MAP TO PROSPERITY: The Coal Question - Beckley, Bluefield & Lewisburg News, Weather, Sports

MAP TO PROSPERITY: The Coal Question

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Is WV doing enough to prepare for the downsized role of coal in the state economy?

Cal Kent and Ted Boettner inhabit opposite ends of the political spectrum, but they agree that West Virginia must face the fact that coal soon will play a smaller role in the state's economy.

"Coal just isn't going to be the source of state revenue as it has in the past," said Kent, director of the BB&T Center for American Capitalism and a distinguished fellow in economics at Marshall University.

In a separate interview, Boettner, executive director of the West Virginia Center on Budget and Policy, said he "fears we're heading toward a hard landing" if the state doesn't prepare for a downsized coal industry.

Several weeks after those interviews, Gov. Earl Ray Tomblin promised to work on improving the coal industry's future.

"To keep our industry alive and well — and I promise you we will — we must continue to seek out new markets and uses for it while doing what we can to help the industry reduce costs and be more productive, efficient, safe and environmentally friendly," Tomblin said in his State of the State address given Jan. 8. "While I will never back down from the EPA because of its misguided policies on coal, we should remind ourselves a challenge doesn't always lead to confrontation. 

"Last summer I sat across the table from EPA Administrator Gina McCarthy and shared our story. We have been hit hard. But with planning and perserverance, I believe the obstacles can be overcome."

Market forces

The southern coal counties of West Virginia, along with eastern Kentucky and parts of Virginia and Tennessee, lie in what is known as the Central Appalachian region. Recent and long-term market conditions are working against an improvement in their fortunes.

The reasons for the pessimistic outlook for thermal coal include:

  • The low-hanging fruit has been picked. Seams are getting thinner and more expensive to mine.
  • The Clean Air Act amendments of 1990 helped Central Appalachia by forcing utilities to buy the region's low-sulfur coal to meet emissions standards. The amendments damaged the Illinois Basin coalfields, which produce high-sulfur coal, and also helped Powder River Basin coal. But with more power plants installing scrubbers, utilities can now switch to dirtier, cheaper coal from Illinois.
  • Meanwhile, the regulatory environment led utilities to accelerate their plans to retire older, smaller, coal-burning plants that are not large enough to justify the expense of scrubbers. Rather than being retired around the year 2020, many of these plants have been retired already or will be in about 15 months.
  • Because of conservation efforts and market conditions, the demand for electricity is less than it was a few years ago.
  • Meanwhile, the shale gas revolution has caused utilities to choose gas for new generating capacity. When gas prices are low, as they were in 2012, utilities turn to gas over coal when they can. That has changed some, and coal is regaining some market share.
  • And renewable resources such as wind are providing more power to the grid.

Trends

Coal production has trended downward for several years. According to the West Virginia Office of Miners' Health, Safety and Training, production in recent years peaked at 162.7 million tons in 2008 — just before the Great Recession — and totaled about 129.6 million tons in 2012.

Boone County lost its spot as the state's top-producing coal county in 2012, yielding that position to Marshall County. Production in Boone County fell about 5.2 million tons from 2011 to 2012 while Marshall County's production increased by only 71,000 tons.

But coal mining employment had been increasing in recent years until 2012. According to WorkForce West Virginia, coal employment rose from 2007 to 2011, then fell, and it's on track to fall again when final numbers for 2013 are calculated. Likewise, coal mining wages were on the increase until 2012.

Tax impact

Severance taxes are a large part of the state's general revenue collections — about 10.4 percent.

But severance taxes aren't just collected on coal. They're also collected on natural gas, timber and other extractive resources.

In the first half of the 2013-14 fiscal year, coal severance taxes were down $32.8 million compared with the first half of FY 2012-13. Gas severance taxes were up $37 million, and other severance taxes were up $7.1 million.

Yet the state still collected nearly three times as much in coal severance taxes as in gas severance taxes.

Another tax implication from coal's long-term decline is personal income taxes. Wages directly attributed to coal mining accounted for about 6.8 percent of all wages paid in West Virginia last year, and 8.6 percent of all private-sector wages, according to WorkForce West Virginia data.

Need to plan

Many West Virginians blame coal's problems on the Environmental Protection Agency alone and ignore the market forces driving production down.

Boettner asks, if West Virginia cannot stop the EPA from imposing more restrictions on burning coal, what does it plan to do to regenerate growth in the southern part of the state? At least Kentucky is talking about the problems, but that came after a large number of coal-related job losses in the eastern part of the state, he said.

"I don't think we want to wait until we lose 6,000 jobs," Boettner said.

Kentucky officials have begun an effort called SOAR, or Shaping Our Appalachian Region, to find ways to improve the economy of eastern Kentucky as demand for its coal falls and mines shut down. Also, President Barack Obama has included eight counties in eastern Kentucky — none of them bordering on West Virginia — as one of the first five Promise Zones he wants to form to combat poverty.

Counties in Promise Zones will have priority for existing federal programs.

So far, no widespread effort to move the southern West Virginia economy beyond coal has gained traction.

Kent says the region must diversify.

"We can't depend on extractive industries, so we're going to have to bring in other industries," he said.

Which ones come in should be driven by the market, not by government, Kent said.

Meanwhile, Boettner said, there are things that can be done to improve the region and the state.

For one, there is about $2.5 billion in the abandoned mine lands trust fund that is not being put to as good use as possible, he said.

Also, the governor and the Legislature should consider keeping the workers' comp debt tax on coal after it is due to expire. The revenue could be used to support job training efforts, he said.