Energy Projections Show Decline in Southern WV Coal

Today, the U.S. Energy Information Administration (EIA) released its annual energy outlook that Includes projections for regional coal production from 2009 to 2035. EIA is expecting a very steep decline in central Appalachian coal production and a slight increase in production in northern Appalachia. According to EIA, West Virginia is included in both central and northern Appalachian regions.  In 2010, approximately 51.5 percent of central and 32 percent of northern Appalachian coal production was in West Virginia. Assuming West Virginia’s share remains the same, coal production in West Virginia is expected to decline by 35 percent or 50 million tons from 2009 to 2020. The chart below compares estimates from the 2011 and 2012 EIA Energy Outlook.

In 2008, West Virginia produced 157.8 million tons of coal according to EIA. By 2020 this could drop to 90.1 million tons, a decrease of over 42 percent. As shown below, our 2011 estimates are pretty in line with the estimates from this year’s energy outlook. 

As the graph above shows, northern West Virginia coal production (green) is expected to increase slightly over the next two decades. On the other hand, production in the southern coal fields is expected to dramatically decline. In 2009, southern West Virginia produced an estimated 99 million tons of coal. By 2020, this is expected to decline to just about 38 million tons. This is a projected decline of about 63 percent. That means in 10 years southern West Virginia could be producing almost one-third the coal they produced in 2009.

The decline in central Appalachian production coal (and southern West Virginia coal production) is mostly due to the decline in steam coal. As the chart below shows, steam coal (bituminous) that is used primarily in electricity generation is expected to drop from 158 million tons in 2009 to just 28 million tons by 2020 – a decline of over 82 percent. Meanwhile, premium coal (metallurgical) coal production is expected to more or less be the same over this time period.

According to EIA’s report, “Appalachian coal production declines substantially from current levels, as coal produced from the extensively mined, higher cost reserves of Central Appalachia is supplanted by lower cost coal from other supply regions. An expected increase in production from the northern part of the Appalachia basin, however, moderates the overall production decline in Appalachia.” Coal production from the West (mainly the Powder River Basin in Wyoming) increases from 625 million tons in 2009 to 780 million tons in 2035. The report also says higher prices of Appalachian coal is the result of lower productivity (thinner seams):

In the Appalachian region, the average minemouth coal price increases by 1.7 percent per year from 2010 to 2035. In addi- tion to continued declines in coal mining productivity, the higher price outlook for the Appalachian region reflects a shift to higher-value coking coal, resulting from the combination of growing exports of coking coal and declining shipments of steam/thermal coal to domestic markets. Recent increases in the average price of Appalachian coal, from $1.28 per million Btu in 2000 to $2.77 per million Btu in 2010, in part a result of significant declines in mining productivity over the past decade, have substantially reduced the competitiveness of Appalachian coal with coal from other regions.

Monday Morning Review

Last week, Senator Jay Rockefeller gave an historic and courageous speech on the future of coal and the EPA (MACT) rule to limit contaminants and mercury emissions from coal fired power plants. Ken Ward analyzes the speech at Coal Tattoo so we don’t have to.

As the Center for American Progress (CAP) points out, this action is to correct a “market failure” that allows coal plants to externalize the costs of harmful emissions that exact a huge economic toll on people around the country. According to CAP, the mercury rule will provide $790 million in health benefits and will save 96 lives in West Virginia.  Let’s hope the free market folks offer praise for the rule since it impedes on the economic freedom of others to live out their lives.

In response to Rockefeller’s speech, The Daily Mail had an editorial saying the mercury rule was a “loony policy” because most mercury emissions are natural instead of man made. The Daily Mail based its opinion on a industry funded study by Willie Soon and Paul Driessen that the watchdog group Media Matters debunks here. It is well worth a read.

