US Gov's Sham Coal "Auctions" Cost You $29 Billion

Kimon via Flickr/CC BY-SA 2.0

Coal companies get their goods dirt cheap, thanks to a ridiculously outmoded system that allows them to write up their own leases for mining on public land. But most Americans likely have no idea how this screwy system works, how it continues to deliver coal to the industry for rock bottom prices—or how it's likely cost us billions of dollars over the years.

Here's the Washington Post:

The government’s longtime practice of auctioning coal mining rights to a single bidder may have cost taxpayers as much as $28.9 billion over the past 30 years, according to an analysis ... by the Institute for Energy Economics and Financial Analysis ...

The phenomenon — in which a mining company draws up a proposed area for leasing, and the Interior Department’s BLM auctions it off to that same firm — is the rule rather than the exception in the country’s single biggest coal producing region. In the 26 coal leases the federal government has awarded in southeastern Montana and northeastern Wyoming since 1991, 22 have gone to a single bidder. In the other four instances, there were only two bidders involved.

So, essentially "bidder" is nothing but a euphemism for "recipient." Recipient of huge helpings of coal-rich land for artificially low prices.

In other words, coal companies draw up the lease themselves, obviously charging as little as they can get away with, and await the offer to get rubber-stamped by the Bureau of Land Management in a sham "auction."

One such federally-approved, non-competitive land grab is slated to take place on Thursday, when the BLM will hold an “auction” for 721 million tons of coal in the Powder River Basin, on public land. Greenpeace's Joe Smyth explains how this will go down:

This is for the North Porcupine tract, and like the South Porcupine tract that BLM leased to Peabody last month — even though this coal is owned by you and me — the lease was drawn up by Peabody itself for its own profit. This is what’s known as a “lease by application,” and under BLM’s corrupt coal-leasing program, Peabody will almost certainly be the only bidder and pay next to nothing ...

Since Peabody knows it will face no competitive pressure, it can simply offer the lowest possible price, secure in the knowledge that if it doesn’t meet BLM’s absurdly low minimum price, it can just try again later. In fact, that’s just what happened with the South Porcupine tract; Peabody’s initial offer of just $0.90 per ton was rejected as too low by the BLM — so they simply held another auction a few weeks later and accepted Peabody’s offer of $1.11 per ton. In both “auctions” Peabody was the only bidder.

This non-competitive arrangement means cheap coal for a single company—at the taxpayer's expense. The system was intended to support competition between various bidders, but that almost never happens. Instead, the coal industry pretty much gets to set its own fees.

There are a million things that are wrong with this arrangement, and I hope this helps introduce you to the grand absurdity of this logically bankrupt system that burdens U.S. taxpayers.

To dive in deeper, see more of Smyth's work on the topic.

Tags: Coal

Best of TreeHugger 2014

WHAT'S HOT ON FACEBOOK