Coal Tattoo

Will production decline bring more coal jobs?

The good folks over at the West Virginia Center for Budget and Policy have just posted a fascinating piece by Sean O’Leary that looks at how the coming decline in Appalachian coal production might affect jobs in the industry. Here’s how it starts:

The projected decline of Central Appalachian coal production is one of the biggest challenges facing the state in the near future. While there are many reasons for the decline, some are irreversible, as much of the easy to reach coal has been mined out. This has prompted a great deal of concern in the state, chiefly regarding the potential loss of coal mining jobs, as it is assumed that as coal production falls, so will employment.

But that may not necessarily be the case. Some numbers suggest that while there may be an initial decline in employment, the job numbers may  bounce back, and actually increase in the future. The reason? Falling productivity.
Using new data from the Energy Information Administration, Sean did some calculations of what coal-mine employment mine look like in the region, based on EIA production and productivity numbers, and past EIA data on productivity. He found:
While employment falls along with production in the first part of the projection, employment starts growing again in the second part, as production stabilizes but productivity continues to fall. In fact, there may be 10,000 more coal jobs in Central Appalachia in 2035 than there were in 2010, despite production falling by 100 million tons, because of falling productivity.
For example, he found that Central Appalachian jobs would decline from 35,408 in 2010 to 25, 190 in 2020, but then increase again to 45,450 in 2035. Sean writes:

Granted, these are really rough estimates, but it does demonstrate that there are a lot of factors at play regarding the future of coal in West Virginia, and we really don’t know how it will all shake out. The mix of falling production and falling productivity may eventually increase jobs, but even in that case it takes years for the initial losses to come back.

It’s also important to note that the type of coal being mined in Central Appalachia is also changing. In 2010, about 51 of the 186 million tons, or 27%, of coal mined in Central Appalachia was premium or metallurgical coal, which is used to make metallurgical coke for steel making, as opposed to steam coal, which is used for electricity generation. However, the EIA projects that premium coal’s share of total Central Appalachian production is going to increase, reaching over 50% of total Central Appalachian production in the next few years.

And premium coal is sold at a much higher price than steam coal. In 2010, the minemouth price of premium coal in Central Appalachia was $100.94 per ton, compared to Central Appalachia’s average price of $77.10 per ton. And the price of premium coal mined in Central Appalachia is projected to continue to increase, reaching $184.16 per ton in 2035, while Central Appalachian steam coal prices stay flat.

This means that even if production costs rise in Central Appalachia due to falling productivity with more miners mining less coal, it may be feasible to mine Central Appalachian coal at a profit, due the growing prominence of the more valuable premium metallurgical coal.

He concludes:

The coal industry in WV, particularly southern WV, will be dramatically changing, and soon. That’s why it is so important to ask questions like “what is the effect on employment?” and prepare for that transition. While no one knows if these projections will occur as predicted, it is vital that the we take action, like our suggestion for the state to form a coal mining transition taskforce to help communities look for viable ways to ease the possible impact and search for viable economic alternatives and the creation of a Future Fund that ensures that communities and the state build assets from depleted coal resources.

Coal’s future: ‘All the good seams are gone’

Gazette photo by Chip Ellis

Over at The State Journal, the great Pam Kasey and Taylor Kuykendall have put together a package of three stories (see here, here and here) that puts some faces on the numbers that the fine folks from the West Virginia Center for Budget and Policy outlined in updating the state of West Virginia’s coal economy.

One story, headlined When the mining stops: What’s a miner to do? outlines the cold, hard truth about the situation facing many families. Quoting a Madison man who is the first in his family not to go into mining, Pam and Taylor wrote:

“The allure of the mines, as a young person, is that a 20-year-old without a college education, but is good mechanically, or electrically or is trainable, can go get an $80,000- or $90,000-a-year job versus going to college, racking up thousands of dollars in debt and getting a $30,000-a-year job,” Mitchell said.

Those starting salaries are more than twice the state average. And associated with those higher wages is a premium benefit package. A 2006 survey by Workforce West Virginia found workers in natural resources and mining were more likely to have retirement plans, medical insurance and sick leave.

Or as Pam Kasey summarized on Twitter:

The harsh reality is, it’s just hard for a high school graduate laid off from coal mining to replace a salary of $90K

In that story, The State Journal also is pretty clear that what’s happening in the industry — 1,300 layoffs at least, so far this year in West Virginia alone — is not nearly as simple as the anti-EPA, anti-Obama narrative pushed by the coal industry’s PR machine and most of the state’s political leaders:

They blame increasing regulation. However, MSHA data show the state had more mining jobs coming into 2012, in spite of new environmental scrutiny, than at any time in the past decade.

Unfortunately, the challenges for coal are multiple and not so easily reversed.

In the short-term, coal demand has faced what the industry has dubbed a “perfect storm,” a combination of a mild winter that ballooned coal stockpiles and natural gas that’s hovering near a decade low price.

Medium-term, Environmental Protection Agency rules about mercury and greenhouse gas emissions probably will reduce the share of electricity that is produced from coal. While mercury rules could be overturned, many people inside the industry and outside believe greenhouse gas regulations are unavoidable.

A longer-term problem is that the easy-to-reach Central Appalachian coal has been mined out.

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An update on W.Va.’s coal economy


The good folks over at the West Virginia Center for Budget and Policy have produced a fine report called the State of Working West Virginia 2012, which includes a chapter that provides a detailed primer on the state of West Virginia’s coal economy.

In that chapter, called West Virginia’s Mineral Resource Economy: The Gas Boom and the Coal Bust, Sean O’Leary and Ted Boettner break down employment and tax statistics, provide context about the continued importance of the coal industry to the state and its people, and warn about trouble ahead, given the projected declines in our state’s coal output in coming years.

Here’s a general overview, with a few quotes I pulled from the report:

For more than a century, the coal industry has played a significant role in the state’s economy. It has been a large supplier of jobs and wages, an important part of the state’s tax base, and an iconic part of its culture. Today, however, the state’s coal economy is diminishing because of market competition from cheap and abundant natural gas and Western coal, and from the exhaustion of many of the state’s thicker coal seams. Future federal regulations of greenhouse gases and mercury could also play a role in reducing demand for Central Appalachian coal.

