Archive for the ‘Peak coal’ Category

State’s energy spin ignores the coming coalfield crisis

Friday, February 10, 2012

It’s fascinating — but also terribly depressing — to watch the taxpayer-funded publicists in West Virginia government promote the state’s energy industries. Their statements often have such little connection to reality.

Take this morning … there I was, innocently checking over the latest feeds from all of my friends on Twitter, when this came in from the state Department of Commerce:

See the blueprint for why WV continues to be a leader in the nation’s energy production, now and in the future.

Their “tweet” referred readers to a link for a fancy little document they’re calling “West Virginia Energy Blueprint,” that amounts to little more than promotion of a couple of particular state industries — primarily coal, but with a fair amount about natural gas from the Marcellus Shale play.

What you won’t find in there is any real discussion of important issues like the global climate crisis (not even the lack of any real movement on development and deployment of coal-friendly carbon capture and storage technology), the growing science showing environmental and public health damage from mountaintop removal coal mining, the continued toll of coal on the industry’s own workforce, and the inevitable decline of Central Appalachian coal production that’s going to create major economic problems for the region.

At about the same time that Commerce Department tweet came over, I was calling up the latest earnings statement out from Arch Coal’s corporate office out in St. Louis. The company reported $70.1 million in income last quarter and more than $140 million in income in 2011 in full.  CEO Steven Leer said:

Arch delivered solid quarterly financial results despite weakening coal market conditions as the fourth quarter progressed. In particular, our Powder River Basin operations rebounded from flood-related disruptions earlier this year. Also, higher realized prices and solid cost control across our diverse operating platform helped to expand our per-ton operating margins versus a year ago.

Nothing in Arch’s prepared statement about Blair Mountain, by the way, but they did have some things to say about the future of coal, especially here in Appalachia:

Coal markets weakened in the fourth quarter of 2011 as abnormally mild weather and muted economic growth caused U.S. power generation to decline slightly for the full year. Domestic coal consumption declined 5 percent in 2011, resulting from the decrease in power generation as well as fuel switching by power producers given decade-low prices for natural gas and abnormally high hydroelectric availability. As a result, coal stockpiles at U.S. generators rose to an estimated 180 million tons by year end, a seasonal build that is above historical norms.

In 2012, Arch currently estimates that domestic coal consumption for power generation could decline by 50 million tons or more from 2011 levels, as mild weather has reduced power demand and the current oversupply in natural gas markets could induce more coal displacement. Given anticipated declines in domestic coal use as well as U.S. generator stockpile builds, Arch believes that coal production and capital spending levels industry-wide are in the process of significant rationalization, which should set the stage for the next market upswing.

Internal estimates suggest that a significant portion of Central Appalachia’s estimated 125 million tons of thermal production is uneconomic at current index price levels.

Missing from that? Any of the sort of stuff you hear continually from West Virginia political leaders blaming any sort of contraction in the coal industry or coal-fired utilities on President Obama and the efforts of the U.S. Environmental Protection Agency to clean up air pollution and reduce on-the-ground impacts of mountaintop removal.

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And so it begins: Coal layoffs sign of things to come?

Monday, February 6, 2012

If you don’t read the Saturday newspaper, you might have missed this story, outlining two troublesome announcements last week by major coal producers here in West Virginia:

Alpha Natural Resources announced late Friday that it plans to idle several Appalachian coal mines and reduce work schedules at others, citing reduced coal demand as more electricity utilities move toward using natural gas.

The company said many of the affected workers would be able to transfer to other Alpha operations but that about 320 workers would be displaced “within the next few weeks.”

The announcement is the second such move by a major coal producer this week, coming just one day after Patriot Coal said it was closing its Big Mountain complex in Boone County.

You can read for yourselves the announcement from Alpha here and the one earlier in the week from Patriot here.  Alpha made a separate announcement of its moves, in anticipation of the release of its quarterly earnings data on Feb. 24. Patriot wrapped word of its closure of the Big Mountain Complex in Boone County inside its quarterly earnings statement.

For those who missed the details of the Alpha closures and schedule cutbacks — Alpha didn’t bother to include that in its press release — here’s the way company spokesman Ted Pile explained it in an email to me:

West Virginia:

– #2 Gas mine in Kanawha County is being idled immediately as is the Randolph Mine in Boone County. Both are underground.

–The Black Castle surface mine in Boone County is reducing its work hours

–Camp Branch surface mine in Logan County is reducing work schedules

–Progress/Twilight surface mine is cutting back work schedules (Boone Cty.)

–Alloy Powellton mine in Fayette County s eliminating one underground section

Kentucky:

– the Cave Spur and Perkins Branch underground mines are idled immediately. Both are in Harlan County.

– the Coalgood surface mine in Harlan County will be phased out by the middle of this year and the Big Branch West surface mine in Knott County will close in early 2013.

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Will W.Va. prepare for a post-coal future?

Tuesday, January 31, 2012

Gazette photo by Chip Ellis

We’ve written before about the proposal from the good folks at the West Virginia Center for Budget and Policy for a long-term trust fund to prepare our state for the day the coal and natural gas run out … well, today, the center has a new report out that discusses this notion in much more detail. They conclude:

West Virginia would benefit greatly from the creation of a permanent severance tax trust fund. An Economic Diversification Fund would help the state meet many of today’s economic challenges, while ensuring that future generations benefit from the mineral wealth of their state. In the past, West Virginia did not gain broadly shared prosperity for its residents, despite the tremendous wealth of natural resources in the state. As the Marcellus Shale gas play begins to boom in West Virginia, the state should take action today to ensure that it truly benefits from the extraction of its valuable natural resources. Without a permanent fund, the economic benefit from the natural resource extraction will decline along with the natural resources themselves.

The center proposes a 1 percent additional severance tax on coal and natural gas that could go into this fund, and be used a bit at a time to help pay for a variety of economic development efforts — everything from early childhood development programs and college grants to workforce training and infrastructure improvements.

