Beggaring ourselves through coal mining

Old joke: How do you make a small fortune breeding horses? Start with a large fortune ….

It appears that the same logic applies to coal mining here in the Northern Rockies.

With US coal use in slight decline, exports are the growth market. Metallurgical and steam coal currently export for about $140 and $80 per short ton, respectively. But the public will see almost none of that, because unmanaged quantity and “competitive” auctions that are uncompetitive (just like Montana trust land oil & gas), plus low royalty, rent and bonus rates, result in a tiny slice of revenue accruing to the people (via federal and state governments) who actually own the resource.

For the Powder River Basin, here’s how it pencils out in rough terms:

Item $/ton
Minemouth price $10
Royalty, rents & bonus $2
Social Cost of Carbon (@ $21/tonCo2 medium value) -$55
US domestic SCC (at 15% of global, average of 7% damage share and 23% GDP share) -$8
Net US public benefit < -$6

In other words, the US public loses at least $3 for every $1 of coal revenue earned. The reality is probably worse, because the social cost of carbon estimate is extremely conservative, and other coal externalities are omitted. And of course the global harm is much greater than the US’ narrow interest.

Even if you think of coal mining as a jobs program, at Wyoming productivity, the climate subsidy alone is almost half a million dollars per worker.

This makes it hard to get enthusiastic about the planned expansion of exports.

Are environmental regulations the real constraint on US energy output?

When times are tough, there are always calls to unravel environmental regulations and drill, baby, drill. I’m first in line to say that a lot of environmental regulation needs a paradigm shift, but this strikes me as a foolish hair-of-the-dog-that-bit-ya idea. Our current problems don’t come from regulation, and won’t be solved by deregulation.

On average, there’s no material deprivation in the US. We consume more petroleum per capita than any other large nation. Our problems are largely distributional – inequitable income distribution and, recently, high unemployment, which causes disproportionate harm to a few. Why solve a distributional problem by skewing environmental policy? This smacks of an attempt to grow out of our problems, which is surely doomed to the extent that growth relies on intensifying material throughput.

Consider the system:

The underlying mental model behind calls for deregulation sounds like the following: environmental regulations create compliance costs that drive up the total cost of resource extraction, depressing the production rate and depriving the people of needed $$$ and happiness. Certainly that causal path exists. But it’s not the only thing going on.

Those regulations were created for a reason. They reduce environmental impacts, and therefore reduce the unpaid social costs that occur as side effects of oil production and consumption, and therefore improve welfare. These effects are nontrivial, unless you’re a GOP presidential candidate. One could wish for more efficient regulations, but absent that, wishing for less regulation is tantamount to wishing for more environmental consequences and social costs, and hoping that more $$$ will offset that.

Even the basic open-loop rationale for deregulation makes little sense. Resource policy is already loose, so there’s no quantity constraint on production. With the exception of ANWR and some offshore areas, most interesting areas are already leased. Montana certainly doesn’t exercise any foresight in the management of  its trust lands. Environmental regulations have hardly become more stringent in the last decade or so. Since oil production in 1999 was higher than it is today, with oil prices well below $20/bbl, so compliance costs must be less than that. So, with oil at $100/bbl, we’d expect an explosion of supply, if regulatory costs were the only constraint. In fact, there’s barely an upward blip, so there must be something else at work…

The real problem is that there’s feedback in the system. For example, there’s balancing loop B1: as you extract more stuff, the remaining resource (oil in the ground) dwindles, and the physical costs of extraction – capital, labor, energy – go up. Technology can stave off that trend for some time, but prices and production trends make it clear that B1 is now dominant. This means that there’s a rather stark better-before-worse tradeoff: if we extract oil more quickly now, to hoist ourselves out of the financial crisis, we’ll have less later. But it seems likely that we’ll be even more desperate later – either to have that oil in an even pricier world market, or to keep it in the ground due to climate concerns. Consider what would have happened if we’d had no environmental constraints on oil production for the last three or four decades. Would the US now have more or less oil to rely on? Would we be happy that we pumped up all that black gold at under $20/bbl? Even the Hotelling rule is telling us that we should leave oil in the ground, as long as prices are rising faster than the interest rate (not hard, at current rates).

Another loop is just gaining traction: B2. As the stock of oil in the ground is depleted, marginal production occurs in increasingly desperate and devastating circumstances. Either you pursue smaller, more remote fields, meaning more drilling and infrastructure disturbance in sensitive areas, or you pursue unconventional resources, like tar sands and shale gas, with resource-intensive methods and unknown hazards. A regulatory rollback would accelerate production via the most destructive extraction methods, right at the time that the physics of extraction is already shifting the balance of private benefits ($$$) and social costs unfavorably. Loop B2 also operates inequitably, much like unemployment. Not everyone is harmed by oil and gas development; the impacts fall disproportionately on the neighbors of projects, who may not even benefit due to severance of surface and mineral rights. This weakens the argument for deregulation even further.