… Each year, the EIA releases its Annual Energy Outlook that includes coal production projections for supply regions and coal types throughout the country. West Virginia is located in the Northern and Central Appalachian Regions. Over the next decade, EIA projects that coal production in the Central Appalachian Region will decline by 62 percent, from 196.7 million tons in 2009 to just 74.8 million tons by 2020. For the Northern Appalachian Region, EIA projects an increase of 30 percent over this same period – from 127.5 million tons in 2009 to 165.7 million tons by 2020. The combined decline in coal production for the two regions is about 26 percent.

 

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Coal job numbers: Looking to the future

Gazette photo by Chip Ellis

If you missed it, we had a story in this morning’s Gazette (posted online last night) that provides the first glimpse at government data reflecting the jobs impact on the layoffs various coal operators have announced since the first of the year. Here’s a bit of that story:

Coal-mining employment in West Virginia dropped by nearly 1,300 jobs in the second quarter of the year, according to preliminary numbers that illustrate the coal industry’s continued decline in the face of cheap natural gas, declining reserves, and competition from other coal regions.

New data from the U.S. Mine Safety and Health Administration put coal employment at about 23,300 during the period from April to June, a decline of about 5 percent over the previous three months.

The numbers are the first government statistics to reflect recent layoffs across the state’s coalfields. But some observers said they also show coal employment remains surprisingly strong, given the political campaign that alleges new environmental rules are destroying the industry.

Current statewide numbers are roughly the same as the last full quarter of George W. Bush’s presidency, according to jobs numbers mine operators report to MSHA.

West Virginia mining employment is up by nearly 1,800 jobs — more than 8 percent — since the Obama administration began initiatives aimed at cracking down on mountaintop removal mining. And, the most recent quarter’s figures show the seventh-highest number of jobs over the last 40 quarters, or 10 years.

So everyone is clear, many of the layoffs took effect in the second quarter of 2012, so they weren’t included in the first-quarter data that we previously published in the Gazette and discussed here on Coal Tattoo (see here, here and here).  And for those not familiar with the data, it’s reported to the government by coal operators and published by the U.S. Mine Safety and Health Administration, though various other agencies also keep similar figures.

What to make of all of this?

First of all, there’s simply no question that for the miners and families personally hit by these layoffs, it’s terrible news.  Roger Horton, a miner who started the group Citizens for Coal, spoke from personal experience when he testified to Congress last year about how mine closures can impact families and local communities:

The workforce and local union were obviously devastated but the county was also severely damaged. The school system and social welfare programs lost revenue that was vital to their existence and operation.

Entire communities were devastated. With nowhere to work and no prospect of the mine reopening any time soon, residents packed up and moved to other states to find lower paying jobs. Businesses that relied on the mine for their income — gas stations, restaurants, repair shops and equipment vendors — vanished.

But it’s also important, from a larger public policy standpoint, to put what’s happened and what is happening in context, and to base discussions about it around the facts — not the scare tactics of the mining industry’s public relations machine, the nonsense of President Obama’s coal-related campaign ads, or the rhetoric of those who don’t always fully understand the role coal still plays in many communities here.

Clearly, the net loss of 1,300 jobs to any industry in West Virginia is a troubling economic trend, right? Everybody can agree on that? But is it the end of the world, sky is falling, destruction of an industry that supporters fear and some opponents actually celebrate?

Remember that coal is a boom-bust industry. As the West Virginia Center for Budget and Policy has warned, by relying so heavily on one boom-bust industry for so long, West Virginia puts itself at risk for what happens when things go bust:

However, natural resource extraction tends to lead to economic boom and bust cycles, as production grows and shrinks, energy prices rise and fall, and the resources themselves are depleted over time. West Virginia has experienced this pattern over the past century. Since the state is so dependent upon natural resources, this pattern of booms and busts causes volatility in revenue streams, leaving communities vulnerable, underdeveloped, and less economically secure.

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Does this sound at all like West Virginia?

Ted Boettner over at the West Virginia Center for Budget and Policy pointed out a commentary called “From Resource Curse to Blessing,” by Joseph E. Stiglitz, a Nobel laureate in economics. For those not familiar with the term “resource curse,” there’s actually a decent tutorial about it on Wikipedia.

I’m wondering if there aren’t some things in here that everyone — regardless of where they stand on mountaintop removal, or climate change, or the ongoing coal debate — might agree sound a bit like West Virginia. For example:

—  … Resource-rich countries often do not pursue sustainable growth strategies.

—   They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer.

—   Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments.

If so, the commentary talks about some potential solutions that West Virginians could consider:

First, these countries must do more to ensure that their citizens get the full value of the resources. There is an unavoidable conflict of interest between (usually foreign) natural-resource companies and host countries: the former want to minimize what they pay, while the latter need to maximize it. Well designed, competitive, transparent auctions can generate much more revenue than sweetheart deals. Contracts, too, should be transparent, and should ensure that if prices soar – as they have repeatedly – the windfall gain does not go only to the company.

An example: The sort of  “future fund” that Ted Boettner and his group have been advocating.  Dr. Stiglitz concludes:

Resources should be a blessing, not a curse. They can be, but it will not happen on its own. And it will not happen easily.

Are we headed for a coal policy train wreck?

Over the weekend, there was certainly an interesting collection of news and commentary that, taken together, raises lots of questions about the future of the coal industry in our region.

First, there was the bombshell new study from climate scientist James Hansen, as described by the great AP science writer Seth Borenstein:

The relentless, weather-gone-crazy type of heat that has blistered the United States and other parts of the world in recent years is so rare that it can’t be anything but man-made global warming, says a new statistical analysis from a top government scientist.

The research by a man often called the “godfather of global warming” says that the likelihood of such temperatures occurring from the 1950s through the 1980s was rarer than 1 in 300. Now, the odds are closer to 1 in 10, according to the study by NASA scientist James Hansen. He says that statistically what’s happening is not random or normal, but pure and simple climate change.

“This is not some scientific theory. We are now experiencing scientific fact,” Hansen told The Associated Press in an interview.

You can read the study for yourself here,  and also can check out Dr. Hansen’s op-ed that was published in Sunday’s Washington Post, in which he says:

This is the world we have changed, and now we have to live in it — the world that caused the 2003 heat wave in Europe that killed more than 50,000 people and the 2011 drought in Texas that caused more than $5 billion in damage. Such events, our data show, will become even more frequent and more severe.