In other energy related news, Ohio State University recently released a study on shale development in Ohio. The authors find that Ohio needs to protect itself from the boom and busts of the energy economy. They point to the Appalachian coal boom of the 1970s as example of the “vicious cycle of the resource bust.”:   

  • A boom in one sector of the economy, such as coal mining or shale gas and oil extraction, leads to a strong, often sudden, growth in
    low-skill, high-paying jobs in that sector.
  • The availability of such jobs leads young workers away from advanced education or other high-skill training opportunities.
  • Other industries avoid the region because of both the reduced job skills in the workforce and the higher wages in the area.
  • As the availability of the natural resource wanes due to extraction — or when its value decreases due to other economic forces —
    employment in the sector drops precipitously.
  • With no other viable options, the economic decline causes workers to migrate out of the area in search of other opportunities.

As readers of this blog might remember, we released a similar report last year cataloging the legacy of the boom and bust cycle in West Virginia and how the state needs to find ways to invest in human and physical infrastructure to offset its harmful effects. One of those solutions is to create a economic diversification trust fund.

Last week, Citizens for Tax Justice released a report that looked at the two competing proposals from the House and Obama to extend the Bush tax cuts.  The report compares how people at different income levels would be affected. We issued a press release last week that highlighted that middle-income and low-income West Virginians would pay somewhat more in taxes under the House’s approach to extending the Bush tax cuts than they would under President Obama’s approach, while high-income West Virginians would pay far less under the House approach. As the chart below shows, only the richest 1 percent of West Virginians would gain more from the House’s approach to the Bush tax cuts. 

Job Growth in the U.S. Mining Industry

While the country is struggling to dig itself out of the Lesser Depression, the mining industry (oil, gas, and coal) has fared much better than most industries over the last three years. Currently, the unemployment rate in the mining industry is 4.5 percent, which is close to full employment, compared to 7.9 percent nationally. As the chart below highlights, mining has the lowest unemployment rate of any private sector industry in the country, according to BLS’s 2012 May report.

Job growth within the mining industry (NAICS Code 21) has also been strong compared to other sectors, growing from 680,800 jobs in December 2007 to 789,800 in May 2012. The chart below shows the percent change in employment by sector for two different time periods; since the beginning of the recession in December 2007 and the last six months. As you can see, mining employment in oil, gas and coal extraction has increase by16 percent since the beginning of the recession and has increased by 3.3 percent over the last six months. For both of these time periods, the mining sector outperformed all of the other super sectors in job growth. Over the last three months mining has grown by 0.2 percent, the same rate as total non-farm employment.

Looking a little closer at the different mining sectors, oil and gas extraction has performed the best since the beginning of the recession – increasing its jobs base by over one quarter. Coal mining employment has declined by 1.5 percent over the last six months, however its almost 11 percent higher than it was prior to December 2007. Ironically, the decline in coal employment over this period is presumably tied to the growing natural gas sector that is displacing coal jobs. 

While U.S. coal mining employment rose substantially during the first half of the economic recession it lost over 10,000 jobs in 2009 before bouncing back in 2010 and 2011. In May 2012, the industry employed 85,600 compared to 77,200 in December of 2007. However, since the beginning of 2012 the coal mining industry has shed about 1,000 jobs. In spite of these recent jobs losses, U.S. coal mining employment is much higher today than it was over the last decade. In fact, coal mining employment today is higher than at any time between 1999 and 2008.

Is Natural Gas Employment Growing? Yes

Over at the Wheeling Intelligencer there seems to be some confusion about the growth and the number of natural gas jobs in the state, with estimates ranging from about 2,200 to over 16,000. Compiled below is a breakdown of natural gas sector job growth based on an analysis we did back in November.

These annual figures are from Workforce West Virginia and include data for each natural gas sector that is available. A recent WVU report funded by the WVONGA uses the same sectors.  As you can see, job growth in the natural gas industry increased by almost 19 percent or by 1,460 from 2010 to 2011. The largest growth was in oil and pipeline construction sector, which grew by over 53 percent or by 661 jobs. 

The Wheeling Intelligencer, which reports that jobs in the natural industry declined from 2,244 in 2010 to 2,179 in 2011 – a decrease of 65 jobs, only looked at one sector of the natural gas industry. As you can see in the first bar of the chart below, employment in “oil and gas extraction” (NAICS Code 211) did decline by 65 jobs. However, it is important to also look at other natural gas sectors before concluding that jobs are declining in the “natural gas and oil industry.”  This is because the industry is much bigger than just drilling, it also includes pipeline construction and transportation and support activities.

