- May 8, 2016
- Posted by: matt
- Category: Archived Newsletters
Transition Time in Coal Country: What Have We Learned?
Coal is in trouble. There a few industries facing the storm of dislocation and pain that is now roiling coal country. Major corporations like Peabody Energy are declaring bankruptcy, mines and related facilities are shutting down, and families that have mined for generations are facing unprecedented dislocation. This is a challenging time for coal-reliant communities.
For the past several years, Iâ€™ve had an up close look at how coal-reliant communities are faring as they weather a very challenging transitionâ€”thanks to work for the Appalachian Regional Commission, the National Association of Counties, and many state and local economic developers. Iâ€™ve seen some wonderful examples of community solidarity and innovation, and Iâ€™ve also seen some depressing trends as well. The coal transition is underway, but it still has a long way to go. Iâ€™ve decided to devote this issue of EntreWorks Insights to providing my own personal mid-term assessment based on what Iâ€™ve experienced over the past 12-18 months. Some of my thoughts can be found below where I look at some of the broader trends in the coal industry transition. Iâ€™ll dig into specific community strategies in a future newsletter.
- Itâ€™s Not As Bad As It Looks
News stories from coal country paint a pretty bleak economic picture. However, if you dig deep into the numbers, youâ€™ll be surprised. In some ways, the economic impacts of the coal industryâ€™s collapse can and should be manageable. Letâ€™s take a look at Kentucky, often viewed as ground zero for the coal economy. According to Kentucky Coal Facts, the coal industry employed about 11,500 workers in 2014â€”roughly 0.5% of total state employment.
Coalâ€™s direct employment footprint is relatively small and it has been shrinking for some time. In fact, the Appalachian coal industry has been shedding jobs since the 1990sâ€”mainly due to mechanization and competition from other coal and energy resources. The more recent downturn is the most severe ever, but it is simply an acceleration of a twenty year trend.
Given the relatively small size of the economic impacts, we would hope that the coal community transition would be a manageable challenge. However, read on . . .
- Itâ€™s Worse than It Looks
The numbers tell us one story, but reality on the ground tells another. The coal transition challenge is occurring alongside a whole host of other social, environmental and economic challenges that greatly complicate our ability to help affected workers, businesses, and community. For many coal communities, especially in Appalachia, coal industry jobs were the last â€œgoodâ€ local jobs. Nationally, the average annual wage for US coal miners is about $82,000. In West Virginia, average coal mining salaries are nearly $85,000, more than twice the statewide salary average of $39,519. So, when a coal miner is displaced, his or her prospects of finding comparable work at comparable pay are miniscule.
Meanwhile, coal communities face even bigger challengesâ€”none bigger than the opioid epidemic now roiling rural America. Sadly, many coal regions are also ground zero for opioid use. In fact, seven Appalachian states account for 1/5 of all US opioid related deaths since 1999. These public health challenges are growing just as the region is facing a whole host of other economic shocks. Retraining or upskilling the local workforce is a challenge when residents are simultaneously dealing with drug issues and host of other social problems.
Environmental contamination further complicates the economic transition. Various coal mining techniques, especially mountaintop removal, have generated grave environmental consequences for neighboring communities. These towns face problems with water and air pollution, as well as major contamination on abandoned mine lands. Efforts at economic recovery will need to begin with major investments in environmental remediation. The current Federal Abandoned Mine Lanes (AML) fund contains a pool of about $2.8 billion and several Congressional proposals, like the current Reclaim Act, seek to speed the release of these funds. This could help, but challenges will still remain. The US Office of Surface Mining Reclamation and Enforcement estimates that it has more than $4 billion worth of high-risk abandoned mine sites in its current inventory, and this figure is expected to grow in coming years.
Thus, while the overall economic impacts of the coal transition may seem manageable at first glance, the reality is much more sobering. Coal regions must pursue economic recovery while also coping with an unprecedented mix of other public health, economic and environmental challenges.
- Beyond Mining: Economic Ripple Effects
Because of all the problems cited above, most media reports have focused on how coal mining communities are faring. Yet, the coal industry means much more than mining. It also involves coal-powered utilities, transportation and logistics, and the many suppliersâ€”especially manufacturersâ€”who provide goods and services to the coal industry.
The economic ripple effects linked to coalâ€™s decline will be quite significant. After all, the primary use of coal is to drive power generation. Today, coal accounts for 33% of US electricity generation but this figure is dropping fast. Coal powered facilities accounted for 80% of power plant retirements in 2015. Experts project that as many as 379 coal-fired power plants will close between 2012 and 2020.