Authors Ted Boettner, Jill Kriesky, Rory McIlmoil and Elizabeth Paulhus helpfully provide an overview of similar programs in other states — Alaska, Montana, New Mexico, North Dakota, Utah and Wyoming — that tax the extraction of non-renewable resources to pump money into state development efforts and put funds aside for future use.

According to the report, if West Virginia had created such a program in 1980, the state would now have a trust fund with assets of nearly $1.9 billion — that’s BILLION, with a B.  If started now, the fund would have generate revenues of $5.8 billion by 2035.  The report says:

If West Virginia wants future generations to benefit from the extraction of its natural resources, it must set aside a portion of the severance tax revenue from all natural resources to invest in important public structures that will build a stronger, more vibrant future for the state. To accomplish this task, West Virginia could follow the lead of six other energy states by creating a permanent severance tax trust fund (hereafter referred to as a permanent fund) that converts non-renewable natural resources into a source of sustainable wealth that serves the state today and in the future through targeted investing. Even after the state’s natural resources are depleted, West Virginia could use income from the fund to diversify the economy, make much-needed investments in infrastructure and human capital, lower future tax burdens, and deal with costs associated with past and future mineral extraction.

Looming coal crisis: Will W.Va. leaders do anything?

Tuesday, January 24, 2012

Anyone who is paying attention to government statistics, industry forecasts — and this blog — shouldn’t have been particularly surprised by the news about coal yesterday from the U.S. Department of Energy’s sneak peak at the Energy Information Administration’s 2012 Annual Energy Outlook:

Coal production in Central Appalachia may not decline as sharply over the next five years as previously projected, but the long-term forecast looks even worse, according to a new U.S. Department of Energy report.

On Monday, DOE’s Energy Information Administration increased its estimates of annual regional coal production for each of the next five years, but then projected steeper drops through the rest of the decade, with output reaching a low of 77 million tons in 2020.

Overall, production from Central Appalachia — mostly Southern West Virginia and Eastern Kentucky — is expected to drop to about 86 million tons, a decline of nearly 54 percent between 2011 and 2035.

If you’ve got any doubt about it, check out Kris Maher’s Wall Street Journal story, headlined, Coal Industry Losing Steam: U.S. Firms Face Double Threat of Cheap Natural Gas, Weak European Demand:

This year’s outlook is grim for the U.S coal industry, which after two years of rising profits has begun closing mines, signaling a new wave of production cutbacks and, possibly, another round of industry consolidation.

The country’s biggest coal producers, which begin reporting fourth-quarter results on Tuesday with St. Louis-based Peabody Energy Corp., should provide insight into how bad this year could be. Most should meet Wall Street’s earnings expectations for the last quarter of 2011 on export gains over a year ago, while tempering investor expectations for 2012, say analysts.

The two biggest threats facing U.S. coal companies are the low price of domestic natural gas, which is making thermal coal a less-attractive fuel for their utility-customers, and the shaky economic picture in Europe, which is damping exports of metallurgical coal.

Of course, there are plenty of reasons to be concerned about West Virginia’s coal industry — Things like the pervasive and irreversible impacts of mountaintop removal mining on our environment and the growing body of science that links living near mountaintop removal to serious health impacts like birth defects and cancer.  There’s also the incredible toll coal-mining takes on workers, through mine disasters, one-by-one deaths, and the continuing public health disaster that is black-lung disease. And there’s the untold damage to public health from power plant emissions, and coal’s huge contributions to global warming.

And if those things aren’t enough — and for most politicians in the region, they’re not — to make folks sit down and talk about the future of coal, you would think that the serious potential for seeing Central Appalachian coal production cut by more than half before the end of this decade might get some attention.

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Update: Declines projected for Appalachian coal

Monday, January 23, 2012

Here’s the latest from the U.S. Department of Energy’s Energy Information Administration, in a preview of its 2012 Energy Outlook issued this morning:

Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.

The average minemouth price of coal increases by 1.4 percent per year in the AEO2012 Reference case, from $1.76 per million Btu in 2010 to $2.51 per million Btu in 2035 (2010 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. The coal price outlook in the AEO2012 Reference case represents a change from the AEO2011 Reference case, where coal prices were essentially flat.

Although coal remains the leading fuel for U.S. electricity generation, its share of total generation is lower in the AEO2012 Reference case than was projected in the AEO2011 Reference case. As a consequence, while still growing in most projection years after 2015, total coal production is lower in the AEO2012 Reference case than in the AEO2011 Reference case, with the gap between the two outlooks increasing substantially over the period from 2020 to 2035.
In the AEO2012 Reference case, domestic coal production increases at an average rate of 0.3 percent per year, from 22.1 quadrillion Btu (1,084 million short tons) in 2010 to 23.5 quadrillion Btu (1,188 million short tons) in 2035. Mines in the West account for nearly all the projected increase in overall production, although even Western coal production is expected to decline somewhat between 2010 and 2015 as low natural gas prices and the retirement of a sizable amount of coal-fired generating capacity leads to a decline in overall coal consumption in the electricity sector. On a Btu basis, the share of domestic coal production originating from mines in the West increases from 47 percent in 2010 to 56 percent in 2035, and the Appalachian share declines from 39 percent to 29 percent during the same period, with most of the decline occurring by 2020. In the Interior region, coal production remains relatively stable over the projection period, with production in 2035 higher than in 2010.

Blue-Green Alliances and the Future of Coal

Wednesday, January 18, 2012

A coal truck drives through an railroad tressel near downtown Welch, W.Va., Wednesday, Feb. 9, 2011.  (AP Photo/Jon C. Hancock)

Over the years, I’ve come to the conclusion that when most politicians start talking about balancing jobs and the environment, it signals they’re getting ready to get pretty weak on environmental protections … but maybe that’s an unfair conclusion to draw in all circumstances.

