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.
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