Wind vs. Coal I
A pretty smart guy I know in the coal industry took me to task a while back for a story I did about the report showing that the Coal River Wind Project would provide more jobs and tax revenues than the mountaintop removal operations proposed by Massey Energy.
I wanted to pass along his criticisms of the study (well, he was also criticizing my story for not pointing these things out), as well as a response from the author of the study, Evan Hansen of Downstream Strategies.
For everyone’s understanding, this is the story:
A wind-power production facility along the ridges of Coal River Mountain would provide more jobs and tax revenue than a mountaintop removal operation planned by Massey Energy, according to a new economic impact report released Tuesday.
Strip-mining the area will do more harm than good for local communities, if environmental damage and health effects are taken into account, according to the report prepared for the group Coal River Mountain Watch.
Mining the area could produce nearly 200 direct jobs and several hundred more spinoff positions. But those jobs would disappear when the coal is mined out in about 17 years, according to the report prepared by Downstream Strategies, a Morgantown-based environmental consulting firm.
Construction of a windmill operation would generate more than 275 temporary construction jobs, but then create 40 direct and more than 30 indirect jobs that could essentially last indefinitely, according to the report.
And, the report I reference is posted here.
And here’s what my coal industry friend had to say (about my story, and then about the report):
You’re staying true to form in accepting and reporting without question anything generated by coal’s opponents, even when those reports are full of ridiculous assumptions and outright misrepresentations. For example, the report compares the severance taxes returned to Raleigh County by the surface mine to the property taxes paid by a wind farm. What about the personal property taxes paid on the mining equipment? What about the loss of unmined mineral taxes on the seams that would be “sterilized†should a wind turbine be located above those reserves? That alone would come close to negating the property taxes paid by a wind farm.
I understand Massey is one of the Gazette’s favorite targets and also that Massey often sets itself up for attacks. However, the Gazette at some point has to consider integrity and fairness in its reporting. It is failing miserably by not even looking at the details of the Downstream Strategies “report.â€
And here is Evan’s response:
First off, I’m glad that someone in the coal industry has read our report! I think it’s healthy to have this kind of dialog.
As your contact pointed out, we performed calculations of severance taxes returned to Raleigh County versus property taxes paid by a wind farm. There are certainly other kinds of taxes that would be paid.
Your contact brings up the personal property taxes paid on mining equipment. We did not include these in our analysis. Neither Coal Facts (the industry
publication) nor a University of Kentucky study that examines the economic impacts of the coal industry specifically mention property taxes on mining equipment in their calculations of industry impacts. Keep in mind that mining equipment is often old. We believe that these taxes are relatively small compared with the property taxes that would be paid on the wind turbines. If your contact has hard numbers to refute this, I’d be interested in hearing them.Also, he brings up the mineral taxes on the seams that would not be mined should turbines be located above the coal. This value is likely to be very small. One major reason is that coal seams less than 30 inches thick are considered unmineable and property taxes are not assessed on these seams. Most of the highest coal seams on Coal River Mountain are less than 30 inches thick and are therefore considered unmineable for property tax purposes. Therefore, it doesn’t matter whether or not these seams are mined.
I told the industry guy he could have the last word, and here’s what he said about Evan’s response:
Hansen evidently doesn’t read the Gazette or else he just missed the article about the state tax department raising taxes by changing the surface mine ratio criteria based on recent coal prices. The Gazette did a couple of articles around March 8-9 on the tax increases and the impact on small land owners.
I took a look, and found this story:
 Hundreds of West Virginia property owners with no intention of mining the coal underneath their feet can breathe temporary sighs of relief.
The state has rolled back 2009 tax assessments on some coal reserves to last year’s levels after unsuspecting landowners suffered sticker shock in January, said state Tax Department consultant Jeffrey Kern.
The recent reclassification from unmineable to mineable would have added nearly 3.7 million acres to the 4.9 million acres of mineable land last year.
More coal reserves in West Virginia were deemed mineable after the price of coal jumped from about $20 a ton in the early 1990s to about $50 a ton today, Kern said.
And, the State Journal had this take on that same subject:
In January, some West Virginians got an unpleasant surprise in their mailboxes.