There’s no question that, when it comes to coal mining controversies, the industry’s public relations machine has done a great job of trying to make things about “jobs versus mayflies.” The media, especially in the coalfields of West Virginia, has done little to help — mostly ignoring the growing scientific evidence that links living new mountaintop removal to increase rates of serious health problems, like cancer and birth defects. The notion that polluting water, air and land impacts not just lizards and fish, but people, isn’t one that is given a lot of attention in the context of mountaintop removal.
Following last Friday’s major speech about global warming and “the future of coal” by AFL-CIO President Richard Trumka, the discussion of all of this is continuing in the comment section of a post I wrote called, “What will we do about coal’s crisis in the making?” And we were reminded just yesterday of the very real connection between coal’s environmental pollution and public health, with the release of two new expert reports about the slurry contamination in the community of Prenter.

But for those wanting to think and discuss more about the connections — or lack of connections — between the labor and environmental movements, historian and writer Erik Loomis has an interesting post on the blog Lawyers, Guns and Money, called “Blue-Green Alliances.”  Loomis opines:

This gets to the complexities of the blue-green alliance, or the coalition between labor and environmental groups to craft policies that builds a unionized and sustainable future. There are clear areas where labor and environmentalists should have a common agenda–green technology, worker health, pollution. But there are equally clear lines that demarcate where the two groups can and can’t work together, particularly in extractive industry unions. My book-in-progress explores how logging unions in the Pacific Northwest organized around environmental issues, broadly defined. In the 1970s, a strong blue-green coalition (though I don’t believe the term had been invented yet) existed in the Northwest, with logging unions allying with environmentalists to keep workers safe and force timber companies to comply with the era’s new environmental regulations. But this was fraying at the same time it was peaking. The International Woodworkers of America had long criticized the timber industry’s unsustainable cutting, but when the rubber met the road and environmentalists in the 1970s and 80s were demanding increased wilderness areas and the protection of the last remaining old-growth stands, how could they vote their own members out of work? Especially when their union was coming under attack from so many other sides, with mills shutting down left and right?

The lesson from both the Northwest forest and Trumka’s coal miners is cultural. In the end, cultural divides shouldn’t stop anyone from promoting environmental positions with as much vigor as possible. But there is something very real about the resentment engendered when so-called outsiders (a term that can mean so many things) demand the end of an extractive industry without much thought into where workers are going to go. Even though those jobs are probably going away anyhow, it gives business a convenient target to direct workers’ ire. Of course, I don’t have any great answers about how to avoid this problem except to build understanding between the two constituencies, hoping that alliances over keeping workers’ bodies safe and air and water clean lead to stronger connections that allow environmentalists and labor to build toward understanding on the more intractable issues.

 

What will we do about coal’s ‘crisis in the making’?

Monday, January 16, 2012

There’s an op-ed in this weekend’s Gazette-Mail that is worth a look — and worth a detailed read by our region’s political leaders. It’s by West Virginia native Lou Martin, who teaches history now in western Pennsylvania at Chatham University. Lou writes of a “crisis in the making” in Boone County, where coal is such a big part of the economy, yet good coal seams are playing out and competition from other regions threatens future production levels:

In May, CNN Money reported that 3,800 of the county’s 8,600 employed people worked in the mining industry. And a report by economists at WVU and Marshall titled “The West Virginia Coal Economy 2008″ reported that 60 percent of the county’s roughly $35 million in property tax revenue came from coal. While those figures certainly speak to the importance of coal to Boone today, they also represent the potential for devastation when the coal companies leave. Imagine when half of those jobs and tax revenues disappear as Downstream Strategies predict they will. Boone County will be left with slurry ponds, “reclaimed” mountains and dirty water.

Lou warns:

As a society, we do not plan well for economic transitions; nor do we tend to plan for the long term. Our elected officials have a vested interest in helping businesses and industries that are here now, not imagining future businesses and industries. Coal companies focus only on this year’s profits. Unions protect current members’ jobs. Planning the future of Boone County is too important to leave up to the president of the West Virginia Coal Association, the CEO of Alpha Natural Resources, the president of the United Mine Workers, or even government officials like Sen. Manchin and Gov. Tomblin.

This time, the people need to plan out their own future. What do we want the future economy to look like? I propose that we try to create a society that will last for another 100 years, 200 years, or maybe even 1,000 years. But under the current plan, Boone County will face utter devastation –economic and environmental — in just 25 years.

For those who don’t know him, Lou Martin has written extensively about the working-class people of Appalachia, with a focus on the steel and pottery country of West Virginia’s Northern Panhandle (see here, for example).  And, he’s observed what has happened in those parts of the world in recent years, writing in his West Virginia University doctoral dissertation:

Beginning in the 1960s, local potteries began closing up shop until only Homer Laughlin remained. When Weirton Steel showcased its “mill of the future” in 1967, that moment proved to be the high point for the company and its workers. Thereafter, foreign competition, mismanagement, and global economic forces beyond any individual company’s control undercut Weirton Steel’s position in the market. By the 1980s, working families in Hancock County were faced with many tough decisions and sad realities as the winds of “creative destruction,” in the words of economists, picked up thousands of industrial jobs and carried them to the distant frontiers of industrial capitalism. The county’s population declined from about 40,000 in 1980 to about 30,000 in 2000. Many of those who remain are retirees who have watched helplessly as pensions and health insurance evaporated amidst bankruptcy hearings and corporate takeovers.

The deindustrialization of Hancock County underscores the ongoing nature of the industrial restructuring that brought new industries and industrial jobs to the county a century before. Workers struggled for decades to achieve a modest, dependable income and a decent life. During those decades, they continually adapted to new technologies, shifting markets, and changes within the working class. At the height of their influence locally, the rural-industrial workers of Hancock County also joined with like-minded Americans around the country to roll back the New Deal order and transform postwar America. The wrenching economic changes of the last quarter of the twentieth century, however, have left many working families to wonder what it was all about.

Dave Thearle, a member of the United Mine Workers of America, waves an American Flag during a labor rally in Waynesburg, Pa., Friday, April 1, 2011. (AP Photo/Keith Srakocic)

As I read, I was reminded of passages from the speech AFL-CIO President Richard Trumka gave on Friday at the United Nations:

Now, some people’s response is to demand that we end all coal production now—they say “End Coal.” Never mind that such a thing is simply not going to happen—there is no substitute now for metallurgical coal and if we stopped burning coal this afternoon and cut the power in the U.S. grid by 50 percent, as Mayor Bloomberg advocates, he’d be reading handwritten memos by candlelight this evening. Given that reality, it’s important to think about how that slogan is heard in places like my hometown of Nemacolin, Pennsylvania.