There is still time to act and avoid a worsening climate, but we are wasting precious time. We can solve the challenge of climate change with a gradually rising fee on carbon collected from fossil-fuel companies, with 100 percent of the money rebated to all legal residents on a per capita basis. This would stimulate innovations and create a robust clean-energy economy with millions of new jobs. It is a simple, honest and effective solution.

The future is now. And it is hot.

 

In this Thursday, Aug. 2 2012 photo, Dr. James E. Hansen head of the NASA Goddard Institute for Space Studies gestures during an interview with the Associated Press at his office in New York.  (AP Photo/Mary Altaffer)

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Two weeks ago, I wrote about how the good people at NPR had missed the mark in a piece about the presidential election and the decline of coal here in West Virginia.

I’m glad to say that a trio of NPR pieces this weekend, by All Things Considered’s weekend host, Guy Raz, provided a much more accurate, nuanced and complete picture of what’s going on in the Appalachian coal industry. You can read and listen to the stories here. here and here. A key point made in the stories:

… To get to the heart of what’s really killing coal, you have to travel south from Webster County about 500 miles, to Atlanta.

At one of Georgia Power Co.’s newest plants in metro Atlanta, two gas turbines and one steam turbine generate about 840 megawatts, enough energy to supply about 25,000 homes, says plant manager Tony Tramonte.

Georgia Power, like a growing number of power companies, is ditching coal and switching to natural gas. Tramonte explains that one reason is the overall dramatic air quality improvement.

“There’s a 100 percent reduction in mercury emissions … [and] a 50 percent reduction in the rate of carbon dioxide production,” he says.

He also says there’s a 99 percent reduction in sulfur dioxide and about a 90 percent reduction in nitrous oxide, with a plant that’s now five times larger than the one it replaced.

The bigger reason for the switch, however, is more mundane: money.

Domestic natural gas is killing coal because it’s cheap and abundant. Four years ago, electricity generated by gas was twice as expensive as coal. Today, gas is less than half the price of coal.

“What that means is, literally, natural gas is going to kill more coal-fired power plants than the EPA regulations,” says Michael Zenker, a coal analyst for Barclays.

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Here’s the latest from the U.S. Department of Energy’s Energy Information Administration:

Amid historically low natural gas prices and the warmest March ever recorded in much of the United States, coal’s share of total net generation dropped to 34%—the lowest level since at least January 1973 (the earliest date for which EIA has monthly statistics). Despite seasonally low loads, natural gas-fired generation grew markedly and accounted for 30% of overall net generation by March 2012 (see chart above). Total electricity demand fell this winter as warmer weather reduced home heating requirements.

Coal generation decreased 29 billion kilowatthours from March 2011 to March 2012, while natural gas generation increased 27 billion kilowatthours during the same time period. In March 2012, coal’s share of total generation was 34% compared to natural gas at 30%.

Natural gas prices were near 10-year lows this winter, leading the generators in some states (such as Ohio and Pennsylvania) to increase their dispatch of natural gas-fired plants. Newer vintage natural gas-fired units operate at higher efficiency than older, fossil-fired units, which increases the competitiveness of natural gas relative to coal.

For a regional analysis of generation and consumption in March 2012 compared to March 2011, see the Electricity Monthly Update. For national and state-level statistics, see the Electric Power Monthly.

The truth about coal’s future in Southern W.Va.

It’s always interesting to take a closer look at what officials from the coal and utility industries are saying about the same topic to different audiences.

I was reminded of that this morning when I re-read a piece that the State Journal’s great reporter, Pam Kasey, put on line yesterday. The story was headlined Coal will be just 50 percent of AEP generation in 2020: CEO, and in it, Pam reported:

American Electric Power is “repositioning its assets” for a “more sustainable fuel mix,” according to a Leadership Message from President and CEO Nicholas K. Akins.

Akins’ message was issued April 24 in conjunction with the utility’s annual meeting in Tulsa, Okla.

It doesn’t simply mean a shift from coal to gas, although that’s a large element.

“Several factors are driving us in this direction, including new environmental regulations; the economics of coal versus natural gas; the operating cost, age and efficiency of some coal units; increased competition; and grid reliability,” Akins wrote.

“We will retire more than 5,100 megawatts of coal-fired generation and retrofit nearly 11,000 megawatts with new, advanced pollution controls or upgrade existing control equipment,” he wrote. “Additional coal-fired generation may be refueled with natural gas.”

And the bottom line:

“By 2020, we estimate natural gas will account for 27 percent of AEP’s generating capacity, compared with 24 percent today,” he said.

Coal will fall to 50 percent in 2020 from 67 percent in 2011, with the rest made up of nuclear, renewables, hydro and pumped storage and energy efficiency.

“This effort to create a more sustainable balance of our generation resources will be very challenging and expensive but will provide long-term fuel stability and allow us to adapt to the major upcoming market and operational changes,” he said.

What struck me was the tone of the comments regarding coal, when compared to what Nick Akins had to say during a visit to Charleston not so long ago. As reported in the Gazette:

Although the amount of energy produced by coal will decrease in the nation — from 45 percent today to 39 percent by 2020 — a top electric utility company CEO said there is definitely a future for coal.

“Coal is naturally going to come down, natural gas will be the choice, but they’re really marginal,” said Nick Akins, president and chief executive officer of American Electric Power. “Once technology is proven, you’ll start to see coal come back. We still need coal . . . . If someone is trying to eliminate that, it’s just not going to happen.”

 

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Telling the truth about W.Va. mineral taxation

The good folks over at the West Virginia Center on Budget and Policy just posted a fascinating new item on their blog. It’s headlined, “Getting the Story Right: Mineral Taxation in Wyoming and West Virginia” and it concludes:

West Virginia’s mineral property and severance taxes are not out line with a conservative state like Wyoming and not a barrier to creating a permanent mineral trust fund. Our only barrier seems to be that we are not doing as good a job as Wyoming in ensuring that our state benefits from its rich natural resources.

