coal subsidies

Wednesday, July 7, 2010 - 2:55pm
Natural gas fracking well in Louisiana

Following the general approach used for Kentucky, researchers from Downstream Strategies and the West Virginia Center on Budget and Policy have canvassed detailed budget materials for both Tennessee and West Virginia to estimate the net budgetary effects of coal mining within the states in two new reports. (Thanks to Amy Larkin of Greenpeace for the heads-up on their work).

This is not an easy task.  State governments often have lower levels of transparency than the federal government, especially with respect to less direct support mechanisms such as tax expenditures, credit or insurance support, or legacy costs.  The information may be in less accessible or standardized forms than federal datasets, making local knowledge and relationships important.  There may be interactions between state-level policy with federal or local programs.  Authors Rory McIlmoil, Evan Hansen, Ted Boettner, and Paul Miller have done a nice job.

As with the Kentucky analysis (different authors), the reports illustrate that state-level policies are material with regards to natural resource subsidies.  While coal mining does support local jobs and generate some direct tax revenue to state coffers, both TN and WV appear to run net deficits on their coal industries.  Just as industry has a "cost of goods sold," so too do states or other government entities.  Without careful evaluation of what those costs are, it is impossible to evaluate what types of policies make sense. While a net deficit doesn't mean states should disinvest from any particular industry, it should make citizens question more closely the strategic evolution of state industry.  Are subsidies to old industries undermining the development of new ones?  Have state agencies properly integrated new options (better roads, telecommunications links) that didn't exist decades ago in assessing options for rural development going forward?

Among the important findings I saw in these papers:

1)  Damage to roads and bridges from heavy coal trucks is an oft-overlooked cost of production, but overwhelms most of the direct administrative costs of coal-related state agencies.  The chart below illustrates this point quite well in relation to West Virginia.  In WV, the majority of coal-related permits are for the heaviest truck category (roughly up to 126,000 pounds with the 5% allowable exceedance), damages can be substantial.  The authors note that a 120,000 pound truck will generate more than 4x the amount of strain on a roadway than the next highest category of vehicle at 80,000 pounds.  (As an aside, underpayment by heavy trucks for road use is a generic problem on national highways.  Road subsidies in general are a significant source of subsidy to timber extraction as well.) 

WV1

2) Both states have significant, underfunded, abandoned mine land problems.  As shown below for WV, the state is riddled with AMLs.  For both states, total expenditures on reclamation to-date are well below the expected cost of remaining sites to be addressed.

wv2

3)  Job creation and regional impact models need to be taken with caution.    The authors concur with earlier caveats from the Kentucky coal analysis on regional multiplier models in reference to natural resources, which they quote in their document:

“The RIMS II, and all economic impact multipliers, is surrounded by criticism of the models based on the assumptions built into the models and the resulting limits of their applicability and accuracy. The model assumes that all direct, indirect and induced effects would not otherwise occur without the project. The absence of the counterfactual—meaning we really have no way of knowing or modeling what activities would occur without the project—is problematic. The base assumption of the RIMS II (and all multiplier models), that it places all other economic activity on hold is significant and presents obvious problems under the best circumstances. In addition to these concerns, the application of this method to an industry that has been in the region for more than 100 years and is tied to a place-specific natural resource violates basic principles of a model designed to assess the impact of economic shocks such as development projects or firm closures.” (Konty and Bailey, 2010, p. 20)

The authors further note that "[d]espite these potential pitfalls, multipliers are often used by the industry itself and by researchers to estimate an industry’s indirect impacts. We perform these calculations with a recognition that, while imperfect, these multipliers allow us to clarify key issues and to perform initial, if imprecise, calculations."  These caveats apply equally well to many of the jobs claims perpetually circulated by the ethanol industry.


 

West Virginia Center on Budget and Policy
West Virginia
US
Tennessee
road subsidies
Downstream Strategies
coal subsidies

Coal and Renewables in Central Appalachia: The Impact of Coal on the West Virginia State Budget

In this report, we examine the net impact of the coal industry on the West Virginia state budget by compiling data on and estimating both the tax revenues and the expenditures attributable to the industry for Fiscal Year 2009: July 1, 2008 through June 30, 2009. In calculating these estimates, there is an inherent degree of uncertainty associated with the results. We do not claim that our accounting of revenues and expenditures is precise; in fact, we round our estimates so as not to provide a false impression of precision.

