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IEEFA Update: In West Virginia Governor’s Scheme, a Bailout Disguised as a National-Security Program That Would Cost Taxpayers $60 Billion Over Five Years

August 11, 2017
Tom Sanzillo and David Schlissel

Just how big a giveaway to the Appalachian coal industry is West Virginia Gov. Jim Justice talking about as he lobbies the White House for a $15-per-ton subsidy for coal producers in the region?

Central and Northern Appalachia coal fields produced 167 million tons in 2016, which not incidentally was its lowest year of production since the 1970s. We’ll see some rebound this year, and if the region produces, say, 180 million tons of coal in 2017, Justice’s scheme would cost federal taxpayers $2.7 billion annually.

It could well also create a ripple effect across the industry as producers outside Central and Northern Appalachia would most likely in the interest of equal subsidies have their hands out too. The Energy Information Administration sees U.S. coal production reaching 780 million tons in 2017. A $15-per-ton subsidy would amount to $11.7 billion annually and would approach $60 billion over five years.

So it’s a costly proposition.

It’s also being put forth under the flimsiest of rationales. Justice, who in addition to being the governor is a coal-mine owner, says his primary concern is national security and that the fading industry needs taxpayers to prop it up because one of its chief competitors, the natural-gas industry, is susceptible to terrorism. And that coal trains from the West are vulnerable to being blown up.

Arguing to subsidize the survival of coal for these reasons is a specious line of thought at best. The country would be better off national-security-wise on that point by limiting its current rush to build more natural gas pipelines.

The real and truly lasting answer to national energy security lies elsewhere: Wind and solar energy are not nearly so susceptible to attack, and in fact the National Research Council has argued for the U.S. to turn more aggressively to renewables for that very reason.

THIS PLEA TO SUBSIDIZE COAL COMPANIES IN THE SUPPOSED NATIONAL INTEREST IS A BAILOUT BY ANY OTHER NAME, and not a very good one. A $15-per-ton subsidy still wouldn’t make plants burning Appalachian coal competitive with natural gas and renewables. Nor would it make Appalachian coal companies competitive with Powder River Basin producers, who are mining better coal at enormously less cost, selling theirs for less than $12 a ton while Appalachian coal prices are in the neighborhood lately of $50 a ton.

And the overall outlook for the coal industry is grim and getting grimmer. It has lost money for most of the last decade, it seems immune to innovation, and its market is declining as its costs rise. It is losing the energy-market race.

Renewable energy, by comparison, is booming, it thrives on innovation, it has a growing market, and it is anti-inflationary, which is to say its costs are negligible once it comes online, as it is doing more and more across the U.S.

Energy economics aside, the politics of what Justice proposes are irresponsible. There is no true national-security issue of the type he suggests. Indeed, his comments are scare-mongering and serve really only to give bad actors dangerous ideas.

The people and coal communities of Appalachia do deserve federal investment toward a more resilient economy. But a short-term bailout of a receding industry is in no one’s long-term interest.

Tom Sanzillo is IEEFA’s director of finance. David Schlissel is director of resource planning analysis.


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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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David Schlissel

David Schlissel is IEEFA’s Director of Resource Planning Analysis. His work focuses primarily on the technical and economic viability of resources being used or being proposed for use in the electric power sector.

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