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The US coal industry is going out, not with a whimper, but with a burst of rent-seeking

“Picking winners” doesn’t look so bad when you’re losing.

President Donald Trump, left, hugs West Virginia Gov. Jim Justice, right, after Justice announced at a campaign-style rally at Big Sandy Superstore Arena in Huntington, W.Va., Thursday, Aug. 3, 2017, that he is changing parties.
“Welcome to the small-government party. What kind of subsidies would you like?”
(AP Photo/Susan Walsh)

The US coal industry is dying — but not with any dignity. As the end approaches, its sense of aggrieved entitlement is increasingly naked, its demands for government handouts increasingly frantic. As dread builds, shame has left the building.

The story of coal’s decline has been told many times now (see this post for more), but at root, it’s not complicated: The industry’s product is outmoded.

Natural gas and wind power are cheaper than coal power in most places, and solar power is heading the same direction. What’s more, wind and solar (variable renewable energy, or VRE) and natural gas complement each other. VRE is completely clean but variable. Natural gas is moderately clean but flexible. Variable and flexible work well together; they are the basis for the modern grid. (Whether we can find equally flexible but entirely clean alternatives to natural gas in the coming decades is the most pressing issue facing the grid.)

Giant, slow, inflexible, dirty coal plants simply don’t fit in that picture. Coal still represents 30 percent of the US electricity mix, but as natural gas and renewables grow and the grid evolves toward a flexible, distributed model, its role will inevitably shrink.

There’s no big conspiracy, no “war on coal,” just the creative destruction of capitalism at work, as technological advances and evolving social preferences transform industries. Without creative destruction, capitalism doesn’t work — productivity and wages don’t grow. But there is no creative destruction without pain for the workers and communities on the losing end. That’s why capitalist societies need a foundation of public services (upon Matt Bruenig’s sage advice, I’m no longer using the term “safety net”). It cushions the turbulence of creative destruction.

Many members of the US business community, particularly those of a more conservative bent, like to talk about the virtues of meritocratic free markets. So do their allies in elected office.

But just as there are alleged to be no atheists in foxholes, there are no free marketeers in dying industries.

Which brings us back to the US coal industry. It is instructive, as coal mining companies go bankrupt and coal plants shut down, to watch as industry leaders vigorously shed their purported free market principles in support of public assistance. Let’s look at two recent examples.

West Virginia Gov. Jim Justice says national security depends on his state’s coal

West Virginia Gov. Jim Justice recently made news by becoming a Republican at a Donald Trump rally. There are many reasons for the switch, but one of them was clearly to get in good with Trump, who has repeatedly expressed fealty to coal. (Coal miners were early supporters, and Trump loves those who love him.)

trump and coal
No, I will never stop using this gif.

In subsequent meetings with Trump, Justice pushed a rather brazen proposal: a federal subsidy of $15 for every ton of Eastern coal burned in a US coal plant. (To his constituents, he called this request for $4.5 billion in taxpayer handouts a “new, bold idea to put coal miners back to work.”)

Sit with that for a minute. The power sector is abandoning Appalachian coal because Western coal (from the Powder River Basin in Montana and Wyoming) is cheap and natural gas and renewables are even cheaper. So Justice wants federal taxpayers to pay coal plants to keep burning it. He wants a negative carbon tax. A pollution subsidy.

It’s as though Nokia petitioned the government to pay people to keep buying its flip phones after the iPhone came out — you know, if Nokia phones were spewing millions of tons of pollutants into the air and water.

The mind, it boggles. What is the conceivable justification for such a policy? For a request this ridiculous, it could only be one thing: national security.

This bit from Tim Loh at Bloomberg is priceless:

Justice rejects the notion that his plan amounts to a "bailout" or "subsidy" for Appalachian coal. Rather, it’s a matter of national security, he said, because terrorists could easily blow up important gas pipelines or derail freight trains shipping coal to the east, leaving large swaths of the country lacking power-plant fuel.

“Can you imagine what would happen if we lost the power in the east for a month, or two months, or three months?” Justice said. “It would be like a nuclear blast went off. You would lose hundreds of thousands of people. It would be just absolute chaos beyond belief.’’

Every day of the Trump era, reality and satire become more difficult to distinguish.

The best thing is that according to Justice, Trump was “really interested. He likes the idea.” Of course he does.

“Naturally,” Justice added, “he’s trying to vet the whole process. It’s a complicated idea.”

“Give my state’s industries a giant pile of money” is not really that complicated, at least on an intellectual level. But it is politically fraught. It’s not that there will be any pushback from a free market constituency. As the 2016 GOP primary showed, there isn’t much of one left. The Cato Institute guy and the Reason guy have expressed their requisite outrage, but by all accounts, what’s complicating the idea is opposition from Western coal states, which object to, ahem, “picking winners and losers.” And they’re Trump supporters too.

Whether to abandon conservative economic principles is an easy question for Trump. But how to settle a rent-seeking dispute between two supporters? That’s tough!

Coal magnate Bob Murray says the decline in his business is a national emergency

Justice’s request, ballsy as it was, pales next to Bob Murray’s.

The CEO of the coal mining company Murray Energy was an early and enthusiastic Trump supporter, donating hundreds of thousands of dollars to both the campaign and the inauguration. He is arguably responsible for Trump’s allegiance to the coal mining cause (and helped persuade him to withdraw the United States from the Paris climate agreement).

