U.S. Magistrate Judge Timothy Cavan recommended in a Monday ruling that the Interior Department be given 240 days to re-analyze the expansion.
But Cavan said mining shouldn't be stopped in the interim, frustrating environmentalists who have campaigned for years to curtail coal production from the huge strip mines in the Powder River Basin of Wyoming and Montana.
A final decision is up to U.S. District Judge Susan Watters.
If she adopts Cavan's recommendation, it would mark a setback to the Interior Department's attempts to downplay the climate change impacts of burning fossil fuels extracted from public lands.
In the Montana case, government officials asserted that burning the coal would have little effect on global emissions. That claim was first made by Interior officials under President Barack Obama and has been carried forward under President Donald Trump.
Cloud Peak Energy's Spring Creek Mine near Decker is largest coal mine in Montana and tenth largest in the U.S. based on 2017 production volumes, according to the Energy Information Administration.
The public land in dispute was leased by the Wyoming-based company in 2007. It's located in a sparsely populated area dominated by ranching and mining.
Environmentalists sued after the expansion was approved, claiming climate change hadn't been fully considered. That led to a 2016 order for officials to re-examine the environmental impacts, and then another lawsuit when that study was completed.
Cavan agreed with the plaintiffs - WildEarth Guardians and the Montana Environmental Information Center - that officials from Interior's Office of Surface Mining had again "failed to take a hard look at greenhouse gas emissions."
The judge said the agency needed to consider the damages those emissions could inflict on society, as well as the human health impacts from other pollutants emitted by coal-burning power plants.
"They kept trying to diminish the impact of their actions," WildEarth Guardians' Jeremy Nichols said of federal officials. "This is the judge saying, 'You have to take responsibility for your action.'"
Department of Interior spokeswoman Faith Vander Voort declined to comment on Cavan's ruling.
Mining in the expansion area has been ongoing since 2012.
More than 18 million tons of coal had been mined from the disputed leases as of December 2015, the most recent information available.
Cloud Peak representative Rick Curtsinger declined comment.
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