Finding A Practical and Effective Solution for Carbon Emissions

Can we talk? We need to stop wasting time and come up with a way to drastically reduce greenhouse gas emissions – now. The recent U.N. report on climate change should scare us into action if nothing else has. Earth’s surface temperatures are virtually certain to rise at accelerating rates between now and 2050, with many serious heat-related consequences, including the disruption of agriculture, wildfires and sea level rise. These will threaten world economic and political stability. This is no hoax. Existential threat would be a better term.

Many of the best minds today believe that the solution lies in putting the right price on the production of carbon-based fuels. Carbon producers like the coal industry create “externalities” – costs that are not part of the price of the coal paid by consumers.  Chief among these are the environmental effects of the greenhouse gasses emitted when coal is burned.  These costs are foisted onto the public in general.

Finding the right higher price for carbon would make carbon-based fuels less attractive than cleaner sources of energy, such as wind and solar. The right price for carbon would also encourage the development of energy efficient machinery and processes. Individual consumers would make better energy choices.

For those who believe the conservative ideology that free markets can solve all of our problems, here is a wake up call.  Free markets have totally failed us in pricing carbon. This is because neither the seller nor the buyer of carbon has an incentive to take externalities into account in the price.  Nearly everyone outside the Trump Administration – liberals and conservatives alike – believe that government must intervene. The question is how. There are two candidates for the job.

Cap and Trade

One system, called cap and trade, is currently in use in a group of New England states and California. Government’s role in a cap and trade system is to determine how much total carbon it will permit to be dumped into the atmosphere each year.  Government also sells permits to emitters up to the carbon limit and then supervises a secondary market.

Imagine that government decides it will tolerate 5 billion tons of carbon dioxide in year one.  It divides this amount into 1,000,000 permits worth 5,000 tons each.  The permits could be auctioned, generating revenue.  Some carbon emitters might be priced out of an auction, so they could go onto the secondary market to purchase pollution rights from emitters who, through technological improvements, do not need the right to emit all 5,000 tons authorized by their permit.

In year two the overall amount government will tolerate might be reduced to 4.5 million tons.  Each of the 1,000,000 permits in year two would authorize 4,500 tons, less pollution than the year before.  The price of these would be much higher than the year before at auction and also on the secondary market. The financial pressure on emitters to find ways to reduce their own carbon emissions would be intense. The carbon limit would be steadily reduced year to year until the goal is met.

The criticisms of cap and trade are several. First, emitters chafe at the government setting overall emission limits and call this “command and control,” a buzz-phrase for top down regulation. Actually these limits would be politically negotiated and might not be set low enough to avoid climate disaster. Second, if the overall limits are too low some emitters would be forced out of business, harming the economy. Third, and most important, cap and trade does not involve a mechanism to soften the impact of higher energy prices on consumers.  While environmentalists will favor the certainty that emissions would be reduced at predictable rate down to the level that will avoid climate disaster, this system would be subject to intense political pressure from emitters and consumers and would be politically unstable.

A Carbon Tax

The other method for solving the problem is a carbon tax. Under this method, government would decide the appropriate price for discouraging carbon emissions and then impose an escalating tax until that price is reached. This seems to be as much “command and control” as setting the carbon limit in a cap and trade system, but surprisingly conservatives seem to like the carbon tax better.

Voters in Washington state had the opportunity on November 6 to impose a “pollution fee” on emitters in that state. This fee would have operated exactly like a carbon tax. It would have been the first such tax to be adopted by ballot referendum anywhere.  Unfortunately voters turned down this measure 56% to 44% in what is now the typical divergence between rural and urban voters.

The Washington proposal was to impose a fee on large emitters, beginning at $15 per metric ton of carbon content and escalating $2 each year until it reached $55 per ton. For comparison, Sweden has the highest carbon tax in the world at $140 per ton. The Washington fee would have applied to fossil fuels sold or used within the state and electricity generated within or imported for consumption within the state.