In short, this post by center executive director Ted Boettner and policy analyst Sean O’Leary found that state officials and local university researchers leave out a significant part of the story when they compare how West Virginia taxes coal and natural gas compared to Wyoming. As they explain:

Last week, I was asked to present before the Senate Economic Development Committee on our projected estimates regarding S.B. 182 – which creates the WV Future Fund proposed by Senate President Jeff Kessler.

During the meeting, Mark Muchow, the Deputy Secretary of the WV Department of Revenue, also presented the committee with a history of the WV severance tax. At the end of his presentation, Muchow also compared the mining (oil, natural gas, and coal) gross domestic product of Wyoming and West Virginia, showing that Wyoming’s natural resource economy was about twice the size of West Virginia. In response to questions about the taxation of minerals in Wyoming and West Virginia, Muchow also told legislators that West Virginia taxes mineral property while Wyoming does not.

After doing a little research after the meeting, I discovered that Muchow failed to mention that Wyoming does levy a county gross products tax based on the taxable value of minerals produced in the county. According to the Wyoming Department of Revenue, this ad valorem property tax brought in over $1.2 billion dollars in revenue for Wyoming county governments in 2009 based on 2008 taxable mineral production values. Of the $1.2 billion, approximately $967 million was from coal and natural gas. According to two reports conducted by West Virginia University on the economic impact of the natural gas and coal industry in the state, total West Virginia property tax revenue in 2008 for coal was $90.8 million and $58.3 million for natural gas – a total of $149.1 million. According to these estimates, West Virginia collected about 15.4 percent of the amount in natural gas and coal property taxes that Wyoming collected in 2009.

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Hoppy Kercheval continues pro-coal ‘puffery’

It’s really no wonder that so many West Virginia political leaders won’t confront the coming crisis in our state’s coalfields. That’s especially so if you just look at the media coverage these issues generally get from most of the state’s newspapers, television stations and radio outlets. There have been some noticeable improvements of late, but my buddy Hoppy Kercheval’s latest West Virginia MetroNews commentary shows how far our media have to go in doing their job of forcing powerful interests to confront what is — and perhaps isn’t — in the public interest.

Hoppy’s headline is “Environmental puffery,” and it focuses on the Sierra Club reaction to last week’s announcement of power plant closings by FirstEnergy. Hoppy writes:

The closings are a tough blow for those communities; jobs are lost and tax revenue from the utilities will dry up.

“This is going to take a pretty big chunk out of the operating budget of the town,” said Rivesville Mayor Jim Hershman, who worked at the power plant for 25 years.

The Sierra Club is positively euphoric. The environmental organization’s “Beyond Coal” campaign is geared toward shutting down all coal-fired power plants.

“The retirements represent a major improvement in the lives of local residents, who have been exposed to pollution from these plants for decades,” read a statement from the Sierra Club.

I suspect the Sierra Club might have trouble getting laid off workers or the leaders of a community that will have trouble paying the bills for street lights to join them in the victory dance.

Now, there’s no question that some people within the Sierra Club are pretty darned tone-deaf when it comes to how their campaigns are viewed in communities that still rely so heavily on the coal industry … for example, one of the group’s bloggers and magazine writers posted on Twitter after the First Energy announcement:

Boom boom boom, another one bites the dust…

But Hoppy’s commentary didn’t mention that the Sierra Club also hosted a meeting in Albright, one of the communities where FirstEnergy is closing a plant, to try to get the conversation going about how the closure might impact local residents and what alternatives might be once that closure happened. The effort was modeled after a successful collaboration in Washington state, where a coal plant closure was phased in and the company put together a $50 million fund to help ease the impacts and move toward cleaner energy. In West Virginia, Sierra Club officials tried to get FirstEnergy involved in such an effort in Preston County — but the company couldn’t be bothered to show up for a town meeting.

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It’s fascinating — but also terribly depressing — to watch the taxpayer-funded publicists in West Virginia government promote the state’s energy industries. Their statements often have such little connection to reality.

Take this morning … there I was, innocently checking over the latest feeds from all of my friends on Twitter, when this came in from the state Department of Commerce:

See the blueprint for why WV continues to be a leader in the nation’s energy production, now and in the future.

Their “tweet” referred readers to a link for a fancy little document they’re calling “West Virginia Energy Blueprint,” that amounts to little more than promotion of a couple of particular state industries — primarily coal, but with a fair amount about natural gas from the Marcellus Shale play.

What you won’t find in there is any real discussion of important issues like the global climate crisis (not even the lack of any real movement on development and deployment of coal-friendly carbon capture and storage technology), the growing science showing environmental and public health damage from mountaintop removal coal mining, the continued toll of coal on the industry’s own workforce, and the inevitable decline of Central Appalachian coal production that’s going to create major economic problems for the region.

At about the same time that Commerce Department tweet came over, I was calling up the latest earnings statement out from Arch Coal’s corporate office out in St. Louis. The company reported $70.1 million in income last quarter and more than $140 million in income in 2011 in full.  CEO Steven Leer said:

Arch delivered solid quarterly financial results despite weakening coal market conditions as the fourth quarter progressed. In particular, our Powder River Basin operations rebounded from flood-related disruptions earlier this year. Also, higher realized prices and solid cost control across our diverse operating platform helped to expand our per-ton operating margins versus a year ago.

Nothing in Arch’s prepared statement about Blair Mountain, by the way, but they did have some things to say about the future of coal, especially here in Appalachia:

Coal markets weakened in the fourth quarter of 2011 as abnormally mild weather and muted economic growth caused U.S. power generation to decline slightly for the full year. Domestic coal consumption declined 5 percent in 2011, resulting from the decrease in power generation as well as fuel switching by power producers given decade-low prices for natural gas and abnormally high hydroelectric availability. As a result, coal stockpiles at U.S. generators rose to an estimated 180 million tons by year end, a seasonal build that is above historical norms.

In 2012, Arch currently estimates that domestic coal consumption for power generation could decline by 50 million tons or more from 2011 levels, as mild weather has reduced power demand and the current oversupply in natural gas markets could induce more coal displacement. Given anticipated declines in domestic coal use as well as U.S. generator stockpile builds, Arch believes that coal production and capital spending levels industry-wide are in the process of significant rationalization, which should set the stage for the next market upswing.

Internal estimates suggest that a significant portion of Central Appalachia’s estimated 125 million tons of thermal production is uneconomic at current index price levels.

