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Theo Spencer’s Blog

Coal is Cheaper Than Dirt -- It's a Joke, But It's On Taxpayers

Theo Spencer

Posted June 28, 2012 in Curbing Pollution, Solving Global Warming, U.S. Law and Policy

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At a lease sale today in Wyoming of taxpayer-owned coal, the single and winning bid was about $1.10 a ton. That’s dirt-cheap. Or actually, I should say it’s cheaper than dirt. According to costhelper.com, and ask.com, a ton of dirt costs between $8-$30 a cubic yard, and a cubic yard weighs between 2,000 and 2,700 pounds.

Yet the largest privately-held coal company in the world, St. Louis-based Peabody Energy, was able to pick up 721 million tons of coal for about $1.10 a ton today under a scandalous lease program operated by the Department of Interior’s Bureau of Land Management (BLM), at cost of $1.2 billion in lost taxpayer revenue (see below). This is supposedly ‘fair market value,’ according to the BLM. However, these taxpayer-owned assets now sell on the open market in the United States for between $8-$14 a ton, and between $80-$122 a ton overseas.

That’s a scam, a giveaway to Big Coal by the federal government at taxpayer expense in a time of very tight economic belts.

It’s also particularly disturbing coming only four days after The Washington Post ran an exclusive story highlighting how this government program has cost state and federal taxpayers nearly $30 billion dollars over the last 30 years. The story is based on a report issued by the Institute for Energy Economics and Financial Analysis (IEEFA).

You can read my blog about it here. The BLM says its program is fair, yet the Department of Interior’s (BLM is part of Interior) office of the Inspector General just opened an investigation into the program, and the Government Accountability Office has two going.

According to a press release from IEEFA issued today about Thursday's lease sale:

Competitive" Bid Process With Only One Company Underscores Deep Flaws in BLM "Giveaway" Process; Approved Price for U.S.-Owned Coal Well Under Half of Fair Market Value.

U.S. taxpayers will lose an estimated $1.2 billion now that the federal Bureau of Land Management (BLM) has reportedly accepted Thursday's bid from Peabody for 721 tons of federally owned Powder River Basin (PRB) coal, according to preliminary calculations announced today by the Institute for Energy Economics and Financial Analysis (IEEFA).

The BLM lease came just days after IEEFA released a major new report "The Great Giveaway: An Analysis of The United States' Long-Term Trend of Selling Federally Owned Coal for Less Than Fair Market Value" available online at http://www.ieefa.org.

Go figure.

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Comments

BSJun 28 2012 08:16 PM

Allow me to point out to your readers how are misleading them:

You compared the price of coal that is still in the ground to the price one can actually purchase dirt or coal for consumption. This comparison is meaningless.

Second, a yard of dirt does not weigh 2,000-2,700 pounds unless it is saturated with water. I can carry a little more than a yard of dirt in my Ford Ranger, and my Ford Ranger cannot carry 2,000 lbs in the bed.

Heck, water (which is heavier than unsaturated dirt) wieghs 1685 lbs per cubic yard (62.4lbs/cubic-foot x 27 cubic-feet per cubic-yard).

You act as if this coal is already mined and sitting in rail cars ready for shipment. That coal still has to be mined, refined, transported, etc. That process is expensive.

There are also many different grades of coal (hence the price range), and you didn't even bother to specify what type of coal this is or compare it to the price of that type of coal.

The $1.10 price is indeed the fair market value, because the coal was sold off to the highest bidder. That is, by definition, the market value. (Ask anyone who sells on EBay.)

Also, the price of coal is so low because natural gas is so plentiful. Coal consumption is down. NRDC should be rejoicing, not complaining.

BSJun 28 2012 11:23 PM

Theo,

You single out Peabody and imply they are making huge profit margins. OK, show me.

Here are their financials:
http://data.cnbc.com/quotes/BTU/tab/7

In 2011, their gross margin was 19%. Last quarter, it was 16%.

In 2011, their net profit margin was 12%. Last quarter, it was 8.5%.

To put that in perspective, loveable companies like Apple and Google enjoy net profit margins of 20-25%.

Junc BondJun 29 2012 12:54 AM

Mr. Spencer,

Why do you fail to mention the royalty the government will receive as the coal is mined? Why do you distort the facts as 'BS' says? Good journalism requires proper research and factual information. This article appears to contain none of that.

Theo SpencerJun 29 2012 10:43 AM

First, to JuncBond, you should read the post I wrote earlier this week. That should answer your questions about the royalties. This was meant as a quick post solely to comment on yesterday's lease sale. There was/is a lot more information in the links, if you chose to follow them.

Second, to "BS," did you look at the price and weight links in the blog? Did you follow the other links? These should address many of your questions/ respond to your statements. One bidder is not a competitive bidding process.

The BLM has recently rejected two petitions to certify the Powder River Basin as an official 'Coal Producing Region' even though it is the nation's largest. That in itself is patently absurd. The BLM decertified the region in 1990, claiming there was not enough interest in coal from the PRB. Yet immediately after decertification, there was an avalanche of proposals. Why? Because under Certification the federal government must decide which parcels of this taxpayer-owned land/coal are put up for bid, after an extensive process which includes regional and environmental planning. In other words, after a review that puts the taxpayer's interest ahead of corporations.

