Markets, Not Mandates Are To Blame For Kentucky Coal Woes

Posted on February 27, 2015
Posted By: Dennis Wamsted
 

Sen. Mitch McConnell (R-Ky.), the newly installed Senate majority leader, is fond of lambasting the Obama administration for its ``war on coal’’ and its impact on his Kentucky constituents. Following the latest U.N. climate change meeting in Peru in December, for example, McConnell criticized the administration for its ``entire international crusade against coal jobs” and pledged that he would “continue to take the war on coal right back to the president and his EPA with laws aimed at protecting coal jobs….”

Too bad the senator wasn’t so worried about those same jobs prior to President Obama’s election in 2008.

A review of the commonwealth’s own coal mining statistics1 shows that the industry has been in decline for years—driven by nothing more than market forces that punish high cost producers. The same market forces that Republicans tend to champion, at least in the abstract.

For example, the peak year for Kentucky coal production was way back in 1990, when the state mined 179.3 million tons of coal. By the end of 2008 the state’s total output had dropped to 120.4 million tons. And this decline certainly wasn’t due to any ``war on coal”: During the same period overall U.S. output rose from 1.03 billion short tons to 1.12 billion short tons, pushed by a sharp rise in production in Wyoming’s Powder River Basin region.

During the same period, the number of mining jobs in Kentucky’s coal industry fell at an even faster rate than the state’s production, dropping from 30,498 to 18,574. Just for reference, the peak year for Kentucky mining employment was 1949, when a total of 75,633 miners worked Kentucky’s fields.

The declines during this period were concentrated in Kentucky’s eastern underground mines, where production fell from 81.5 million tons in 1990 to 45.4 million tons in 2008 and employment dropped from 17,407 to 8,853.

Why? Because eastern Kentucky coal is hard to mine and, consequently, expensive.

Productivity in eastern Kentucky, including both the region’s underground and surface mines, was 2.7 tons per miner per hour in 1990, it rose through the decade to 3.9 tons/miner/hour in 2000, before dropping again to 2.6 tons/miner/hour in 2008. In contrast, productivity in the western U.S., which includes the Powder River Basin region, climbed from 11.8 tons/miner/hour in 1990, to roughly 20 tons/miner/hour throughout the 2000s. Even after you factor in the transportation costs, western coal is simply much cheaper: At the end of 2008, the delivered cost of eastern Kentucky coal was more than $3.50 million British thermal units—two times the delivered cost of PRB coal.

Market forces work, as even the state-produced Kentucky Coal Facts acknowledged in its 2014 edition:

“Since the year 2000, however, diminishing reserves of thick and easily accessible coal seams in eastern Kentucky have made coal more difficult, labor-intensive, and costly to mine, which has resulted in reductions in price competiveness of Kentucky coal vis-à-vis coal from other regions and alternative sources of energy. Kentucky coal has been under increased competition from cheaper Powder River Basin coal since the 1980s and from natural gas produced through advances in hydrologic fracturing technology since the 2010s.”

That is a paragraph Sen. McConnell and his staff need to read carefully. While it may be painful to admit, the problems facing the Kentucky coal industry cannot be blamed solely, or even primarily, on the Obama administration—they are the result of long-term market forces. Kentucky’s coal resources, while plentiful, can’t compete with cheaper PRB coal, or the gusher of new natural gas reserves coming into play nationwide as the result of widespread hydraulic fracturing and horizontal drilling.

While only a Democratic pollster would say they were related, the boom in new natural gas supplies largely began in 2008 and has shown no sign of slowing down in the six years since President Obama’s election. Output from the Mid-Atlantic’s Marcellus shale gas region, for example, has risen from essentially nothing in the mid-2000s to more than 15 billion cubic feet per day in 2014. That is roughly 5.5 trillion cubic feet annually—and the Energy Information Administration sees plenty more where that came from. In its 2014 Annual Energy Outlook, EIA projected that shale gas production will account for 53 percent of overall U.S. output by 2040.

That type of new resource—cheap, abundant and clean—changes energy equations across the board, and not in coal’s favor. In just four years, from 2009-2013, natural gas’ share of the electric generation market climbed from 23 percent to 27 percent, while coal’s dropped from 45 percent to 39 percent.

