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Despite State Tax Cut, Bleak Long-Term Outlook for WV Steam Coal

West Virginia thermal-coal production has declined steadily for years, and market forces suggest no turnaround is likely. (Hangela/Pixabay)
West Virginia thermal-coal production has declined steadily for years, and market forces suggest no turnaround is likely. (Hangela/Pixabay)
March 15, 2019

CHARLESTON, W.Va. - The West Virginia Legislature has passed a 40 percent cut in thermal coal severance taxes, despite Revenue Department predictions that it would do little to change steam coal's steady decline.

The long-term outlook is no better, said Carey King, a research scientist and assistant director of the University of Texas' Energy Institute. King said thermal coal, used to generate electricity, has a lot stacked against it. Natural gas is likely to stay cheap and renewables will continue to drop in price, while demand for electricity is flat.

King said most coal plants are old, and the cost of a new plant is too big to risk.

" 'Big' means over a few billion dollars," he said, "and when you don't have electricity demand increasing, it is hard to commit to large electricity-generation projects, but much easier to commit to smaller projects - like natural gas, wind and solar - and in addition, they're cheaper, anyways."

The coal industry has argued that lower taxes and less environmental regulation would prompt a boom in mining jobs. According to the state Office of Miners' Health, Safety and Training, about 8 percent more coal miners are working now than two years ago, although many are producing metallurgical coal for making steel, not thermal coal.

Critics have argued that even eliminating severance taxes would not make Appalachian steam coal competitive with coal from mines in the western United States.

David Schlissel, director of resource planning analysis for the Institute for Energy Economics and Financial Analysis, said another trend is emerging that will help renewables at the expense of all fossil fuels - huge, grid scale batteries and pumped storage.

"And it's a real game-changer, will be storage," he said. "There are plans for substantial amounts - California definitely, and New York, I think, is still talking about it. And storage will make it increasingly difficult for coal and natural gas to compete."

He said storage will make the electric grid more reliable, even as it shifts to intermittent sources such as sunshine and wind. As more storage comes online, its price will fall, he said, much like the price of renewables.

The legislation to cut thermal-coal severance taxes now is on the governor's desk.

More information is online at wvpolicy.org. The text of House Bill 3142 is at wvlegislature.gov.

Dan Heyman, Public News Service - WV