The sudden economic downturn brought on by the Coronavirus threatens to cripple the finances of U.S state governments. The emergency has stretched the budgets of programs like Medicaid and unemployment insurance. However, even with this fiscal challenge, many states remain committed to using taxpayer funds to continue helping prop up the coal industry.
A prime example of this is West Virginia, which has felt the impact of this sudden economic drop and seen a rise in demand for state services. In the first week of April, the state government received 35,900 claims for unemployment benefits. For perspective, last year for April, there were 3,905 processed unemployment claims for the entire month and the recent influx of applicants has doubled the state’s unemployment rate from February.
Even in the middle of this unprecedented crisis, the West Virginia Legislature found a way to throw the coal industry a lifeline. Under a new law, which comes into effect July 1, the state will provide a tax break to merchant coal plants, if they keep operating in the state for at least another five years. The tax cuts are expected to cost about $16 million. The legislation also says that if a plant enrolls in the program and closes before July 2025 they will be forced to, “remit back all of the business and occupation tax savings incurred during the time period between July 1, 2021, and the date the coal-fired generating units ceased operation.”
Political leaders will claim this is a move designed to save jobs in an unexpected crisis. However, the decline in coal related jobs is not a product of the recession created by the Coronavirus. Since 2011, the number of West Virginia coal jobs has been on a marked downward trajectory.
Unfortunately, short-term state interventions are not confined to West Virginia, whose actions mirror those of other elected officials around the nation. In recent years, coal companies have increasingly turned to state houses and the federal government for favors and bailouts to try to keep the industry afloat. These actions include:
- The Trump administration continually attempting to support the coal sector through the use of subsidies, trying to invoke wartime emergency powers, and appointing bailout supporters to key regulatory bodies.
- Earlier this year, the Indiana Legislature pushing through a measure that would increase role of the Indiana Utility Regulatory Commission to examine and issue conclusions on proposed power plant retirements. Earlier provisions of the legislation had incentives for utilities to double their coal reserves.
- In 2019, newly-elected Ohio Governor Mike DeWine signed legislation cutting programs for renewable energy and energy efficiency, while adding subsidies for coal-fired power plants.
- In a letter sent on April 7, a group of 17 senators, including Senators Inhofe of Oklahoma and Cruz of Texas, asked Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Steve Mnuchin to ensure that fossil-fuel companies, including the coal sector, can participate in the bailout program being administered by BlackRock.
For the coal sector, these interventions have not and will not arrest a well-documented decline in West Virginia or elsewhere. Just a decade ago coal power reached its peak in the U.S. but in the face of the competition from natural gas and renewable energy that level has steadily fallen. Coal finds itself out of fashion in a world that is moving irreversibly toward a low-carbon economy.
As our research has shown, in the U.S. 22% of the existing coal fleet is running at an underlying loss and 47% of operating coal power costs more to run than building new renewable energy power sources. In addition, we found that 46% of global coal plants will be running at a loss in 2020, rising to 52% by 2030. These number do not factor in the impact of potential new regulations that may be put in place to cut carbon emissions and deal with climate change.
When confronted with this reality, it should come as no surprise that across the U.S., coal power plants are closing at the rate of one every fifteen days on-average.
In the face of these rapid changes, government actions risk temporarily propping up a declining sector and wasting taxpayer’s money at a time when states, like West Virginia, are seeing their budgets stretched to the brink.
As we deal with the economic crisis caused by the Coronavirus, like smart investors, politicians would be wise to invest money elsewhere, and not prop up a dying fossil fuel economy.