The Environmental Protection Agency has announced its proposed new power plant rules designed to address the growing threat of climate change, and the angry rhetoric from some Kentucky political leaders has come quick and fierce. Their refrain is that coal—which Kentucky mines and depends on for more than 90% of its electricity—is being unfairly targeted in this new front of the “War on Coal.”
But the exact impact of the new rules on Kentucky and other top coal-producing states is more complicated and uncertain. EPA designed the rules to differentiate between states on the basis of their existing power supply and resource opportunities and aims to achieve a 30% carbon reduction goal by 2030 in the most cost-effective way.
While most states will have to reduce their emissions rate more than 30% over that time period, Kentucky will have to cut its rate only 18%. Wyoming, by far the biggest coal-producing state, will be required to reduce its emissions by 19%. And second-place coal producer West Virginia will be required to reduce its emissions by 20%. (See the chart above.)
The plan also introduces flexibility to states in how they meet the reductions and gives them a longer time frame to cut their emissions than many expected.
The overall hit to U. S. coal generation from the new rules is not that stark. EPA projects that coal will generate 30% of the nation’s electricity in 2030 compared to 39% in 2013. To put that in context, coal’s share was 48% as recently as 2008 but has fallen because of cheap natural gas.
While some state political leaders are outraged, utility leaders aren’t yet raising big alarms. Some are even saying that the new rules aren’t as tough as they expected. Indeed, the recommendations in many ways mirror the proposal Kentucky energy secretary Len Peters sent to the EPA last year.
Claims from politicians that the new rules will devastate Kentucky’s electricity-intensive manufacturing sector are far from proven. Much more concerning for the state’s factory jobs are the federal trade and economic policies that have wiped out more than one-fourth of the state’s manufacturing employment since 2000. And the shifts in energy use that will result from the rules could also create jobs. Research done by Synapse Energy Economics for my organization a few years ago suggested Kentucky could create upwards of 20,000 jobs in 10 years from increasing energy efficiency—which we’ve neglected in the past because of our cheap power rates—and expanding renewable energy.
While the state as a whole could adjust successfully in future years, the Appalachian coalfields are a special case. Coal production in that region has been declining since 1990, and the drop accelerated a few years ago when natural gas prices fell. In the last three years, eastern Kentucky coal employment has fallen by half.
The main drivers in that decline are not health and environmental regulations—though they play a role—but declining coal reserves after 100 years of mining and the resulting increase in the costs of extraction. Because of that, Central Appalachian coal is the most expensive in the country and the most likely to feel the brunt of declines in coal use.
While coal is playing out in eastern Kentucky anyway, shifts in its market for power that will result from the new rules will likely reinforce that decline. Very little eastern Kentucky coal is actually burned in the state; most is put on trains and sold to power plants farther south. The biggest buyers are plants in Georgia, South Carolina, North Carolina and Florida. Rather than Kentucky’s 18% required decline in carbon emissions under the new rules, those four states will be asked to make much steeper reductions—from 38% in Florida to 51% in South Carolina. That’s because of analysis suggesting those states can diversify their energy use cost effectively.
All signs point to the reality of an irreversible decline in coal production in Appalachian Kentucky. While the region helped power the strongest economy in the world over the last century, it won’t play that role in the future. It’s time for our political leaders to put more effort into economic diversification and transition, and for the federal government to support that process with financial help. Otherwise poverty in one of the nation’s poorest regions will deepen further.
Jason Bailey is director of the Kentucky Center for Economic Policy.