Coal, politics and the Detroit bankruptcy

July 23, 2013 by Ken Ward Jr.

Member Exchange Business

Sometimes the political discussion around coal and energy policy here in West Virginia is simply baffling. While it’s easy to understand why rank-and-file coal miners and other working people are concerned about the future of the coalfields, it’s difficult to fathom the direction that Appalachian political leaders seem intent on going just about anytime the topic comes up.

Take today’s legislative interim meeting of the Joint Commission on Economic Development.

Lawmakers were being briefed by Jeff Herholdt, director of the Division of Energy, about his agency’s state Energy Plan. Now, never mind that the plan itself was finished in early March, and lawmakers are just getting around to talking about it.  And don’t worry about whether the plan really takes into account the threats of climate change and how our energy system contributes to that crisis — because, of course, Mr. Herholdt is a climate science denier who isn’t convinced human activity is really part of the problem. And it’s not worth looking at some of the interesting stuff in the energy plan — like the finding that West Virginia “has fallen behind its regional counterparts in terms of addressing its energy consumption through energy efficiency policy.”

What this meeting was all about was coal, and what the state should do to try to blunt the impact of what the industry continues to insist is the Obama administration’s “war on coal.”

And even within this discussion, it is always important to not let too many facts get in the way. For example, lawmakers didn’t seem to interested in Mr. Herholdt’s statement that most of the coal-fired power plants in West Virginia are “in better shape than other states” to comply with most of the new U.S. Environmental Protection Agency regulations.  What lawmakers really wanted to focus on were things like what Herholdt said were the Tomblin administration’s efforts “to change the direction of this country as far as the use of coal.” Herholdt said:

What’s not happening is getting the bigger picture issues resolved with coal.

And while that’s certainly true — there isn’t much happening on the state level regarding the “bigger picture issues” like reducing greenhouse emissions, addressing public health impacts of mountaintop removal or ending black lung disease — I’m not sure those sorts of things were what Jeff Herholdt had in mind.

No, state leaders are more focused on the sorts of things that had Sen. Ron Stollings upset when he heard that some of the utility plants in West Virginia don’t burn 100 percent West Virginia-produced coal. Or why, as Sen. Art Kirkendoll wondered aloud, the state isn’t out raising money to fund construction of a coal-to-liquids plant.

We heard precious little discussion about how state officials could try to work with EPA to soften the blow from the inevitable regulations to limit carbon dioxide emissions from existing coal-fired power plants.

It reminded me of part of a recent column that economist Paul Krugman had in the New York Times under the headline Detroit, the New Greece:

So was Detroit just uniquely irresponsible? Again, no. Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces.

What? Market forces have victims? Of course they do. After all, free-market enthusiasts love to quote Joseph Schumpeter about the inevitability of “creative destruction” — but they and their audiences invariably picture themselves as being the creative destroyers, not the creatively destroyed. Well, guess what: Someone always ends up being the modern equivalent of a buggy-whip producer, and it might be you.

Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens.

The column went on:

So by all means let’s have a serious discussion about how cities can best manage the transition when their traditional sources of competitive advantage go away. And let’s also have a serious discussion about our obligations, as a nation, to those of our fellow citizens who have the bad luck of finding themselves living and working in the wrong place at the wrong time — because, as I said, decline happens, and some regional economies will end up shrinking, perhaps drastically, no matter what we do.

The important thing is not to let the discussion get hijacked, Greek-style. There are influential people out there who would like you to believe that Detroit’s demise is fundamentally a tale of fiscal irresponsibility and/or greedy public employees. It isn’t. For the most part, it’s just one of those things that happens now and then in an ever-changing economy.

Shouldn’t West Virginia be having a serious conversation about the future of coal and of coalfield communities? Or should that discussion continue to be hijacked by the “war on coal” crowd that just wants to bash President Obama for their own political and economic gain? West Virginia is in the midst of a major economic transition, and our state leaders seem intent on doing nothing to try to manage that change.