The tax assessment of their coal reserves had gone up by more than 10 percent, according to letters from their county assessors. Some assessments actually went up by a lot more.
There were a lot of letters.
“We had pushing 800 mineral tracts that increased in our county,†said Preston County Assessor Terri Funk.
The appraised value of reserve coal in Preston County rose from $23 million in 2008 to $109 million in 2009.
In one example Funk pulled at random from her desk, the owner’s 225 acres of coal was appraised at $340 last year, with a tax bill of $5.10. This year, the owner was told it was worth $101,150 — likely resulting in a tax bill this summer of more than $1,500.
Preston is one of six or seven counties hit hard by high coal property tax valuations from the West Virginia State Tax Department this year.
Many hundreds of small coal owners in Preston, Harrison, Lincoln, Monongalia and other counties called their county offices and the state to complain.
16 comments
If you read all the way to the bottom you get a real picture of the 3-Card Monty game Big Coal’s been playing with us all these years.
A worst case scenario of $1500 tax on $100,000 worth of coal? 1.5% Heaven forfend! As a West Virginian with no direct ties to King Coal’s influence in Charleston, I pay more than a third of that on a surface parcel 1/225 the size, with no mineral rights.
As the line from the movie goes: “It’s good to be the King!”
I will throw another twist into the discussion of alternative energy in WV.
In my study of the national electrical situation, I have learned that within WV’s borders, there is far more capacity to generate electricity than West Virginian’s need. Most statements I have read on the subject indicate that WV only uses 30% of the energy that our power plants can produce.
WV does not need any new electrical generation - wind, solar or coal.
The real problem we are facing is that export markets for our huge overcapacity of power generation are drying up. WV ratepayers will be paying higher and higher rates to cover this stranded investment.
Our future struggle in the state, which no politicians are talking about, is how we are going to downsize WV generating capacity in an orderly fashion.
The national trend is toward adding new generating capacity in or near urban centers where energy demand is highest. Those new generators must be non-coal based, because there is no room for any more pollution in the already highly polluted air over urban centers.
Environmentalists in WV should not be pushing wind farms in WV. West Virginians who care about our state’s future should be embracing the trend toward east coast power generation by developing a plan for the rejuvenation of WV’s steel industry to meet the huge new demand for off shore wind generating equipment and structural steel. One thing WV’s political leaders and the WV PSC should not be doing is supporting the construction of huge new power lines in WV.
I love Coal River Mountain Watch and everything they do to stop MTR, but I would argue that WV doesn’t need more wind farms, because that just increases our power generation overcapacity problem.
WV needs a plan for decommissioning our unneeded power plant capacity and for becoming the technological back bone of the development of new generation elsewhere. Gov. Manchin should be cranking up the WV steel industry to be a leader in off shore wind development. He should also be advocating for WV’s natural gas industry as the source of fuel for a massive new effort to build sulfur emission free combined cycle power plants in and near major urban areas. Both of these programs are about what West Virginians do best — building things and helping our neighbors.
Thin seams only become mineable by increases in market price. Increases in market prices are dictated by demand. Any, and all forms of renewable energy such as wind and solar produce negative demand for coal. It seems to me that the coal industry should get into the business of wind energy if they are to remain a viable investment attraction.
The problem with ramping up the steel industry is, once again, market demand. Manufacturing jobs have been lost to foreign markets. One steel plant can produce enough metals per year to build thousands of wind mills so West Virginia’s future is not going to be making steel for the production of wind turbines.
Preserving our mountains and water is a viable asset to protect and a viable asset to promote. Clean water is becoming harder to come by these days. The bottled water industry has become a huge success because of demand. That is one industry we can capitalize on for a long time. Our hardwoods are being knocked down and burned by strip mining coal companies. That is a waste of millions and millions of dollars and jobs that could be created from having our own furniture manufacturing plants in WV. There is so much more we can do, but the political will has to be there.
Title 110 sec.3.35 “Mineable coal bed” means coal which is situated so that it may be mined using generally accepted mining practices and suitable equipment. Coal beds which are of a thickness of less than thirty inches (30″) shall not be classified as mineable coal unless there is evidence to the contrary”. Once it’s permited there’s evidence to the contrary. And once it’s permited it’s taxed at a higher rate than the “reserve” category. Most surface mines in WV mine mostly seams below 30 inches. Property taxes on mining equipment include all associated facilities such as loadouts. New equipment is typically purchased every year and again, this is not dollars that should be ignored (see Fola impact on Clay County). I’d recommend that you include all taxes, monies etc rather than attempting to be accurate at an incremental analysis.