Nemacolin lives on coal—the coal mine my grandfather and my father went down to every day of their working lives, the power plant the mine feeds, the rail lines that carry coal to other plants. When these folks hear “End Coal,” it sounds like a threat to destroy the value of our homes, to shut our schools and churches, to drive us away from the place our parents and grandparents are buried, to take away the work that for more than a hundred years has made us who we are.

So why, in an economy without an effective safety net, would the good men and women of my hometown and a thousand places like it surrender their whole lives and sit by while others try to force them to bear the cost of change.

The truth is that in many places – and not just places where coal is mined – there is fear that the “green economy” will turn into another version of the radical inequality that now haunts our society—another economy that works for the 1% and not for the 99%.

You can read the speech for yourself here and you can also see the initial reactions from a couple of the most outspoken anti-mountaintop removal activists in the comments section.

It’s certainly true that Rich Trumka didn’t mention mountaintop removal — and there’s no doubt we haven’t heard much from the Rich’s old friends at the United Mine Workers about the growing body of science that links living near mountaintop removal to serious health problems, to increases risks of cancer and birth defects among coalfield children. I’ve asked the question on Coal Tattoo before, “Exactly what sort of environmental protection does the UMWA support?” At the same time, I’m not sure that the way to build strong coalitions is to do what citizen groups did a few years back when the UMWA’s media spokesman, Phil Smith, took part in a roundtable aimed at trying to find common ground on heated and complicated coal industry issues.

And gosh, to hear the president of the AFL-CIO to speak so eloquently about what is without a doubt a much larger global crisis — climate change — was a truly remarkable moment. Just go back and read part of it:

Today, as we meet together, scientists tell us we are headed ever more swiftly toward irreversible climate change—with catastrophic consequences for human civilization. We must have a stable climate to feed the planet, to ensure there is drinking water for our cities but not floodwaters at our doors. A stable climate is the foundation of our global civilization, of our global economy—the prerequisite for a profitable investment environment.

And to those who say climate risk is a far off problem, I can tell you that I have hunted the same woods in Western Pennsylvania my entire life and climate change is happening now—I see it in the summer droughts that kill the trees, the warm winter nights when flowers bloom in January, the snows that fall less frequently and melt more quickly.

And what about economic transformation, about green jobs and a stronger economy? Rich Trumka said:

Even so, some will ask, why should investors or working people focus on climate risk when we have so many economic problems across the world? The labor movement has a clear answer: Addressing climate risk is not a distraction from solving our economic problems. My friends, addressing climate risk means retooling our world—it means that every factory and power plant, every home and office, every rail line and highway, every vehicle, locomotive and plane, every school and hospital, must be modernized, upgraded, renovated or replaced with something cleaner, more efficient, less wasteful.

Taking on the threat of climate change means putting investment capital to work creating jobs. It means building a road to a healthier world and a healthier world economy–one less dependent on volatile energy prices, one where many more of us have the things that modern energy makes possible.

Reading the Trumka speech and the reactions to it also reminded me of the wise words of the late Sen. Robert C. Byrd:

Change is no stranger to the coal industry. Think of the huge changes which came with the onset of the Machine Age in the late 1800’s. Mechanization has increased coal production and revenues, but also has eliminated jobs, hurting the economies of coal communities. In 1979, there were 62,500 coal miners in the Mountain State. Today there are about 22,000. In recent years, West Virginia has seen record high coal production and record low coal employment.

And change is undeniably upon the coal industry again. The increased use of mountaintop removal mining means that fewer miners are needed to meet company production goals. Meanwhile the Central Appalachian coal seams that remain to be mined are becoming thinner and more costly to mine. Mountaintop removal mining, a declining national demand for energy, rising mining costs and erratic spot market prices all add up to fewer jobs in the coal fields.

These are real problems. They affect real people. And West Virginia’s elected officials are rightly concerned about jobs and the economic impact on local communities. I share those concerns.

Remember that Sen. Byrd also told us that “the time has come to have an open and honest dialogue about coal’s future in West Virginia.” Of course, that is exactly the oppose of what we heard last week from Gov. Earl Ray Tomblin, in a State of the State address that mentioned coal only to cheer-lead, as opposed to actually leading. And it’s exactly the opposite of what other political leaders are doing when they dodge questions about the mountaintop removal health studies.

Even for those political leaders who support mountaintop removal — or who are afraid not to support it — go back and read Lou Martin’s op-ed piece:

… Even if we cannot agree on mountaintop removal, change is still coming. A 2010 report by Downstream Strategies predicts that coal mining in Central Appalachia will decline by more than half over the next 25 years (from 234 million tons in 2008, down to 99 million tons in 2035) for reasons ranging from competition from natural gas to depletion of the most productive reserves.

There’s a crisis in the making … what are we going to do about it?

Report: W.Va. severance taxes don’t deter production, but improvement key to state’s future

Tuesday, December 13, 2011

There’s a new report out this afternoon from the good folks over at the West Virginia Center for Budget and Policy, examining our state’s severance tax policies and their role in industry activities and their potential role in making a brighter future for residents. Their conclusion:

West Virginia’s natural resources are one of its greatest assets and an important source of wealth. But the extraction of those resources can come at a heavy price, creating stress on the environment, infrastructure, and local communities. Like many other natural resource-rich states, West Virginia levies a severance tax on the extraction of its natural resources. The revenue from the severance tax allows the state to capture natural resource wealth and use it for important purposes like education, infrastructure, health care, and countless other priorities for the state, as well as providing a way for the state to bear the costs imposed by natural resource extraction.

Importantly, the report explains — as we’ve discussed before here — that effective severance tax rates in West Virginia do not put the state at a disadvantage in trying to attract industry and jobs:

While the severance tax is levied on natural resource production in the state, evidence from other states suggest that the tax is exported and paid by out-of-state consumers. This allows West Virginians to enjoy the benefits provided by the revenue without bearing the actual burden of the tax. In addition, research shows that the severance tax is not a large burden on industry, having little effect on production and industry location.