5 Responses to “Coal, politics and the Detroit bankruptcy”

  1. Steve says:

    Ken, why are you or any other West Virginian who believes as you do letting the conversation or discussion continue to be hijacked by the “war on coal” crowd? If the writing is “on the wall” then by all means take the conversation and convince civic, industry and financial leaders that major economic transition is in our midst. Show them where the bucks will be made in the future. That is where it all really hinges. Businesses want and need to prosper, people want and need good jobs, and we need a good tax base for schools and roads. Shutting needed businesses down without viable and equal (affordable) replacements isn’t in our best interest, no matter how one feels or believes about climate change.
    We all know that elected government officials can create or nurture a climate where business can proper, but that’s about as far as they can take it. The rest is usually up to the market.

    As for Detroit being ” just one of those things that happens now and then in an ever-changing economy”. I remember President Carter meeting with the big three auto makers in the seventies, (when gas was hard to come by) to encourage them about making automobiles that would get around thirty miles to the gallon. The big three said there wasn’t a market for that kind of auto. Soon after Honda and Toyota really took off.
    Another interesting point about Detroit is that it has lost half it’s population since 1959.

  2. Mark says:

    Steve makes a good point. The ‘bucks’ and economics are a reality we have to also consider, in tandem with environmental concerns and current scientific understanding.

    Detroit is something unlike anything we have ever seen in West Virginia. It is on a scale that is hard to fathom. A former colleague of mine recently moved from Detroit, to Florida, after working 13 years as an engineer for a major parts supplier to one of the Big Three. After seeing the social, economic, infrastructure and cultural decay in Detroit first hand, for more than a decade, she had to move on to another career and leave Detroit behind. She is yet one of thousands of folks that have had to take part in the exodus from Detroit, for various reasons.

    Is there a common thread with Detroit’s decline, and West Virginia? Krugman and Steve’s comments connect well. Krugman highlights how companies at times produce something for a niche that vanishes. So economics and bucks are involved.

    The problem with Krugman’s niche thread is that, well, cars haven’t vanished. So the niche is still very much there. The problem is, cars that Detroit produced, for many years, have been passed over by consumers for something that better fills the niche. Detroit has very much turned its act around in the last few years. Well, 2/3’s of Detroit has. Ford began improving itself in the late 90’s, early 2000’s. Fiat taking on Chrysler has turned Chrysler into something it couldn’t have been on its own. GM, well, the jury is still out on Government Motors.

    The Big Three made for many years an inefficient product. And since the 1980’s, until the early 2000’s, one could say that Detroit consistently produced a product of lesser efficiency and lesser quality than a Toyota or Honda.

    For years, Detroit produced vehicles that had well over a dozen problems per 100 vehicles produced. People will only buy re-badged, inferior quality products for so long. The Jeep Wrangler is a good example of how even with an iconic product that is niche of niche, there is still room for improvement. The Wrangler did not see a modern engine introduced until 2012, when the inline 6 (a Detroit dinosaur) was replaced with a more efficient V6 with VVT. This was not a result of Detroit waking up. This was because of the injection of common sense from Fiat. Detroit should have done this years ago. Decisions like this, and being late to the race, has cost Detroit.

    Then something interesting. Krugman says we should have a serious discussion about how cities (or states for that matter) can best manage the transition when their bread and butter product, or niche, goes away? But then Krugman says we should talk about our obligation to our fellow citizens who are just in the wrong place at the wrong time and that decline just ‘happens’ sometimes no matter what we do.

    That’s hard to rationalize. Decline doesn’t just happen. It’s driven by economic forces (yes, in Krugman’s vein, out of our control at times) and our decisions as individuals and as groups, corporations, cities, states, etc etc.

    Decline happens when you produce, for decades, the same inferior automobile, under several names and badges.