Missing from that? Any of the sort of stuff you hear continually from West Virginia political leaders blaming any sort of contraction in the coal industry or coal-fired utilities on President Obama and the efforts of the U.S. Environmental Protection Agency to clean up air pollution and reduce on-the-ground impacts of mountaintop removal.

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And so it begins: Coal layoffs sign of things to come?

If you don’t read the Saturday newspaper, you might have missed this story, outlining two troublesome announcements last week by major coal producers here in West Virginia:

Alpha Natural Resources announced late Friday that it plans to idle several Appalachian coal mines and reduce work schedules at others, citing reduced coal demand as more electricity utilities move toward using natural gas.

The company said many of the affected workers would be able to transfer to other Alpha operations but that about 320 workers would be displaced “within the next few weeks.”

The announcement is the second such move by a major coal producer this week, coming just one day after Patriot Coal said it was closing its Big Mountain complex in Boone County.

You can read for yourselves the announcement from Alpha here and the one earlier in the week from Patriot here.  Alpha made a separate announcement of its moves, in anticipation of the release of its quarterly earnings data on Feb. 24. Patriot wrapped word of its closure of the Big Mountain Complex in Boone County inside its quarterly earnings statement.

For those who missed the details of the Alpha closures and schedule cutbacks — Alpha didn’t bother to include that in its press release — here’s the way company spokesman Ted Pile explained it in an email to me:

West Virginia:

— #2 Gas mine in Kanawha County is being idled immediately as is the Randolph Mine in Boone County. Both are underground.

–The Black Castle surface mine in Boone County is reducing its work hours

–Camp Branch surface mine in Logan County is reducing work schedules

–Progress/Twilight surface mine is cutting back work schedules (Boone Cty.)

–Alloy Powellton mine in Fayette County s eliminating one underground section

Kentucky:

— the Cave Spur and Perkins Branch underground mines are idled immediately. Both are in Harlan County.

— the Coalgood surface mine in Harlan County will be phased out by the middle of this year and the Big Branch West surface mine in Knott County will close in early 2013.

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Will W.Va. prepare for a post-coal future?

Gazette photo by Chip Ellis

We’ve written before about the proposal from the good folks at the West Virginia Center for Budget and Policy for a long-term trust fund to prepare our state for the day the coal and natural gas run out … well, today, the center has a new report out that discusses this notion in much more detail. They conclude:

West Virginia would benefit greatly from the creation of a permanent severance tax trust fund. An Economic Diversification Fund would help the state meet many of today’s economic challenges, while ensuring that future generations benefit from the mineral wealth of their state. In the past, West Virginia did not gain broadly shared prosperity for its residents, despite the tremendous wealth of natural resources in the state. As the Marcellus Shale gas play begins to boom in West Virginia, the state should take action today to ensure that it truly benefits from the extraction of its valuable natural resources. Without a permanent fund, the economic benefit from the natural resource extraction will decline along with the natural resources themselves.

The center proposes a 1 percent additional severance tax on coal and natural gas that could go into this fund, and be used a bit at a time to help pay for a variety of economic development efforts — everything from early childhood development programs and college grants to workforce training and infrastructure improvements.

Authors Ted Boettner, Jill Kriesky, Rory McIlmoil and Elizabeth Paulhus helpfully provide an overview of similar programs in other states — Alaska, Montana, New Mexico, North Dakota, Utah and Wyoming — that tax the extraction of non-renewable resources to pump money into state development efforts and put funds aside for future use.

According to the report, if West Virginia had created such a program in 1980, the state would now have a trust fund with assets of nearly $1.9 billion — that’s BILLION, with a B.  If started now, the fund would have generate revenues of $5.8 billion by 2035.  The report says:

If West Virginia wants future generations to benefit from the extraction of its natural resources, it must set aside a portion of the severance tax revenue from all natural resources to invest in important public structures that will build a stronger, more vibrant future for the state. To accomplish this task, West Virginia could follow the lead of six other energy states by creating a permanent severance tax trust fund (hereafter referred to as a permanent fund) that converts non-renewable natural resources into a source of sustainable wealth that serves the state today and in the future through targeted investing. Even after the state’s natural resources are depleted, West Virginia could use income from the fund to diversify the economy, make much-needed investments in infrastructure and human capital, lower future tax burdens, and deal with costs associated with past and future mineral extraction.

Looming coal crisis: Will W.Va. leaders do anything?

Anyone who is paying attention to government statistics, industry forecasts — and this blog — shouldn’t have been particularly surprised by the news about coal yesterday from the U.S. Department of Energy’s sneak peak at the Energy Information Administration’s 2012 Annual Energy Outlook:

Coal production in Central Appalachia may not decline as sharply over the next five years as previously projected, but the long-term forecast looks even worse, according to a new U.S. Department of Energy report.

On Monday, DOE’s Energy Information Administration increased its estimates of annual regional coal production for each of the next five years, but then projected steeper drops through the rest of the decade, with output reaching a low of 77 million tons in 2020.

Overall, production from Central Appalachia — mostly Southern West Virginia and Eastern Kentucky — is expected to drop to about 86 million tons, a decline of nearly 54 percent between 2011 and 2035.

If you’ve got any doubt about it, check out Kris Maher’s Wall Street Journal story, headlined, Coal Industry Losing Steam: U.S. Firms Face Double Threat of Cheap Natural Gas, Weak European Demand:

This year’s outlook is grim for the U.S coal industry, which after two years of rising profits has begun closing mines, signaling a new wave of production cutbacks and, possibly, another round of industry consolidation.

The country’s biggest coal producers, which begin reporting fourth-quarter results on Tuesday with St. Louis-based Peabody Energy Corp., should provide insight into how bad this year could be. Most should meet Wall Street’s earnings expectations for the last quarter of 2011 on export gains over a year ago, while tempering investor expectations for 2012, say analysts.

The two biggest threats facing U.S. coal companies are the low price of domestic natural gas, which is making thermal coal a less-attractive fuel for their utility-customers, and the shaky economic picture in Europe, which is damping exports of metallurgical coal.