The measure was expected to generate $2.2 billion in the first five years, which would have been directed to a trust fund. As a fee instead of  a tax, the proceeds could not be spent for general governmental purposes. Every cent raised would have gone toward solving climate-related problems, protecting the state’s environment or aiding communities affected by climate change or by the fee itself. This measure was designed to appeal to left-leaning and environmentally concerned voters.

An earlier measure for a carbon fee in Washington also failed because it was opposed by Democrats and labor. It aimed to gain support from more moderate voters by providing for the return of the proceeds from the fee directly to Washington residents, without reserving the money for alternative energy and conservation purposes.

The 2018 ballot initiative was opposed by petroleum producers who argued that the fee would not make a dent in global warming but would damage the state’s economy. They also argued the fee’s impact would be borne by consumers and small business. Commenting on the defeat of this measure, David Roberts, a reporter at Vox, wrote that “it’s difficult to avoid the conclusion that the public is not quite ready for state carbon taxes.”

A Carbon Tax With Public Dividend

So it is with healthy skepticism that I come to the recent proposal made by a group called the Climate Leadership Council (CLC), consisting of the heads of large energy companies and Republican heavy-hitters like James Baker, George Schultz and Janet Yellin. Their plan is called The Carbon Dividend.

This plan involves a tax on carbon-based fuel producers determined by the carbon content of the fuels.  For example, coal would be taxed at $96 per ton, natural gas at $2.28 per thousand cubic feet and oil at $18 per barrel. This would work out to an average of $43 per ton of carbon dioxide. It would increase 3 to 5% per year as determined in the legislation.The purpose, as with any carbon tax, is to raise the cost of carbon-based fuels to discourage their use relative to cleaner sources of energy. Exxon-Mobil has pledged $1,000,000 to promote the plan.

The tax would be imposed on energy producers at the point the fuels enter the economy. But the financial impact of the tax would be passed on to consumers, indeed the scheme won’t work unless the costs are passed on because part of the design is to get consumers to economize and make the right energy choices.

Unlike the Washington proposal just defeated, revenues from the tax would be distributed to the public in a carbon dividend paid monthly or quarterly through the Social Security Administration. It would not be devoted to developing alternative energy or softening the blow on communities affected by the tax like Southern West Virginia would be. The CLC estimates the dividend will be as much as $2,000 per year for a family of four and is intended to offset the higher cost of goods caused by the tax.

The CLC further estimates that two-thirds of American families would be financial winners because the increased cost of energy for them would be less than $2,000. This is because only higher income families consume enough to outweigh the dividend. The proposal banks on the carbon dividend becoming as popular as Alaska’s Permanent Fund dividend of $1,000 per year to citizens.

Why, you ask, would big oil companies be interested in a program that reduces the consumption of their products? One answer is that these companies are afraid of future lawsuits blaming them for the effects of climate change.  The Carbon Dividend plan would involve some sort of litigation immunity much like the settlement with tobacco companies. Perhaps a more important reason is that the plan involves a grand trade-off whereby current regulations on carbon dioxide emissions like Obama’s Clean Power Plan would be eliminated as “unnecessary.”

Obviously, there are things about the Carbon Dividend plan that will be unpalatable to the environmental community. But keep in mind how quickly we must act. It will be politically necessary to have leading Republicans and much of industry on board if we hope to do anything beyond arguing about what should be done.

I for one am willing to allow conservatives to have their “revenue neutral” solution wherein the government doesn’t get the proceeds from the carbon tax to spend in ways I would like — so long as the plan effectively reduces carbon emissions. On this point the CLC says that the Carbon Dividend plan will reduce emissions by 32% compared to 2005, meaning the U.S. would exceed the upper end of the Paris Accords which called for a reduction of 26-28%.

The real beauty of the Carbon Dividend plan is that it addresses the psychological resistance people have to acting in their own best interest on the climate issue. The threat of global warming lacks immediacy to most people. It is difficult to convince them to endure costs now that will benefit others in fifty years. The dividend provides immediate benefits for behavior that is required to secure a much larger, though long-term benefit. It would make political support for adoption much more likely and help to insulate the plan from amendment through later legislation. Because of this the Carbon Dividend might be the practical and effective solution we are looking for.