You talk about Peabody's profit margins. Peabody is a global company, Australian floods and other conditions have affected their bottom line. Regardless of how much profit the company makes as a whole, they should not be sold publicy owned assets at a price that is well below fair market value. If you look at the report, and do your homework, you see that a scandal erupted in 1982 after it was revealed that the BLM decided on a fair market value price for coal, then sold that coal from the PRB at precisely half the price they determined was fair. Three seperate investigations ensued, and large reforms were instituted.

Yet basically none of these reforms have been followed. Lease sale information--how the BLM determined the price for a particular sale--is supposed to be made public after the sale has occurred. Yet the BLM has refused to release this information, rejecting several Freedom of Information Act requests in the last few years. There has been no meaningful oversight of this program since the scandal over the price-fixing erupted 30 years ago. Is that due-diligence? Do you live in WY? If so, your state has missed out on approximately $350-$400 million a year annually, if you annualize the total lost revenue over 30 years of $28.9 billion and take into account that the majority of coal comes from WY. Is that fair to WY? Take a look at the WY state budget, I provide a link in my earlier blog. See what that money could have paid for.

Do you think it's fair for companies to be proposing which tracts of federal assets should be sold? That type of program generally speaking has a poor history in the United States. Companies will act in their self-interest (and that of their shareholders), not in the public's. Poor/lax government oversight: see most recent financial collapse. I am not happy about lost tax revenue in this time of fiscal crisis. Are you?

As to dirt, the link I provide say a cubic yard weighs over 2000 pounds. According to Answers.com it is approx 1.5 tons. or go to blurtit.com to find this:


"The weight of a cubic yard of dirt will vary considerably depending on the consistency and density of the dirt you wish to weigh. For commercial purposes, a cubic yard of dry dirt can be defined as weighing 70 to 80 pounds per cubic foot, which can then be converted to 1,890 to 2,160 pounds per cubic yard respectively."

That cost does not include delivery, which can easily at least double the price (see some of the same links).

BSJun 29 2012 07:35 PM

Theo,

Let's address this one thing at a time. You've decided to compare the price of coal to the price of dirt.

You've established that the price of coal in the Powder River Basin to be $1.10/ton when it is still in the ground. I'll set aside the fact that you have not indicated what it's BTU content is. I will, however, point out that this is the lowest value, lowest energy-content coal. The current spot price of that coal is at best $8-8.50/ton, and the price is declining due to coal power plant retirements and the low price of natural gas. Under these conditions, a 13-14% royalty is pretty decent.

There was only one bidder because there is currently a glut of coal. A company that wants coal knows where to find the auctions. The Powder River Basin is one of the main coal producing regions. All the coal companies know about it. It is not a secret.

Now you want to compare the price of coal to dirt? Fine. First, the current spot price of coal is about $8-60 per ton, depending on the quality of the coal. Most coal costs $35/ton or more. On the other hand, you say soil costs at most $30/ton.

So when comparing apples to apples, coal costs more than dirt. Often it costs twice as much, but it almost always costs more.

So do you agree that the entire premise of your blog was incorrect? If you agree, we can then move on to another topic.

(By the way, if you had agreed with me that soil for purchase weighs less than a ton, it would have made soil's cost per ton higher. You probably shouldn't have argued with me on that one.)

Junc BondJun 30 2012 10:46 PM

Mr. Spencer,

Just read the piece you linked. More garbage. Royalty was mentioned nowhere in the article.

Another factual error you make (found in your linked article):
"having bought this taxpayer-owned asset for just over $1 a ton, and selling for between $80 and $122."
The EIA confirms BS's figure of $8.50/ton.
http://205.254.135.7/coal/news_markets/
The end user may pay $35+/ton, but that is a delivered price. It takes many more dollars to get the coal delivered, and that goes to the rail companies, not the coal producers. BTU et al are currently realizing a spot price of around $8.50/ton at the mine.

Further, I would like to hear your response to BS on the dirt debate. I believe you are confusing delivered price versus the net back. How many times have you seen a "free dirt" sign when driving down the road? Now go hire a dump truck to move 10 yards to your house. How much will the trucker charge? That's the price you are using; something don't smell right with your story.

BSJul 1 2012 12:41 AM

Junc Bond,

Those higher prices that he gave were actually for coal that has a much higher energy content. So he was essentially comparing the price of the lowest grade coal (still in the ground) to the spot price of a much higher quality grade of coal.

He also doesn't point out that international coal prices have come down quite a bit recently. I suspect his price of $80-122/ton figure is wrong. And I am also certain that the international prices he mentions are also for much higher quality coal than the Powder River coal he wrote this article about. For example, high energy-content Australian coal is trading at $88, down from over $120/ton earlier this year (http://www.indexmundi.com/commodities/?commodity=coal-australian&months=60).

Theo SpencerJul 5 2012 11:46 AM

BS and Juncbond, let's just agree to disagree

Comments are closed for this post.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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