Some things that Andy Barr and the Republican Party need to know about the coal industry.
Daniel Sparks over at The Motley Fool has penned an excellent piece on the realities of the energy situation in America today. Starting with the harsh truth that the process of hydraulic fracturing, or "fracking” is the leader in acquiring cheap energy from the earth. Much like the early auto builders created less and less demand for carriages and buggy whips, the natural gas producers are leaving coal as an energy source in declining demand.
The early auto industry quickly created new jobs which required different skill sets than the old buggy makers possessed and the local blacksmiths also learned something new or found themselves losing work. So too must the coal miners realize that there are other forces than government regulations affecting the demand for coal. Primarily, it looks to be the “free market” which so many cite as the drummer to whose beat we should be marching.
Put bluntly, natural gas is now half the price of Appalachian coal. It may have happened during the current presidential administration and it may have some effect on the goals of the EPA, but it clearly came about due to the market forces of business. Carbon emissions are down nearly 8% since 2006, partly due to less driving but mostly to less coal use for power generation. Natural gas is cleaner to burn as a fuel, it generates electricity with twice the efficiency, it is not as destructive to the environment to produce (some differ on this) and the safety records of the production fields don’t seem to match the coals industry records. Is it any wonder that coal production is declining?
Today, coal generates just 34% of our electricity, down from 50% just four years ago. In the future, that rate will go down. As President Obama said as he was campaigning, “You can build a coal fired generating plant if you want but…” and the real economic wizards have already realized that they WILL go bankrupt in doing so. So they have not built the coal fired plants. Converting from coal to gas has appeared to be the more economical way to go.
Daniel’s piece concern’s itself with the effect that this decline in coal has had on the railroad industry and how the individual railroads have adjusted to it. Sure, the hauling of coal is a high-margin business and any decline in volume will show up in the company’s bottom line, but the railroads are not whining about the loss of business or jobs. They seem to be rolling with flow and making do.
In Andy Barr’s case, the loss of coal jobs, in his district, or even the loss of rail jobs statewide would look to be minimal, in the worst case scenario. The possibility of more efficiently generated electricity, produced from locally drilled gas wells (yes, Eastern Kentucky is full of them) that may keep our utility rates low is a future hope, but the decline in coal demand is a reality of today.
Coal demand is not just down in Appalachia, the decline is occurring across the nation. The coal of the Powder River Basin, itself a threat to Appalachian coal due to sulfur content, has also seen a similar decline in mining. The problem for Barr and his coal mining supporters seems to stem from the long-term price contracts negotiated to protect the coal operators and not the miners themselves.
Indeed the drop in natural prices - roughly $12 per million BTUs in 2008 versus roughly $4 now - has some executives believing the situation will benefit not just particular companies and industries, but the economy as a whole.
Perhaps the Republicans and Barr in particular do not really understand the economy as a whole in the first place.