White House Bailout of Coal Stamps Coal As a Loser
The problem with governments trying to pick winners and losers is that they can never recognize a potential economic winner, and can never seem to avoid a market loser. This is the root flaw in President Trump’s scheme to revive the coal industry. It would cost electricity users without improving the future of coal.
The Appalachian coal industry is suffering, no question of that. The overall industry employs about 75,000 people, roughly half as many as it did 30 years ago. Since 2000, coal’s share of the U.S. power supply has dropped from 50 percent to 33 percent. But the Administration’s reported plan to put the dying industry on life support – by establishing a “strategic electronic generation reserve” and compelling grid operators to buy electricity from at-risk plants – save it, or merely put it on life support? In fact, requiring profitable businesses to buy from “at-risk” ones is a good way to make fewer companies profitable, and put more at risk. Any federal intervention to order customers to buy electricity from specific power plants would be damaging to the markets – and ultimately to the consumer. The plan is meant to buy time for a two-year study of vulnerabilities in the U.S. energy delivery system. But we have seen before that temporary government plans have a way of becoming permanent boondoggles.
Forcing companies to buy coal and nuclear is of a piece with the President’s attempt to strong-arm companies into maintaining unprofitable domestic operations and pass on bonuses to employees. Central economic planning hasn’t worked anywhere else; why should it work in the coal mines, or in any sector?
As has become a recent custom, the scheme to force other companies to subsidize the coal industry is being justified on national security grounds, like the tariffs that have been imposed on steel and aluminum and reportedly being considered for cars. National security, it seems, is becoming a synonym for protectionism.
Coal is not declining because of over-regulation, as many claim. It is in decline because of the improved efficiency and competitiveness of other forms of energy. Employment in eastern coal mines is down largely because improved technologies and production techniques, such as surface mining, require fewer employees per ton of coal generated. The Appalachian coal sector has been especially hard hit as companies must spend more money to access harder-to-reach seams of the fossil fuel, while competitors in Wyoming and Montana find it easier to access much thicker seams.
The cost differential between coal from Appalachia and from western states is too big to be bridged from fiats from Washington. Recent Environmental Information Agency data put central Appalachian coal to over $52 per ton, and northern Appalachian coal at over $45 per ton – 4-5 times as much as the coast of coal from the Wyoming’s Powder River Basin. Trying to turn that around by government orders to major customers would not only be the biggest federal government t intervention in the economy in decades, it would be futile in steeming the challenges coal faces, like trying to bail out the Atlantic Ocean with a thimble.
But the plan isn’t necessary to ensure energy supply. PJM Interconnection, for example, says the power system is more reliable than ever, and no drastic government intervention is required. None should be offered.
If anything is going to save the Appalachian economy it is diversification into new industries, not attempts to breathe short-term life into old ones. Top-down dictates would only discourage the process of change by spreading false hope that a fading industry of the past could help a region build a brighter economic future.
