The Future of Coal: Is the Modern Regulatory Regime a Taking?

By Braden Johnson

Published on November 16, 2012

A critical feature of the Industrial Revolution was the shift toward energy-dense coal for power production. Industrializing countries crave cheap, reliable power, which resulted in the spread of coal-fired power plants across the globe. Yet as scientists study the effects of coal-energy, the global influence of coal has started to shrink. The United States and Great Britain recently announced that they would stop providing aid to build coal-fired power plants in developing nations. Further, both countries have taken dramatic steps to decarbonize their energy sectors, including stringent emissions requirements and dramatic tax increases.

These modern regulations have had a crippling effect on the coal-energy industry. Nearly all US States have decreased their coal energy production since 2005, with some states preparing to completely abandon coal-energy. Forty-four US coal-fired power plants have closed since 2002, with nearly 150 more plants scheduled for early retirement.

The declining coal industry was dealt another blow when the EPA announced its intention to regulate greenhouse gas emissions from stationary sources, like power plants. Compliance with these proposed standards would be impossible for coal-fired plants without implementing an expensive and carbon capture and storage system, which injects captured Carbon Dioxide into underground geological formations for permanent storage.

As the Supreme Court considers whether the EPA’s can implement these new greenhouse gas emission standards, some have wondered if these heightened regulations could rise to the level of a regulatory taking.

The Fifth Amendment to the US Constitution holds that private property shall not be taken for public benefit without just compensation.

Courts have held that some regulations which destroy property values or expected returns on investment require the government to compensate those impacted by the regulation. Although the standard for regulatory takings is high, the rapid decline in domestic coal energy may justify such a holding.

The Case for a Regulatory Taking:

In Pennsylvania Coal Co. v. Mahon, the US Supreme Court found that a Pennsylvania coal mining regulation constituted a regulatory taking. The regulation forbade a coal company from mining underground coal in such a way that would cause the layers of rock above to fall. This resulted in a “taking” of the valuable coal left in the mine, which could no longer be extracted and sold. The Court held that the regulation created an undue interference with the coal mining operations, which rendered it “commercially impracticable to mine certain coal.” This holding resulted in a severity test, wherein a court considers whether the regulation goes “too far” in infringing upon the use and enjoyment of owned property.

Under this standard, the coal industry may argue that the new regulatory regime constitutes a Fifth-Amendment taking. Although there has been no explicit taking (unlike in eminent domain cases), the Pennsylvania Coal Co. Court held that “[t]o make it commercially impracticable to mine certain coal has very nearly the same effect for constitutional purposes as appropriating or destroying it.” It appears certain that current and proposed regulations have made it commercially impracticable to burn coal for electricity. This is evidenced by the nearly 200 closed or retiring plants and the fact that only two coal-plants are currently slated for construction in the US. The EPA’s proposed greenhouse gas emission standards, if allowed by the Supreme Court, could represent the end of coal-power in the United States. Although many opponents of coal would celebrate the switch to cleaner energy sources, the Pennsylvania Coal Co. Court reminds us that “[w]e are in danger of forgetting that a strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.”

Yet subsequent Supreme Court decisions have added to the simple Pennsylvania Coal Co. test. Most importantly here, the Court has held that a regulation cannot constitute a regulatory taking if the regulation protects a critically important public interest. In Keystone Bituminous Coal Association v. DeBenedictis, the Court upheld a regulation requiring a coal mining company to leave at least half of all underground coal in place in certain areas to support above-ground structures. The Court held that the state was justified, under its police power, to pass a statute which served a genuine public interest. The court noted that Fifth Amendment doesn’t require the government to compensate the owner of an abated nuisance; likewise, it isn’t required compensate the mine when it stops an emerging public hazard. This holding created a safe harbor for regulations that protect a critically important public interest, even where the regulation destroys all use, enjoyment, and value of land.

Emissions from coal-fired plants include harmful particulates of sulfur and mercury which can impact the public health. Therefore, a court would likely find that coal emission regulations serve a critically important public interest. Judge Brandeis’ dissent in Pennsylvania Coal Co. points to this finding when he states “[i]f by mining anthracite coal the owner would necessarily unloose poisonous gases, I suppose no one would doubt the power of the state to prevent the mining, without buying his coal fields.”

Similarly, a court would probably find that greenhouse gas emission standards serve a critically important public interest, and are therefore justified by the government’s police power. In the landmark case of Massachusetts v. EPA, the Supreme Court vindicated a finding that greenhouse gases may reasonably be anticipated to endanger public health or welfare. Because the court considers greenhouse gasses as a potential danger to public health or welfare, it would likely find that the proposed greenhouse gas emission standards serve a critically important public interest. Therefore, it would probably not find a regulatory taking, regardless of its impact on the industry.

The Future of Coal

Despite the higher cost of natural gas, some coal plants are being retrofitted to burn the plentiful and energy-dense commodity. Natural gas fired plants do not emit mercury or sulfur in the same quantity as coal plants, and they will not likely require carbon capture and storage systems to comply with the proposed greenhouse gas emission standards. Those plants who do not covert to natural gas or implement carbon capture and storage systems are very likely to close in the near future. If coal-fired plants close or retire at the current rate, the United States will completely phase out coal energy within a few decades.

The industrialized world is also easing its appetite for coal. Even China, the largest coal consumer in the world, has already begun slowing its coal imports. Public anger over air quality and slowing economic growth are moving China toward natural gas and nuclear power. Although India, the world’s third-largest coal consumer, continues to increase its coal imports, it still burns significantly less coal than the United States.

As countries grow increasingly conscious of the environment, coal controls will increase. If India and other industrializing countries follow the path set by modern industrial powers, they will eventually work to wean themselves from coal in order to maintain clean air. Riding this prediction, several companies have shelved plans to expand production. The fuel that powered the industrial revolution will likely be left behind by the environmental revolution.

The Author

Braden Johnson is a second-year law student at the University of Colorado Law School where he works as a staff editor for the Colorado Natural Resources, Energy, & Environmental Law Review.

While pursuing his Bachelor’s Degree in Political Science from Brigham Young University in 2011, he was a featured author in the BYU Prelaw Review Journal.

Braden can be reached through his webpage at: about.me/bradenwj

Article picture: Skitterphoto via Pixabay