Courts Examine Coal Production, Transportation Problem

The Carter Administration's coal conversion program,¹ which attempts to make industry switch from oil and gas to coal for powering its plants, depends on successful implementation of two major policies. On the demand side, the program proposes a system of tax incentives and regulatory prohibitions designed to encourage utilities and industry to convert from oil and natural gas to coal. On the production side, the program calls for an increase in coal extraction to 1.2 billion tons annually by 1985 to keep up with projected demand. Although congressional attention has focused on the proper mix of regulatory and taxing policies, two recent court decisions have brought attention to the legal issues which most directly affect industry's ability to mine and transport sufficient quantities of coal to realize these ambitious goals.

Federal Coal Leasing

The question of whether additional public lands in the west should be leased to meet national energy needs was raised by the Natural Resources Defense Council (NRDC)² in 1975 in a suit challenging the adequacy of the Federal Coal Leasing Program environmental impact statement (EIS).³ NRDC alleged that the Department of the Interior and more specifically the Bureau of Land Management (BLM) had failed to comply with the requirements of the National Environmental Policy Act (NEPA)⁴ in its development and discussion of new leasing strategies.⁵ In particular, NRDC challenged the decision to adopt the Energy Mineral Activity Recommendation System's procedures for industry and public nomination of prospective leasing sites on the grounds that the Department had failed to examine adequately the need for, alternatives to, and environmental impacts of additional coal leasing.

The Federal District Court for the District of Columbia accepted this argument in Natural Resources Defense Council v. Hughes⁶ and enjoined implementation of new coal leasing except when required by certain short-term leasing criteriaestablished in 1973 (e.g., need to maintain existing mining operations at present levels or to provide reserves necessary to meet existing contracts).⁷ Judge Pratt's decision was based on a determination that the Department had failed to examine alternatives to its proposed leasing policy. Because the Department had not shown a need to lease additional lands, the court found it impossible to sustain the legal adequacy of an EIS which called for massive additional leasing.

The court was troubled primarily by the cursory discussion given to the "no action" alternative of retaining the limited 1973 short-term leasing policy. Although the Department argued that the need for increased [7 ELR 10230] coal production required a resumption of full-scale leasing, the court found that BLM statistics on coal reserves indicated that lands presently under lease could satisfy national demand for decades. What emerges from the court's opinion is the view that the lack of complete information on future production levels from lands currently under lease prevents the Department of the Interior from rationally determining that national energy goals require additional leasing.

The task which now must be addressed by the Bureau is how to design a coal development program which meets court criticisms and NEPA requirements while ensuring timely achievement of production goals. The need for new leasing is supported by a recent General Accounting Office (GAO) report which indicates that successful achievement of a less ambitious 1985 production level of under one billion tons per year will require that up to 825 new mines be opened.⁸ To give any decision to lease additional federal lands the factual support it needs to pass judicial scrutiny, though, the Department must develop accurate information concerning the economic, environmental, and technological aspects of further development of lands presently under lease. These data must demonstrate that such development has become prohibitively expensive in contrast to the project costs of opening new mines on previously unleased federal lands.⁹

The immediate impact of the Hughes decision is that the federal government now must fully review production data before it may attempt to resume coal leasing. The long-range effect of the ruling, however, may be a substantial delay in achieving the 1985 production goal. The court found that issuance of the injunction would have no significant effect upon coal availability. Given the uncertainty as to the need for new leasing to meet the increased production goal and the lead time needed to open new mines after leases have been awarded, however, there is at least a risk that the 18-month delay in new coal leasing that is expected to result from the ruling will make it impossible for industry to produce the amount of coal needed to meet energy plan goals.

Coal Transportation

The potential success of the coal conversion program is further clouded by GAO's conclusion that existing railroad, barge, and truck systems will be unable to handle the anticipated boom in western coal production. In 1975, rail shipments accounted for 65 percent of the coal that was transported while barge and truck systems accounted respectively for roughly 10 and 12 percent.¹⁰ GAO projects that unless current transport systems are rapidly expanded they will be unable to handle adequately the fivefold increase in western coal production expected by 1985.