Coal and Renewables in Central Appalachia: The Impact of Coal on the Tennessee State Budget

Although coal has played an important historical role, the Tennessee coal industry now provides few jobs to state residents, and does not provide significant revenues to the state budget. In fact, as estimated in this report, the industry itself—together with its direct and indirect employees—actually cost Tennessee state taxpayers more than they provide. Our estimates provide an initial accounting of not only the industry’s benefits, but also its costs.

IGCC/CCS -- Federal and State Incentives for Early Commercial Deployment

Through its focus on incentives for the coal industry, this document provides one of the best summaries we've seen on subsidies to coal gasification, Integrated Gasification Combined Cycle (IGCC) technology, and associated carbon capture and storage (CCS) methods. Of particular merit are the state-by-state summaries of coal-supportive programs and policies.  As the document was published four years ago, some program may have changed; however, the normal duration of subsidy policies suggests the vast majority remain in effect.

Wednesday, April 14, 2010 - 3:13pm
Natural gas fracking well in Louisiana

Kudos to Sierra Club and Synapse Energy Economics for taking a look at coal subsidies.  In a report released yesterday, the authors highlight the disparity between Administration goals to cut greenhouse gases and continued federal policies that subsidize coal. 

The paper is a great first step into an area that has not gotten enough attention.  I hope it will be a conduit to more analysis and transparency of this important issue.  I'd like to see a systematic review of the growing array of subsidies to carbon capture and storage, of particular benefit to coal plants.  More work as well is needed on coal-to-liquids technology, an area that in the past even (then-) Senator Obama has sought to include in federal renewable fuel standards. 

More resolution on state-level support (following on this work in Kentucky) would also be helpful, and should include states such as Pennsylvania that include coal bed methane as a top tier resource in their "advanced energy portfolio standard" and waste coal as a second tier resource.   Finally, more work to evaluate the impact of the current suite of subsidies on the economics of new investment would be extremely useful.

Fundamental policy questions need to be answered.  Even if one accepts as given that coal will be part of the energy equation for some time to come, should that imply that we should subsidize it's place at the table?  If a main benefit of many renewable energy technologies is that they are low carbon, doesn't subsidizing the cost of handling carbon in the coal sector rather than letting the full cost flow through in market prices go directly counter to the country's energy transition goals?  This core issue relates not only to CCS subsidies, but to potentially even larger windfalls through grants of emissions credits under the various cap and trade scenarios.  Finally, if the industry itself doesn't think greenhouse gas emissions are a game-changing event requiring a massive research and retooling program, why should taxpayers foot the bill?

Pennsylvania
Kentucky
coal-to-liquids
coal subsidies
ccs subsidies

Phasing Out Federal Subsidies for Coal

The purpose of this report is to urge consistency in the development and implementation of federal administrative policies. Even as President Obama has pledged to phase out fossil fuel subsidies, the Federal Government prepares to establish limits on greenhouse gas emissions, and the Administration fosters a transition to a low carbon economy, some Federal agencies continue to have policies and programs that provide substantial subsidies for the construction, expansion, and life extension of one of the largest sources of greenhouse gas emissions in the U.S. - coal-fired power plants.

Data on Coal Industry R&D Spending on CCS

Despite industry advertising to the contrary, an analysis by the Center of American Progress determined that ACCCEs companies spend relatively few dollars conducting research on carbon capture and storage, among the most promising clean coal technology to reduce global warming pollution from coal-fired power plants. This technology would allow power plants to capture 85 percent or more of their carbon dioxide emissions and permanently store them underground in geological formations.

The Impact of Coal on the Kentucky State Budget

Rapid and dramatic changes in the world’s approach to energy have major implications for Kentucky and its coal industry. Concerns about climate change are driving policy that favors cleaner energy sources and increases the price of fossil fuels. The transition to sustainable forms of energy is becoming a major economic driver, and states are moving aggressively to develop, produce and install the energy technologies of the future. Long reliant on coal for jobs and electricity, Kentucky faces major challenges and difficult choices in the coming years.

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