Coal's Woes Run Deeper than EPA Regs
Competitive, Labor Issues Hurt Production
In Central Appalachia, coal’s potential troubles are running much deeper than the proposed environmental regulations. Both public and private reviews note a reduction in production, citing not just pending federal rules but also increased competition and the depletion of the most recoverable deposits.
The coal companies concur, saying that development could migrate to regions with more accessible reserves and a lower cost of production. And while the easy target is the U.S. Environmental Protection Agency that wants to cut toxic emissions, all are acknowledging that the process is more labor intensive and therefore less profitable. That’s because the coal there is much harder dig out, leaving surface mining as the only other possibility -- an even more controversial technique.
“Based on historical trend, most of the supply reduction is likely to be permanent,” says Arch Coal in a quarterly assessment. “The 2008-2010 drop is shaping up to be the largest fall-off in production yet,” in reference to Central Appalachia. That production is shifting westward, it says, citing statistics that Central Appalachia annual coal development could fall from around 200 million tons today to 99 million tons by 2035; a decade ago it was 300 million tons.
The U.S. Energy Information Administration agrees, saying that Central Appalachian coal has “higher cost reserves” that have already been “extensively mined.” That will result in more production from western states, and potentially 1 percent more a year between 2015-2035.
In this country, most of the coal comes from Wyoming, West Virginia and Kentucky. Wyoming provides about 41 percent of U.S. coal production, which is an increase from 18 percent two decades earlier. Today, the roughly 443 million tons of coal mined from the Wyoming Powder River Basin is shipped to 34 states, including those in the east. With an expanding rail transportation network, coal emanating from that area could flourish. It’s also easier to mine.
Underground mining is one issue. Surface mining, or mountaintop mining, is another that comes with regulatory impediments. Specifically, proposed EPA rules would restrict the ability of mining companies to toss aside debris by setting tougher water quality standards. It would require buffer zones around the streams while requesting mining enterprises to move in phases so that they can better monitor their environmental footprints.
What to do? U.S. senators from coal-producing states are trying to stop the EPA in its tracks, saying that the livelihoods of the affected citizens would be harmed. But perhaps the longer range view would be the diversification of the economies there, and for them to become net exporters of other fuels.
In fact, the Marcellus Region that stretches down the east coast is estimated to hold as much as 500 trillion cubic feet of shale gas. Penn State University says that such assets would create 200,000 jobs and the American Chemical Council says that 12,000 chemical-related jobs would be formed in West Virginia alone.
By comparison, the coal mining industry in all of Appalachia employs 31,000 people, says the National Mining Association. As production falls there and as EPA regs kick in, that number will decline.
“The increased competition from other sources of coal and energy has negatively impacted production in Central Appalachia, illustrating that the existence of coal reserves does not guarantee that the coal will be economical to produce or competitive with other regions,” says a report by Downstream Strategies. “The declining competitiveness is due in large part to the increased cost of producing coal in Central Appalachia, for both surface and underground mining.”
The Morgantown, WV-based consulting firm goes on to say that if West Virginia and other Central Appalachian states are to cope with a perpetual decline in coal production, policy makers will need to ensure that new jobs and fresh sources of tax revenue become available.
It is cautioning against an over-reliance on shale gas, noting the associated water quality issues surrounding it as well as a history of volatile natural gas prices. The firm is therefore concluding that the region needs to promote renewable energy. It is suggesting a renewable portfolio standard whereby utilities would have to supply a quarter of their power from green sources by 2025.
Blaming coal’s woes on the proposed environmental regulations tells only a fraction of the story. The rest can be explained by competition from other coal states as well as from cheaper and cleaner fuels. That makes the labor-intensive pursuit for coal in Central Appalachia a tougher sell and the need for fuel diversity there more essential than ever.
EnergyBiz Insider has been been nominated in 2010 and 2011 for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.
Follow Ken on www.twitter.com/ken_silverstein