Of course, there are plenty of reasons to be concerned about West Virginia’s coal industry — Things like the pervasive and irreversible impacts of mountaintop removal mining on our environment and the growing body of science that links living near mountaintop removal to serious health impacts like birth defects and cancer.  There’s also the incredible toll coal-mining takes on workers, through mine disasters, one-by-one deaths, and the continuing public health disaster that is black-lung disease. And there’s the untold damage to public health from power plant emissions, and coal’s huge contributions to global warming.

And if those things aren’t enough — and for most politicians in the region, they’re not — to make folks sit down and talk about the future of coal, you would think that the serious potential for seeing Central Appalachian coal production cut by more than half before the end of this decade might get some attention.

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Update: Declines projected for Appalachian coal

Here’s the latest from the U.S. Department of Energy’s Energy Information Administration, in a preview of its 2012 Energy Outlook issued this morning:

Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.

The average minemouth price of coal increases by 1.4 percent per year in the AEO2012 Reference case, from $1.76 per million Btu in 2010 to $2.51 per million Btu in 2035 (2010 dollars). The upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. The coal price outlook in the AEO2012 Reference case represents a change from the AEO2011 Reference case, where coal prices were essentially flat.

Although coal remains the leading fuel for U.S. electricity generation, its share of total generation is lower in the AEO2012 Reference case than was projected in the AEO2011 Reference case. As a consequence, while still growing in most projection years after 2015, total coal production is lower in the AEO2012 Reference case than in the AEO2011 Reference case, with the gap between the two outlooks increasing substantially over the period from 2020 to 2035.
In the AEO2012 Reference case, domestic coal production increases at an average rate of 0.3 percent per year, from 22.1 quadrillion Btu (1,084 million short tons) in 2010 to 23.5 quadrillion Btu (1,188 million short tons) in 2035. Mines in the West account for nearly all the projected increase in overall production, although even Western coal production is expected to decline somewhat between 2010 and 2015 as low natural gas prices and the retirement of a sizable amount of coal-fired generating capacity leads to a decline in overall coal consumption in the electricity sector. On a Btu basis, the share of domestic coal production originating from mines in the West increases from 47 percent in 2010 to 56 percent in 2035, and the Appalachian share declines from 39 percent to 29 percent during the same period, with most of the decline occurring by 2020. In the Interior region, coal production remains relatively stable over the projection period, with production in 2035 higher than in 2010.

Blue-Green Alliances and the Future of Coal

A coal truck drives through an railroad tressel near downtown Welch, W.Va., Wednesday, Feb. 9, 2011.  (AP Photo/Jon C. Hancock)

Over the years, I’ve come to the conclusion that when most politicians start talking about balancing jobs and the environment, it signals they’re getting ready to get pretty weak on environmental protections … but maybe that’s an unfair conclusion to draw in all circumstances.

There’s no question that, when it comes to coal mining controversies, the industry’s public relations machine has done a great job of trying to make things about “jobs versus mayflies.” The media, especially in the coalfields of West Virginia, has done little to help — mostly ignoring the growing scientific evidence that links living new mountaintop removal to increase rates of serious health problems, like cancer and birth defects. The notion that polluting water, air and land impacts not just lizards and fish, but people, isn’t one that is given a lot of attention in the context of mountaintop removal.
Following last Friday’s major speech about global warming and “the future of coal” by AFL-CIO President Richard Trumka, the discussion of all of this is continuing in the comment section of a post I wrote called, “What will we do about coal’s crisis in the making?” And we were reminded just yesterday of the very real connection between coal’s environmental pollution and public health, with the release of two new expert reports about the slurry contamination in the community of Prenter.

But for those wanting to think and discuss more about the connections — or lack of connections — between the labor and environmental movements, historian and writer Erik Loomis has an interesting post on the blog Lawyers, Guns and Money, called “Blue-Green Alliances.”  Loomis opines:

This gets to the complexities of the blue-green alliance, or the coalition between labor and environmental groups to craft policies that builds a unionized and sustainable future. There are clear areas where labor and environmentalists should have a common agenda–green technology, worker health, pollution. But there are equally clear lines that demarcate where the two groups can and can’t work together, particularly in extractive industry unions. My book-in-progress explores how logging unions in the Pacific Northwest organized around environmental issues, broadly defined. In the 1970s, a strong blue-green coalition (though I don’t believe the term had been invented yet) existed in the Northwest, with logging unions allying with environmentalists to keep workers safe and force timber companies to comply with the era’s new environmental regulations. But this was fraying at the same time it was peaking. The International Woodworkers of America had long criticized the timber industry’s unsustainable cutting, but when the rubber met the road and environmentalists in the 1970s and 80s were demanding increased wilderness areas and the protection of the last remaining old-growth stands, how could they vote their own members out of work? Especially when their union was coming under attack from so many other sides, with mills shutting down left and right?

The lesson from both the Northwest forest and Trumka’s coal miners is cultural. In the end, cultural divides shouldn’t stop anyone from promoting environmental positions with as much vigor as possible. But there is something very real about the resentment engendered when so-called outsiders (a term that can mean so many things) demand the end of an extractive industry without much thought into where workers are going to go. Even though those jobs are probably going away anyhow, it gives business a convenient target to direct workers’ ire. Of course, I don’t have any great answers about how to avoid this problem except to build understanding between the two constituencies, hoping that alliances over keeping workers’ bodies safe and air and water clean lead to stronger connections that allow environmentalists and labor to build toward understanding on the more intractable issues.

 

There’s an op-ed in this weekend’s Gazette-Mail that is worth a look — and worth a detailed read by our region’s political leaders. It’s by West Virginia native Lou Martin, who teaches history now in western Pennsylvania at Chatham University. Lou writes of a “crisis in the making” in Boone County, where coal is such a big part of the economy, yet good coal seams are playing out and competition from other regions threatens future production levels:

In May, CNN Money reported that 3,800 of the county’s 8,600 employed people worked in the mining industry. And a report by economists at WVU and Marshall titled “The West Virginia Coal Economy 2008” reported that 60 percent of the county’s roughly $35 million in property tax revenue came from coal. While those figures certainly speak to the importance of coal to Boone today, they also represent the potential for devastation when the coal companies leave. Imagine when half of those jobs and tax revenues disappear as Downstream Strategies predict they will. Boone County will be left with slurry ponds, “reclaimed” mountains and dirty water.

