Clean Power Plan could tank Wyo. coal industry — report 

Source: Krysti Shallenberger, E&E reporter • Posted: Tuesday, March 31, 2015

A new University of Wyoming economic study said the future of the Cowboy State’s coal industry and coal-fired power plants could sink under the weight of U.S. EPA’s proposed Clean Power Plan.

The proposed rule has different targets for each state to cut its emissions. Its target goal to reduce carbon emissions for coal-reliant Wyoming is among the lowest — 19 percent.

But in a state whose power generation and revenue relies heavily on coal, the effects from the Clean Power Plan will ripple across all sectors, the report said.

“Clearly coal is going to be affected the most,” said Robert Godby, professor of economics at the University of Wyoming and lead author on the report. “Given that how much it could affect the state, the takeaway is that carbon regulations will reduce the demand for coal. The state then faces two problems. One is the economic affect of a significant sector of the state reduced in size and the state revenue that depends on that sector.”

The report, sponsored by the Wyoming Infrastructure Authority, gathered data collected by the U.S. Energy Administration to track and forecast coal’s future in Wyoming. The prognosis is grim.

Production already has slid 17 percent since 2008, the report said. Powder River Basin coal supplies 40 percent of the United States’ coal usage.

Further, Wyoming’s high dependence on mineral taxes to supplement the state’s revenue coupled with low sales and property taxes would amplify the downward trend in coal production even more, Godby added.

“Our revenue stream is so dependent on direct mineral production,” Godby said. “The point I’m making is anything that affects coal production directly really affects state revenue. When you only have a couple of horses in the stable, you only have those horses to get you there.”

Predictions for industry

WIA Director Loyd Drain said he approached Godby and a few others to construct an economic study regarding coal’s future before the EPA introduced the CPP. But once the plan entered the scene, the stakes changed.

“If it were enacted as proposed, it would definitely affect the ecomony,” Drain said. The study set up several environmental scenarios, all of which forecasts decline in varying degrees within all of Wyoming’s coal-reliant sectors, including state revenue, jobs and production. But the study predicts the CPP is likeliest to hurt the state’s coal industry.

State revenue from mineral taxes levied on coal will decline up to 36 to 46 percent by 2030; production will drop 20 to 45 percent, coupled with 1 in 10 jobs lost, the study said. Coal production directly and indirectly employs 5.9 Wyomingites.

Meanwhile, the state’s coal-fired plants, mostly owned by the Berkshire Hathaway-owned public utility PacifiCorp, also supply power to neighboring states that could examine shutting down Wyoming plants as a way to meet their own CPP targets.

That, alongside the lengthy permitting process for power plants, could cripple Wyoming’s ability to meet its target goals, Drain said.

“It’s fine and dandy for the feds to say we’re going to something by 2020,” Drain said. “We have a lot of experience in how long it takes to permit infrastructure.”

Godby said another twist appeared as they completed the study; while a drop in coal production could hurt jobs and power plants, state revenue from taxes might be able to weather the downturn as other coal-fired plants that might remain open demand the resource.

“Because demand is very inelastic, when coal prices go up for reasons like higher coal costs, it will increase state revenue,” Godby said.

Waiting out a bust

Wyoming is a state long used to the boom-bust cycle of energy production. First was the oil boom in the 1970s. When that went bust in the 1980s, Godby remembers how coal stepped in to boost up the state’s faltering economy.

“It really comes down to how much money we saved today,” Godby said. “The outcome of a boom-and-bust economy is it forces people to think like squirrels; they store their nuts up for the winter and decide what to do. It becomes a kind of obsession when the next bust cycle comes.”

Wyoming has readied for a potential bust with its Permanent Mineral Trust Fund that claims a portion of all severance taxes to prepare for a time when mineral production doesn’t churn out a profit.

Though coal was a dark horse at first, the downturn in mining Appalachian coal proved a boon, Godby said, even when natural gas production overtook it starting in the late 2000s.

Now some state officials, including Drain, are eyeing natural gas as a possible savior for the state’s mineral production. Possible solutions for meeting the Clean Power Plan’s target emission goals include investing in more gas-fired plants or combined-cycle plants.

But Godby cautioned against such hopes.

“The gains and demands nationwide for gas only offset 40 percent,” Godby said. “So the state is still worse off.”

But another option might mean shipping Wyoming’s most invisible resource: wind. Already, Drain is courting California as a possible market for what he calls “world-class Wyoming wind.”

However, the state has yet to complete the nation’s biggest wind farm and two major transmission line projects.

Even so, Godby does see Wyoming able to wait out the downturn again. The study calls for “region-wide” cooperation instead of just focusing on the state’s interests.

“Instead of trying to stop regulations, we need to think about how we adapt to regulations when they come,” Godby said. “And what kind of regulations and how impacts add up.”

He suggested that the state partner up with neighboring states and investigate how to cut carbon emissions without hampering one state’s ability to transmit reliable electrical generation and potentially damage its revenue stream.

“That’s also made the study much more difficult, because these effects are nationwide,” Godby said. “We will see responses occur in the economy.”