Excerpts from...
The Economics of Coal in Kentucky:
Current Impacts and Future Prospects
published by Mountain Association for Community Economic Development (2009)
INTRODUCTION:
The coal industry has been a mainstay of Kentucky’s economy for more than a century. In eastern Kentucky in particular, mining jobs have provided good wages and opened up economic opportunities for generations of Kentucky families, bringing prosperity to some in a region with historically high poverty rates. Today, coal remains an iconic symbol of the state’s economy. However, recent and current trends tell a less optimistic story about the economic impact of and prospects for the mining industry in Kentucky.
Coal employment has been declining in the state for many years. Coal maintains a significant economic presence in some eastern Kentucky counties, but makes up only one percent of state-wide employment. Kentucky’s coal-producing counties are among the poorest in the United States. The presence of the industry has helped Kentucky maintain low electricity prices, but low prices do not correlate with stronger state economies. And the price of coal-fired power will rise as older coal-fired power plants are retired and the cost of carbon emissions is included in the price of coal.
The competitiveness of Kentucky coal is in decline relative to western U.S. coal due to higher production costs, diminishing recoverable reserves and, for western Kentucky, higher sulfur content. Greater awareness of the impacts of coal on the land and the environment brings new challenges for the coal industry. Growing concerns about climate change mean pressure on the coal industry to significantly reduce emissions—a development that will further increase production costs. While the future of the coal industry in Kentucky is uncertain, it is clear that significant change is coming. Here we provide a snapshot of the current economic impact of the coal industry in Kentucky, the competitiveness of Kentucky coal and prospects for the future.
Coal employment has been declining in the state for many years. Coal maintains a significant economic presence in some eastern Kentucky counties, but makes up only one percent of state-wide employment. Kentucky’s coal-producing counties are among the poorest in the United States. The presence of the industry has helped Kentucky maintain low electricity prices, but low prices do not correlate with stronger state economies. And the price of coal-fired power will rise as older coal-fired power plants are retired and the cost of carbon emissions is included in the price of coal.
The competitiveness of Kentucky coal is in decline relative to western U.S. coal due to higher production costs, diminishing recoverable reserves and, for western Kentucky, higher sulfur content. Greater awareness of the impacts of coal on the land and the environment brings new challenges for the coal industry. Growing concerns about climate change mean pressure on the coal industry to significantly reduce emissions—a development that will further increase production costs. While the future of the coal industry in Kentucky is uncertain, it is clear that significant change is coming. Here we provide a snapshot of the current economic impact of the coal industry in Kentucky, the competitiveness of Kentucky coal and prospects for the future.
JOBS:The amount of coal mined in Kentucky (blue) has fluctuated since the 1970's. But despite these fluctuations, coal production in 2004 was only slightly lower than in 1979.
By contrast, mining employment in Kentucky (red) has declined dramatically over the same period. This is primarily the result of technological innovations that enabled more coal to be mined with fewer workers. In 1979, coal mining provided over 50,000 jobs in Kentucky. But by 2004 only 13,000 remained. Mining employment currently makes up only one percent of total non-farm employment in Kentucky. |
Despite its overall decline in the region, mining is still a significant industry in some counties in eastern Kentucky, accounting for over 10% of total employment in eight eastern Kentucky counties. Even though mining jobs make up a large percentage of employment in these counties, the actual number of mining jobs is still relatively small. The unemployment rate in Central Appalachia is much higher than the rest of the nation, and eastern Kentucky’s unemployment rate is among the highest in Appalachia. So while coal is a significant employer in some counties, the industry only provides jobs for a small fraction of the working age population in those counties. This combination of extremely high unemployment and heavy economic dependence on a single industry leaves Kentucky’s coal-producing counties in a vulnerable position. While coal employment has brought decent jobs and wages to a region in desperate need of employment opportunities, eastern Kentucky remains one of the most economically distressed regions in the country. The poverty rate in Appalachian Kentucky was nearly double that of the nation in 2000. Even within eastern Kentucky, coal-producing counties are among the most economically distressed. The top coal-producing counties have some of the highest poverty rates in the region. So while mining employment is extremely important as a source of income for individuals in coal-producing counties, the benefits of these jobs do not translate into prosperity for the region. So, the coal industry’s impact on jobs in Kentucky is mixed. On one hand, coal provides good jobs in a region where well-paying jobs are scarce. On the other hand, mines in the Central Appalachian region face labor shortages as older workers retire and much of the younger generation moves out of the area to pursue other opportunities. |
Given its centrality to eastern Kentucky in particular, the coal industry will continue to be a player in the region’s economic develop-ment efforts in the short term. But in the long term, as the industry continues to decline, its role in economic development is likely to diminish considerably.