    Where Detroit and West Virginia are very different, and regardless of our feelings about environment and economics, is that coal is vital in the production of other materials. One case is steel production. Steel production will continue no matter what side of the argument we are all on. For steel production, metallurgical coal will need to be provided for making coke. So, coal will never completely go away. There is currently no replacement for coke in the production of heat treated, carbon steel. And, steel is not going anywhere anytime soon, in our daily lives.

    Today, jot down every time you come into contact with a steel product as you go about your day. Like, a car, from Detroit.

  3. Bill Howley says:

    It seems odd that legislators only wanted to talk about coal issues, when there were two other sections to the new state energy plan. Did anyone want to discuss the energy efficiency section of the plan?

    Here is a link to the plan – http://www.wvcommerce.org/energy/energyplan/energy-plan-document.aspx – you can read it for yourself.

    It seems that WV’s politicians should be interested in reducing energy costs in our state to make us more attractive to manufacturing businesses. Efficiency investments and combined heat and power also allow existing manufacturers to expand revenue generating opportunities.

    Here is the quote from the introduction to the new energy plan’s efficiency section:

    “Increasing generation capacity and transmission and distribution (T&D) capabilities has been the traditional approach for meeting increased energy demand. However, the resources utilized in building new power plants and expanding T&D are often more expensive than resources needed to fund efficiency measures. Americans spend approximately $215 billion/year on the production of electricity at a price of 6 to 12 cents per kilowatt hour. Investments in efficiency only amount to approximately $2.6 billion/year at a cost of around 3 cents per kilowatt hour saved. Furthermore, natural gas efficiency costs $1 to $2 per thousand cubic feet (Mcf) saved compared with $6 to $8 per Mcf supplied.”

    For the last two years in a row, the Legislature has rejected bills that would have required the WV PSC to consider investments in efficiency on an equal footing with generation capacity in electricity planning, as is done in more than half of the states in the US. As Ken has pointed out, the Chairman of the WV PSC went out of his way to attack citizens, most of whom had filed comments advocating expanded energy efficiency programs in WV, in his comments at the start of the Harrison Power Station case which is now before the PSC. http://www.wvgazette.com/News/201305290029

    So, the Division of Energy publishes its new five year energy plan, but WV politicians don’t want to talk about, or implement, the plan’s most innovative and cost saving recommendations. Innovation? Lower electric and gas bills? Not in WV.

  4. Mark says:

    Bill,

    I think feasible applications of energy efficiency improvements is something we should always pursue. It is an area that needs private sector, academic and government dedication.

    Not only a five year plan, but a constant calibration of any plan based on current technologies and economics at the times of calibration.

    If only our elected officials would understand heat and mass transfer and thermodynamics a little better and actually do what is reasonable. My fear would be that they would steer any efficiency projects towards their buddies’ businesses.

  5. Bill Howley says:

    Mark,

    There is no need for anyone to be steering anything to anyone. Most states have simple programs that are funded through electric rates. As is noted above, this is much less expensive than forcing people to pay for expensive new sources of generation of any kind. Here is a link to the page on the ACEEE Web site that explains how other states make efficiency work – http://aceee.org/sector/state-policy/utility-policies.

    The Northwest Power and Conservation Council manages the electrical system in the Pacific Northwest. NPCC has had an aggressive energy efficiency program for the last 30 years. Here is a link to their sixth five year plan – http://www.nwcouncil.org/media/6383/SixthPowerPlan_Overview.pdf

    Here’s a quote from the new plan – “Improved efficiency of electricity use is by far the lowest-cost and lowest-risk resource available to the region. Cost-effective efficiency should be developed aggressively and on a consistent basis for the foreseeable future. The Council’s plan demonstrates that cost-effective efficiency improvements could on average meet 85 percent of the region’s growth in energy needs over the next 20 years.”

    And this is from a region with the lowest cost generation resource, federally financed hydro power.

    WV politicians and regulators have simply been in the dark about the impact of efficiency. Other states have been saving money for 30 years.

    Let’s be clear, these states are not just giving lip service to energy efficiency, they, like NPCC, make efficiency the highest priority on their systems.

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