‘The traveler comes to the Appalachians in the lovely season. He sees the hills, the streams, the foliage—but not the poor.” That passage comes from “The Other America,” Michael Harrington’s 1962 book that opened the eyes of liberal policy makers to America’s invisible poverty. The classic work helped provide the intellectual ammunition for President Lyndon Johnson’s “unconditional war on poverty,” announced in his State of the Union address two years later.
Fast forward to today. The latest touchstone of liberal policy, the regulation of greenhouse-gas emissions, is causing economic destruction and pushing poverty higher in the Appalachians. But those backing the climate-change agenda are doing their best to keep this reality hidden from the public.
Since 2012, 27 coal-mining companies with core operations in Central Appalachia, a region roughly centered in southern West Virginia, have filed for bankruptcy protection. The list includes a number of large-cap, publicly traded entities, such as Alpha Natural Resources, James River Coal and Patriot Coal. Production of coal in southern West Virginia declined by 45% between the first half of 2011 and the first half of 2015, according to data from the Energy Information Administration. Since 2009, 332 coal mines in West Virginia have been closed, and 9,733 jobs—roughly 35% of the industry’s total employment in the state—have been lost, figures from the West Virginia Coal Association show.
This has devastated the state’s economy. West Virginia has the highest unemployment rate in the country, 6.9% as of October, compared with 5% nationwide. The local unemployment rates for counties in the southern part of the state reach nearly 13%. West Virginia also has the lowest labor-participation rate in the country. Of West Virginians over the age of 16, only 53% have a job or are looking for work, nine percentage points below the U.S. average.
Some of West Virginia’s economic woes are structural. For instance, the state’s median age, according to the 2010 census, is 41.3—the third highest in the country. That said, there is no denying that the collapse of coal mining has increased hardship and poverty.
Environmentalists claim that coal is being killed by market forces, including a slump in global commodity prices and increased competition from cheap natural gas. Such arguments ignore the historical fact that spot prices for Henry Hub natural gas have stayed within a range of $2-$4 for the past six years, and that they were even lower in the two decades before 2001. Spot prices for Central Appalachian thermal coal now average $40-$45 a short ton, compared with an average of $30 between 1984 and 2004. The West Virginia Coal Association estimates that the state still is sitting on approximately 51 billion short tons of recoverable coal.
Corporate failures in a cyclical commodity industry are rarely noteworthy. But things are different this time. Even after rounds of cost-cutting and consolidation, coal-mining companies—including large and experienced players—continue to go bankrupt. Some are exiting chapter 11 protection only to return after several months. Others are being liquidated for the scrap value of their mining equipment. Buyers who would normally aim to turn around troubled companies are not stepping in to bid at any price.
The West Virginia coal industry is no longer dealing with cyclical pressures or the invisible hand of the market; rather, it is facing an existential regulatory threat. In its 2009 “endangerment” finding, the Environmental Protection Agency ruled that greenhouse gases pose a public-health threat. Since then the EPA has put limits on carbon-dioxide emissions from new and existing power plants. Add that to tightened restrictions on mercury and other air pollutants, plus the coercive Renewable Portfolio Standard mandates at the state level.
The result is that electric utilities have opted to shut down coal-fired power plants rather than invest the capital needed to upgrade them and extend their useful life. The Energy Information Administrationprojects that over the next five to seven years roughly a third of America’s coal-fired generation capacity will be retired. Utility companies are not switching to natural gas to save on fuel; coal is still a cheaper feedstock. But these highly regulated firms see the regulatory writing on the wall.
Instead of focusing on a hypothetical “social cost of carbon,” the Obama administration should consider the real economic effect of its regulation on West Virginia. The rest of the country should speak up, since the loss of coal-fired generation will destabilize the power grid and increase the price of electricity. Oil and gas companies should pay attention, too: For the fossil-fuel industry, Central Appalachia is the canary in the coal mine.
Mr. Tice is a senior managing director and head of the Energy Capital Group at USCA Asset Management LLC.
See the article here.
- On December 1, 2015