Thanks especially to Casey and Bill f or very interesting comments.
Mr. Ward
I am not sure that anyone else cares at this point, but since you have access to the report’s author, perhaps you can clear up an issue that has been bothering me. On page 29 of the report, it states that the total severance tax returned to Raleigh County would be about $600,000 over 17 years or $36,000 per year. According to the other information in the report, a total of 47 million tons is planned to be mined at an average sales price of about $52 dollars per ton for total revenue of $2.4 Billion dollars. The total severance tax on this amount is about $120 million dollars. According to my WV Coal Facts, the state keeps 93% of the severance tax, 5.25% goes to coal producing counties and the remaining 1.75% gets split among the state. Raleigh County’s 5.25% of this severance tax should be $6.3 million over 17 years or about $370,000 per year. With the review that this report has received, I would assume I have made a mistake, but I can’t find it. If possible could you clear this up for me? Thank you.
Matthew,
My guess is that the report’s author, Evan Hansen, takes a peek at Coal Tattoo every once in a while — or at least at these particular posts.
So, Evan — could you answer this question?
Ken.
Okay, I’ll bite.
Matthew Cook had a very reasonable question that I’m happy to respond to. In our report, we calculate that for every severance tax dollar collected, about 0.5% is returned to Raleigh County. See page 3 of our report, the first paragraph in the Background chapter. Using the round numbers in your post, a severance tax of $120 million would return about $600,000 to Raleigh County. Dividing by 17 years, about $35,000/year would go to Raleigh County. This is similar to what we used in the report (we didn’t round in the same way). I think the main discrepancy with Matthew’s calculation is that the severance taxes returned to counties are split among many counties, and not just sent back to the county in which the mine is located.
Also, while the tax question is interesting and important, please keep in mind that this is not the fundamental conclusion of the report. The report uses standard models to calculate jobs, earnings, and output for three scenarios: (1) mountaintop removal, (2) wind and underground mining, and (3) wind, underground mining, and a local wind turbine manufacturing facility. These are some of the key conclusions:
When combining local externality costs with local earnings, the mountaintop removal mines actually cost the citizens of Raleigh County more than the income they provide. In other words, the increased deaths and illnesses due to increased coal mining—combined with the environmental impacts— are costlier than the earnings provided by the mining.
In comparison, when combining local externalities with local benefits, the wind scenarios are considerably more attractive. Developing the wind resources on Coal River Mountain provides net positive local economic benefits to the region. When combined with a local wind turbine manufacturing industry, even more significant additional local economic benefits are achieved.
Even without considering externalities, the local industry wind scenario would provide more cumulative jobs than the mountaintop removal scenario after 2033—only eight years after the mountaintop removal mines would close.
Mr. Hansen,
Thank you for responding, I appreciate you taking the time. I have re-read page 3 but still have some questions. As I mentioned it is my understanding that 5.25% of all severance funds are allocated back to the producing county on a produced ton basis. Therefore the more coal a county produces the more severance tax they get back. Can you give me a reference to support the 0.5% number? Also, I understand that this is a minor point, but it is one of the more concrete numbers as some of the externalities get rather abstract, and as I mentioned I have seen the $36,000/year quoted in several places. Thank you for your time and response.
In response to our coal industry friend’s criticisms, I have to say that I feel that he made an error of omission in his critique that calls into question the integrity of his own claims. Here is an excerpt from his letter which Ken shared above:
“What about the loss of unmined mineral taxes on the seams that would be “sterilized†should a wind turbine be located above those reserves? That alone would come close to negating the property taxes paid by a wind farm.”
First of all, making the claim that the property taxes that would be paid on the unmined minerals would ‘alone come close to negating the property taxes paid by the wind farm,’ without offering any data or analysis to back up that claim, renders the claim suspect. So,I challenge you to produce calculations (and the methods you used) showing that the mineral property taxes alone would negate the property taxes paid by the wind farm. After all, you made the claim.