Lou warns:

As a society, we do not plan well for economic transitions; nor do we tend to plan for the long term. Our elected officials have a vested interest in helping businesses and industries that are here now, not imagining future businesses and industries. Coal companies focus only on this year’s profits. Unions protect current members’ jobs. Planning the future of Boone County is too important to leave up to the president of the West Virginia Coal Association, the CEO of Alpha Natural Resources, the president of the United Mine Workers, or even government officials like Sen. Manchin and Gov. Tomblin.

This time, the people need to plan out their own future. What do we want the future economy to look like? I propose that we try to create a society that will last for another 100 years, 200 years, or maybe even 1,000 years. But under the current plan, Boone County will face utter devastation –economic and environmental — in just 25 years.

For those who don’t know him, Lou Martin has written extensively about the working-class people of Appalachia, with a focus on the steel and pottery country of West Virginia’s Northern Panhandle (see here, for example).  And, he’s observed what has happened in those parts of the world in recent years, writing in his West Virginia University doctoral dissertation:

Beginning in the 1960s, local potteries began closing up shop until only Homer Laughlin remained. When Weirton Steel showcased its “mill of the future” in 1967, that moment proved to be the high point for the company and its workers. Thereafter, foreign competition, mismanagement, and global economic forces beyond any individual company’s control undercut Weirton Steel’s position in the market. By the 1980s, working families in Hancock County were faced with many tough decisions and sad realities as the winds of “creative destruction,” in the words of economists, picked up thousands of industrial jobs and carried them to the distant frontiers of industrial capitalism. The county’s population declined from about 40,000 in 1980 to about 30,000 in 2000. Many of those who remain are retirees who have watched helplessly as pensions and health insurance evaporated amidst bankruptcy hearings and corporate takeovers.

The deindustrialization of Hancock County underscores the ongoing nature of the industrial restructuring that brought new industries and industrial jobs to the county a century before. Workers struggled for decades to achieve a modest, dependable income and a decent life. During those decades, they continually adapted to new technologies, shifting markets, and changes within the working class. At the height of their influence locally, the rural-industrial workers of Hancock County also joined with like-minded Americans around the country to roll back the New Deal order and transform postwar America. The wrenching economic changes of the last quarter of the twentieth century, however, have left many working families to wonder what it was all about.

Dave Thearle, a member of the United Mine Workers of America, waves an American Flag during a labor rally in Waynesburg, Pa., Friday, April 1, 2011. (AP Photo/Keith Srakocic)

As I read, I was reminded of passages from the speech AFL-CIO President Richard Trumka gave on Friday at the United Nations:

Now, some people’s response is to demand that we end all coal production now—they say “End Coal.” Never mind that such a thing is simply not going to happen—there is no substitute now for metallurgical coal and if we stopped burning coal this afternoon and cut the power in the U.S. grid by 50 percent, as Mayor Bloomberg advocates, he’d be reading handwritten memos by candlelight this evening. Given that reality, it’s important to think about how that slogan is heard in places like my hometown of Nemacolin, Pennsylvania.

Nemacolin lives on coal—the coal mine my grandfather and my father went down to every day of their working lives, the power plant the mine feeds, the rail lines that carry coal to other plants. When these folks hear “End Coal,” it sounds like a threat to destroy the value of our homes, to shut our schools and churches, to drive us away from the place our parents and grandparents are buried, to take away the work that for more than a hundred years has made us who we are.

So why, in an economy without an effective safety net, would the good men and women of my hometown and a thousand places like it surrender their whole lives and sit by while others try to force them to bear the cost of change.

The truth is that in many places – and not just places where coal is mined – there is fear that the “green economy” will turn into another version of the radical inequality that now haunts our society—another economy that works for the 1% and not for the 99%.

You can read the speech for yourself here and you can also see the initial reactions from a couple of the most outspoken anti-mountaintop removal activists in the comments section.

It’s certainly true that Rich Trumka didn’t mention mountaintop removal — and there’s no doubt we haven’t heard much from the Rich’s old friends at the United Mine Workers about the growing body of science that links living near mountaintop removal to serious health problems, to increases risks of cancer and birth defects among coalfield children. I’ve asked the question on Coal Tattoo before, “Exactly what sort of environmental protection does the UMWA support?” At the same time, I’m not sure that the way to build strong coalitions is to do what citizen groups did a few years back when the UMWA’s media spokesman, Phil Smith, took part in a roundtable aimed at trying to find common ground on heated and complicated coal industry issues.

And gosh, to hear the president of the AFL-CIO to speak so eloquently about what is without a doubt a much larger global crisis — climate change — was a truly remarkable moment. Just go back and read part of it:

Today, as we meet together, scientists tell us we are headed ever more swiftly toward irreversible climate change—with catastrophic consequences for human civilization. We must have a stable climate to feed the planet, to ensure there is drinking water for our cities but not floodwaters at our doors. A stable climate is the foundation of our global civilization, of our global economy—the prerequisite for a profitable investment environment.

And to those who say climate risk is a far off problem, I can tell you that I have hunted the same woods in Western Pennsylvania my entire life and climate change is happening now—I see it in the summer droughts that kill the trees, the warm winter nights when flowers bloom in January, the snows that fall less frequently and melt more quickly.

And what about economic transformation, about green jobs and a stronger economy? Rich Trumka said:

Even so, some will ask, why should investors or working people focus on climate risk when we have so many economic problems across the world? The labor movement has a clear answer: Addressing climate risk is not a distraction from solving our economic problems. My friends, addressing climate risk means retooling our world—it means that every factory and power plant, every home and office, every rail line and highway, every vehicle, locomotive and plane, every school and hospital, must be modernized, upgraded, renovated or replaced with something cleaner, more efficient, less wasteful.

Taking on the threat of climate change means putting investment capital to work creating jobs. It means building a road to a healthier world and a healthier world economy–one less dependent on volatile energy prices, one where many more of us have the things that modern energy makes possible.

Reading the Trumka speech and the reactions to it also reminded me of the wise words of the late Sen. Robert C. Byrd:

Change is no stranger to the coal industry. Think of the huge changes which came with the onset of the Machine Age in the late 1800’s. Mechanization has increased coal production and revenues, but also has eliminated jobs, hurting the economies of coal communities. In 1979, there were 62,500 coal miners in the Mountain State. Today there are about 22,000. In recent years, West Virginia has seen record high coal production and record low coal employment.

