Mining Capital

President Obama has made it a priority to reduce U.S. carbon emissions before he leaves office.  One of the most efficient ways of doing that is moving away from coal-fired electricity.  Pushing regulations that will encourage that transition has not been without controversy however.  They’re the reason Obama has been accused of waging a war on coal.  The recent EPA regulations on emissions from coal fired power plants were the most recent salvo in that fight.  Claims that they will decimate coal state economies abound.  But how much of an effect do these regulations actually have?

A major part of the recent transition from coal fired electricity has been driven by declining prices for natural gas as a result of innovations in hydraulic fracturing.  As gas prices fall, natural gas power plants become more economically viable relative to coal fired power plants.  In an industry with high capital costs and long plant lives, the short term declines in gas prices are obviously not the whole story; the expectation that regulation will not favor coal going forward certainly plays a role in the decision to build gas plants in place of coal.  But cheap gas has been as harmful, perhaps more, to coal economies as any of Obama’s regulations.

Now we can add another combatant to the war on coal.  In addition to President Obama’s EPA and natural gas, Paul Krugman suggested recently that the coal companies themselves are to blame for the decline in local coal economies.  By replacing workers with capital – substituting shaft mining by individuals with machine based strip or mountain-top removal mining – the coal companies have reduced employment in coal mining from a high of more than 250,000 in 1979 to its lowest point in more than 50 years at around 80,000 today.  It’s worth noting, although Krugman doesn’t, that the peak of coal mining employment occurs nearly 10 years after the passage of the Clean Air Act.  While it’s possible that some of the decline since 1979 has occurred as a result of environmental regulation, rather than replacement by capital, the fact that mining employment increased by nearly 100,000 in the ten years after passage of the CAA suggests that Krugman’s story is plausible.

Economist Matthew Kahn at UCLA makes another interesting point about Krugman’s original idea.  He asks whether it would benefit coal companies to limit the extent to which they replace capital with labor for political reasons.  The crux of his argument is that machines can’t vote.  When the War on Coal is a war on small town America it has much broader appeal.  People outside of the towns themselves may support the coal industry because they believe in supporting these towns.  The emotional appeal of a war on heavy machine just isn’t the same.  Coal companies lose votes because they have fewer employees and they lose votes because machines are not as appealing as towns.

It seems unlikely that any coal company would stay the shift to machinery just because it might give them more votes when new environmental regulations come up but, as Kahn suggests, it’s an interesting idea for future research.  Regardless of whether coal companies think about future political fights when they consider whether to keep labor instead of shifting to capital, it’s worth remembering that much of coal country was economically distressed long before this most recent round of environmental regulation.  The war on coal might be a real thing but it has been happening for much longer than Obama has been President and he is far from the only, or even the most important, antagonist.

 

Image Credit: Dave_7 via Wikimedia Common

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