Back to A Shifting Economic FloorBy Michal Smith-Mello and Peter Schirmer
From The Context of Change
pp. 42-45, published 1994
The greatest uncertainty for the coal industry lies not in the availability of resources, but in the nature of the regulatory and technological environment that will develop in the coming decades.
Coal is Kentucky's principal and most valuable mineral, one that has been mined by hand and machine from the state’s eastern mountains and its western plains for 200 years. Long an anchor for Kentucky’s economy, the coal industry, which has endured boom and bust cycles, has enabled many Kentuckians to prosper and has improved the quality of life throughout entire regions. More recently, the advent of labor-saving technology, slow growth in demand and prices and increased competition from western states have undermined the prosperity of miners, their families and the communities in which they live. As a result of converging forces, external and internal, these losses may deepen in coming years. Though Kentucky has long ranked among the top three coal-producing states in the nation, along with Wyoming and West Virginia, the industry’s long-term outlook is uncertain.
According to the Kentucky Geological Survey, coal occurs naturally in 57 of Kentucky's 120 counties, 37 of them in the eastern coalfields and 20 in the western part of the state. Pike County led eastern Kentucky production with 22.7 million tons during fiscal year 1992-93, while Webster County led western production with 12.6 million tons. During that same fiscal year, according to the Kentucky Department of Mines and Minerals, 174.3 million tons of coal were mined statewide, the gross value of which exceeded an estimated $4 billion. The 1992-1993 output trailed the record 1990 output of 179.4 million tons by approximately 5 million tons.
Figure 1: Kentucky Coal Production, 1978-1990
Over the years, the combined effects of competition, costs of equipment and environmental remediation have forced many small mining operations out of business. More recently, widespread consolidation of the industry has occurred, a trend some analysts believe will continue, resulting in fewer companies—and fewer jobs (Stroud). According to the Kentucky Department of Mines and Minerals, the total number of coal mines in Kentucky fell dramatically in the early 1990s, from 1,769 mines in 1990 to 752 mines in 1992—a 58 percent decrease. During that period, the number of surface or strip mines in the state declined 71 percent, from 943 to only 270. In turn, surface production dropped from 70 million tons to 65 million tons, reflecting the depletion of surface reserves, the increasing costs of reclamation and a progressive shift to deeper coal seams. The number of underground mines also fell 42 percent, from 826 to 482, even as production increased from 108 to 109 million tons.
The declining number of mines has been accompanied by a long downward spiral in coal industry employment. According to the Bureau of Labor Statistics, mining employment peaked 54 years ago in 1940, when 61,800 Kentuckians worked in the mining industry. By 1993, fewer than half the 1940 peak—27,500 miners—were employed in mining in Kentucky. Technological advances have been a double-edged sword for Kentucky coal, expanding production while diminishing labor force needs. Productivity in the coal industry has increased 232 percent in output per miner per year since 1978. In turn, thousands of coal miners have been displaced. Many have found few opportunities for replacement income in the relatively undiversified economies of some Kentucky coal counties.
Figure 2: Average Monthly Employment in Mining & Quarrying in Kentucky, 1985-1992
The importance of coal industry employment in Kentucky is highlighted in a recent study of Pike County by the U.S. Bureau of Mines. In Pike County, coal mining and the service industry each provide about 22 percent of total county employment. However, while the service industry provides only 13 percent of Pike County's income, coal mining provides 46 percent (Geroyan, et al.). Statewide, the coal industry paid $1 billion in wages in 1992 (Kentucky Coal Marketing and Export Council & Kentucky Coal Association).
Long-term projections by the Bureau of Economic Analysis (BEA), suggest that employment in mining may remain relatively stable over the next 25 years. Under this scenario, the industry would not be expected to experience the dramatic losses in employment which have occurred in recent years. Almost half the predicted loss of jobs between 1995 and 2040 would be lost after the year 2020. As illustrated, BEA projects a loss of around 7,000 workers over the next 45 years, half the number of jobs lost between 1985 and 1993 alone. However, Kentucky may lose more coal industry jobs as a consequence of environmental regulations that are expected to increase competition among low-sulfur coal-producing states and have a particularly adverse impact on western Kentucky where reserves are high in sulfur content. Moreover, unfavorable national energy policies that emphasize natural gas and other resources are expected to continue affecting the market.
Figure 3: Projected Mining Employment, Kentucky, 1995-2040
In addition, a number of long-term utility contracts are reportedly nearing expiration, which will propel new buyers into the marketplace. Competition for these supplies is expected to be intense and to exert downward pressure on the price of coal, yet another force that could adversely affect employment over the long term (Stroud).
