It’s foolish for Wyoming to ‘double down’ on coal

Wyoming Gov. Matt Mead’s vow to “double down” on the state’s efforts to prop up the beleaguered coal industry reminds me of a racehorse owner who refuses to take the blinders off his most treasured steed. The former champion is getting passed left and right in every race it runs, but the strategy never changes as its losses mount.

In the case of coal, the governor and other state leaders are also wearing blinders and ignoring not only the reality of what’s happening to the industry, but the low probability that Wyoming’s expensive, long-shot plan to save it could succeed. Meanwhile, other states that have come to grips with the need to invest significant resources in renewable energy are destined to have a much brighter future.

Of course, the economic stakes are much higher for Wyoming and the coal industry than anywhere else: The state produces 40 percent of the coal used to generate electricity in the nation. Tax revenue from coal, oil and gas pay for about 70 percent of the cost of operating state government.

Wyoming politicians and the coal industry are in a symbiotic relationship — both have so much to gain by maintaining coal production that neither will surrender the power and riches they have accumulated without an intense fight. Despite the real need to cut CO2 emissions to combat climate change, officials in Wyoming are trying to sell the notion that the coal industry could bounce back in better shape than ever — if only the right politics and policies were in place.

As they gun for a new international export industry, Wyoming officials also stand ready to support coal conversion technologies, which they believe is the best bet to keep the coal industry viable in Wyoming long-term. That’s why Mead and state legislators continue to push their vision for an energy industrial complex in southwest Wyoming that would include converting coal into higher-value chemical products.

However, this strategy ignores the fact that pressures on the industry and economic conditions are much different in both Canada and China — where such industrial complexes are being built — than they are in the United States.

Stock prices for Wyoming’s top coal producers have tanked. WyoFile reported that shares of Alpha Natural Resources that sold for more than $65 in 2011 traded for 33 cents on the New York Stock Exchange last month. Last week the NYSE said it would delist Alpha from the exchange, as its creditors prepared for the company to file for bankruptcy. Arch Coal Inc. traded at 22 cents on Monday compared to nearly $36 four years ago. Both face massive debt payments — hundreds of millions of dollars each — in the near future.

It’s not impossible that restructuring their respective debt could see both companies reverse their fortunes, or that a better-positioned owner could operate the mines more profitably. Still, corporations in such a debilitating monetary condition have to worry about reducing their bottom lines, and don’t have the funds to sink into developing completely new technology. Private investors view coal as a terrible risk, and the industry can’t expect government to bail it out, particularly when the chance of success is astronomically low.

The odds are so stacked now against the coal industry in Wyoming, it’s hard to know where to start listing the pitfalls.

Coal production dropped 7.6 percent in the past year, and Wyoming’s largest coal producer, Peabody Energy, announced it is closing its Gillette office and laying off 250 employees company-wide.

Markets for coal have continued to shrink, as older coal-fired plants have been taken off-line in the U.S. The coal industry was successful in defeating cap-and-trade, the Obama administration’s initial attempt to reduce greenhouse gasses on a huge scale, but it will be more difficult to fight proposed Environmental Protection Agency regulations.

As it typically responds to laws and policies it doesn’t like, Wyoming is suing the EPA to stop the rules from being implemented. Nationally, the plan’s goal by 2025 is to cut carbon emissions from the power sector 30 percent below 2005 levels. Anticipating these reductions in advance, many states, cities and businesses are already implementing carbon-reduction programs, increasing energy efficiency targets and using more renewable energy such as wind, solar and hydroelectric.

One of the most disturbing aspects of Mead’s complete faith in coal conversion as the industry’s salvation is that he doesn’t seem to have a realistic Plan B. Another is the effect his reliance on unproven technology that may well not materialize could have on the coal miners whose labor helped build Wyoming’s Permanent Mineral Trust Fund to more than $7 billion.

If Wyoming coal companies declare bankruptcy and try to get out of their pension and retirement obligations to miners — as several eastern union companies have tried to do in recent years — will the governor and state legislators use their political influence and possibly even dip into the PMTF to help coal miners, their families and communities?