ENERGY:
Coal is often viewed as a key to economic development in Kentucky—not only for the jobs it creates, but also because of the low electricity rates it provides. Kentucky has had some of the cheapest electricity in the nation, making it more attractive to industries considering locating in the state. Because the cost of electricity is one factor in attracting outside industry, policy-makers and industry representatives often argue that cheap electricity will translate into better economic development and (ultimately) economic prosperity.
Electricity prices, however, do not appear to be correlated with a higher standard of living. Indeed, states with the lowest electricity prices also have some of the lowest income rates in the nation. While electricity prices are not the underlying cause, the correlation between low energy rates and low income suggests that low energy prices do not produce significant long-term economic results.
Moreover, historically low-cost electricity has led to under-investment in energy efficiency in Kentucky. Kentucky ranks third among all states in per-customer electricity use. So while the Commonwealth’s electricity rates are low, its electricity bills are not.
Electricity prices, however, do not appear to be correlated with a higher standard of living. Indeed, states with the lowest electricity prices also have some of the lowest income rates in the nation. While electricity prices are not the underlying cause, the correlation between low energy rates and low income suggests that low energy prices do not produce significant long-term economic results.
Moreover, historically low-cost electricity has led to under-investment in energy efficiency in Kentucky. Kentucky ranks third among all states in per-customer electricity use. So while the Commonwealth’s electricity rates are low, its electricity bills are not.
ECONOMICS:
Rapid and dramatic changes in the world’s approach to energy have major implications for Kentucky and its coal industry. Concerns about climate change are driving policy that favors cleaner energy sources and increases the price of fossil fuels. The transition to sustainable forms of energy, already underway, will become a major economic driver, as states move aggressively to develop, produce and install the energy technologies of the future. Long reliant on coal for jobs and electricity, Kentucky faces major challenges and difficult choices in the coming years.
In this critical energy and economic context, it is increasingly important for Kentuckians to understand the role and impact of coal in our state. Coal provides economic benefits including jobs, low electricity rates and tax revenue. But the coal industry also imposes a number of costs including environmental and health impacts. Coal is responsible for an estimated $528 million in state revenues and $643 million in state expenditures. The $528 million in revenues includes $224 million from taxes, sales, and fees. The $643 million in expenditures includes $239 million to maintain the coal haul road system as well as expenses related to the environmental and health and safety impacts of coal, worker training, and research and development for the coal industry. Total costs also include $85 million in taxpayer dollars to subsidize the mining and burning of coal. We estimate for Fiscal Year 2006 Kentucky provided a net subsidy of nearly $115 million to the coal industry. A review of coal industry revenues and state expenditures suggests that the industry actually costs more than it brings to the state. These figures do not include the costs of injury and health impacts, water treatment, poor air quality, and social spending due to declines in coal employment. Some of these represent additional costs to the state budget while others are paid by the communities that mine and burn coal and by others outside the region. |
Excerpted from "The Impact of Coal on the Kentucky State Budget" (2009) published by Mountain Association for Community Economic Development
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Therefore, the costs associated with hosting the coal industry are significant. Kentucky invests modestly in renewable energies and energy efficiency while it aggressively pursues policies to support coal and invest in new coal technologies. As the nation and the world begin to reduce dependence on fossil fuels, the Commonwealth must make strategic choices based on the full costs and benefits of the options before us.