Congress Should Correct Distortions in the Coal Market and Invest in Struggling Coal Communities | Commentary

Posted February 11, 2015 at 12:34pm

Many of the hardest-working communities in America are in the Appalachian coal region that stretches from Ohio and Pennsylvania, to Kentucky, West Virginia and Virginia. For decades, workers have given all of their daylight hours in the darkness of mines so their families and others across the country can keep their lights on. But for decades these communities have suffered economic decline, as widespread job losses have decimated cities and towns and left families with little support. Generations of coal miners have seen their jobs disappear, from 122,000 in 1985 to just 58,000 in 2012, a reality driven largely by market forces and inequities embedded in the coal market.

Up to this point, some have blamed government regulation for the plight of Appalachian coal communities, even though we know the decline has largely been due to market forces such as cheap natural gas and imported coal. But one arcane federal policy can and should be changed to address an inequity in the coal market between the Eastern and Western United States, and raise needed revenue to help coal communities grow into a 21st century economy.

Major coal companies mining on federal land, specifically in the Powder River Basin have taken advantage of a system that allows them to buy their coal well below market value and pay royalties on this deflated price. This amounts to a de facto subsidy of PRB coal producers that distorts the coal market and makes it even harder for Appalachian coal to compete. The system is rigged for the benefit of coal companies, while costing American taxpayers money and adding to the challenges facing families in Appalachia.

Addressing this flawed federal policy will generate new revenue that can be directed toward investments in improving infrastructure, creating jobs and fixing roads, bridges and highways. And, by investing in the region’s entrepreneurs and small businesses, we can create new jobs while diversifying local economies. This is the way to kick-start the next generation of the Appalachian economy.

This week, the Center for American Progress released a report calling on policymakers to ensure coal companies mining on federal lands pay their fair share to address the inequity in the market that makes Appalachian coal less competitive. The report urges policymakers to close existing loopholes and cut government subsidies for federal coal to generate a fair return, and increase royalties on the sale of this resource. Most importantly, the report calls on Congress to direct the increased revenue to struggling Appalachian communities, through investment in small business, education, infrastructure and other programs that spur economic growth.

Royalties account for two-thirds of the total revenue from federal coal sales, yet the minimum royalty rate of 12.5 percent for surface-mined coal has remained the same since 1976. And the consistent undervaluation of Powder River Basin coal has cost taxpayers billions. One review suggested taxpayers, who own of much of the land mined in Powder River Basin, have lost as much as $30 billion as a result of this outdated policy.

Additionally, the major coal companies operating in this region have rigged the system by building an extensive network of subsidiaries and affiliates through which they sell their coal, which both helps to maximize their subsidies and allows them to increase their profits through multiple sales. This gives PRB coal producers an unfair advantage and exacerbates the other challenges already facing Appalachian communities.

Furthermore, because states receive half of all royalties and proceeds from the sale of federal coal, losses on this publicly-owned resource also mean losses for states where this coal is mined, such as Montana and Wyoming.

Appalachian coal communities have been hit by a suite of economic challenges that have exposed the need to diversify the region’s economy. The system allowing some coal companies to buy coal below fair market value and pay royalties on depressed prices has added to the challenges, but it also presents an opportunity. Addressing this outdated policy will help ensure a fair return for taxpayers and generate revenue that can be invested in rebuilding the economy in Appalachian communities.

Ted Strickland, D-Ohio, is a former governor and congressional representative and is the president of the Center for American Progress Action Fund and counselor to the Center for American Progress.