Guv on coal: cut methane, cut royalties

Gov. John Hickenlooper has endorsed a proposed royalty rate reduction at Arch Coal’s West Elk Mine near Somerset, contingent on the mine following through on its commitment to work with the state and local counties to develop a strategy to capture methane vented from the mine and possibly put it to beneficial use.

“The Company’s good-faith commitment to dedicating significant time and resources to the pursuit of this outcome is critical to our support — and that of local communities’ — for the royalty rate reduction request,” Hickenlooper said in a letter to the Bureau of Land Management, which is considering the requested rate reduction.

The company sought the reduction, from 8 to 5 percent, for operations in a coal seam where it says adverse geological and mining conditions make those operations more economically challenging.

Arch Coal sought the reduction just before a previous five-year reduction expired in early 2015. The new reduction would be retroactive to then and last another five years, until 2020.

About half of federal royalties from a mine go to the state where it’s located. Hickenlooper estimated in his letter that the West Elk reduction would cost Colorado about $4 million over the five years.

But BLM spokesperson Courtney Whiteman said an estimated $8 million already would be due to Arch Coal as a retroactive reimbursement if the reduction is approved. That suggests that the total amount of revenue the state likely would miss out on through 2020 will be higher. Environmentalists have estimated the five-year cost of the reduction could be $12 million.

Whiteman said it all depends on how much coal affected by the reduction ends up being mined.

The retroactive amount would be in the form of a credit against future royalties owed, she said.

In considering the request, one thing the BLM evaluates is whether the coal in question might not be mined at all without a reduction, which would mean no royalties rather than a reduced amount.

“If production from this federal coal seam does not occur at this time, local employment and revenues will be impacted, along with royalty revenues to federal and state governments, and severance tax revenues to state and local governments,” Hickenlooper said in his letter.

Several conservation groups argue the reduction would subsidize an operation that is the single largest industrial methane polluter in the state.

The mine vents gas to the surface to prevent underground explosions. Methane is a greenhouse gas, and conservationists had called on Hickenlooper to oppose the reduction request. They cited the commitment he has made to have Colorado participate in the international effort to fight climate change despite President Trump’s decision to pull the country out of a global accord. 

“I’m disappointed the governor didn’t take … a stronger position,” said Matt Reed with High Country Conservation Advocates in Crested Butte.

He would have like to see Hickenlooper call for deadlines and language ensuring that a methane capture program drawn up through a working group process is implemented.

“As it is it’s pretty open-ended and there aren’t any assurances it will be more than talk associated with that effort,” he said.

Arch Coal spokesperson Logan Bonacorsi said the mine “is committed to working closely with state, county and other community leaders to explore the development of a safe and economic mechanism to analyze and address mine methane at the West Elk mine. We will continue to dedicate significant time, energy and resources in pursuit of a constructive and positive outcome.”

Whiteman said the BLM supports the idea of methane capture and wants to look at it, but the rate-reduction request involves a separate issue of geological and financial conditions at the mine.


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