The new report explains:

Historically, coal has been the dominant source of severance tax revenue in West Virginia. However, West Virginia’s coal production is projected to sharply decline in the coming years, decreasing the amount of revenue brought in by the coal severance tax. Fortunately, the decline of coal in West Virginia corresponds with a boom in natural gas production. In the coming years, natural gas will grow from a relatively minor source of severance tax revenue to the state’s largest source. In order for West Virginia to benefit more fully from its natural resources, the state should consider policy changes surrounding its severance tax.

Among the recommendations:

– Consider scaling back severance tax credits, limits, and deductions. West Virginia’s effective severance tax rate is far below the statutory rate of five percent due to a number of credits, limits, and deductions available against the severance tax. In particular, the reduced rate for thin-seam coal production is rapidly growing in size and value. The effectiveness of these policies should be examined to determine if the goals of the policies are being meant and if the cost is acceptable. This is more important as tax policies like the reduced rate for thin-seam coal grow more expensive even as coal severance tax revenue declines and coal prices escalate.

– Encourage local governments to make a better effort to diversify their economies. Currently, most severance tax revenue distributed to local governments is used to fill budgets and provide basic services. The new allocation for coal-producing counties is a step in the right direction, with its funds directed towards economic development. Local governments should do more than use their share to pay for basic local government purposes. Local governments should use their revenue share to make investments that lead to greater economic diversification and growth, and should break their dependence on a volatile revenue source for the provision of basic services.

– Create a permanent trust fund. The coming boom in natural gas production provides West Virginia with an opportunity to convert its depleting natural resources into a permanent source of wealth. West Virginia should join states like Alaska, Montana, New Mexico, North Dakota, Utah, and Wyoming and establish a permanent trust fund based on a portion of severance tax revenue. In fact, the state could actually raise the effective rate of the severance tax in order to finance the trust fund with little risk of affecting the state’s natural resource industries.

Another take on the future of Appalachian coal

Tuesday, November 8, 2011

In this Wednesday, Aug. 17, 2011, photo, coal lies in piles around a conveyor system at a mine near Meta, Ky. Coal is deeply linked to the culture and economy in Central Appalachia but the industry is facing an expected collapse in production over the next few years. (AP Photo/Ed Reinke)

We’ve had a lot of coverage on this blog about the projections for major declines in Central Appalachian coal production in coming years. It’s been one of our major topics (see here, here, here, here and here).

So, I wanted to be sure that Coal Tattoo readers didn’t miss the op-ed that appeared in yesterday’s Lexington Herald-Leader. Headlined, “Future burns bright for E. Ky. coal,” the piece was written by Jerry Weisenfluh, who is associate director of Kentucky Geological Survey at the University of Kentucky.

Weisenfluh was responding to the recent AP story on this topic, and more specifically to the findings of a Downstream Strategies report that was among the main pieces of analysis cited by AP (and cited repeatedly by Coal Tattoo). He writes:

The central argument of the Downstream paper revolves around the relationship between mine productivity and coal prices. Mine productivity (tons per worker hour) increased steadily throughout the 20th century but has been declining since 2000.

This reversal coincided with a dramatic increase in coal prices. The report implies that this association is due to the additional employees needed to mine the thinner seams now available in Central Appalachia and uses this as evidence of depletion.

There is a serious problem with this argument.

Specifically, he writes:

The decline in mine productivity is a national trend. This suggests that there are other, more important factors affecting mine productivity. The more likely reason is the additional employees needed for complying with new safety and environmental regulations, because this would impact mines irrespective of their location.

There is no doubt that significant reserve depletion has resulted in mining of thinner seams leading to higher mining and processing costs. But it’s inaccurate to suggest this implies an accelerated collapse in production. There are technological advancements and market conditions that could change the current trend in production.

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Production update: More bad news for coal industry

Monday, October 17, 2011

Perhaps Monday morning is as good a time as any to ponder what a world we live in.

On Friday afternoon, Rep. David McKinley’s press agents were promoting his legislation to strip EPA of its ability to regulate toxic coal as as a “jobs bill.” On the House floor, the West Virginia Republican said anyone who voted against his legislation was personally responsible for the loss of 316,000 jobs — a figure he got from a fairly questionable industry report, and a number contradicted by another recent report.

Earlier last week, officials from American Electric Power were telling lawmakers that new environmental rules deserved a huge part of the blame for increased electricity rates, but then adding this, according to the Gazette’s Phil Kabler:

Asked whether the environmental requirements were excessive, [AEP subsidiary Appalachian Power vice president Mark] Dempsey said, “There are plenty of studies that back up the reasons for the requirements placed on us.”

And then, there was a new announcement from the U.S. Department of Energy’s Energy Information Administration, adding more weight to the concern that our region’s political leaders need a plan for the coming declines in the coal industry.  As Platts explained:

The US Energy Information Administration expects a 3.9% decline in the electricity generation sector’s coal consumption in 2012, it said Wednesday.

That fall in demand is somewhat steeper than EIA’s expectations a month ago, in its September Short-Term Energy Outlook, when it forecast a 2.3% drop in consumption, data shows.

Meanwhile, the EIA is expecting US coal production to decline by nearly 24 million st, or 2.2%, to about 1.045 million st in 2012 as domestic consumption and exports fall and inventories at electric power plants decline. In September, the agency expected 2012 output to be level with 2011′s levels at around 1.061 million st.

By region, output in Appalachia is expected to fall 5.6% to 319.7 million st in 2012. Production in the Interior is expected to drop 7.9% to 145.8 million st. Western production is projected to improve 1.4% to 579.6 million st.

Reinventing fire: Amory Lovins on coal’s costs

Friday, October 14, 2011

Folks who follow the work of Rocky Mountain Institute co-founder Amory Lovins certainly are well aware that he’s got a new book out.  Called “Reinventing Fire: Bold Business Solutions for the New Energy Era,” the volume is being promoted as a blueprint to the new energy era:

Business can become more competitive, profitable and resilient by leading the transformation from fossil fuel to efficiency and renewables. This transition will build a stronger economy, a more secure nation and a healthier environment.

