West Virginia's Scheme to Save Its Coal Industry With Your Money
Last week, West Virginia Governor and coal mogul Jim Justice announced to a Trump rally that he was becoming a Republican. This week, he started negotiating over his price: A proposal for a big federal government subsidy to try to bail out the struggling Appalachian coal industry. But is encouraging the region’s communities to think that a fading industry can be rescued really the solution to Appalachia’s economic woes?
President Trump has promised to save the coal industry, largely by reducing regulations such as revising the EPA’s Clean Coal Plan. But the Environmental Information Agency (EIA) finds that coal use will decline even without intrusive environmental policies. The biggest challenge coal faces today comes not from regulators but from cheaper alternative energy sources. In fact, the Trump administration’s steps to bolster natural gas—such as promising to take advantage of an estimated $50 trillion in untapped shale, oil and natural gas reserves – would create even more competitive pressures on the coal industry.
Justice agrees that reduced regulation isn’t the total answer, saying moves to roll back regulations on the Appalachian coal industry won’t be enough to preserve it. The Governor’s panacea? A federal subsidy plan that would give eastern U.S. utilities $15 for every ton of Appalachia coal they burn. His argument for the subsidy is that hoary old chestnut “national security.” Justice argues that coal could help avert a potential disaster for the eastern power grid if Western coal supplies from the west were to be disrupted, say by terrorist bombs at gas junction points or bridges that connect western coal to eastern consumers. National security is becoming the last refuge of the crony capitalist, being trotted out recently by the domestic steel industry as well. But while it’s legitimate to worry about the reliability of U.S. infrastructure, efforts to secure it would cost money. A huge subsidy to a struggling industry would only make that less affordable. And the decline of the coal industry doesn’t seem to pose much of a threat with the price of natural gas falling and wind and solar power growing.
That is the biggest problem coal faces – a wider and cheaper range of energy alternatives. Until about the year 2000, coal was maintaining its position as the preferred supplier for utilities, with a 50 percent share of the U.S. power supply. But today, coal represents less than a third of the energy mix, according to the EIA. While Appalachian coal production is up this year, another downtick could cause a spate of bankruptcies, mine closures and layoffs. And looking forward, the EIA projects that coal use in the United States will be flat or falling through 2040 as it is displaced by renewable energy sources and cheaper natural gas. This is especially bad news for coal towns, as the industry provided fewer and fewer jobs even when coal was in a stronger competitive position. From more than 140,000 employees in 1989, it dropped to only 85,000 in 1999, according to the Bureau of Labor Statistics, as improved technology and production techniques such as surface mining, especially in the west, required far fewer employees per ton of coal produced. The Appalachian coal sector has been hit especially hard as companies must spend more money to access harder-to-reach seams of the fossil fuel while competitors in regions such as the Powder River Basin of Wyoming and Montana have much thicker coal seams that are cheaper to get to.
That is one of the biggest reasons that the Justice coal subsidy plan would probably not save the Appalachian coal industry in any event. The cost differential between Appalachian coal and western coal is too big to be bridged by even a $15-per-ton subsidy. Recent EIA coal prices put Central Appalachian coal at $52.60 per ton and Northern Appalachian coal at $45.65 per ton – 4-5 times as much as the $11.55 per ton cost of coal from Wyoming’s Powder River Basin. Even with the proposed subsidy, eastern coal would still be about three times as costly as its western competitor.
The structural decline in the Appalachian coal sector makes it clearer than ever that if anything is going to save the Appalachian economy it is economic diversification. A dirigiste subsidy would only discourage that, by spreading false hope that a fading industry of the past could help a region build a bright economic future.
