USEPA continues its program of death by a thousand cuts to the coal industry, but does the agency’s actions reflect a coherent national energy policy? On March 27, 2012 the EPA issued its new source performance standards for new power plants limiting CO2 emissions per megawatt-hour of produced electricity to a level about that of state-of-the-art, combined-cycle, gas-fired power plants. Importantly, industry observers claim that the level is far below what the best coal-fired power plants can achieve at least without commercially unavailable and quite expensive carbon capture technology.  While certain exceptions within the rule preclude stating that EPA has banned the use of coal in new plants, it comes pretty close.  That reminds me of an often repeated statement of an old client of mine back in the 1970’s whose recycled solvent fuel business and the EPA just didn’t get along that well—he would remark that “if coal were discovered today, EPA would never allow it to be burned.”  He appears to have been ahead of his time.

Of course one winner in this is natural gas.  With new sources of natural gas from shale and fracking having driven natural gas prices downward relative to coal and oil, old King Coal has been facing a distinct price disadvantage for years.  EPA had further disadvantaged coal and oil as a result of last year’s cross-state air pollution rule.  Last December, EPA’s MATS rule (mercury and air toxics standards) for power plants further adversely affected coal. Is EPA’s latest effort merely the coup de grace?

Don’t get me wrong.  I’m not a coal apologist.  One need not be a fan or sworn enemy of either natural gas or coal, of free markets or environmental regulation, to realize that something is going on that is important to our national energy situation with no one particularly in charge.  After all, coal mining, transportation and existing uses drive tens of thousands of jobs and the economy of such disadvantaged states as West Virginia.  Presidents and presidential candidates have decried our lack of a national energy policy for 30 years with meager results. 

My point is otherwise: What does the overall national interest—economic, energy and environment—have to say about the relative use of coal vs. natural gas vs. petroleum vs. nuclear power?  Should EPA’s rule, based on concerns for global warming and not immediate health and safety, trump everything else?  Should we increase our reliance on natural gas at the expense of coal?  Should we be at the mercy of market forces without regard to our long term, sustainable future?  Should we simply use a bumper sticker (“Drill, baby, drill”) instead of reasoned policy? 

What passes as policy is a series of regulatory silos each with its own raison d’etre—FERC, NRC, EPA, DOE. And, of course, Congress, some of whose members can’t wait to kill alternative energy policies (solar), decry subsidization for renewables while rejecting as nearly immoral attempts to eliminate out of date tax subsidies for oil and gas (Subsidies at today’s prices?  Give me a break!). EPA’s new rule, in isolation from everything else, is merely another example of our lack of a coherent national policy on energy.  It may be a good environmental rule, but is it good for the country?

Even as a latent issue, subsidies to the oil and gas industry have the potential to be a political hot potato.  But with President Obama putting them front and center in his recent speech at New Hampshire’s Nashua Community College, the issue joins the already crowded landscape of political fodder heading into the fall elections.  President Obama’s “all of the above” energy program covers a variety of activities, including production of oil and gas, funding renewable energy sources, and encouraging innovation of new technologies.  In the end, fossil fuels are an exhaustible source of energy that cannot be the total answer to our energy needs, as even oil and gas companies recognize.  And they come with a real set of hazards, as the recent Deepwater Horizon settlement reminds us.
 
Although not directly part of his “all of the above” energy program, President Obama is rightfully addressing government subsidies for oil and gas that could be migrating towards increasing subsidies for solar farms and wind turbines.  While fossil fuels will eventually run out, wind, solar, and biomass will not, but have yet to enjoy the level of support afforded to the oil and gas industry.  According to a recent analysis of the economics of energy by experts at the Imperial College London and the UK Energy Research Center electricity from wind power may, in five years, be less expensive than electricity from natural gas in the U.K. if current levels of government subsidies were transferred to renewable energy sources.
 
While the study is specific to the United Kingdom, there are takeaways applicable in the U.S.  First the analysis recognizes the important support that subsidies provided to oil, gas, and nuclear energy development when each were in infancy.  Through those subsidies, energy companies were encouraged to develop technologies, survey areas that were geologically ripe for oil and gas exploration, and hire workers to help build up the industry.  Second, now that oil, gas and, to a lesser extent, nuclear energy sources are more completely developed, those subsidies should be transferred to the development of renewable energy.  In addition, the gains made by the wind and solar industry should not be set aside in search of the elusive promise of cheaper oil through more drilling.  Fossil fuels will run out.  If “all of the above” is to be a real strategy, then it must provide more of an equal opportunity for all sources of energy.
           