I wanted to share a few things Lovins has to say in the book about coal:

Coal fires the power stations that generate 45 percent of U.S. and 41 percent of world electricity … Burning coal emits sulfur and nitrogen oxides (causing acid rain), particulates, mercury and other toxic metals … Coal ash from power plants pollutes streams. Mining coal injures and kills workers and inverts landscapes. Such hidden costs of U.S. coal-fired electricity total $180 to $530 billion per year. Properly charging that on our electric bills, rather than to our health and our kids, would double or triple the price of coal-fired electricity.

… Coal depletion, long assumed to be centuries off, may arrive unexpectedly soon. Coal resources had long been assessed with little or no attention to their exploitation cost. Recent reassessments of coal’s economic geology are more sobering, suggesting that ‘peak coal’ will occur within decades even in such coal-rich countries as the U.S. and China. Physical depletion could take much longer, but the cheap coal is going fast.

Lovins explains:

… Business, motivated by enduring advantage, supported by civil society, sped by effective policy — can advantageously achieve the ambitious transition beyond oil and coal by 2050, and later beyond natural gas, too … New technologies, and new ways of combining them, can wring several-fold more work from the same amount of energy. Those efficiency gains then allow renewable energy sources, equally enabled by modern information technology, to by deployed faster. The transition will create new industries with vast potential for jobs, profits, and better, cheaper, more robust services.

Check it out …

Wake up call: More media starting to catch on to impending collapse of region’s coal industry

Thursday, October 13, 2011

There it is this morning, right at the top of the front page of the Daily Mail:

Coal industry, state may see decline.

George Hohmann wrote the story:

The coal industry has been a major force in keeping West Virginia out of a recession but the industry’s – and state’s – fortunes may be about to change.

George noted the recent national business media reports:

“‘Collapse’ isn’t a word to be bandied about in mining circles,” The Wall Street Journal observed last week. “But how else to describe the recent precipitous drop in stocks of U.S. coal producers?”

The Journal noted that companies reporting production problems have had their stocks hammered after they disclose bad news.

From a larger perspective, the newspaper noted that the industry has become increasingly focused on producing coking coal. The Journal reported that global financial services firm Morgan Stanley has determined that while coking coal is less than 10 percent of total U.S. coal output, it accounts for about half of the sector’s earnings.

“Japan, China, India and Europe import nearly three quarters of the world’s seaborne coking coal,” The Journal said, referring to coal shipped on ocean barges. “Everything from natural disasters to monetary tightening have cut or could cut steel demand in those regions. Meanwhile, half the world’s exports of coking coal comes from Australia, where output is now recovering after last year’s floods.”

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Coal lobby’s Hamilton refuses to face the numbers

Tuesday, October 4, 2011

My good friend Chris Hamilton, vice president of the West Virginia Coal Association, has a fascinating op-ed piece in today’s Charleston Daily Mail. Apparently, this is how the coal industry here in West Virginia plans to respond to the recent Associated Press piece discovering the impending collapse of the region’s coal production. Chris writes of AP reporter Dylan Lovan’s account:

A recent story by Associated Press reporter Dylan Lovan regarding coal production in Appalachia contained enough fact to create a headline, but the facts were lost amidst erroneous statements and distortions.

Lovan asserted that – based on a report by the U.S. Department of Energy and another “study” by a Morgantown-based anti-coal advocacy group – that coal production in the Central Appalachian region is in the midst of an irreversible decline.

Lovan further asserted that this decline is the result of the rapid depletion of quality coal reserves in the region, and that the anti-coal policies being pursued by the Obama administration through its regulatory agencies has little do to with the decline.

As senior vice president of the West Virginia Coal Association, I assure you that this assertion is wrong.

Lovan’s assessment is simplistic and amounts to little more than an acceptance of opinion – that of anti-coal extremists – as fact.

The problem is … well, the coal production projections used in the AP story are not those of a bunch of “anti-coal extremists.”  One major quote about the future of Central Appalachian coal, for example, came from Arch Coal Inc. — a company I believe is a member of the West Virginia Coal Association. As AP reported:

Arch Coal, the nation’s second-largest coal producer, told investors last year that the region’s coal “is in secular decline — faced with depleting reserves and significant regulatory hurdles.”

And the projections of steep regional production declines also mirror those in West Virginia University’s “Consensus Coal Production Forecast,” published by the folks at the university’s Bureau of Business and Economic Research — hardly a bunch of anti-coal zealots.

It’s true that the AP story quoted Rory McIlmoil, who used to be an activist working with Coal River Mountain Watch and is now a researcher with the Morgantown firm Downstream Strategies. But Rory’s must-read report from January 2010, “The Decline of Central Appalachian Coal and the Need for Economic Diversification, is based on U.S. Department of Energy estimates and projections — not just some cooked-up, anti-coal opinions, as Hamilton would have Daily Mail readers believe.

You can check out the most recent numbers from DOE’s Energy Information Administration here, and this is the bottom line from their latest analysis:

Appalachian coal production declines substantially from current levels, as coal produced from the extensively mined, higher cost reserves of Central Appalachia is supplanted by lower cost coal from other supply regions. Increasing production in the northern part of the basin, however, does help to moderate the overall production decline in Appalachia.

Keep in mind that these are projections not based on some sort of de facto Obama administration ban on new mountaintop removal permits, and certainly not on any national policy to try to reduce greenhouse gas emissions.

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Climate Progress on where coal is headed

Thursday, July 14, 2011

Regular readers of Coal Tattoo know that I believe Joe Romm’s blog, Climate Progress, is an essential source of information and commentary about global warming.

But earlier this week, they had a great post by Climate Progress reporter Stephen Lacey that focused on the economics of coal. It was titled, Why America Needs to Move Beyond Coal: Five Economic Indicators, and concluded:

Coal still plays a dominant role in the U.S. energy mix, accounting for almost 45% of American electricity production. But the economics of coal continue to change, making the resource look far less attractive today than it once was.

