Paul G. Allen, whose grant made the research for this Article possible.
Resources for the Future is in no way connected to the suit or the opinions
expressed therein.
8. Council on Envtl. Quality (CEQ), -
house Gas Emissions and Climate Change Impacts, http://www.whitehouse.
gov/administration/eop/ceq/initiatives/nepa/ghg-guidance (last visited Feb.
26, 2016). [Editor’s Note: For more information on the revised draft guid-
ance, see Katherine Lee,
Potential Impacts on Climate Litigation, 45 ELR 10925 (Oct. 2015); Nicho-
las C. Yost,
, 45 ELR 10646 (July 2015)].
9. 42 U.S.C. §§4321-4370f, ELR S. NEPA §§2-209.
10. U.S. E I. A. (EIA), S F F P
F F I L, FY 2003 T FY 2014, at 4
(2015) [hereinafter EIA, S F F].
Copyright © 2016 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.
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