The ability of railroads to carry additional amounts of coal depends on their ability to acquire sufficient capital to finance the building of new roadbeds and the purchase of additional hopper cars. As the GAO report notes, however, the railroads' ability to acquire sufficient capital is hindered by investor uncertainty as to whether federal and state reclamation requirements for stripmined areas will reduce demand for western coal and whether slurry pipeline development will draw off the more profitable high-volume railroad coal traffic.¹¹ In addition, the railroads' ability to obtain new routes into western coal fields depends on the outcome of environmental challenges to the adequacy of the Interstate Commerce Commission's NEPA analysis of impacts of increased railroad coal traffic and the alternative of coal slurry pipeline development.¹²

Coal Slurry Pipelines

While the decision in Natural Resources Defense Council v. Hughes raises many questions as to the future of coal leasing, the ruling in Energy Transportation Systems, Inc. v. Union Pacific Railroad Company¹³ resolved one of the key legal issues blocking construction of coal slurry pipelines. In holding that a coal slurry pipeline company can use rights acquired from Homestead Act¹⁴ patentees to construct pipelines beneath land that is subject to railroad rights-of-way, the Federal District Court for the District of Wyoming provided the first adjudication of the legal status of pipeline company rights in this area. The court found that since Congress intended to grant the railroads only an easement in public lands, their power to prevent subsurface use existed only as to underground construction or operations that present an interference with the railroad's valid use of the subsurface for trackage or roadbed changes.

The immediate impact of the Energy Transportation Systems decision is to remove the legal impediments to construction of a 1,036-mile coal slurry pipeline from Campbell County in northeastern Wyoming to a point near Little Rock, Arkansas.¹⁵ The long-range impact of the decision is more important, for all coal slurry pipeline companies can now assert a right to construct pipelines beneath railroad rights-of-way. Since this major legal question has been effectively settled, the issues that now must be addressed are whether coal slurry pipelines can serve to supplement already overburdened rail and truck transport systems, and whether their environmental consequences are acceptable.

[7 ELR 10231]

The alternative of coal slurry pipeline development is economically well suited to western coal transportation needs. Like rail transport, it provides relatively low-cost service per million end-use BTUs.¹⁶ Its operation, however, presents major environmental problems. First, coal slurry pipelines require about one ton of water for each ton of coal moved.¹⁷ Since coal will be transported from semiarid western states, water needs for slurry pipelines inevitably will conflict with public, industrial, and agricultural uses. Even if water could be piped from nearby rivers or could be tapped from underground saline water sources, advocates of coal slurry still are faced with the problem of finding feasible methods of disposing of residual effluents at the final destination. Since this effluent contains coal particles, it cannot be discharged directly into surface waters. Consideration thus must be given to use of settling ponds or additional processing techniques.¹⁸

Conclusion

The major impact of the district court opinions in Hughes and Energy Transportation Systems is that increased attention now must be given to the major environmental, technical, and legal problems which may hinder increased extraction and shipment of western coal. The Department of the Interior can be longer rest its policy on the gut feeling that increased leasing will cure production shortfalls. If additional western public lands are to be opened to strip mining, the Department must make certain that lands presently under lease have reached the economic limits of potential production.

The Administration and Congress also can no longer afford to postpone consideration of measures to alleviate nearly inevitable transportation delays. If railroads are to continue as the major source of transportation of western coal, consideration must be given to devices such as federal tax credits that might serve to alleviate expected capital formation problems.

If coal slurry pipelines are necessary to the development of an adequate transportation network, the federal government will be faced with the problem of meeting state concerns that scarce water supplies will be unnecessarily depleted. Given the traditional reluctance of western states to surrender control over water policy, any federal attempt to ensure that state water laws do not unduly restrict coal slurry operations may be successfully blocked by regional interest groups in Congress. Unless Congress and the Administration can achieve a compromise which meets western concerns, coal slurry pipelines emain a doubtful alternative. Moreover, if the other problems of potential production and transportation delays are not fully resolved, the prognosis for achievement of the Carter Administration's ambitious 1985 production goals is guarded, thereby clouding the prospects of the coal conversion program as a whole.