Making Sense of the Rockwool Controversy

Plans by Rockwool (formerly Roxul USA, Inc.) to construct a 463,000 sq. ft. manufacturing facility in the City of Ranson have recently met with a firestorm of opposition. The facility, to be constructed on the old Jefferson Orchards property, will manufacture mineral wool insulation used in home and commercial construction.  Opponents argue that the plant will emit huge amounts of toxic air pollution in close proximity to schools, and claim that the approval process was intentionally under-publicized to avoid opposition. Proponents argue that this is the single largest development project in Jefferson County since the Penn National Casino, and that it will create 150 well-paid manufacturing jobs, boost ancillary business and generate tax revenue for a substantial future period. To a large extent, this has become a contest of values.

I admit that I have come to this controversy late and that there is a lot I don’t yet understand. As an observer, I was initially impressed with the maturity with which both sides approached it. Recently, however, the rhetoric from the anti-Rockwool faction has gotten rough and somewhat personal. Yet it is apparent that we are not dealing with villains on either side. One can hardly blame Rockwool for trying to develop its business in the U.S. or the JCDA for recruiting Rockwool to the county. The Rockwool project is the kind of development the JCDA has been pursuing for decades. It is what Authority members have understood their jobs to be. Conversely, the opposition is not made up of eco-terrorists determined to wreck any development initiatives. There is sincere concern about the environmental impact of this facility, as well as what it means for further industrial development in Jefferson County.

The Product and Manufacturing Process

Mineral wool insulation has become increasingly attractive in the building process because of its efficiency as an insulator and its fire resistance. Rockwool products are produced from a combination of natural basalt rock and recycled slag from the steel industry. These are melted, spun into a fiber and cured into insulation. The company claims that buildings account for 40% of all energy use, and two-thirds of that is used for heating and cooling. It argues that insulation can play a key role in reducing heating and cooling costs, reducing greenhouse gas emissions, and providing a more comfortable work/living environment.

Rockwool’s November 2017 application to the WVDEP stated that the furnaces will be fueled by both coal and natural gas. Milled coal will be delivered by truck and the gas by pipeline. At that time there were no overt plans for a gas pipeline to Ranson. But lo and behold, on June 16, 2018 Mountaineer Gas announced a new route for its proposed pipeline so it could serve the Rockwool project.

All other raw materials will arrive at the site by truck and be stored in enclosures or piles. One factor not sufficiently addressed by either side, or the state of West Virginia, is the cost of wear and tear on our highways from the heavy truck traffic, which will divert funds earmarked for road repair elsewhere.

The furnaces will operate at extremely high temperatures – greater than 2,700 F. Various filtering and capture technologies will be used to reduce the emissions from the process.  But excess heat from the furnaces, as well as particulate and greenhouse gasses that are not captured or filtered, will be emitted out of two 21-story smokestacks. Molten rock and slag will be extruded from the furnace, then spun and formed into the finished wool insulation, which will be shipped out of the facility by truck.

Rockwool recycles its own waste and when fully operational the facility will deliver no waste to the county landfill. The water and much of the heat generated in the manufacturing process will be captured and re-used.

Emissions and the Permitting Process

A critical step in the approval process for a new industrial site is an application to the West Virginia Department of Environmental Protection for a Prevention of Significant Deterioration (PSD) permit. A permit is required where a new facility is proposed for an area like Jefferson County that either has none of the regulated pollutants or is below the regulated maximum.

The application explains the manufacturing process and the places and manner in that process where emissions will occur. It then seeks to demonstrate that those emissions are below the limits set by federal and state regulations. This is an important point. Our federal and state governments have already decided what level of pollution is acceptable from “new sources.” If an applicant can show that its proposed facility will operate within those limits, then the regulations say the Secretary “shall” issue the permit unless there is some extraordinary reason not to do so. Many of us do not like where that leads, but that is reality.