I’ll even give you some initial data to help you get started.
The study conducted by Downstream Strategies (DS) notes that the mining permits themselves estimate that 47,093,938 tons of coal are expected to be produced over a 17 year period. According to DS, 8,650,264 tons of that would still be mineable through underground mining methods, meaning that a maximum of 38,443,674 tons of coal could potentially be rendered “sterile” (interesting choice of words…..)
Further, we can assume that if those 38.4 million tons are not mineable by underground coal mining methods, then they would be sold as steam coal. This is because surface mining is generally employed to extract the thinner seams, which are composed of coal that is not of a sufficient grade (thicker seams = more, higher grade coal) to be sold as metallurgical coal. The State Tax Department, as noted in the DS study, taxes steam coal revenues, through a complex method of tax assessment, at a fair market value of $46.98 per ton (which falls in line with the ‘about $50 a ton’ value that, as noted by the article you referenced above, led to the recent upgrading of the coal reserve base. So we can assume that all of the recoverable coal reserves are included in this analysis).
That is just the starting value for the calculations I expect you would want to conduct in order to back up your claim.
You now have to figure out the appraised value (which from what I hear has something to do with the royalties the coal company is willing to pay the landowner), then multiply that by 60% to get the assessed value, then apply a discount rate, and then multiply that by the county tax rate, which for Raleigh County is 2.3952%.
THAT will allow you to figure out the maximum annual property tax revenues that would be lost should the wind farm be constructed. So, please let me know when you figure that out, and if you can still stand by your claim that the mineral property taxes would ‘alone negate the ($1.74 million annual) property taxes that would be paid by the wind farm,’ then, upon checking your calculations, I will concede.
I’d also like to address, or add to, Evan Hansen’s response to your criticism. He said:
“One major reason (the coal property tax value is likely to be small) is that coal seams less than 30 inches thick are considered unmineable and property taxes are not assessed on these seams. Most of the highest coal seams on Coal River Mountain are less than 30 inches thick and are therefore considered unmineable for property tax purposes.”
One response I’ve heard to that is that at some point after the permit has been approved for a surface mine, even those less-than-30-inch coal seams become “active” and therefore taxable.
So lets assume this is right. And lets assume that Evan Hansen’s analysis is correct when he notes that ‘most of the highest coal seams on Coal River Mountain are less than 30 inches thick.’ I assume he is because the WV Geologic Survey has data and maps showing the thickness and extent of all mapped coal seams in the state, and I am sure Mr. Hansen would know this as well.
If it is, then according to the permits that have been approved for the Bee Tree and Eagle II surface mines on Coal River Mountain, the Bee Tree would operate for 7 years and the Eagle II would operate for 13 years. So lets say that the coal under the Bee Tree permit, which was approved in 2006, if it began operation today, would provide property taxes on the minerals until 2016. The Eagle II, if it began operating in 2010, and was approved in June 2008, would provide property taxes until June of 2023. So 14 more years and a few months from today, and the maximum amount of time that the coal under either of those permitted areas would provide county property tax revenue would be 15 years.
The less than 30 inch seam coal lying under the Eagle III permit will remain inactive and ‘unmineable’ (given its thickness) at least until the Eagle III permit is approved.
With this information, we can now make the claim that the mineral property taxes on the Bee Tree and Eagle II permitted coal will benefit Raleigh County only through the year 2023 (or 2025 if the Eagle III permit is approved and begins operation in 2012). By comparison, the $1.74 million in property taxes that the wind farm would generate would last forever…..
So, not only do I challenge you to show how the property taxes on the minerals under the ridges of Coal River Mtn would exceed those from the wind farm, I further challenge you to show how those taxes are so great as to - over a span of only 17 years - negate the cumulative tax revenues that would be generated by the wind farm over say a 40 year period (to put a fair limit on it — theoretically those revenues could last for hundreds of years).
And dont forget to take into account depreciation. In my understanding, Downstream Strategies accounted for depreciation in their calculations for the wind farm (and it STILL comes out to an average of $1.74 million per year).