Instead of automatically going to court and wasting time, Wyoming could have followed the example of Montana, which decided to cooperate with the EPA and tried to convince other states in the region to do likewise. Mead, on behalf of Wyoming, wanted no part of that idea and plans to keep fighting the agency at every turn.

Two weeks ago the U.S. Supreme Court unexpectedly handed environmentalists their biggest defeat in recent years, blasting the EPA for failing to consider costs to industry when it created its plan to reduce mercury and other toxic air pollution from power plants.

But the court kept the rule in place instead of rejecting it, and sent the issue back to a circuit court in Washington, D.C. I hope that, in addition to costs, the judges will also decide that the improved health of Americans by reducing toxic emissions should also be given great weight. The EPA estimated the rule will annually avert up to 11,000 premature deaths, 4,700 heart attacks and 130,000 asthma attacks.

Wyoming is also banking on exporting low-sulfur Powder River Basin coal to Asian Pacific nations to immensely improve the industry’s fortunes. But instead of jumping on board with Mead’s plan to build export terminals for the project, Oregon and Washington communities overwhelmingly rebuffed the Cowboy State’s plans because of the inherent dangers — train traffic, coal dust, sea vessel spills — to their environments.

Amazingly, Wyoming acted as if it could not believe any state wouldn’t jump at the opportunity to bail it out. Undeterred, Mead has pressed several Indian tribes in the Pacific Northwest to support the terminals. But the prospect of that happening is dim, since only one out of eight tribes last year accepted the governor’s all-expenses-paid invitation to tour Wyoming’s coal mines.

Given all of the obstacles the state is facing in its effort to save its coal industry, it shouldn’t be surprising that Mead is placing so much hope in the possibility of building a coal-to-chemicals conversion plant. But he knows Wyoming has tried for many years to initiate projects that would add value to coal, only to see them fall through the proverbial rabbit hole.

Wyoming had placed great faith in its partnership with General Electric to build the proposed High Plains Gasification-Advanced Technology research center near Cheyenne, but the company pulled out of its commitment in 2011. G.E. blamed the lack of a national energy policy that would limit carbon emissions, and claimed uncertainty about the issue made it impossible to continue its financial investment in the $100-million project.

Another blow came later the same year, when a carbon-sequestration demonstration project the University of Wyoming and the U.S. Department of Energy planned near Rock Springs was put on hold. The sequestration project would have cost an estimated $750 million to prove its commercial viability.

With its abundant wind and solar resources, Wyoming needs to make the conversion to renewable energy as soon as possible. The benefits could be enormous, according to The Solutions Project of Stanford University. The project’s researchers said all of Wyoming’s energy needs could be met by wind, solar and hydroelectric by 2050. Wind energy would account for 65 percent of the total, while solar power would be nearly 21 percent.

The advantages would be widespread: a 38 percent lower demand for energy; $400 million health cost savings; and 62 fewer deaths due to air pollution each year. The annual energy cost savings per person is estimated at $1,382. Stanford researchers said the plan would pay for itself in as little as one year from air-pollution and climate cost savings alone.

We can immediately head in this direction to improve the health of our residents and the environment, as well as create clean energy jobs while saving money. The alternative is spending hundreds of millions of dollars seeking “clean coal” alternatives and trying to add value to coal products through conversion to chemicals that, even if possible, may never be commercially viable at a meaningful scale.

If the result of Mead’s gamble is that our miners and their families find themselves without work and their retirements, how our elected leaders respond should be Wyoming’s billboard to the thousands of young talented people Gov. Matt Mead wants to recruit to this state.

— Columns are the signed perspective of the author, and do not necessarily reflect the views of WyoFile’s staff, board of directors or its supporters. WyoFile welcomes guest columns and op-ed pieces from all points of view. If you’d like to write a guest column for WyoFile, please contact WyoFile editor-in-chief Dustin Bleizeffer at dustin@wyofile.com.