The shutdown of these power plants is already having big community impacts. Some of the plants are located in rural areas, but a large number are located in dense urban communities. In all locations, the plants provide good jobs and often serve as major taxpayers. Affected towns lose good jobs and a large chunk of revenues for schools and other public services. Cuts in coal production are already affecting many local and state budgets. For example, West Virginia is now facing a $270 million budget shortfall due to major declines in coal severance tax revenues. Finally, most of these plants have generated environmental contamination, so extensive brownfields redevelopment will be required.
Redevelopment is moving slowly if at all. A recent Delta Institute study of closed plants found that the redevelopment process has taken an average of 27 years. As the pace of closures increases, that timeline has to change.
Power plant closures are not the only challenge related to the coal industry downturn. Transportation and logistics related sectors are also hurting, with railroads and port facilities among the hardest hit. For example, Norfolk Southern (-23%) and CSX (-19%) both reported major losses of coal revenue in 2015. Coal transport accounts for a large share of rail revenue, so future projections remain gloomy as well.
- A War on Coal? . . . or on Working Americans?
Itâ€™s election season, so weâ€™ve been hearing a lot about the War on Coal on the campaign trail. While I donâ€™t see extensive evidence for a war on coal, there does appear to be some kind of war on working American families. Americaâ€™s coal regions face unique circumstances, but their economic adjustment challenge is quite similar to that facing other American regions such as New Englandâ€™s paper mill communities or regions facing lower revenues from the oil and gas industries. The challenge is not just about coal; itâ€™s about making it easier for working people to pursue new careers and economic options in the face of economic dislocations.
We need to rethink how we help workers, businesses and communities as they response to economic shocks like the coal economy transition. First, we need to provide more generous financial support to help people retrain and pursue new career options.
We may also need to provide financial support for relocation. While it may be preferable to help people obtain new jobs and careers close to home, that goal may not always be feasible. In some cases, the best strategy may involve relocating to a new region with better job prospects.
Lastly, we may have to consider some form of wage insurance for displaced workers. Many workers fail to take advantage of new training options because they cannot afford the time and expense required to pursue additional education. Short-term wage insurance would provide them with a more substantial basic income, perhaps allowing them to pursue more rigorous retraining options.
Many of these basic ideas already existâ€”albeit in limited form—in our current Trade Adjustment Assistance (TAA) programs. Yet, as numerous studies show, these programs are grossly underfundedâ€”especially when compared to similar programs in other advanced economies. The economic adjustment challenges now facing the coal industry are not going away, and we can expect similar economic shocks for other sectors as well. If this is the â€œnew normal,â€ we need to prepare for regular economic adjustment in a more serious manner.
While this summary paints a somewhat bleak picture of the state of the coal industry transition, Iâ€™m actually heartened by what Iâ€™ve witnessed the community level. People are coming together and developing new and interesting strategies to rebuild long-neglected communities. The process of change will not be easy, but the current transition offers tremendous opportunities to rebuild communities that have suffered from decades of neglect and disinvestment. These efforts can serve as future models for how to do economic adjustment right.
RESOURCES ON THE COAL TRANSITION
There is a huge literature on the coal economy transition. I canâ€™t cover the landscape, but here are a few resources that I have found helpful.
Appalachian Coal Industry, Power Generation and Supply Chain: This Appalachian Regional Commission-backed study takes a deep look at the wider coal industry supply chain.
Coal Reliant Communities Innovation Challenge: This project, sponsored by the National Association of Counties and the National Association of Development Organizations, provided technical assistance and coaching to 23 coal-reliant regions. The project also developed an excellent clearinghouse on economic diversification and you can also access a brief podcast on lessons learned from the project teams.
Mountain Association for Economic Development: Based in Eastern Kentucky, MACED has been a major force in thinking about new directions for Appalachiaâ€™s economy. Their work on the Appalachian Transition may be of particular interest. On that front, also check out the work of the Central Appalachian Network.
Planning for Montanaâ€™s Energy Transition: Coal is not just about Appalachia. Many Western states are also affected. This Headwaters Economics report examines the coal transition in Montana.
Transforming Coal Plants into Productive Community Assets: This 2014 Delta Institute report analyzes the challenges and opportunities around coal plant reuse.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve been lax in updating the EntreWorks on-line library with materials from recent projects. Weâ€™ve remedied that oversight and you can now find materials from projects for the Appalachian Regional Commission, Wisconsinâ€™s Progress Lakeshore, and others.
Apropos of this edition of the newsletter, weâ€™re also in the midst of developing a coal diversification strategy in Somerset County, PA. And, as always, you can find Erik Pages on the road with upcoming speaking engagements in Minneapolis, Baltimore, and Chapel Hill, NC.
We also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have discussed new big data resources, new trends in entrepreneurship, and the evolution of the gig economy. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.