The initial application for a permit was submitted by Rockwool on November 20, 2017. This application described the emissions expected from the facility’s operation. Public notice of the application was given in the November 22, 2017 Spirit of Jefferson. The notice, which was in the same size print as all other legal notices, listed the chemicals and particulate matter that have since become the major focus of opponents.

For example, Rockwool announced that its operations might annually emit 239 tons of nitrogen oxides, 148 tons of sulfur dioxide, 74.1 tons of carbon monoxide, 153,000 tons of carbon dioxide equivalents, 104 tons of methanol, 67.6 tons of formaldehyde, and so on. The public notice announced that written comments would be received by the WVDEP for 30 days and provided the telephone number for inquiries. This notice complied with the applicable regulation. In my opinion, opponents need to do better than to allege that Rockwool was somehow sneaky in notifying the public.  If there is any bone to pick with the process, it is with the laxity of the public notice regulations, not Rockwool’s compliance with them.

The WVDEP is required to make available for public inspection all of the relevant documents and to put another notice in a newspaper of general circulation containing the same information from the first notice, but additionally that there has been a preliminary determination in favor of the permit, soliciting public comment and providing the procedures for requesting a public hearing. This was published in the Spirit of Jefferson in March 2018. No public hearing was requested by any interested party so WVDEP did not hold one. As a state we should do better than this. Public hearings should be required for major new source pollution, not optional.

Apparently the emission amounts proposed in the application were below the permitted level in each case because the final permit, issued on April 30, 2018, approved the emissions.  Then on September 18, 2018 in response to the furor about the agency’s actions, the WVDEP issued the following statement:

There is no scientific evidence to suggest that the proposed facility will adversely affect human health or the environment. In addition to its plant in Mississippi, Rockwool has operated a similar facility in Canada for approximately 30 years. Based on the performance of the operations in Canada and Mississippi, and the WVDEP’s stringent air quality permit application review process, there is no reason to suspect that the facility in Jefferson County poses a threat to people living nearby or to the environment.

We are now left with the prospect of significant increases in toxic chemicals and particulate matter being emitted into the atmosphere at the Rockwool site, although most likely these will affect our neighbors to the east more than us. Notwithstanding Rockwool’s compliance with state emission limits, the Jefferson County environment will be considerably dirtier than before. The question is whether we value a clean environment more than the economic benefits that will accrue from the Rockwool project.

The Economic Bargain

The principal economic benefits Rockwool will bring to our community are manufacturing jobs and a substantial improvement in the property tax base that will fund schools. One thing our economy has lacked is solid manufacturing jobs for medium-skilled high school graduates. Rockwool says that when it is fully staffed, there will be 150 new jobs. A good portion of the 150 jobs, let’s say 120, will be in this category.  Others will be management and clerical jobs. Opponents argue that while all jobs are important, Jefferson County has 57,000 residents. They say 150 jobs are not worth selling our environmental soul.

Although Rockwool hasn’t disclosed a wage scale, competitive manufacturing jobs pay in a range between $15 and $22 per hour, in addition to benefits somewhere in the range of 22% to 40% of the wage rate.  So I’m figuring the annual payroll for Rockwool manufacturing jobs will be in the neighborhood of $6,500,000 ($20/hr. + 30% benefits x 2080 hrs. x 120 jobs). This money will be subject to state income tax and will circulate in the economy, boosting ancillary businesses such as grocery stores, gas stations, and the like. But it is not accurate to say that all this will be new money Rockwool brings to the county. Probably all of the people employed at Rockwool will come directly from other jobs, since unemployment is at an historic low. The new money will be the difference between what they were paid before and what they will earn at Rockwool.

