|Science & Environmental Health Network|
Science, Ethics and Action in the Public Interest
COALBED METHANE IN THE POWDER RIVER BASIN A FACTSHEET|
From the report "Easy Money, Hidden Costs: Applying Precautionary Economic Analysis to Coalbed Methane in the Powder River Basin"
By Joshua Skov and Nancy Myers - SEHN, June 2004
Coalbed methane is the fastest growing domestic source of natural gas.
Heavy subsidies for CBM development and technological advances in the past two decades have made CBM a viable resource, and it now represents about 7.5% of US natural gas production.
The Powder River Basin in southeastern Montana and northern Wyoming is the primary frontier for expansion in CBM production. Plans are for up to 77,000 new wells in the region, more than 5 per square mile. Some 25,000 miles of unpaved roads and 47,000 miles of pipelines and power lines will transform thousands of acres of natural landscape into an industrial corridor.
At planned rates of extraction, methane would be produced in this region for about 20 years. The total amount would be the equivalent of about one year's supply of natural gas in the United States.
Some 5,000 water wells will be affected by the drop in the water table. With expense at $10,000 for each well that must be deepened or protected from contamination, costs would add up to $50 million.
Water quality. Saline and sodic waters alter soil chemistry, an important variable for agriculture. These alterations of soil chemistry affect how water moves through the soil, potentially creating problems for irrigation-based cultivation. Salinity refers to the level of dissolved salts, while sodicity refers to the level of sodium. Water can be sodic without being saline.
"Lost water" value. At the low end, the value of water lost to the people of Montana and Wyoming over twenty years will be over $2 billion--$84 per person per year for 20 years. A high-end but still conservative estimate puts the value at over $10 billion, or nearly $400 each year from each person in the two states. These estimates are based on three parameters
A split estate is not evenly split. When it is allowable to exploit mineral rights in a way that disrupts local hydrology (which means virtually any mineral extraction), the mineral rights effectively take precedence because their exploitation compromises the value of the surface rights.
When damage agreements are in place, the owner of the mineral rights compensates the surface user as damages to the surface occur. But these agreements seldom cover all damages or their true costs.
An industry-funded analysis projects the following benefits for Montana:
"Section 29" tax credit. This tax credit for alternative fuels was originally intended as a short-term measure to boost production from new sources. It continues to subsidize CBM production, although this is now an economically viable source.
If Section 29 credit is extended in new energy legislation, as is likely, the Powder River Basin could be the largest recipient of these subsidies. If CBM wells increase to 77,000 within the next ten years, and if half become eligible for the tax credit, the subsidy received by the Powder River Basin could exceed $300 million per year.
Percentage depletion. Independent oil and gas companies and royalty owners are allowed to deduct 15% of their annual gross receipts from their taxable income. This means that the total amount deducted for may eventually exceed the initial investment. It also tends to allow a larger deduction than the more standard method of cost depletion.
Expensing development costs. Oil and gas companies are allowed to count most exploration and development costs as expenses, and deduct them all at once from their taxable income instead of depreciating them over time. This allows them to defer their tax payments and earn interest on the money.
Over the next five years, federal tax breaks for CBM development in the Powder River Basin could range from $700 million to $1.7 billion in the following categories:
Mineral rights. The federal government has contributed to CBM development in the Powder River Basin by making federal lands and mineral rights available for drilling. In the Powder River Basin, about 56% of recoverable CBM is in federal mineral estates belonging to the people of the United States.
THE PUBLIC TRUST
Decisions on large-scale projects like this one lie in the domain of the public trust. They involve public lands and mineral rights and public subsidies, and they affect future generations.
The precautionary principle:
"When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically. In this context the proponent of an activity, rather than the public, should bear the burden of proof. The process of applying the Precautionary Principle must be open, informed and democratic and must include potentially affected parties. It must also involve an examination of the full range of alternatives, including no action." Wingspread Statement on the Precautionary Principle, January 1998Applying the precautionary principle to economic analysis means giving priority to human health and the environment; taking uncertainty into account; describing full costs and harms as well as benefits; describing the distribution of costs, benefits, and uncertainty; and examining alternatives.
Environmental bonding is proposed as way of assuring that those who use society's resources are held financially responsible for damages. The resource user would put into escrow an amount based on an estimate of the worst outcome of the proposed activity.
ALTERNATIVES TO CBM DEVELOPMENT IN THE POWDER RIVER BASIN
The United States can meet 20% of its electricity needs with renewable sources by 2020. Consumer savings of over $100 billion can be generated by 2020 by combining the shift toward renewable energy sources, which have lower long-term costs, with fuel efficiency measures. Natural gas use can be decreased by 31% from a business-as-usual scenario.
SUMMARY OF CONCLUSIONS
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