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Pitch

Raise fees for extracting carbon-based fuels from public lands to at least the social price of carbon as first step to phasing out its use


Description

Summary

A significant fraction of carbon-based fuels, particularly natural gas, coal and unconventional fossil fuels (e.g., shale oil) are and will be extracted from federally owned land, often with very low extraction fees. Contrary to the US Government policy to moderate future climate change by reducing use of fossil fuels, the US is essentially giving away publicly owned fossil fuels that will cause substantial carbon dioxide emissions, thus contributing to accelerating changes in climate and destabilization of weather systems in ways that will create new climate extremes and worsening impacts. At the very least, the US Government should be requiring a minimum lease rate for extracting carbon that is equal to the social price of carbon, and then ultimately be phasing out extraction of fossil fuels. This is especially the case because the prospect is that an increasing fraction of the coal, for example, is likely to be shipped and burned abroad. To the extent this occurs, the US Government will be subsidizing the use of carbon-based fuels by other nations and thus causing changes in the climate, weather, and sea level that will be especially harmful and costly to the US public, as made clear in the USG estimate of the social cost of carbon.

In 2009, international leaders set a goal of limiting global warming to 2 C  to avoid the prospective "dangerous" impacts of climate change. This will require that substantial amounts of potential carbon-based fuels be left underground. That effort will require the USG to forego extraction of such fuels from public lands (~40% of US coal now comes from public lands). Phasing into such a limitation would likely best be achieved by raising the extraction fee. Conducting a comprehensive NEPA/EIS that considers the damages from climate change resulting from leasing coal on public lands would make clear that the social cost of carbon should be the minimum fee for such extraction--both to limit climate change and to get proper public return.

 


Category of the action

Mitigation - What U.S. Federal Agencies can do to mitigate climate change


What actions do you propose?

The President needs to instruct the Department of Interior and other relevant agencies to suspend all in-process and planned leasing of coal and other fossil-based fuels on public lands until a comprehensive Environmental Impact Statement (EIS) is prepared that includes full consideration of the latest scientific findings on climate change, as embodied particularly in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, the US National Climate Impact Assessment, EPA's Endangerment finding, the Arctic Climate Impact Assessments, the US Government's latest report on the Social Cost of Carbon, the President's Climate Action Plan, and other particularly relevant assessments and findings. The EIS being used at present to justify leasing of coal from the Powder River Basin [e.g., see pages 4-132 to 4-138 athttp://www.blm.gov/pgdata/etc/medialib/blm/wy/information/NEPA/cfodocs/haycreekii/feis.Par.89003.File.dat/07chap4.pdf is woefully out of date and dismissive of climate change concerns, in stark contrast to national and international findings in major scientific assessments and reports across governments.

While it may be politically difficult to directly impose a fee on existing leases of public lands due to provisions of the Mining Act of 1872 and subsequent amendments, the National Environmental Policy Act (NEPA) does provide for consideration of the environmental and other relevant consequences of proposed government actions and taking steps appropriate to ameliorating those consequences. Given the USG findings in the report on the Social Costs of Carbon, for which there is broad agreement that it actually underestimates the actual climate consequences of climate change (as just one of many articles on its shortcomings, see MacCracken and Rishardson, 2010), there is no question that the leasing of coal, as an example, is imposing major costs on the environment as well as reducing income to the US Government that would be commensurate with the costs (e.g., see Greenpeace, 2014 and the many references therein; and Thakar and Madowitz, 2014).

A plausible outcome of undertaking a comprehensive NEPA/EIS process would thus be a requirement that, effective immediately, all future offerings of public lands for extraction of fossil fuels require a minimum bid that adds the official social cost of carbon at the time of extraction of the fuels to the existing costs that are specified.

Of the proposed leases now being offered by DOI, at least several offerings are being contested in the courts. In the cases that are being justified based on the out-of-date EIS that was prepared in the past, the Administration should accede to the calls in the lawsuits for the EIS to be redone, with the expectation that a proper analysis would call for the minimum bid price to be at least increased by the social cost of carbon, if further extraction is justified at all. There is simply no reason that, given the urgency of the climate change issue, fossil-fuel carbon fuels should continue to be extracted from public lands without a suitable fee, if at all.

An important co-benefit of imposing the social cost of carbon as the minimum extraction fee from public lands would very likely be an increase in the price of sale of equivalent carbon-based fuels that might be extracted from private lands, acting, in effect, as a carbon tax on these fuels, although the revenue would accrue to the owners of the private lands rather than to the federal government. The increase in price that would occur for carbon-based fuels generally would then  tend to improve the competitive position of renewables and other non-carbon based fuels in the marketplace. Yes, there would be some increase in the cost of electricity, but there is much that can be done to improve efficiency and so reduce demand for electricity, and such efforts could be financed with the fees being charged for extraction of fossil fuels from public lands.

