APPALACHIA: Coal Law and Property Rights

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Joseph Schaeffer, Pitt Law '12, recently attended a Coal Law Short Course sponsored by the Energy & Mineral Law Foundation and hosted at the West Virginia University College of Law...



In Appalachia, Coal is King. Coal-fired power plants provide the majority of the region's electricity, and it's difficult to find someone from the major coal states of West Virginia and Kentucky who doesn't have a close friend or relative involved in the coal industry. Coal provides power and jobs to the region, and politicians who attack the coal industry do so at their own risk. Nevertheless, there are significant challenges to the coal industry from regulatory agencies, such as the EPA, and in the form of legal challenges by environmental organizations. For instance, the Obama Administration has announced plans [PDF] to undo changes to the Stream Buffer Zone rule that were made during the George W. Bush Administration, and the US Army Corps of Engineers has suspended [PDF] Nationwide Permit 21 grants - permitting discharge of dredged or fill material into waterways for surface mining activities - in the Appalachian Region. In the courts, the Sierra Club won a judgment in the US District Court for the Southern District of West Virginia in February 2010 against Powellton Coal Company, and there is pending litigation related to the April 5, 2010, Upper Big Branch mining disaster.

CIMG1422.JPGThe Coal Law Short Course covered all of these issues and more, and while the speakers uniformly represented coal companies and their interests, the emphasis was on diligent representation of the client. This often takes the form of strict adherence to legal and regulatory requirements, since the coal industry, as J. Thomas Lane (Bowles, Rice, McDavid, Graff & Love) pointed out, is the most regulated industry in America. Compliance with safety, employment, and environmental regulations can be costly, but it's good business, particularly when repeated violations can lead to the loss of crucial permits. For the coal industry, however, the most basic legal issue is securing the property right to mine the coal.

Almost universally, first year law students learn in property law that cuius est solum, eius est usque caelum et ad inferos (for whoever owns the soil, it is theirs up to Heaven and down to Hell). This Latin phrase describes the principle of complete ownership in fee simple, but in reality, property rights are often severed between two or more owners. In the context of coal, a single piece of property might be split between the owner of the surface rights and the owner of the mineral rights. In more complex cases, one party might own the surface rights, another the oil and gas rights, and yet another the coal rights. Property law in the coal industry can be labyrinthine. Mining operations extend across hundreds of properties, property owners might have severed property rights decades prior, and deeds can be wrong or go missing.

Consequently, a company that wants to develop a coal seam must ensure that it owns the mineral rights for the property it wishes to mine. Where the property is owned in fee simple, ascertaining ownership is easy, but it becomes more difficult where property rights are severed. Researching deeds can be such an extensive undertaking that lawyers often prioritize, ensuring property rights in the area where mining will begin before turning to those sections to be mined later.

Once a coal company has confirmed ownership of mineral rights, it must ensure the right of access to the coal. Generally, mineral rights include the right of access, whether explicitly defined in the lease or deed or implied. The West Virginia Supreme Court of Appeals held in Squires v. Lafferty, 95 W.Va. 307, 121 S.E. 90 (W. Va. 1924), that the mineral owner may act in a way that places a "reasonable burden" on the surface owner and is "fairly necessary" for the extraction of the mineral. In practice, this means that the mineral owner may take reasonable measures necessary for extracting the mineral, such as the construction of mine shafts. There are limits on these rights, however. If a mine operator constructs a coal cleaning facility on the property, its right to use the facility is implied only for coal mined from that property, not for coal transported from other mines. Also, surface mining rights are almost never implied. As Lane pointed out, absent explicit provisions for surface mining in the lease, surface mining will almost never pass the "reasonable burden" test, even where it is "fairly necessary" to access the minerals. As with every aspect of the law, though, there are exceptions. In Large v. Clinchfield Coal Co., the court implied surface mining rights where the land was rough and undeveloped, and reclamation processes would leave the land virtually undistinguishable from its prior condition. Courts have also been more willing to imply surface mining rights to leases signed when the parties could have "reasonably contemplated" the use of surface mining to extract the minerals.