The fact remains, and as reported in the Downstream Strategies study, when you take into account the social and environmental costs of mountaintop removal, blowing up the mountain for 17 years of coal results in a net negative benefit to the local region, indeed resulting in a cumulative economic cost of nearly $600 million. I dont think you can beat that with property taxes.
Kind regards,
Rory McIlmoil
Campaign Coordinator
Coal River Mountain Wind campaign
The burden of proof is on the wind advocates if you desire to do central planning for the economy rather than let the free market decide. You need to correct mistakes and republish. All costs and benefits for each option need accurately reflected including property taxes, unmined mineral taxes, severance taxes, payroll taxes, fuel taxes, black lung taxes, Fed reclamation taxes, state reclamation taxes, income taxes, etc.
Met coal properties are unrelated to coal thickness. A lot of met coal is produced from <30″ seams.
Casey,
First of all, I dont write as a representative of Downstream Strategies. They did conduct their economic analysis for the organization I work for, but I took no part in their study and cannot speak for them in responding to your comments. However, I have read the study multiple times and as an advocate for wind instead of MTR for Coal River Mtn, I feel I am qualified to respond.
I disagree, the burden of proof showing that Mountaintop Removal is more economically beneficial than less harmful land uses such as wind development is NOT on wind advocates, but rather on those who protect and employ destructive forms of energy production such as MTR.
Omissions are not necessarily mistakes, they are merely omissions. Peer and public review of research is and should always be used as a check on incomplete or incorrect research. In the case of the DS study, the research that was presented was incomplete, but not incorrect. In fact, when costs and benefits are taken into account, it is justifiable at least to consider only those costs and benefits that make up the greater proportion of the economic comparison. For example, if the taxes on capital used in the MTR process (such as on the bulldozers) are negligible when compared to property or severance taxes, then why would you put time and effort into calculating the negligible taxes when the greater measures for comparison tell the story anyway?
In my personal opinion, the wind property taxes vs. the coal severance taxes offers a substantive and sufficient comparison for looking at local economic costs and benefits. If anything, the property taxes on the unmined minerals probably should have been included in the DS study, and we have been trying to address that here. I am not one of the authors of the study so I can’t speak for the research team, but from what it seems, even if you add those property taxes in, the most the county would get from the MTR scenario is about $250K.
But lets address your other taxes. We’ve covered property and unmined mineral taxes. And severance taxes. Payroll taxes do need to be considered, so if you can help direct those calculations that would be helpful. Perhaps we could assume an individual salary of $65K?
Fuel taxes seem to be something that would cancel out more or less, no matter whether the mountain was developed with wind or MTR. Most of the coal coming out of Coal River Mtn from existing underground mines is transported by conveyor belt to a on-site processing plant (thats a fact).
Black lung taxes - again, if you could help direct, that’d be appreciated. However, i doubt it will be long before we begin seeing silica-lung taxes. Silica is a dangerous lung pollutant in itself, as it slowly turns the walls of the lungs into concrete, and it is produced when you blast silica-based rock such as sandstone and shale into dust particles. So guess who’ll be getting those taxes?? Then again, if only surface mines were unionized…..
However, I cant tell if you’re advocating for black lung taxes or not?? And is surface mined coal subject to black lung taxes??
Fed and state reclamation taxes — why would they be needed from Coal River Mountain if the mountain was left intact?? The only justification I see here is that they should strip-mine Coal River Mtn in order to pay for reclamation on another site….seems counter-intuitive though, because then ANOTHER mountain would have to be blown up in order to pay for the reclamation on Coal River Mtn…..??
How about we follow Obama’s plan, take the AML funding from states who dont need it anymore and put it into reclaiming the 400,000 acres of destroyed, unreclaimed land that already exists in West Virginia. OR, we could increase the bonding amount on surface mine permits so that the heavily underfunded AML fund can breathe a little. You know, make the coal companies pay for properly reclaiming the land and underground mines that they worked on…..which I believe was part of the deal in the first place.
And, as far as I’ve been told, by both coal company executives, coal association members and land company CEO’s, you cant find met coal under 30 inches. If you have a source that shows otherwise, please share it.
Ken, could you edit my previous post so that the second paragraph starts with “So, to respond to your post, I disagree…”?? Otherwise, it sound like I’m disagreeing with my qualifications. Thx.