Thus, the critical first step is for the Administration to accede to the several lawsuits that have been filed (of which one has been decided requiring the costs of climate change to be considered) and to suspend further leasing (and defer completion of leasing that is in progress) until a comprehensive NEPA/EIS process is completed covering the USG policy of continuing to lease public lands for extraction of fossil fuels. This action, while likely to be controversial in the existing political environment, should be consistent with the law and existing legal filings and with the US international commitment to limit emissions that are causing climate change.


Who will take these actions?

The actions would need to be directed by the President, giving instructions to the Secretary of the Department of the Interior and other agencies, and to the Attorney General, on acceding to the calls in the lawsuits for an updated and comprehensive EIS dealing with the present USG policy of leasing coal and other fossil fuels and its consistency with the many government findings and actions to limit climate change. The Endangerment Finding prepared for the EPA on the climate change issue would be a good starting point for the analysis, and there has also been a recent update of the estimate of the social cost of carbon.


Where will these actions be taken?

These are actions for the United States to take. Limiting the exporting of fossil fuels (particularly coal) to be consumed by other nations would necessarily require these other nations to act, and, seeing the USG commitment to be taking action, it would be hoped that their actions in response would also help to limit climate change.


How much will emissions be reduced or sequestered vs. business as usual levels?

As just one example of the potential importance of phasing out such extractions, the DOI over the past few years has offered two potential leases for mining coal from the Powder River Basin in Wyoming--one for 300 million tons of coal and the other for 2 billion tons of coal! The Greenpeace reference mentions plans for far greater amounts.

With proposed US limitations of CO2 emissions from future and existing electric power plants, proposals to lease so much coal for combustion is likely to be far more than the US will require, leading to considerable movement toward increasing exports of both coal and liquefied natural gas. In that CO2 emissions affect the climate everywhere, the impacts of combustion of these fuels in other nations would impose resulting climate changes on the whole world, including particularly the US. Actions that can be done to limit extraction of fossil-based fuels from public lands would thus help to moderate climate change and weather destabilization everywhere.


What are other key benefits?

Limiting extraction of fossil fuels through, initially a fee and later regulation, will help to limit not only climate change, but also emission of other health related air pollutants, mercury, etc.


What are the proposal’s costs?

Starting by imposing the social cost of carbon on fossil fuels to be extracted in the future from public lands would tend to increase the values of present fossil-fuel resources on private lands (which would potentially be beneficial to the owners of those resources) and start to raise the cost of fossil-fuel based energy. This would have the beneficial effect of tending to level the playing field across different energy sources, which would tend to encourage further development of wind and solar sources in the US, which are sources that lead to additional jobs and economic development and efficiency in the US.

While not extending over the whole market of fossil fuels, such an extraction fee would be roughly the equivalent of imposing a carbon tax through legislation, and economists generally say that such an approach would be the most economically efficient way to shift the US economy toward reduced use of fossil fuels. Thus, the approach would have the potential to be economically efficient.

To moderate the regressive nature of a general cost increase for energy from fossil fuels, the revenues from any ongoing lease sales should be used to help encourage and facilitate the improvement of energy efficiency for those with limited funds to pay the upfront costs typical of efficiency improvements and conversion over to renewable forms of energy.


Time line

The leases being offered for coal, at least, are to be awarded over the next few years and would extend for of order 20 years. Imposing the social cost of carbon as the minimum payment for extraction of fossil fuels would thus tend to increase costs over this period (thus, the proposed action would be primarily short-term, but extending also for longer).

In addition to the direct effects of the policy, the signal given by the movement toward having the social cost of carbon as a premium to be paid when using fossil fuels would, one would expect, give a clear signal to the market that there needs to be a fundamental shift in the sources of energy for the US.


Related proposals

A number of other proposals would potentially benefit from creating a fee for fossil fuels that would represent the external costs to the national and global environment of their use, thus encouraging a leveling of the economic playing field across the different approaches to deriving energy. The actions proposed here do not directly depend on any other action, except to the extent that the other approaches would generally benefit from putting a proper and appropriate cost on the extraction of fossil fuels from public lands.


References

 

Greenpeace, 2014: Leasing Coal, Fueling Climate Change: How the federal coal leasing program undermines President Obama’s Climate Plan, 14 pp. (and with extensive additional relevant references)

MacCracken, M.C., and L. J. Richardson, 2010: Challenges to Providing Quantitative Estimates of the Environmental and Societal Impacts of Global Climate Change, pp. 41-65 in Assessing the Benefits of Avoided Climate Change: Cost Benefit Analysis and Beyond, J. Gulledge, L. J. Richardson, L. Adkins, and S. Seidel (eds.), Proceedings of Workshop on Assessing the Benefits of Avoided Climate Change, March 16–17, 2009, Pew Center on Global Climate Change, Arlington, VA. Available at:http://www.pewclimate.org/events/2009/benefitsworkshop

Thakar, N., and M. Madowitz, 2014: Federal Coal Leasing in the Powder River Basin: A Bad Idea for Taxpayers, issue brief for the Center for American Progress, 6 pp.