CIMG1424.JPGWhile Surface Mining often receives the most attention from regulators, the press, and environmental groups, emerging technologies in carbon capture and storage (alternatively, carbon capture and sequestration) promise to keep property lawyers busy for years to come. Carbon capture and storage (CCS) is the injection of carbon dioxide, captured from coal-burning power plants, among other sources, into geological formations. This is analogous to the storage of oil and gas reserves, but is particularly attractive because of its environmental benefits (reduction in CO2 emissions) and potential for facilitating additional oil and gas extraction. On the property side, however, there are important questions as to who owns underground geological formations. Coal, oil, and gas companies would like to use empty mineral beds to sequester carbon, but there is an argument that mineral rights end when mining has ceased. Therefore, once mineral owners have extracted the coal, oil, or gas, they no longer have a right to the porous spaces for purposes of CCS.

CCS is still an emerging technology, and it is possible for the law to go either way on this issue. Previous cases involving the use of empty spaces have generally held that the mineral owner has a reasonable right of use. For instance, in Ross Coal Co. v. Cole, the US District Court held that a mine owner had the right to bring coal from one underground tract to another through underground passageways. However, it further held that the mine owner did not have the right to bring that coal to the surface through a mine shaft on property owned by the defendant Cole. With respect to CCS, the courts could either find use of porous spaces as attendant to the mineral owner's rights or as an interest which reverts back to the surface owner upon removal of mineral deposits.

Environmental groups and the coal industry have a mutual interest in resolving this uncertainty. The simple fact is that coal is still King in Appalachia, and it will continue to play a major role in America's energy future. CCS not only reduces the amount of greenhouse gases released into the atmosphere, but it can assist in extracting oil and gas reserves. When one considers that only 20% of all available oil is removed using current drilling technologies, this could be an environmentally sound method of increasing energy production in America. Environmentalists might argue that CCS technologies continue to rely on "dirty" rather than "clean" energy, and that money should be spent on renewable energy technologies. There's also the argument that sequestered carbon will be stored for hundreds or thousands of years, outlasting any company or regulatory scheme. These are all valid concerns, but they miss the forest for the trees. The shift to clean technology will not take place overnight, and even then, coal will remain an energy source so long as it's commercially viable. Until America has completely transitioned to renewable energy sources, it simply makes sense to mitigate the environmental impact of coal-fired power plants. Carbon sequestration does this, and it can provide good jobs to Americans at a cost that's spread across consumers (estimates place the cost of carbon sequestration at 17 cents per kW/h). However, companies won't invest in CCS facilities if the legal right to carbon sequestration is unknown. Congress and state governments need to take action and provide for a clear property right to porous spaces before decisions in the federal and state courts result in inconsistent laws across jurisdictions. While the coal industry would prefer to retain the right to porous spaces for purposes of carbon sequestration, nothing kills innovation like uncertainty, and any consistent standard would be an improvement.

It's important to act quickly. According to recent estimates, China is building two power stations every week, including one "clean" coal-fired plant each month. In contrast, the United States has only one integrated plant (power plant and CCS plant on same site), and it just opened in 2009. This is progress, but the United States needs to make a commitment to CCS technology. The knowledgebase is here, and American research centers, like the Natural Resource Analysis Center at WVU (full disclosure: former employer), have worked closely with Chinese companies on CCS technologies.

Coal is still a major part of America's energy supply and will continue to be so for the foreseeable future. It is good sense, both for business and the environment, to invest in coal capture technologies that mitigate environmental damage, create new jobs, and potentially aid in extraction of current oil and gas reserves. However, this won't happen until Congress and state legislatures resolve property law issues so as to resolve uncertainty and encourage investment.

Photos: Peter Schaeffer

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