Like the earlier shift from hard-to-mine Eastern coal to easier to reach PRB resources, the switch to newly available natural gas was not due to government fiat, but rather market dynamics.

When you tout the benefits of the market, you have to be willing to accept the market’s decisions.

1-The coal statistics cited in this post were drawn from the 11th and 14th editions of Kentucky Coal Facts.

 
 
Authored By:
A long-time energy and environmental policy junkie, I earned my reporting stripes at The Energy Daily in Washington, D.C. I stepped down as the daily's executive editor in 1998 to spend time with my two young kids, and since then have worked as a freelance journalist and consultant.

From my Beltway base, I have covered Congress and the alphabet soup of regulatory bodies and cabinet agencies that oversee the
 

Other Posts by: Dennis Wamsted

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Comments

March, 01 2015

Ferdinand E. Banks says

I wonder why I have been wasting my time watching the ski VM (World Championship) in Falun (Sweden) when I could have been Reading and thinking about this excellent article. They tell me that my book ENERGY AND ECONOMIC THEORY has been published, but I will Believe it when I see it, and besides that is yesterday's news. The above article is the real deal deal and deserves the widest possible dissemination.,

March, 03 2015

James Carson says

Of course the markets have been unkind to coal over the past several years. However, that does NOT mean that the Obama Administration has not done great harm to coal producers with their vicious anti-coal policies, especially in the eastern US. The premise of the article is nonsense.

March, 03 2015

Jack Ellis says

I don't know whether Mr. Carson has ever been to a coal-fired power plant. I have been to several. I also worked at an oil and gas-fired plant as a college student. My workplace was just about spotless, whereas the only coal-fired plant I've ever seen that came close was the stoker-fired facility in Virginia owned by Cogentrix. Not quite clean enough to eat off the floor, but comparable to the place I worked.

There's nothing "vicious" about requiring coal plants to capture the toxins that are created and/or released as a result of the combustion process. Nothing at all. In fact, the industry should be leading the way here instead of dragging its feet by refusing to change the way it does business. Sure, emissions controls cost coal plant operators money, but so do the health problems created by dirty air. Stop griping and fix it.

I'm also not sure I understand how you conclude the premise of the article is nonsense. The author takes the position that the decline of the coal industry in Kentucky predates the Obama administrations rulemaking efforts and is largely a function of competition from PRB coal and natural gas. On the former point, the author uses data from Kentucky to support his premise. On the latter point, cheap gas has, in fact, displaced coal in some areas. If you think the author is spouting nonsense, rebut him with facts and reasoning.

The semiconductor industry once claimed it could not manufacture circuit boards without using toxic solvents that were leading to cancers and birth defects among its employees. When pushed, they developed a new process using water that seemed to get the job done quite well without destroying the semiconductor industry. Maybe the proponents of coal-fired generation could take this lesson to heart instead of pouring so much energy into phony claims about a war that does not exist.

March, 05 2015

James Carson says

Jack, Carbon Dioxide is not a toxin.

March, 10 2015

Richard Vesel says

James,

At sufficient levels, ALL substances ARE "TOXINS" in the biological sense, even oxygen. CO2 at current levels is not toxic to animal or plant life, but it is becoming toxic, in a sense, to our formerly stable climate, thereby making life much more difficult and dangerous to the multitudes of humans, and certainly to many animal species,

{Please, do not start spouting climate denialist rubbish as a counter to this statement, or we will simply become engaged in a long protracted exchange, where you will pump out multiple denialist claims, and I will rebut with many paragraphs and links to PRIMARY information which will debunk every claim you can come up with. Been there, done that.}

Coal has seen its better days, if you want to call them that, in the 18th, 19th and early 20th centuries. But pictures of "midnights at noon" from major cities such as London, Pittsburgh, etc., where copious amounts of coal were consumed without regard to waste products, should serve as a reminder not to glorify the past, not to rely on past successes as guarantees of future success. We stopped burning wood and dried manure, in favor of coal, and now we will stop burning coal in favor of gas, and eventually, hardly burning anything at all. That's simply technological evolution.

RWV

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