Vermont Law Top 10 Environmental Watch List 2015

Coal at a Crossroads in Powder River Basin

New coal-mining development in the Powder River Basin is on the decline and a decision by the Surface Transportation Board expected in 2015 could prove a major stumbling block for future development.

Powder River Basin

The Powder River Basin, which spans approximately 19,500 square miles from northwest Wyoming to southeast Montana, is one of the largest coal deposits in the world. It contains more than 1.07 trillion tons in coal reserves and currently supplies about 40 percent of the coal needed to fuel all coal-fired power plants in the United States. Yet despite this abundance, new coal-mining development in the Powder River Basin is on the decline and a decision by the Surface Transportation Board expected next year could prove a major stumbling block for future PRB development.

Although the Surface Transportation Board isn’t the first federal authority that comes to mind when one thinks of coal mining, industry experts closely watch its decisions. That’s because rail is the only economical way to move coal from mine to market, and the board has jurisdiction over railroad projects. Consequently, the board’s rejection of a railroad project would render the mine it serves economically useless.

In reality, the board rarely rejects proposals to construct new rail lines for shipping coal. However, that may change in the coming year. The board is currently reviewing a railroad project that would service the yet-to-be-developed Otter Creek Mine in Montana’s Powder River Basin. The project is supported by rail giant BNSF and the second-largest U.S. coal producer, Arch Coal. A group of western farmers and ranchers represented by the Environmental and Natural Resources Law Clinic at Vermont Law School and Professor Jack Tuholske is arguing strenuously that the project makes little economic sense. There is widespread recognition that low natural gas prices and increasingly stringent air pollution regulations are steering the domestic electricity sector away from coal. This leaves China as one of the few coal markets left to support new development in the PRB. But, according to Wall Street, China’s once promising future for PRB coal is no longer a safe bet.

Financial titans like Goldman Sachs are pessimistic of China’s ability to save PRB coal. Although the issues are complex, two recent developments help explain why the future looks grim. First, PRB coal needs more terminal capacity along the Pacific Coast to ship PRB coal to China economically. However, industry plans to expand West Coast terminal capacity have faced significant opposition. In August, Oregon’s Department of State Lands rejected an expansion project and signaled such projects face an uncertain future. Second, China may not be in the market to import much coal from the PRB. For example, China recently imposed a 6 percent tariff on thermal coal imports, which includes PRB coal. The tariff will dramatically impact PRB coal’s ability to compete with China’s own coal production and that of nearby neighbors Australia and Indonesia.

With uncertainties like these on the landscape, the Surface Transportation Board granted Northern Plains’ request to open Arch Coal’s books to see what it says internally about the project’s economics. The board’s interest in these matters demonstrates an important shift, and one that potentially does not bode well for Arch and other PRB companies.