The Kentucky Geological Survey estimates that Kentucky's total remaining coal resource is approximately 91 billion tons, including 25 billion tons adequate for underground mining. However, only about half of the remaining coal resources are available for mining because many of the coal seams are too thin for deep mining. A significant portion of the roughly 45 to 50 billion tons of coal available for mining may not be economically recoverable with today's technology, according to a study by the U.S. Bureau of Mines. This suggests that some traditional coal-producing regions may soon experience resource-depletion problems of greater magnitude than expected.
Despite the possibility of resource depletion in some areas, Kentucky should still be able to maintain its historically high level of coal production for the next few decades. Eastern Kentucky coal production rose appreciably between 1960 and 1990, but in the past few years has begun to plateau. Western Kentucky coal production is actually somewhat lower than it was 20 years ago, although the decline is not severe. If production levels remain fairly stable, Kentucky will produce the same amount of coal in the next 40 years as it produced over the last 75 years. However, it is likely that production may begin to gradually decline in 20 to 30 years, due to the nature of the production cycle for an exhaustible natural resource.
Figure 4: Western and Eastern Kentucky Coal Production, 1890-1993
Assistant State Geologist Dr. James C. Cobb observes that the mining of mineral reserves typically has three phases: growth, peak and decline. Whether or not Kentucky has reached its peak and how slowly or how rapidly decline will occur is impossible to determine with precision, but a number of factors suggest Kentucky’s peak may be nearer rather than more distant on the horizon. In eastern Kentucky, for example, fewer large blocks of coal are available for mining, as a substantial portion of the region’s 200 topographic quadrangles, each of which covers 60 square miles, has been mined over. In some quadrangles, significant reserves have been left behind, but tapping them often means assuming potentially costly environmental liabilities left with unreclaimed land.
However, the greatest uncertainty for the coal industry lies not in the availability of resources, but in the nature of the regulatory and technological environment that will develop in the coming decades. Technological advances may make coal more or less competitive with other energy sources over time, or may dramatically increase or decrease the demand for coal as an energy source. The availability of other energy sources, such as natural gas, may also become more important issues in the future. In short, even if it were known precisely how much coal Kentucky would be able to produce 100 years from now, it would still be impossible to predict what kind of market would exist for that coal.
Coal's future is also being influenced by an ascending worldwide environmental movement that has become increasingly focused on sustainability as a long-range goal, one which many believe is incompatible with reliance on coal. Coal extraction, particularly by means of surface or strip mining, has historically had significant environmental consequences, although they have been mediated by modern reclamation methods. More recently, carbon emissions from coal-fired utilities, the market for an estimated 85 percent of the nation’s coal, have been identified as a possible contributor to global warming, while sulfur emissions are linked to acid rain.
Federal and state environmental regulations are expected to have an as yet unrealized impact on the production and utilization of coal. The 1990 Clean Air Act Amendment, also known as the Acid Rain Bill, specifically addressed sulfuric emissions from coal, requiring utilities or companies that burn high-sulfur coal to remove the sulfur, either through the installation of scrubbers or by shifting to low-sulfur coal. Most of the 261 generating units in the nation have shifted to low-sulfur coal for the time being, according to the Federal Energy Information Administration. One prominent Kentucky utility, which has historically depended on Kentucky coal, has begun to purchase lower-sulfur, western state coal. This may hurt the state in the short term, as all western Kentucky coal has a medium- to high-sulfur content and, contrary to usual assumptions, only about half of eastern Kentucky coal is low in sulfur content. Yet the demand for high-sulfur coal may be rejuvenated by the beginning of the next decade, by which time virtually every coal-burning unit is supposed to have scrubbers.
Another concern for the future of the coal industry is the possibility that the Federal Environmental Protection Agency will promulgate new clean-air regulations aimed at trace elements in coal, such as mercury, arsenic and selenium. As many as 18 trace elements have been identified for possible regulatory attention. While advanced technologies which remove virtually all trace elements have been developed, utility compliance strategies aimed at reducing sulfur emissions may or may not address trace-element emissions.
Concerns abut solid waste disposal are expected to influence the future of the coal industry as well. Coal-fired utilities that shift to scrubbers confront logistical questions around accumulated sludge disposal. Kentucky recently permitted the return of fly ash from Florida to the original mine site. In the future, the pressure to permit the return of fly ash as a contractual condition is expected to increase. The environmental impact of fly ash on groundwater supplies, however, has yet to be fully determined.
As a consequence of increasing and uncertain environmental regulations, the spectre of additional compliance cost burdens continues to loom on the horizon for utility companies and others who use coal. Technological change further clouds our vision of the long-term future for Kentucky's coal industry. For the next few decades, at least, coal production in the state is likely to remain at high levels and will likely benefit from the widespread installation of scrubbers in the nation's coal-burning utilities. Nonetheless, Dick Dedic, manager of the University of Kentucky's Technology Applications Center, says that Kentucky should work to create new and more environmentally friendly methods of energy production through the use of coal. Kentucky, Dr. Dedic suggests, has the intellectual capability to make this resource competitive on both "the environmental and dollar bottom lines."
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