The Department of Energy recently announced $150 million in grants under its ARPA-E program.   This money is intended for development of cutting-edge energy technologies so that they can gain the necessary traction to be self-sufficient.  The announcement follows on the heels of an additional $30 million offered under the ARPA-E program toward development of natural gas-based vehicles.  Both these numbers pale in comparison to the $4 billion in yearly subsidies for oil and gas developers.   Even shifting half of the oil and gas subsidies into renewable and developing technologies could well make a dramatic difference in our overall energy future by encouraging the build-out of wind, solar, and biomass businesses into viable and self-sufficient industries.  There will come a time for a full discussion of the value of energy subsidies as a whole, but this would provide a fair start toward creating parity with fossil fuels.
               
The Deepwater Horizon disaster is a reminder of the cost associated with use of fossil fuels.  Significant government subsidies provided to the oil and gas industry played an important part in encouraging their initial and ongoing development.  Programs such as ARPA-E can provide a jump-start for emerging energy technologies, and shifting subsidies can offer a chance for “all of the above” to be a real solution.

Recent actions taken by the Bureau of Land Management (BLM) to protect species on BLM-managed lands, before those species have been listed under the Endangered Species Act (ESA), raise questions about the evolution of BLM’s role in species protection and the impact this evolved role may have on minerals leasing and development on BLM-managed lands. 

BLM is charged, under the Federal Land Policy and Management Act of 1976, with developing Land Use Plans that make its public land and resources available under the principle of multiple-use, but at the same time, conserving special status species and their habitats.  The agency’s actions with respect to two species, the Greater Sage-Grouse and the Dunes Sagebrush Lizard, are indicative of BLM’s trajectory in how it intends to balance its roles as species-protector and minerals-manager on public lands.

A December 27, BLM-issued internal Instruction Memorandum (IM) provides interim management policies and procedures to protect the Greater Sage-Grouse on BLM-managed lands in the Western United States with the expressed goal of potentially avoiding an ESA listing.  The Greater-Sage Grouse is currently not protected under the ESA, its listing having been designated as “warranted but precluded” by the U.S. Fish and Wildlife Service (FWS) in March 2010.  The “warranted but precluded” listing decision concluded that existing regulatory mechanisms in the BLM’s Land Use Plans were inadequate to protect the species, which is found in up to 47 million acres of BLM-managed land. 

The December IM makes it clear the new guidelines apply to both proposed and existing leases.  The IM does recognize holders of existing mineral leases do have valid rights entitling them to certain development activities, but the guidance also indicates BLM will attempt to provide maximum protection to the Sage-Grouse within the bounds of those leases.  For example, for fluid mineral leases, the IM states BLM may issue written orders requiring “reasonably protective measures consistent with the lease terms.”  Further, when an existing leaseholder requires a new permit for minerals development, BLM plans to impose “reasonable” conditions in the permits that are likely to be more protective than the stipulations and restrictions currently identified in approved Land Use Plans.

BLM expressed a similar stance in the development of resource management plans in New Mexico to address the Dunes Sagebrush Lizard.  In that instance, BLM noted "holders of existing oil and gas leases have valid rights for development of their leases" but asserted in responses to public comment that BLM "can withhold approval of prospective well locations on existing leases" or address candidate species through existing lease stipulations. 

With FWS experiencing increasing backlogs in addressing ESA listing petitions, it seems likely there will be many more species that, like the Greater Sage-Grouse and the Dunes Sagebrush Lizard, are found to need habitat protection but cannot be allotted resources by FWS to do so.  If BLM continues to step in and afford protections on the level it has in the case of these two species, effects on minerals leasing in BLM-managed lands could be far reaching.  Minerals leaseholders on BLM lands should keep an eye on how far BLM ultimately stretches the bounds of existing mineral leases to protect the Greater Sage Grouse and Dunes Sagebrush Lizard, because BLM’s approach to these species may be indicative of a trend that will apply to many more species in the future.