"It's Like Being The First One To See The Asteroid": An Interview About Wyoming's Coal Future

Feb 6, 2015

Credit Wikimedia Commons

In recent years there’s been plenty of discussion and a lot of worry in Wyoming about the future of coal. Politicians have blamed the federal government for the coal industry's struggles and pushed for coal export terminals to save it. But until now, there’s been very little data to back up the talk. This week, economists at the University of Wyoming previewed a study looking at coal’s role in the state economy as well as its prospects for the future. Rob Godby is the Director of the Center for Energy Economics and Public Policy and lead author of the report. He spoke with Wyoming Public Radio’s energy reporter, Stephanie Joyce, about their findings.

STEPHANIE JOYCE: Unsurprisingly, you found in your study that coal has a very large impact on Wyoming’s economy -- it provides a lot of well-paying jobs, it contributes huge sums of money to state coffers. That part wasn’t surprising. But you also found that the industry’s future is maybe not so bright. Can you explain why that is?

ROB GODBY: What we were evaluating were possible risks, and so that required an evaluation of the coal market and identifying what challenges have really affected coal in the recent past, and we came up with three that we thought after our analysis were the most important. And that was this low load growth, which means less electricity demand and less coal needed. The other two were low [natural] gas prices, which we have to compete against for generation and the third were these coal production costs. As coal production costs rise, the price of your commodity has to rise to cover the cost and as your commodity rises in price, your demand falls.

JOYCE: With decreased productivity, higher costs, less coal being mined, what does that translate to to jobs, to the state economy?

GODBY: If we were to look out to 2030 and productivity, it will continue to grow, but if it grew at a slower rate than it has in the past, for some assumptions we used in our modeling, or if wages and capital costs go up a little bit more than they have in the past, then you could see as many as 4,000 of those jobs disappear by about 2030. And these were not for particularly significantly larger cost increases in any individual year, but if you just allow those cost improvements to slow down and the productivity in the rest of the energy industry continues as it has been, then relatively speaking, coal becomes a little more expense. What we found is that is probably the big threat, but coal companies know that coal costs, that they’re very tight, and they work very hard to keep those costs down. But we just wanted the state to recognize that these are challenges that are beginning to face the coal companies. Now, again, we’re not predicting dire outcomes in the near future, just the possibility that scenario now exists.

Credit Godby et al

JOYCE: Regulation is obviously a different topic and one that you studied separately. You looked at what impact the recently-proposed Clean Power Plan could have on Wyoming -- that’s the plan to reduce carbon emissions [from the power sector] by 30 percent by 2030 -- taking that into account, what did you find?

GODBY: Not surprisingly, the point of the regulation is to reduce carbon, and coal being the most carbon intense energy source, that is the fuel that was targeted most in the regulations, so the limits are most stringent on that. The outcome of the study, or the projections, was that depending on how the regulation is implemented, somewhere between a 30 percent to a 50 percent decline in coal production. So, that’s a 120 million tons per year, which is more than the largest mine produces in the Powder River Basin, anywhere up to over 200 million per year. And this is all by 2030. So it matters to us, in a big way.

This chart shows the potential changes in employment if the Clean Power Plan, also called 111(d) is implemented. The four different scenarios contemplate the effects of regional and national cooperation and energy efficiency.
Credit Godby et al

JOYCE: I imagine that translates into thousands of jobs, lots of lost revenue to the state.

GODBY: Right, so if it were to happen tomorrow, just to give you a little perspective, it would be somewhere between, at the worst, 7200 to over 9000 jobs. We project even more jobs lost when this occurs, 15 years out, but that’s mainly because the economy is larger. So, it’s a lot of people.

JOYCE: That is a lot of people. There are a couple of things that people often bring up as potential offsets to declining productivity, to offset regulations. Natural gas is one of those, increased natural gas production. Also coal exports. Did you look at those, and what did you find?

GODBY: We looked at both. So, let me take on the [natural] gas first. Under these regulations, some people have suggested that maybe it’s a wash -- maybe gas gains offset coal losses. And we found that, to a degree. But only to a degree. It’s somewhere between a third and 40 percent of the total coal losses are offset by gains in the gas sector because there would be more natural gas demand for electricity. But it’s still a big hit.

With respect to coal exports, that’s different, and it can occur any time. Regulation, no regulation, it depends on world demand. And that really depends on how big the coal export scale is. So we just took a number, we said, let’s say 100 million tons, because that would be the two large port projects [in Washington] plus additional capacity in Canada and let’s see what that does. And if we run those numbers it adds about $1.2 billion annually to the state economy and about 4000 jobs, and so there is a big potential there, but there are some headwinds. Coal prices have been falling internationally. It may be that at current prices, exporting coal at all is just not profitable.

This chart shows the potential changes in Wyoming state tax revenue if the Clean Power Plan, also called 111(d), is implemented. The four different scenarios contemplate the effects of regional and national cooperation and energy efficiency.
Credit Godby et al

JOYCE: So, stepping back and taking a look at the big picture, at the Wyoming Infrastructure Authority meeting, you said that you felt a little bit like the first person to see an asteroid coming at Earth. What should be the big takeaway for people in Wyoming from this study?

GODBY: Right, so the reason I said that -- I felt like I was the guy looking into the telescope and the being the first one to see the asteroid -- was just because we knew this would be bad, just like we know asteroids have hit Earth before, but looking at the first data we had and the first analysis, that’s when we first started to see the scale of this. It’s a big amount. So if we’re talking about that much revenue off the table, then this is going to have a big impact on Wyoming, and this is going to be a local impact and it’s going to be on things that we take for granted. We use coal to build schools, a significant portion of coal funding goes into the School Foundation account, which is the operations of schools. It supports the community colleges, it supports the University. Of course since I work at the University, I know that’s going to impact me. So in that way it was like seeing that asteroid and knowing it’s coming right here, and there’s really not a lot you can do about it. If the regulations come in, Wyoming will have to adapt. And hopefully we’re not like the dinosaurs.

JOYCE: Thank you very much for joining us.