In ten to twelve years, Rockwool will be paying millions of dollars of property tax to Jefferson County and the City of Ranson. Since these taxes will be based on the value of the taxed property at the time, it is hard to guess what they will be. We do know, however, that between 2020 when manufacturing operations will begin and 2030, Rockwool will pay vastly reduced taxes through what is called a PILOT Agreement. The Pilot Agreement has been approved by the Jefferson County Commission, the Jefferson County Board of Education, the City of Ranson, and several other officials.

The PILOT Agreement calls for real property tax payments of $225,000 in 2020 but no additional payments until 2026, when Rockwool will begin making escalating payments until an $815,000 payment in 2029. Presumably Rockwool will make full real property tax payments thereafter, which are not likely to be less than the 2029 amount.  Rockwool expects to install perhaps $75,000,000 in new equipment at the facility, but this will be completely exempt from personal property tax until 2028. Then the PILOT Agreement will permit personal property tax on the machinery, but will artificially lower the value of the machinery on which the tax will apply to 5% of its depreciated book value. This sounds like a sweet deal for Rockwool.

Some Conclusions

Although our decisions can’t be driven by this, it is hard to imagine any county in West Virginia – except Jefferson – that would turn down the opportunity for a facility like Rockwool, even considering the environmental impact. Most would be doing back flips to get it. Perhaps it is our relative affluence that allows us to be choosier.

So I am tempted – almost – to be understanding about the Jefferson County Commission’s role in this. When one looks around for a governmental body that could have slowed the process until everything was fully vetted and discussed, that body was the County Commission — not the JCDA which, as noted, is supposed to go out and secure opportunities for us to evaluate. Instead, all the Commission really did was climb on the bandwagon. The Commission has since issued a memo saying that it had no control over anything except whether the county signed on to the PILOT Agreement, but this ignores political reality and how much influence and control the Commission could have exerted if it had been solidly against the project.

Now some Commissioners are running for cover. Commissioner Tabb was one of the county officials who visited the Rockwool plant in Mississippi and was impressed with what she saw. But as of August 2, Commissioner Tabb changed her mind because of the citizen opposition to the air quality issue. She now opposes Rockwool. At the same August 2 Commission meeting, Commissioner Hudson said that the Rockwool situation is “starting to smell like a skunk.” Commissioner Compton also claimed he is opposed to the Rockwool project, saying “The reason I agreed to this was I essentially thought it was going to bring jobs. Did I think it was to this extent of pollution and whatnot? Absolutely not.”

It is not clear to me that anything can be done to stop the Rockwool project at this point. Permits have been issued and binding contracts have been entered. Rockwool has spent lots of money in reliance on these. If the County Commission or one of the other governmental agencies that approved the deal backs out, there will be expensive litigation and an uncertain result. Indeed, Rockwool through its attorneys sent a letter on September 12, 2018 asserting that the company would suffer damages up to $100 million if the Commission delayed the project.

What is clear is that the citizens of Jefferson County have not been well-served by our County Commissioners. They did inadequate due diligence and had no clue about about public sentiment on the environmental issues. As but one example, here is a statement in the PILOT Agreement that Peter Onoszko signed as Chairman of the JCC:

The Commission has found that the [Rockwool transactions] will promote the public interests and public purposes by, among other things, providing certainty and soundness in fiscal planning and promoting the present and prospective prosperity, health, happiness, safety and general welfare of the people of Jefferson County.

Really? That’s not going to go down well with the thousands of people who have signed up on the anti-Rockwool Facebook page and who pack public hearings night after night. Instead of owning their failure, our Commissioners profess to have been either duped or powerless. There needs to be some accountability in November.

The Environmental Disaster of Mountaintop Removal Mining

Coal has contributed substantially to the development of civilization over the last 250 years. The steam engine was designed and first used to pump out flooded coal mines.  The railroad was first commercially used to move coal from mines to towns and river transportation. Coal powered the industrial revolution in England and the United States.  But burning coal produces the greenhouse gasses chiefly responsible for global warming. It also produces noxious particles that cause heart and lung disease and many deaths. And in West Virginia the search for cheap coal has led to mountaintop removal mining, a practice with an entire catalog of harmful environmental effects.

