Coal Country Problems

In 2008, U.S. coal production peaked at 1.172 million short tons and has since plummeted by 24 percent to 890 million short tons. The rate of decline is accelerating. Total U.S. weekly coal production fell by 39 percent from early April 2015 to early April 2016.

Why? The reasons include slow growth in electricity demand; declining exports; and state and federal environmental and clean energy policies. The largest accelerator to this decline, however, is the historically low price of natural gas. The inflation-adjusted price of natural gas for distributors (a.k.a. citygate price) fell from a spike of $13.42 (in 2015) in July 2008 to $3.67 in October 2015, a decrease of 73 percent.

It’s little wonder that no new coal plants are planned or under construction in the United States. Nor can the coal industry expect exports to ease the pain. As of the third quarter of 2015, exports had declined for ten quarters in a row, with no reversal in sight.

These grim statistics have made hash of the top companies’ market capitalization. The combined market value of the five largest U.S. coal producers (Peabody Energy Corp., Arch Coal, Inc., Cloud Peak Energy, Alpha Natural Resources, and Alliance Resource Partners) plunged from $43.8 billion in 2010 to $1.2 billion in 2015.

Even before the decline in production that began in 2008, the industry workforce had declined significantly. It shrank by more than half, from 151,000 workers in 1987 to 71,000 in 2004.

The drumbeat of bad news continues. In March 2016, Peabody Energy cut 235 people, or 15 percent of the workforce, at the nation’s largest coal mine, south of Gillette, Wyoming. Arch Coal pink-slipped about 230 people at its Black Thunder Mine near Wright, Wyoming. This follows layoffs in Illinois, West Virginia, Ohio, and Kentucky, some of which occurred in related industries such as rail operations.

It’s important to help these people and their communities. A revenue-neutral carbon fee, which we propose as the smartest way to tackle climate change, would contribute in several  ways. One, by adopting a specific fee and providing a timetable for increasing it, Congress would be providing more predictability for the industry and its employees. Two, the fee would generate sizable revenue, some of which Congress could allocate to help miners develop more marketable skills or, in the case of older workers, provide funds that would carry them to retirement age. Finally, it could provide a source of federal funding to develop carbon capture and sequestration technology which is the only way to provide the industry a permanent role in a future zero net emissions economy.

At first glance, a national carbon fee might seem like one more nail in the coal industry’s coffin. It is true that such a fee would make coal more expensive, but it is important to remember that EPA’s Clean Power Plan, which is the nation’s main vehicle for tackling climate change, also will put a price on carbon (and thus coal), but that price is unpredictable and will remain impossible to predict more than a year or two out. In addition, it will vary across the country because each state is required to produce its own plan. That unpredictability is driving coal company stocks down and hurting the industry’s prospects. A carbon fee, by contrast, would set a predictable price for at least seven to ten years, thus helping companies calibrate which new investments make sense and which do not.

A February 2016 analysis by Donald Marron and Adele Morris of the Urban-Brookings Tax Policy Center found that a carbon tax could raise enough revenue to simultaneously lower other tax rates, ensure that low-income households are held harmless, and fund the economic transition in coalfields. 

One place to watch that transition is in Carbon County, Wyoming. The county was named for its extensive coal deposits, and the state’s first coal mine began operations there in 1868. But Carbon County’s last mine shut down ten years ago. Today, as The New York Times’ Coral Davenport reported, there is new hope as the Anschutz Corporation builds what will be the largest wind farm in North America on 2,000 acres near Rawlins. The facility will generate enough electricity to light one million homes, and transmission lines will be built to transport it to Las Vegas and California

This wind farm will not employ all the coal industry workers losing jobs elsewhere in Wyoming, but a nearby branch of Western Wyoming Community College has created courses to train wind power technicians. “Wind power is our bright spot on the horizon,” Cindy Wallace, director of the county’s Economic Development Corporation, told The Times.