Rather than pretending we can turn the clock back to 1970, we should be thinking carefully about our exit strategy for scarce and climate-constrained resources. There must be lots of things we can do to solve the distributional problems of the current crisis without socializing the costs and privatizing the gains of fossil fuel exploitation more than we already do.

Energy unprincipled

I’ve been browsing the ALEC model legislation on ALECexposed, some of which infiltrated the Montana legislature. It’s discouragingly predictable stuff, but not without a bit of amusement. Take the ALEC Energy Principles:

Mission: To define a comprehensive strategy for energy security, production, and distribution in the states consistent with the Jeffersonian principles of free markets and federalism.

Except when authoritarian government is needed to stuff big infrastructure projects down the throats of unwilling private property owners:

Reliable electricity supply depends upon significant improvement of the transmission grid. Interstate and intrastate transmission siting authority and procedures must be addressed to facilitate the construction of needed new infrastructure.

Like free markets, federalism apparently has its limits:

Such plan shall only be approved by the commission if the expense of implementing such a plan is borne by the federal government.

We the Landowners

Montana Senate Bill 379 gives a few landowners veto power over zoning. I used GIS data to do a quick calculation of how that would play out in some Gallatin County zoning districts:

Zoning District Distinct owners Owners of 40% of Land Share of owners required to protest zoning acts
Bear Canyon District 84 5 6.0%
Bridger Canyon 885 10 1.1%
Middle Cottonwood 242 81 33.5%
River Rock 938 41 4.4%
Springhill 200 27 13.5%
Sypes Canyon #1 24 7 29.2%
Trail Creek District 339 10 2.9%

In remaining Gallatin County, 263 out of 42,576 distinct owners (less than 1%) could block zoning, but my calculations are incorrect because of missing data and the presence of Bozeman in the middle, but the truth is probably not too different from the calculations above.

In fact, the table above understates how dramatically this legislation moves toward a principle of “one acre, one vote.” First, represented “owners” in each district aren’t necessarily people; corporations and trusts get a vote in zoning protests too. Second, non-landowners are completely disenfranchised, even though as residents and citizens they still have an interest in land use policy.

Since MT legislators have already tried to override federal powers in a number of bills this session, perhaps next session they can introduce a MT-specific preamble to the US Constitution,

We the People Landowners of the United States, in Order to form a more perfect Union Subdivision, establish Justice, insure domestic Tranquility Profitability, provide for the common aristocracy’s defence, promote the general Welfare Subservience, and secure the Blessings of Liberty Property to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America, LLC.

I hope that there is in fact some valid underlying intent to SB379. My guess is that it’s fear of a fairness issue: that the rabble will acquire their small lots, then seek to use zoning to lock up all land remaining in large undeveloped parcels, to preserve views and resources. So far, this is a strictly theoretical problem. County commissions, and a lot of MT voters, are a conservative lot, which militates against such developments, and agriculture and forestry are protected from zoning anyway. If there’s any real need for policy here, surely there is a means to achieve it that doesn’t do such violence to democracy.

If the real goal is to create a de facto zoning ban, by making it impossible to create districts or amend regulations, then the legislature should simply de-authorize zoning. But, following the wingwalker’s rule (don’t let go of one thing until you’ve got hold of another), they should first come up with an incentive  system that achieves the purposes of zoning more flexibly.

April Fools in the MT Legislature

I was planning an April Fool’s Day post to mock the Montana legislature, but I really can’t top what’s actually been going on in Helena over the past few days. One bar-owning legislator proposed rolling back DUI laws, to preserve the sacred small town rite of driving home drunk from the bar. The same day, they seriously debated putting the state on the gold standard, which drew open laughter and an amendment to permit paying state transactions in coal. The gold bugs, who fancy themselves constitutional scholars, evidently weren’t around when the proposal to assert eminent domain power over federal lands was drafted. I could go on and on… It’s troubling, because I keep getting my news reader feed mixed up with The Onion.

A comment at the Bozeman Daily Chronicle captured widespread sentiment around here better than I can:

Hey members of the house- Thanks for wasting our money. Try to do something productive up there instead of making all Montanans look like a bunch of idiots. If I was as worthless as you I’d kick my own a_$. Put that in your cowboy code…

The new Montana House of Lords

Feudalism is back in Montana – or at least if SB379 passes, we’ll be well on the way.

SB379is to protect real property owners from unreasonable land use restrictions and reductions in land value due to county zoning.” Translation: make zoning impossible by allowing a superminority of owners to protest its implementation.