Only by flying over Southern West Virginia can one completely grasp the scale on which mountaintop removal mining has been used. Aesthetically we will never be the same despite all the promises of restoration by mining companies. But lost beauty is a relatively minor issue with mountaintop removal mining.

mountaintop removalMountaintop removal involves clearcutting the extant forest, burning it and then pushing the debris into the adjacent stream valleys. Following this the top layer of rock is blasted away and this rubble too is pushed into the stream valley along with the topsoil. The coal being harvested is typically thin seam, which means that it is quickly exhausted and a new round of blasting is conducted until the next seam down is reached. Sometimes this process removes 800 feet of mountain.

The scientific evidence of the harm done to human health by mountaintop removal with valley fills is plentiful. The website of the Ohio Valley Environmental Coalition contains a bibliography of studies on the topic ( Additional research documents extensive environmental damage.

For example, in January 2010 Science Magazine published an article detailing that environmental damage, written and researched by twelve scientists including one from WVU. They found that forests are destroyed and headwater streams are lost. Downstream biodiversity and water quality suffer. As mountain streams emerge from valley fills, they are saturated with sulfate, calcium, magnesium and other harmful ions. This effect persists even after mine-site reclamation.

During the last ice age the central and southern Appalachians became a refuge for northern plant and animal species. When the ice retreated many stayed, rendering these mountains richly biodiverse. The World Wildlife Fund says this area is a “biodiversity hotspot.” Mountaintop removal mining often wipes out wide swaths of temperate mesophytic forests in central Appalachia. These have an unusually diverse tree flora with as many as 30 tree species at a single site. Underneath the forest there is a rich growth of ferns, fungi, herbaceous plants and small trees as well as areas of glade and cranberry bog.

Wildlife also suffers. Whole habitats for bears to birds to crayfish are destroyed. The effect on birds is dramatic. There is a decrease in forest interior bird populations, such as the Wood Thrush, and stream dependent species, such as the Louisiana Waterthrush. In their place grassland and edge-tolerant species increase.

The Endangered Species Act normally requires the Fish and Wildlife Service to review any federally authorized, funded or administered action that could adversely affect endangered or threatened species. But in 1996 FWS issued an opinion waiving this review for coal mining because the effects of mining are already regulated under the Surface Mine Control and Reclamation Act. However, in practice under the SMCRA mine operators hire government-approved consultants to produce surveys of wildlife that are far less rigorous than desirable.

One environmentalist from the Center for Biological Diversity in Portland, Oregon remarked that this special review process for coal mining results in environmental destruction that would simply not occur elsewhere.

I’ve read longer biological opinions for road repairs on the Mount Hood National Forest than for the [1996 FWS biological opinion] that proclaims to address all species impacts from all coal mining activities. In Oregon, you would never get permission to blow up the top third of a mountain — it just wouldn’t happen.

Big Sandy CrayfishEnvironmental groups have resorted to lawsuits to force the FWS to do its job under the Endangered Species Act. In the last five years, these groups have sued to protect the northern long-eared bat, a species already under pressure from a disease called the white nose syndrome. They also sued FWS to protect the Big Sandy crayfish, which has been lost from up to 70 percent of its range because of water pollution from mountaintop removal mining. It is nearly gone from West Virginia and has lost close to half of its range in Kentucky and Virginia.

As with most things these days, this struggle is all about money. Regulation of the mining industry raises its costs and reduces its profits. The question is whether we will have the political will to shift the costs of mountaintop removal mining onto those who profit from it. Will mining companies be required to include in their profit and loss analysis the costs of environmental degradation and clean-up that they have previously externalized?  Or will poor communities around the mining sites, and ultimately the entire state of West Virginia, be forced bear these costs?

In a 2011 study published in the Annals of the New York Academy of Science, the authors investigated cost accounting for the full life cycle of coal, including coal mined by mountaintop removal:

We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually. Many of these so-called externalities are, moreover, cumulative. Accounting for the damages conservatively doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of non-fossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive.

