TODAY’S STUDY: Why Coal Ain’t Comin’ Back

Can Coal Make A Comeback?

Trevor Houser, Jason Bordoff, and Peter Marsters, April 2017 (Columbia University)

Executive Summary

Six years ago, the US coal industry was thriving, with demand recovering from the Great Recession, and global coal prices at record highs along with the stock prices of US coal companies. By the end of 2015, however, the industry had collapsed, with three of the four largest US miners filing for bankruptcy along with many other smaller companies. While coal mining employment has been on the decline for decades – from a peak of more than 800,000 in the 1920s to 130,000 in 2011 – the pace of job loss over the past six years has been particularly dramatic. After campaigning on a promise to end what he called his predecessor’s “War on Coal,” President Donald Trump signed an Executive Order in March 2017 ordering agencies to review or rescind a raft of Obama-era environmental regulations, telling coal miners they would be “going back to work.”

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This paper offers an empirical diagnosis of what caused the coal collapse, and then examines the prospects for a recovery of US coal production and employment by modeling the impact of President Trump’s executive order and assessing the global coal market outlook. In short, the paper finds:

• US electricity demand contracted in the wake of the Great Recession, and has yet to recover due to energy efficiency improvements in buildings, lighting and appliances. A surge in US natural gas production due to the shale revolution has driven down prices and made coal increasingly uncompetitive in US electricity markets. Coal has also faced growing competition from renewable energy, with solar costs falling 85 percent between 2008 and 2016 and wind costs falling 36 percent.

• Increased competition from cheap natural gas is responsible for 49 percent of the decline in domestic US coal consumption. Lower-than-expected demand is responsible for 26 percent, and the growth in renewable energy is responsible for 18 percent. Environmental regulations have played a role in the switch from coal to natural gas and renewables in US electricity supply by accelerating coal plant retirements, but were a significantly smaller factor than recent natural gas and renewable energy cost reductions.

• Changes in the global coal market have played a far greater role in the collapse of the US coal industry than is generally understood. A slow-down in Chinese coal demand, especially for metallurgical coal, depressed coal prices around the world and reduced the market for US exports. More than half of the decline in US coal company revenue between 2011 and 2015 was due to international factors.

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• Implementing all the actions in President Trump’s executive order to roll back Obama-era environmental regulations could stem the recent decline in US coal consumption, but only if natural gas prices increase going forward. If natural gas prices remain at or near current levels or renewable costs fall more quickly than expected, US coal consumption will continue its decline despite Trump’s aggressive rollback of Obama-era regulations.

• While global coal markets have recovered slightly over the past few months due to supply restrictions in China and flooding in Australia, we expect this rally to be short-lived. Slower economic growth and structural adjustment in China will continue to put downward pressure on global coal prices and limit the market opportunities for US exports. Indian coal demand will likely grow in the years ahead, but not enough to make up for the slow-down in China. The same is true for other emerging economies, many of whom are negatively impacted by decelerating Chinese commodities demand themselves.

• Under the best case scenario for US coal producers, our modeling projects a modest recovery to 2013 levels of just under 1 billion tons a year. Under the worst case scenario, output falls to 600 million tons a year. A plausible range of US coal mining employment in these scenarios ranges from 70,000 to 90,000 in 2020, and 64,000 to 94,000 in 2025 and 2030 -- lower than anything the US experienced before 2015.

These findings indicate that President Trump’s efforts to roll back environmental regulations will not materially improve economic conditions in America’s coal communities. As such, the paper concludes with recommendations for steps that the federal government can take to safeguard the pension and health security of current and retired miners and dependents and support economic diversification. Attracting new sources of economic activity and job creation will not be easy, and even at its most successful will not return coal country to peak levels of past prosperity. But responsible policymakers should be honest about what’s going on in the US coal sector—including the causes of coal’s decline and unlikeliness of its resurgence—rather than offer false hope that the glory days can be revived. And then support those in America’s coal communities working hard to build a new economic future…

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Building A New Future

While US coal mining employment has been on the decline for nearly a century, the drop in the past five years has been particularly dramatic and acutely painful for coal communities in from Central Appalachia to the Powder River Basin. While President Trump has promised to reverse that decline and bring about a renaissance in US coal production and employment, our analysis suggests that’s unlikely to occur. Given the outlook for coal demand, both in the United States and around the world, the best-case scenario for US coal production may be a modest recovery to 2013 levels at just under 1 billion tons a year. In the worst-case scenario, it could fall to 600 million tons due to cheaper natural gas and lower renewable energy costs. The modeling presented in this report suggests a plausible ange of national coal mining employment between 70,000 and 90,000 in 2020 and 64,000 and 94,000 in 2025 and 2030. That’s still lower than anything the United States experienced before 2015 (figure 33) and a far cry from what’s needed to provide America’s coal communities the future they have earned and deserve.