The real devil is in the details:

Section 2.  Definitions. For purposes of [sections 1, 2, 4 through 9, 11, and 12], the following definitions apply:

(1) (a) “Affected property” means property taxed on an ad valorem basis on the county tax rolls and directly subject to a proposed zoning action.

(2) “Affected property owner” means the owner of affected property, including natural persons, corporations, trusts, partnerships, incorporated or unincorporated associations, and any other legal entity owning land in fee simple, as joint tenants, or as tenants in common.

(3) “Protest override procedure” means the procedures described in [sections 6 through 9].

(4) “Protesting landowner” means an affected property owner who protests a zoning action.

(5) “Successful protest” means a protest by owners of 25% or more of the affected property.

Section 5.  Protest. (1) Within 60 days of the date that notice of passage of the resolution of intention to take a zoning action pursuant to [section 4] is first published, affected property owners may protest the proposed zoning action by delivering written notification to the board of county commissioners.

Notice how this assigns the right to protest to owners on the basis of area. Owners don’t even have to be people. A protest is a de facto vote. In other words, this policy is “one acre, one vote.” This bill elevates property rights, as in the 5th Amendment,

No person shall … be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

above the Equal Protection Clause of the 14th Amendment,

No State shall make or enforce any law which shall … deny to any person within its jurisdiction the equal protection of the laws.

If the drafters of this bill are unclear as to which principle is the more fundamental, they could consult the Declaration of Independence,

We hold these truths to be self-evident, that all men are created equal, …

Update: one could also check the Montana constitution,

Section 1. Popular sovereignty. All political power is vested in and derived from the people. All government of right originates with the people, is founded upon their will only, and is instituted solely for the good of the whole.

I’ll gladly admit that zoning is a blunt instrument. But a de facto ban on zoning, with the idea that it’s a taking, guarantees a tragedy-of-the-commons outcome (unless you live in the faux-libertarian lalaland where property rights are fully allocated, markets are complete and there are no externalities). Even if that’s the road we choose to take, the governing principle must be “one person, one vote.”

Let’s see: government of the landowners, by the landowners, for the landowners – check. Elevation of politics above science – check. Montana is two thirds of the way to the Middle Ages! All we need now is to get rid of separation of church and state.

Legislators' vision for Montana

This is it: a depleted mining wasteland:

NASA Berkeley Pit

Berkeley Pit, Butte MT, NASA Earth Observatory

The spearhead is an assault on the MT constitution’s language on the environment,

All persons are born free and have certain inalienable rights. They include the right to a clean, and healthful, and economically productive environment and the rights of pursuing life’s basic necessities, enjoying and defending their lives and liberties, acquiring, possessing and protecting property, and seeking their safety, health and happiness in all lawful ways. In enjoying these rights, all persons recognize corresponding responsibilities.

What does “economically productive” add that wasn’t already covered by “pursuing … acquiring … posessing” anyway? Ironically, this could cut both ways – would it facilitate restrictions on future resource extraction, because depleted mines become economically unproductive?

Other bills attempt to legalize gravel pits in residential areas, sell coal at discount prices, and dismantle or cripple any other environmental protection you could think of.


Section 1.  Public policy concerning global warming. (1) The legislature finds that to ensure economic development in Montana and the appropriate management of Montana’s natural resources it is necessary to adopt a public policy regarding global warming.

At least we’re clear up front that the coal industry is in charge!

(2) The legislature finds:

I’m sure you can guess how many qualified climate scientists are in the Montana legislature.

(a) global warming is beneficial to the welfare and business climate of Montana;

I guess Joe didn’t get the memo, that skiing and fishing could be hard hit. Maybe he thinks crops and trees do just fine with too little water and warmth, or too much.

(b) reasonable amounts of carbon dioxide released into the atmosphere have no verifiable impacts on the environment; and

Yeah, and pi is 3.2, just like it was in Indiana in 1897. I guess you could argue about the meaning of “reasonable,” but apparently Joe even rejects chemistry (ocean acidification) and biology (CO2 fertilization) along with atmospheric science.

(c) global warming is a natural occurrence and human activity has not accelerated it.

Ahh, now we’re doing detection & attribution. Legislating the answers to scientific questions is a fool’s errand. How did this text go through peer review?

(3) (a) For the purposes of this section, “global warming” relates to an increase in the average temperature of the earth’s surface.

Well, at least one sentence in this bill makes sense – at least if you assume that “average” is over time as well as space.

(b) It does not include a one-time, catastrophic release of carbon dioxide.

Where did that strawdog come from? Apparently there’s a catastrophic release of CO2 every time Joe Read opens his mouth.