If mining companies had to pay even a fraction of these additional costs, it is most likely that mountaintop removal mining would become uneconomical and would cease. This is perhaps what fuels the fierce opposition to regulation of this practice by the mining industry.

That opposition played out recently in connection with a modest regulation of the industry by the Obama Administration called the Stream Protection Rule. This Rule did not prohibit mountaintop removal mining, but rather would have required a buffer zone between mountain streams and mine sites and would have protected drinking water in accordance with modern technology. But predictably the mining industry unleashed a barrage of false and exaggerated claims of harm to the industry.

The National Mining Association estimated that over 52,000 miners in central Appalachia could lose their jobs, and Congressman Alex Mooney (WV 2nd) repeated these wildly exaggerated claims. Congress required the Office of Surface Mining Reclamation and Enforcement to estimate the proposed Rule’s impact on all employment, not just on coal jobs. It concluded that there would be a net annual increase in overall employment when new jobs related to compliance with the Rule were taken into account.

Nevertheless, the Stream Protection Rule was killed early in the Trump Administration, one of the first casualties of its effort to undo anything the Obama Administration had done. But the Trump Administration and their coal industry supporters have grasped the fundamental truth about the regulation of mountaintop removal mining. Trees and birds and streams don’t vote. Only people do.

Coal Is Killing Us

On June 1, 2018 President Trump directed Energy Secretary Rick Perry to take all necessary steps to stop the closure of coal-fired power plants on national security grounds. This directive was issued simultaneously with the release of a draft memo arguing that the reliability of the nation’s power grid will be threatened if coal-fired plants are allowed to disappear through market forces that now make them the most expensive method to generate electricity. Trump’s directive was roundly criticized by many as an unprecedented intrusion into the market for electricity that “picks winners and losers,” something Republicans have long criticized Democrats for doing. But none of the debate about Trump’s directive has focused on the undeniable fact that small particulate matter emitted from coal-fired power plants is killing thousands of Americans each year.

The West Virginia Congressional delegation predictably cheered Trump’s directive, continuing their decades-long pandering to Big Coal and the fiction that coal mining creates significant employment in West Virginia. Sen. Shelley Moore Capito said “I am very supportive of the administration’s decision to take action to preserve our coal-fired and nuclear power plants.” Sen. Joe Manchin actually took credit for Trump’s directive, saying “I am glad President Trump and his administration are considering my idea to use the Defense Production Act to save coal-fired power plants with emissions controls and protect our national security.”

Surely our Congressional delegation and the many Republican opponents of Obama’s Clean Power Plan know in their heart of hearts that climate change is a real threat and that because it is, in part, man-made it can be slowed by changes in our behavior now. One scientist recently quipped that to argue that the Earth’s rapid warming in the last decades is not man-made is like arguing that the Earth is flat.

These politicians are not stupid. Instead, what they are is calculating. The problem is that policy action now to reduce carbon dioxide emissions has immediate negative effects on the coal and electric power industries, their investors and their employees. This immediate negative is balanced against uncertain future benefits like avoiding sea level rise. Because these benefits will mostly inure to future generations, they can today be more easily ignored, minimized or dismissed as fraudulent. When it comes to climate change action, the voters in a coal state like West Virginia can scream louder about present pain, with some justification.

All this makes it harder to understand why climate change activists do not focus their arguments on the harmful effects of coal-fired power generation that are occurring now. These harmful effects are not the result of carbon dioxide (CO2) or even the other harmful greenhouse gasses that are emitted from power plants.  They are the direct and measurable result of the tiny particulate matter produced by burning coal that rolls out of the tall stacks, spreading death downwind of these power plants.

Sulphur dioxide (SO2) is another harmful by-product of burning coal, partly responsible for fine particles in the air. These fine particles are linked with acid rain and smog. As evidence began to tightly link increased levels of SO2 with the burning of coal in the 1970s, the electric and coal industries denied the link and questioned the motives of those investigating the link. Sound familiar?