A few examples:

While coal becomes more volatile, natural gas prices steady –

Shale gas has some pretty serious environmental factors that need to be dealt with. But a combination of natural gas and renewable energy is far better than coal. With renewable energy prices dropping fast and natural gas prices depressed, we have a unique opportunity to a dent in coal’s share of the energy mix.

Or:

The delivered price of coal increased three times faster than inflation over the past five years — Over the past five years, U.S. inflation has increased around 15%. During that same period, the delivered price of coal to utilities has gone up 54%, according to the EIA. In the last decade, the delivered cost of coal has increased 96%, with U.S. inflation around 30% over that time period. Since the beginning of 2011, the delivered price of coal has increased 3.1 percent.

And:

U.S. Coal mining productivity has declined 20% since 2000 — Improved technologies boosted coal mining operations from the late 70’s until the year 2000. But since then productivity has declined substantially. Across the broad, the EIA figures show decreasing productivity – with the country’s largest coal reserve, the Powder River Basin, declining by 7.2% between 2008 and 2009.

These are things folks in coal country — especially our elected leaders — need to think about … Read the whole thing here.

Ignoring the inconvenient facts about coal

Friday, May 13, 2011

We were talking yesterday on this blog about the decades-old problem of West Virginia as natural resource colony, the fact that much of our state’s coal, gas and timber is owned by out-of-state interests and how parts of West Virginia that generate the most of these valuable products remain generally pretty poor.

In a post that started out as simply an effort to note the candidacy of the Mountain Party’s Bob Henry Baber and some of Baber’s comments on the coal industry, I noted this line from a story by the Daily Mail’s Ry Rivard:

… The distinction Kessler makes between “wealth” and “jobs” from the coal industry may be a hard one for him to make given West Virginia’s long history with the industry.

And, I wrote:

Of course, one reason it might be hard to successfully make this case is that media coverage of these issue is so bad.

Today, of course, the Daily Mail hasn’t failed to disappoint, making my argument for me so clearly in an editorial headlined, Of course coal mining creates wealth in W.Va.

The editorial listed a series of facts presented at a congressional hearing by West Virginia Chamber of Commerce President Steve Roberts:

– A 2008 study found that the coal industry directly employed 20,454 West Virginians and paid them about $1.5 billion in wages that year. Total compensation rises to $2.8 billion.

– In 2008, coal companies paid $676.2 million in taxes. Over a decade that would be $6.7 billion.

– If the Obama administration, to cater to its political base, were to end surface mining in West Virginia, coal production would drop by more than 40 percent. Of the 537 mines operating in the state, 232 are surface operations.

– Surface mining employ 6,255 people directly — and the employment of a large portion of the 2,340 people who work in coal-handling facilities depends on those mines as well.

And then, the Daily Mail opined:

Acting Senate President Jeff Kessler, a candidate for the Democratic nomination in the governor’s race, commented recently that while the coal industry has been “an excellent job creator” for West Virginians, it has “not been a wealth creator.”

If the loss of $2.8 billion in compensation and $676 million in annual tax revenue would be called an economic catastrophe, what should the continuance of that revenue be called?

Easy. Wealth creation.

This is what happens when the news reporting on these issues leaves out a whole bunch of facts that aren’t especially convenient for West Virginia’s coal industry, its friends in the media or its staunch defenders among our political elite.

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House hearing update: Lawmakers avoid cold, hard facts about mountaintop removal and coal’s future

Friday, May 6, 2011

A coal truck drives out of downtown Welch, W.Va., Wednesday, Feb. 9, 2011. Coal brought a large population to the McDowell County in the 1940′s. Now the population is shrinking and the county suffers from unemployment and poverty. (AP Photo/Jon C. Hancock)

Maybe it’s unfair to criticize the Republican leadership of the House Committee on Transportation and Infrastructure for setting up such a one-sided, clearly scripted hearing aimed at piling criticism on the U.S. Environmental Protection Agency over the Obama administration’s crackdown on mountaintop removal coal mining.

After all, the Democrats in the Senate held a mountaintop removal hearing that wasn’t exactly the most balanced affair around … and this is all just politics, right?

Wrong … this is supposed to be about governing. And that’s why I’m a little sorry I used a pithy headline on yesterday’s post, House hearing: Let the EPA bashing begin!

There are serious issues here on all sides, even if nobody wants to admit that the folks they happen to disagree with have legitimate concerns.

Coal miners are rightly concerned about their jobs and their families’ futures. Folks who live near mountaintop removal mines are rightly upset about the way these mines impact their lives. Scientists are troubled about the growing data showing mountaintop removal’s negative effects on water quality, forests and public health.

But it’s hard to take a hearing like this seriously when it is all so staged, such an obviously one-sided affair and carried out in a manner that does so little to point the region toward solutions that will help deal with the big issues facing the coalfields. And I wonder often if the vast majority of West Virginians — folks who don’t like mountaintop removal,  also don’t like the idea of people losing their jobs, but don’t live their lives obsessed with hating coal or despising the EPA — are put off by the posturing from both sides.

Really now … how far do the industry’s repeated nonsensical arguments about bottled mineral water not meeting EPA’s conductivity standard really get anybody in understanding the water quality issues scientists are worried about? And why do environmental activists persist in trying to make out like coal companies are actually dropping bombs on the people of Southern West Virginia?

And that’s the way yesterday’s hearing went, though because coal’s friends in the GOP House leadership controlled the witness list, the industry’s side of this pointless political game carried the day.

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Mountaintop development?

Thursday, December 2, 2010

Last week, Erica Peterson over at West Virginia Public Broadcasting did an interesting story about a move by our friend Chris Hamilton at the West Virginia Coal Association to re-brand mountaintop removal mining as “mountaintop development.” According to Erica:

The coal industry has long pointed to its economic benefit in West Virginia — from mining jobs to development projects on former mine sites. Now, there’s talk of changing mining terminology to reflect some of this economic development.

Last month, Tyler Phipps, a junior at the University of Kentucky submitted a letter to the university’s student newspaper.  Phipps pointed to examples of development on former mine sites in Kentucky, and suggested the term “mountaintop development” might be a better way to describe the practice.