It seems that Murray had several meetings with Trump and various advisers over the summer in which he made the following proposal: He wants Trump to use emergency powers under the Federal Power Act section 202(c) to impose a two-year moratorium on the closing of coal-fired power plants.

Robert Murray.
“They burn coal or we throw ’em in jail. Simple.”
(Murray Energy Corp.)

Seriously. He wants Trump to make it temporarily illegal to close a coal plant. That’s beyond a subsidy. It’s practically Soviet!

Naturally, Trump was all for it.

A series of letters from Murray to various Trump officials has been made public by the Associated Press. They make for remarkable reading, for two reasons.

First, they perfectly capture Trump’s pathological need for approval, which leads him to say yes to whatever supporters put to him. It’s reflexive. This is from an August 4 letter from Murray to John McEntee III, “Special Assistant and Personal Aide to the President,” about his request for an emergency moratorium:

Last evening in Huntington, West Virginia, after President Donald Trump met briefly with Mr. Charles E. Jones, Chief Executive Officer of FirstEnergy Corporation, and the undersigned, he turned to you and said, “tell Cohn to do whatever these two want him to do.”

In Youngstown, Ohio nine days ago, after my personally speaking with President Trump, he turned to Energy Secretary Rick Perry and said three (3) times “I want this done”.

Three (3) times!

Trump can’t say no to people in person for the same reason he couldn’t fire Reince Priebus in person: Despite all his macho bluster, he is terrified of anyone being angry at him or disapproving of him.

The second remarkable aspect of the letters is that, though they get increasingly agitated and longer as time passes, Murray barely bothers to pretend that there are real national security issues involved. He scarcely mentions it. What he returns to, over and over, is that his company and his friend’s companies are going to go out of business and their employees will lose jobs. That’s the emergency.

In one letter, he notes that “White House lawyers have some concern” about the proposal, but stresses that “our lawyers who are experts on the particular law do not share that concern — quite the opposite. They feel there is a 95% success rate that this will not be overturned by the courts.”

“We can understand why lawyers don’t want to risk losing,” he says. “The question is — are these jobs worth fighting for; are these jobs worth taking a risk.” (In one letter he says 5,000 jobs are at risk; later, it’s 6,500; later still, “tens of thousands of coal miners” face “disastrous consequences.”)

Again, you really have to sit with this for a minute. Murray is literally asking the US president to use federal emergency powers to take control of an economic sector in order to save his business. And Trump is into it! Like I said: Soviet.

Suffice it to say, somewhere along the line, lawyers at the Department of Energy got ahold of this loopy proposal and put the kibosh on it. Naturally, the industry is outraged.

FPA 202(c) has typically been used in the case of natural disasters or blackouts. It is designed to cover emergencies related to “a sudden increase in the demand for electric energy, or a shortage of electric energy, or of facilities for the generation or transmission of electric energy, or of the fuel or water for generating facilities, or other causes.”

The grid faces none of those problems. There’s plenty of electricity, plenty of generators, plenty of fuel. There’s no emergency.

Murray just wants a quid pro quo for his support of Trump. But this is one favor he can’t grant, not while there are still sane career staffers at the agencies.

I bet anything he didn’t tell Murray to his face.

Donald Trump holds a sign supporting coal during a presidential campaign rally in Wilkes-Barre, Pennsylvania on October 10, 2016.
With limits.
(Dominick Reuter/AFP/Getty Images)

Reviving coal is just another campaign promise Trump can’t keep

Trump can roll back pollution regulations. He can scrap the use of carbon in federal decision-making, cancel health studies of mountaintop removal mining, and make sure the words “energy dominance” appear on every document. But unless he’s willing to invoke those emergency powers, he can’t stop the market from gradually turning away from coal.

All he’s doing is extending the decline, ensuring that a few executives profit a little more before it’s all over. And he is not alone in this. It’s a pattern in US politics that extends back into the Obama administration and earlier.

As Carl Pope says in a post on “the secret coal bail-out,” “even as King Coal inescapably rushes towards bankruptcy, the companies are being showered by regulators and judges with extraordinary largesse.”

Pope tallies up the favors: allowing companies to dodge their pension and health care obligations to retirees; allowing them to “self-bond” and avoid paying to reclaim strip-mined land; allowing them to lease public land at beneath-market rates. By his back-of-the-napkin calculation, there’s something like $25 billion in largesse involved.

Most of that value is going to executives, as miners, retirees, and Appalachian coal communities bear the brunt. Democrats (including Hillary Clinton) have put forward plans to help those beleaguered communities, but they’ve been blocked in the Senate by Kentucky’s own Mitch McConnell. The GOP mostly likes miners as campaign props.

But the cases of Justice and Murray show that, at least for now, there is still some limit on coal’s crony capitalism, some lines that can’t be crossed.

For now. This won’t be the end of it, though. The coal industry, despite its modest and shrinking size, still carries enormous mythocultural weight in America. It is practically synonymous with the sort of rugged, blue-collar white guys everyone (wrongly) imagines as the prototypical Trump supporter. The industry will use that cultural weight to leverage every bit of public subsidy it can, for as long as it can.

After all, “picking winners and losers” doesn’t look so awful when you’re one of the losers.

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