Hidden costs of EPA: the coal severance tax
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Coal severance taxes are in the news again, and as usual, the story is about a shortage of the types of funds once generated by Kentucky's most vital natural resource.
Due to significant drop-offs in eastern Kentucky coal production, areas such as Knott, Letcher, and Floyd County are hurting for the revenues that coal severance taxes used to provide. Programs for roadwork, senior citizens, and fire protection are likely to feel the brunt of these budget shortfalls.
According to the Governor's Office for Economic Analysis, from April to June of last year, eastern Kentucky absorbed a 19% drop in coal production. July to September brought an additional 19% drop - and since the coal severance tax is supposed to represent the price coal companies pay for removing a natural resource from Kentucky land, severance tax inflows have also dropped precipitously.
Last year, the drop in coal production also cost 2,000 miners their jobs.
Competition from natural gas and a warm winter played a part in the recent downturn for Kentucky's energy sector, but make no mistake about it: another significant factor was the unprecedented new regulations from the Environmental Protection Agency. This factor isn't likely to be a temporary market trend like the falling natural gas prices, or a temporary weather phenomenon like the warm winter. If the bureaucrats at the EPA get their way, their unilateral mandates will put a not-so-glassy ceiling on any possible growth in Kentucky's energy sector, freezing the industry in its 2012 conditions.
Western Kentucky coal fields are evidence of the folly of this strategy. In 2012, western Kentucky coal production actually increased due to new technologies that reduce the sulfur content of western Kentucky coal. Thus, that market was revitalized, but for how long depends on how long the EPA's newest draconian rules - most notably, the $10 billion per year Utility Maximum Achievable Control Technology rule - hold up in court and in the legislature.
Another piece of evidence is the new coal deals being finalized here and now in the commonwealth. Just yesterday, Rhino Resource Partners LP signed a multi-year coal deal with a local utility company for its Pennyrile coal field in western Kentucky.
The evidence demonstrates that there's once again room for growth in Kentucky's coal fields, if only the EPA would allow it.
But if the EPA succeeds in upholding the 1,824 new rules established during the current administration aimed directly at Kentucky coal, the black rock will become just too expensive to mine. And Kentucky's citizens and businesses will feel the brunt of the attack in the form of higher energy prices.