Phipps’ phrase appealed to many in the coal industry. Two days later, Chris Hamilton of the West Virginia Coal Association, emailed the story to coal groups, echoing the call of Massey Energy Vice President Mike Snelling that this might be a good way to re-brand the controversial practice.

“It just sort of struck a favorable note among those of us who are more directly involved with the coal industry and surface mining here in West Virginia,” Chris Hamilton said. “All around the state we have many examples today of industrial, commercial or recreational facilities that are on post-mine land sites, former mine sites, where there’s just a tremendous amount of economic development.”

It got me thinking about the discussion on Coal Tattoo a week earlier regarding a West Virginia Commerce Department press release that touted creation of 13,000 jobs on former surface mines in West Virginia. After bugging the Commerce Department, I finally got a copy of their list of projects involved in these jobs. I posted the list here, and also posted some notes the Commerce Department provided regarding some of the projects on the list.

I’ve spent a little bit of time looking at the list, and a few interesting things jumped out at me:

First, about 42 percent of the jobs — nearly 5,600 of them — are seasonal positions, part-time jobs, or temporary construction work.  There’s no mention of this in the Commerce Department press release.

Second, two thirds of the 7,739 full-time jobs are at sites nowhere near Southern West Virginia. They’re in Grant, Harrison, Hancock and Monongalia counties. More than a third of the full-time jobs are at one project — the FBI Center near Clarksburg.

Also interesting were a couple of the notes at the end of the actual list of projects …  For example:

This includes sites that have had prior mining activity. This includes sites with a designated post-mine land use in the permit, properties mined prior to 1977 and projects where a permit was not needed due to incidental coal.

So, we’re not at all talking exclusively about large mountaintop removal sites where post-mining development was made possible by provisions of the 1977 Surface Mining Act that required such development for sites with variances to the “approximate original contour” reclamation standard.

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Coal industry avoiding major share of taxes?

Monday, November 29, 2010

Gazette photo by Chip Ellis

Well, Coal Tattoo is back up and running … and let’s start the week off by pointing to a fascinating op-ed commentary in this morning’s Gazette, in which former Gazette reporter Tom White and Ted Boettner, executive director of the West Virginia Center on Budget and Policy, report:

The state Tax Department’s Property Valuation Training and Procedures Commission has declined to act on a request by the Assessors Association to develop a plan to appraise and tax coal under lease by coal producers.

Citing information from Nick Casey, lawyer for the state Assessors Association, White and Boettner explain:

Appalachian coal often has two owners, the landholder and the coal producer or operator. The landholder has a real estate interest and can collect a royalty (on average about 6 percent of revenue from clean tons mined). Under the current system, the landholder pays taxes on coal reserves based upon a formula centered around that royalty interest. This process is called the Reserve Coal Valuation Model, and it was developed after lengthy litigation over reserve coal taxation in the 1990s. Active coal currently being mined also is valued based upon the royalty rate to the landowner under a different rule.

But Casey said the lease-holder, or coal producer of active coal, also has a personal property interest in coal the company is mining. This is called chattel real interest. The term refers to personal property associated with leased land. It is supposed to reflect the value associated with that property interest over a period of time.

Casey said that if the royalty rate for coal averages about 6 percent, then logically the state is failing to appraise, assess and tax on the remaining 94 percent of the revenue from production of that coal — the chattel real. He said that the current tax structure for producing oil and gas currently appraises and assesses taxes on both the royalty land-owner and the chattel real gas producer. Two property owners, two tax bills. But under the current system, where there are two owners of producing coal property, there is only one tax bill to the landowner.

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Peak coal: Coming to China?

Thursday, November 18, 2010

In this Dec. 3, 2009 file photo, Chinese workers take a break in front of the cooling towers of a coal-fired power plant in Dadong, Shanxi province, China.

A Wall Street Journal piece this week called, “China’s Coal Crisis” is all the more interesting, given the lengthy Atlantic article in which James Fallows recently touted China’s work on carbon capture and storage as a possible path toward addressing global warming.

The Journal reports:

State-run media reported that Beijing is considering capping domestic coal output in the 2011-2015 period, partly because officials worry miners are running down reserves too quickly to meet the needs of a rapidly expanding economy.

“China accounts for around 14% of global coal reserves but its share of global coal consumption is already over triple that at 47%, which is unsustainable,” Hong Kong-based brokerage CLSA Asia-Pacific Markets said in a report last month.

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Revised report: Coal still costs W.Va. government

Monday, November 15, 2010

Gazette photo by Chip Ellis

Following up on critics from the coal industry and from industry boosters at Marshall University, the folks at the West Virginia Center on Budget and Policy and Downstream Strategies have revised their major report, The Impact of Coal on the West Virginia State Budget.

The result?

Their analysis shows that, overall, coal still costs the state budget — but not nearly as much as the initial report issued in June had estimated. The new figure is an annual cost to West Virginia’s government budget of more than $42 million. That’s compared to the $97.5 million estimate in the original report.

Downstream Strategies and the West Virginia Center on Budget and Policy revised their findings based on a review of criticism leveled at the original report by Cal Kent and Kent Sowards of Marshall University. You can read that criticism here and the original report here.

Ted Boettner, executive director of the Center, said:

We agreed with a number of their suggestions, however, several are simply mistaken and fail to acknowledge many of the costs associated with coal mining. After incorporating their suggestions that were valid, we found that the net impact of the coal industry for the state budget in fiscal year 2009 remains negative, meaning that the industry imposed an overall cost on the state and its taxpayers.

Among the changes made in the analysis:

– Local property taxes that impact the state budget — and not just state property tax revenues from coal — were added to the report. That added $31.5 million to the estimate of direct coal industry revenues.

– The “purchase for resale” tax exemption should not have been included in the report, as most other states do not tax these intermediate inputs and the exemption is uniform across all industries. This $85.5 million was deducted from the original report’s estimates of expenditures by the state for coal.

– The costs of thin-seam coal tax credits — $61.7 million — was added to the expenditures supporting the coal industry.

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