Rather than bet on a mining recovery that may never arrive, it makes more sense for coal communities, government, and other private and public sector organizations to come together or leverage the other assets—both human capital and natural resources—that exist in coal country to attract investment in new sources of job creation and economic growth. This certainly isn’t easy. Despite promises from the federal government for a quarter century to provide worker retraining, education, and other support to help communities displaced by globalization and displacement, both parties have failed to fulfill those promises. Moreover, coal communities in particular are often geographically remote and lack the infrastructure necessary to attract large-scale investment. Miners and others in the local labor market often lack the skills necessary for jobs that offer the kind of compensation available in coal mining. Local entrepreneurs often lack access to credit and difficulty accessing markets. The recent national growth in opioid addiction has been particularly pronounced in coal communities in Appalachia. West Virginia and Kentucky suffer from the first and third highest rates of drug overdose deaths in the country.

Despite these challenges, there are a growing number of community-driven economic diversification efforts that show promise. The “Sustainable Williamson” initiative in Mingo County, West Virginia, combines public health, sustainable local food systems, job training, and a local business incubation to help drive economic growth and diversification. In McDowell County, West Virginia, the “Reconnecting McDowell” initiative brings together business, foundations, government, nonprofits, and organized labor to develop an integrated economic development strategy for the community. Coal-Field Development Corporation combines job training and job creation in projects across the state ranging from the rehabilitation of dilapidated buildings to repurposing abandoned mine lands.

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In Kentucky, former Democratic governor Steve Beshear and Republican US representative Hal Rogers joined forces in 2013 to launch the SOAR initiative aimed at supporting economic diversification in the eastern part of the state. The Mountain Association for Community Economic Development (MACED) has combined job creation with costsaving home efficiency improvements through their How$mart program, and Kentuckians for the Commonwealth (KFTC) works to accelerate clean energy deployment in coal production communities in the state. Appalshop, located in Whitesburg, Kentucky, is helping to drive a local arts renaissance drawing on the region’s rich cultural history. BitSource, located in Pikesville, Kentucky, employs laid-off coal miners as software engineers.

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The coal production decline in western states is more recent and the economic diversification conversation more nascent. But there are already some promising examples. Microsoft has located one of their largest data centers in the country in Wyoming in part to take advantage of the natural cooling available thanks to the state’s climate and altitude. Wyoming also has the best quality wind resources in the western electricity grid, which has attracted a growing amount of wind energy investment. And in 2014, the state created a new Integrated Test Center to support the development of carbon capture, utilization, and sequestration (CCS) technology.

To be clear, these programs and new economic opportunities are a far cry from returning coal country to the prosperity it once knew. Revitalizing America’s coal communities is not easy. The recent pace of decline in coal production has been dramatic, and new sources of employment, tax revenue, and economic growth aren’t going to show up quickly. But the responsible response from policymakers is to be honest about these facts—about the causes of coal’s decline any unlikeliness of its resurgence—rather than offer false hope that the glory days can be revived. And then we must redouble efforts like those above to rebuild these communities, as well as fulfill pension obligations and pay back the debt we owe to workers and families who spent generations, often at the expense of their own health and well-being, providing the energy that powered a good part of the American economy.

There is a lot the federal government can do to help accelerate locally driven economic diversification efforts. Infrastructure investment, tax credits, and repurposing of abandoned mine land that has other economic use can attract new investment and job creation. Expanded broadband access is particularly important as it can overcome the geographic barriers that limit coal communities’ physical access to both suppliers and markets and enable new types of economic activity. Competitive grants can help get nascent economic diversification initiatives off the ground. And the federal government can help provide retirement and healthcare security by passing the Miners’ Protection Act. But this all requires a clear-eyed assessment of the outlook for the coal industry and a commitment to put sustainable solutions ahead of politically expedient talking points.

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