1. EXECUTIVE OFFICE OF THE PRESIDENT, ENERGY POLICY AND PLANNING, THE NATIONAL ENERGY PLAN 63 et seq. (Apr. 29, 1977).

2. Natural Resources Defense Council v. Hughes, 7 ELR 20785 (D.D.C. Sept. 27, 1977). The complaint which was filed October 21, 1975, is available from ELR (17 pp. $1.70, ELR Order No. 360-A). For a summary of the arguments raised in the complaint, see ELR PEND. LIT. 65274.

3. UNITED STATES DEPARTMENT OF THE INTERIOR, BUREAU OF LAND MANAGEMENT, FINAL ENVIRONMENTAL IMPACT STATEMENT ON PROPOSED FEDERAL COAL LEASING PROGRAM (1975).

4. 42 U.S.C. § 4321 et seq., ELR STAT. & REG. 41009.

5. The leasing criteria were developed as a result of the 1970 decision to impose a moratorium on the issuance of new coal leases and prospecting permits. This action resulted from a BLM study which noted that federal coal acreage under lease had increased nearly tenfold in the period from 1945 to 1970 while there had been a concurrent 25 percent decline in annual coal production. BUREAU OF LAND MANAGEMENT, DIVISION OF MINERALS, HOLDINGS AND DEVELOPMENT OF FEDERAL COAL LEASES (Nov. 1970).

6. 7 ELR 20785 (D.D.C. Sept. 27, 1977).

7. Department of the Interior Memorandum 73-231 (1973).

8. GENERAL ACCOUNTING OFFICE, UNITED STATES COAL DEVELOPMENT — PROMISES, UNCERTAINTIES, NO. EMD-77-43, 4.1 (Sept. 22, 1977).

9. The Department must also reconsider its 1975 estimate that the 536 parcels presently under lease contain 17.3 billion tons of recoverable coal reserves, supra n.3, at I-81, in light of the effect changing extraction costs will have on the amount of additional coal which has now become economically recoverable "reserve" coal.

10. GAO, supra n. 8, at 5.4.

11. Id. at 5.16.

12. For a pending case challenging the Interstate Commerce Commission's decision to grant a certificate for construction of a railroad line into Wyoming's Eastern Powder River Coal Basin, see Sierra Club v. Interstate Commerce Comm'n, No. 76-1557 (D.C. Cir., filed June 24, 1976). Copies of the petitioner's brief are available from ELR (44 pp. $5.50, ELR Order No. 509-A). For a summary of the arguments raised in the brief, see ELR PEND. LIT. 65430.

13. 435 F. Supp. 313, 7 ELR 20804 (D. Wyo. Aug. 11, 1977).

14. 43 U.S.C. § 161 et seq.

15. Wyoming State Tribune, Aug. 12, 1977, at 1, col. 1.

17. UNITED STATES BUREAU OF MINES, COMPARISON OF ECONOMICS OF SEVERAL SYSTEMS FOR PROVIDING COAL-BASED ENERGY TO USERS 1,000 MILES SOUTHEASTERLY FROM EASTERN WYOMING COAL FIELDS — FOUR MODES OF ENERGY TRANSPORTATION AND ELECTRICITY VERSUS GAS AS THE END USE ENERGY FORMS 4 (1975). Although the figures are dated, the report finds that slurry pipeline at $6.18 per million end-use BTUs compares favorably with the $6.23 cost for unit train transportation systems.

17. SLURRY TRANSPORTATION ASSOCIATION, COAL SLURRY PIPELINES: SOME ANSWERS 2 (1976).

18. The congressional Office of Technology Assessment is currently conducting a detailed examination of these environmental impacts as a part of its study of the previously remote alternative of slurry pipelines. Though the report was scheduled to be released in June 1977, staff delays have resulted in postponement until early January 1978.