Mr. McIlmoil,
A few comments: One of the biggest problems I see with the wind project is that according to my analysis of the numbers it makes no sense in the first place. Based on the numbers in the report, one turbine cost 3.2 million up front. After deducting op. expenses, landowner payments and tax payments, one turbine earns a little less than $250,000/year. Over a 20 year cycle, it earns a rate of return of 4.4 %. That is assuming the operator had the free cash to make the investment up front. If you had to borrow the money and pay 6% interest, it is a money loser.
Point two - while the DS report does a good job of concentrating on local benefits, we are citizens of West Virginia. As mentioned in my previous post, DS incorrectly(in my opinion) calculated the local portion of the severance tax which is over $6 million over the mines lives not $600k as in the report. Additionally the state of West Virginia would earn well over $100 million in severance taxes from these mines. As the wind project does not appear profitable, I would assume the state at large would make no additional revenue.
The report touts the benefits to landowners of the wind plan, with each turbine generating about $11,000/year. Although I have no way of knowing what royalty rates are owed on this property, they are typically about 5%. This would mean the landowner stands to make about $120 Million over 17 years.
In response to some of your other questions: some surface mines are union, surface mines do pay black lung tax, reclamation taxes are paid to take care of abandoned sites, the company is responsible for the current mine. Met quality is determined by the chemical properties of the coal, not seam height. I have personal knowledge of seams as thin as 18″ being shipped met including some from within 10 miles of this site.
Regards.
I am new to West Virginia, so I may not fully understand all of the numbers in this report, but I do have a background in the wind industry and I am an engineer with a practical mindset.
I am quite skeptical of the touted numbers for wind generation in West Virginia for a number of reasons, ranging from the actual usable amount of wind power to the availability of transmissions lines to get the power to places that need it (see here for a Department of Energy map showing how little wind resources West Virginia actually has and how far they are from major transmission lines: http://www.windpoweringamerica.gov/images/windmaps/wv_50m_800.jpg), to the financial hurdles of wind power and the considerable misconceptions as to the longevity and employment prospects of wind farms.
What the present discussion hinges on is the actual local economic benefit of a wind farm versus a coal mine; as is often the case, the Devil is in the details
For example, of the “more than 275 temporary construction jobs” provided by building the wind farm, how many would go to local citizens? Many of these jobs will require special skills and experience not likely to be found locally, and the company who wins the contract to build the installation most likely already has a crew they will bring in for the duration of the project. As for the “40 direct and more than 30 indirect jobs that could essentially last indefinitelyâ€, these are also specialized operations and maintenance jobs that are not likely to go to local citizens unless the local government mandates it as part of the permitting process and works with the operator to create a training program for locals to learn the necessary skills. With the high levels of automation and low levels of maintenance required by some types of wind turbines, operators sometimes find it more cost effective to have a single maintenance team that travels between multiple sites than to have a local team at each site. Oh, and the typical life of a wind turbine is about 20 years, unless the project goes bankrupt before that (which has happened, for example in Techapi Pass, the oldest active wind area in the country, which is now plagued with rusting, dangerous eyesores that used to be wind turbines), so the expectation for jobs to be there longer than coal would provide are not necessarily realistic.
While I am all for development of renewable energy solutions, I know they are being advertised as a far more mature solution than they are; while wind power, solar panels, biomass, and other trendy technologies receive considerable press, despite considerable investment over the past decade they are still less than 0.5% of US energy production, and large utilities don’t like to deal with them due to the irregularity of their energy production. Most people don’t realize the effort that goes into making sure US consumers get reliable energy – or the federal regulations that penalize power producers for not meeting reliability requirements.
At the opposite end of the scale, I do support coal mining, and I think that we should allow Mountaintop Removal if done responsibly – as a new resident, I find it incredible that the mining companies are not required to put the overburden removed from mountains back on the mountain. My suggestion is that the Coal River project should be carefully and responsibly mined, then the mountain should be reclaimed to close to its original shape. Massey’s reclamation personnel could then work closely with an end user – wind farm developer, home builder, etc to build the mountain to a useful shape for post coal utilization (for example, wind turbine components are big and heavy, so certain roads are needed and could be planned into the reclamation design).
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