And change is undeniably upon the coal industry again. The increased use of mountaintop removal mining means that fewer miners are needed to meet company production goals. Meanwhile the Central Appalachian coal seams that remain to be mined are becoming thinner and more costly to mine. Mountaintop removal mining, a declining national demand for energy, rising mining costs and erratic spot market prices all add up to fewer jobs in the coal fields.

These are real problems. They affect real people. And West Virginia’s elected officials are rightly concerned about jobs and the economic impact on local communities. I share those concerns.

Remember that Sen. Byrd also told us that “the time has come to have an open and honest dialogue about coal’s future in West Virginia.” Of course, that is exactly the oppose of what we heard last week from Gov. Earl Ray Tomblin, in a State of the State address that mentioned coal only to cheer-lead, as opposed to actually leading. And it’s exactly the opposite of what other political leaders are doing when they dodge questions about the mountaintop removal health studies.

Even for those political leaders who support mountaintop removal — or who are afraid not to support it — go back and read Lou Martin’s op-ed piece:

… Even if we cannot agree on mountaintop removal, change is still coming. A 2010 report by Downstream Strategies predicts that coal mining in Central Appalachia will decline by more than half over the next 25 years (from 234 million tons in 2008, down to 99 million tons in 2035) for reasons ranging from competition from natural gas to depletion of the most productive reserves.

There’s a crisis in the making … what are we going to do about it?

There’s a new report out this afternoon from the good folks over at the West Virginia Center for Budget and Policy, examining our state’s severance tax policies and their role in industry activities and their potential role in making a brighter future for residents. Their conclusion:

West Virginia’s natural resources are one of its greatest assets and an important source of wealth. But the extraction of those resources can come at a heavy price, creating stress on the environment, infrastructure, and local communities. Like many other natural resource-rich states, West Virginia levies a severance tax on the extraction of its natural resources. The revenue from the severance tax allows the state to capture natural resource wealth and use it for important purposes like education, infrastructure, health care, and countless other priorities for the state, as well as providing a way for the state to bear the costs imposed by natural resource extraction.

Importantly, the report explains — as we’ve discussed before here — that effective severance tax rates in West Virginia do not put the state at a disadvantage in trying to attract industry and jobs:

While the severance tax is levied on natural resource production in the state, evidence from other states suggest that the tax is exported and paid by out-of-state consumers. This allows West Virginians to enjoy the benefits provided by the revenue without bearing the actual burden of the tax. In addition, research shows that the severance tax is not a large burden on industry, having little effect on production and industry location.

The new report explains:

Historically, coal has been the dominant source of severance tax revenue in West Virginia. However, West Virginia’s coal production is projected to sharply decline in the coming years, decreasing the amount of revenue brought in by the coal severance tax. Fortunately, the decline of coal in West Virginia corresponds with a boom in natural gas production. In the coming years, natural gas will grow from a relatively minor source of severance tax revenue to the state’s largest source. In order for West Virginia to benefit more fully from its natural resources, the state should consider policy changes surrounding its severance tax.

Among the recommendations:

— Consider scaling back severance tax credits, limits, and deductions. West Virginia’s effective severance tax rate is far below the statutory rate of five percent due to a number of credits, limits, and deductions available against the severance tax. In particular, the reduced rate for thin-seam coal production is rapidly growing in size and value. The effectiveness of these policies should be examined to determine if the goals of the policies are being meant and if the cost is acceptable. This is more important as tax policies like the reduced rate for thin-seam coal grow more expensive even as coal severance tax revenue declines and coal prices escalate.

— Encourage local governments to make a better effort to diversify their economies. Currently, most severance tax revenue distributed to local governments is used to fill budgets and provide basic services. The new allocation for coal-producing counties is a step in the right direction, with its funds directed towards economic development. Local governments should do more than use their share to pay for basic local government purposes. Local governments should use their revenue share to make investments that lead to greater economic diversification and growth, and should break their dependence on a volatile revenue source for the provision of basic services.

— Create a permanent trust fund. The coming boom in natural gas production provides West Virginia with an opportunity to convert its depleting natural resources into a permanent source of wealth. West Virginia should join states like Alaska, Montana, New Mexico, North Dakota, Utah, and Wyoming and establish a permanent trust fund based on a portion of severance tax revenue. In fact, the state could actually raise the effective rate of the severance tax in order to finance the trust fund with little risk of affecting the state’s natural resource industries.

Another take on the future of Appalachian coal

In this Wednesday, Aug. 17, 2011, photo, coal lies in piles around a conveyor system at a mine near Meta, Ky. Coal is deeply linked to the culture and economy in Central Appalachia but the industry is facing an expected collapse in production over the next few years. (AP Photo/Ed Reinke)

We’ve had a lot of coverage on this blog about the projections for major declines in Central Appalachian coal production in coming years. It’s been one of our major topics (see here, here, here, here and here).

So, I wanted to be sure that Coal Tattoo readers didn’t miss the op-ed that appeared in yesterday’s Lexington Herald-Leader. Headlined, “Future burns bright for E. Ky. coal,” the piece was written by Jerry Weisenfluh, who is associate director of Kentucky Geological Survey at the University of Kentucky.

Weisenfluh was responding to the recent AP story on this topic, and more specifically to the findings of a Downstream Strategies report that was among the main pieces of analysis cited by AP (and cited repeatedly by Coal Tattoo). He writes:

The central argument of the Downstream paper revolves around the relationship between mine productivity and coal prices. Mine productivity (tons per worker hour) increased steadily throughout the 20th century but has been declining since 2000.

This reversal coincided with a dramatic increase in coal prices. The report implies that this association is due to the additional employees needed to mine the thinner seams now available in Central Appalachia and uses this as evidence of depletion.

There is a serious problem with this argument.

Specifically, he writes:

The decline in mine productivity is a national trend. This suggests that there are other, more important factors affecting mine productivity. The more likely reason is the additional employees needed for complying with new safety and environmental regulations, because this would impact mines irrespective of their location.

There is no doubt that significant reserve depletion has resulted in mining of thinner seams leading to higher mining and processing costs. But it’s inaccurate to suggest this implies an accelerated collapse in production. There are technological advancements and market conditions that could change the current trend in production.

Continue reading…