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Putting a Carbon Charge on Federal Coal: Legal and Economic Issues

July 2016

Citation: 46 ELR 20572

Issue: 7

Author: Alan Krupnick, Joel Darmstadter, Nathan Richardson, and Katrina McLaughlin

U.S. policy to limit greenhouse gas emissions is driven, in part, by the U.S. Environmental Protection Agency’s proposed Clean Power Plan, which seeks a drop in carbon dioxide (CO2) emissions from fossil-fueled power plants—a “downstream” approach to regulation. An alternative, or possibly complementary, approach is to consider the legal and economic feasibility of imposing an “upstream” CO2 charge on coal production at its extraction site, and specifically on leased coal from federal lands managed by the Bureau of Land Management (BLM). This Article argues that BLM has the statutory and regulatory authority to impose such a charge, and that it would be best to add it to the royalty rate; but that a large fee that dramatically reduced revenues could invite judicial concern. The economic case is weaker than the legal case because coal production on nonfederal lands (60% of total production) would not be subject to the charge and so could ramp up in response to the new policy. Best would be a comprehensive set of charges on royalties for all fossil fuels, irrespective of ownership.

Alan Krupnick and Joel Darmstadter are senior fellows, Nathan Richardson is a visiting fellow, and Katrina McLaughlin is a research assistant, all at Resources for the Future.

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