Coal Employment (Updated)

As we discussed in a previous post, coal mining employment has risen over the last three years. Today, Workforce WV released job figures for the fourth quarter of 2011 and the annual average of 2011. Included in this release is coal mining employment. The two charts below use this new data to update our previous post on recent coal mining employment.

As the chart shows, coal mining employment rose by 2,487 from the first quarter of 2009 to the last quarter of 2011. While coal mining employment is expected to drop in 2012 due to a significant drop in coal demand, the figures clearly show that coal mining employment rose during a time when their was a declared “war on coal” from the industry.

This chart from BLS shows monthly employment in mining and logging, which includes coal mining employment (coal mining employment is only available by quarter). At its peak in January of 2012, about 34,900 folks where employed in these industries (coal mining, gas and oil drilling, and logging). In May, this number dropped to 32,600 – a difference of about 2,300. Employment in gas and oil extraction has been rising rapidly lately (from 5, 570 in 2011-Q1 to 6,288 in 2011-Q4). Depending on gains in natural gas extraction since 2012, it hard to tell how much is attributed to layoffs in the coal industry.  Assuming that natural gas extraction employment remained steady, than most of this employment decline is probably due to the recent layoffs in the coal mining sector. However, even a decline of 2,300 would not take coal employment back to pre-2009 levels.

Looking over the last two decades, annual coal mining employment in 2011 was about 25,000. This was higher than at any time since 1992, when coal employment was 26,600. Both of these figures include coal support activities.

Raising the Social Security Tax Cap

Last year, legislation was introduced in Congress to apply the Social Security payroll tax to earnings above $250,000, to help alleviate Social Security’s long term budget shortfall.

Currently, wages over a certain yearly total ($110,100 this year) are exempted from Social Security payroll taxes. Raising or eliminating this cap could help strengthen Social Security’s finances, but for how long and who would it affect?
In 2010, the Congressional Research Service looked into the question, and analyzed four different scenarios, shown below.
Under current law, the Social Security Trust Fund is projected to be exhausted in 2041 (now revised to 2038), and then run a long term deficit of 1.92%.
Option 1 would make 90% of all earnings subject to the tax (which would have been an effective cap of $171,600 in 2006), and also increase benefits to those paying higher taxes. This would have only made the trust fund solvent until 2044, and then run a long term deficit of 1.09%. Over the long term, only 43% of the shortfall would be met.
Option 2 would eliminate the cap, but also increase benefits accordingly. This would keep the trust fund solvent beyond the 75 year projection, but Social Security would continue to run a small deficit of 0.1%.
Option 3 eliminates the cap, but does not increase benefits. This too keeps the trust fund solvent, and Social Security would actually run a long term surplus.
The current legislation in Congress, eliminates the cap for incomes above $250,000, creating a “donut hole” in the payroll tax from $110,000 to $250,000, but wouldn’t increase taxes for anyone making under $250,000.
According to Chief Actuary of the Social Security Administration, this proposal would also keep the trust fund solvent for at least 75 years, and the program would run a long term surplus.
How many people would be paying higher taxes under this proposal? According to CEPR’s estimates using the 2010 ACS, about 1.96 million workers earned incomes over $250,000, or about 1.4 percent of all workers. The effect in the Mountain State would be even smaller. Only 328 workers earned more than $250,000 in West Virginia, effectively 0.0 percent of all workers.
The small number of those affected by the proposed elimination of the cap is unlikely to increase. According to the above CRS report, 83% of workers never earn over the current cap in their lifetime, and only 5% earn over the current cap for more than 6 years. Eliminating the cap on income over $250,000 would affect very few workers, even as they move through income levels.
Seeing that Social Security makes up 9% of the state’s personal income, and is likely to grow, it is important for West Virginia’s economic future that the financial state of Social Security is strengthened and protected.