But in 1990 the Acid Rain Program adopted by Congress required power plants to cut their SO2 emissions in half by 2010. The technology used for this was the installation of scrubbers. Since then, this program and other regulatory action have dramatically reduced SO2 emissions and have done so at a lower cost than even environmentalists predicted.

Despite a reduction of emissions of around 50% since 1980, power-plant particulate matter, mostly from SO2, was still estimated to be responsible for 15,000 premature deaths in 2010.

The main health effect of SO2 is to impair the function of the upper respiratory system. High concentrations of sulfur dioxide can affect breathing, cause respiratory illnesses, and aggravate existing heart and lung diseases. Exposure at very low concentrations can irritate the lungs and throat and cause bronchitis. Exposure to low levels of SO2 over a long period depletes the respiratory system’s ability to defend against bacteria and foreign particles. Particularly sensitive groups include children, the elderly, people with asthma, and those with heart or lung disease.

Soot emitted by coal-fired power plants doubles down on the effects of SO2. Soot is associated with chronic bronchitis, aggravated asthma, cardiovascular effects like heart attacks, and premature death. US coal power plants emitted 197,286 tons of small soot particles in 2014.

The risk of death from air pollution caused by burning coal is not evenly distributed throughout the United States. In fact, West Virginia has the second highest number of deaths per capita in the country behind Ohio and just ahead of Pennsylvania. One large, inefficient West Virginia power plant in Pleasants County is itself estimated to be responsible for 40 deaths, 65 heart attacks and 630 asthma attacks.

In February 2018, First Energy Corp. announced a decision to deactivate the Pleasants Power Station in early 2019. Following this, Sen. Joe Manchin wrote to Energy Secretary Perry about the national security implications of allowing coal-fired plants to be closed, and specifically mentioned the Pleasants Power Station. There is considerable speculation in the West Virginia press that Trump’s directive to Secretary Perry will result in the salvation of the Pleasants operation.

In her 2003 book, Coal, A Human History, Barbara Freese describes how the requirements of the British coal mining industry led to the development of the steam engine followed by the railroad.  These developments in turn produced much more coal, which itself then fueled the Industrial Revolution.  The process was replicated in the United States.  She asks rhetorically where we would be without coal and the revolution it created.  Her answer is that we would have developed as an international society more slowly but perhaps in ways that we would find more satisfying today. All this, of course, is wistfulness.

Our political leaders need to realize that there are terrible consequences from burning coal to generate electric power. Most of the attention from environmental activists is focused on climate change created by CO2.  But if we all pay attention to the fact that coal is killing us – now – we may be able to overcome the arguments of those with a stake in coal who claim that climate change is a false crisis created by the environmental left. The deaths of our children and elderly is no false crisis.

The Future of West Virginia’s Severance Tax

In West Virginia a 5% tax is imposed on those engaging in the extraction of coal, oil, gas and other natural resources from the lands of the state. This is the “severance tax.” While the tax is ostensibly on the privilege of engaging in the business of extraction, the tax is calculated based on the volume of production. 

We depend on severance tax revenues for 10% to 12% of the general revenue budget of the state, making us more dependent on this revenue source than most other states. Our dependence subjects the state budget to boom and bust cycles caused by volatility in the price of the commodities. The state’s oil & gas industry is now booming even though coal is in the midst of a long-term decline. Most analysts believe both these trends are likely to continue for decades. So the future is bright for the state’s budget if we manage our oil & gas patrimony carefully.

West Virginia had no severance tax until 1987. Before that we taxed natural resource extraction at a higher rate through the “business and occupations tax” upon the gross receipts of the extraction business. Despite this, the extraction industries complain that the 5% severance tax rate is high relative to neighboring states. But this nominal 5% rate is reduced to an effective tax rate of around 3.2% by various exemptions and tax breaks created by the Legislature. One such break is a reduced tax rate on coal mined from thin seams. Another is a tax credit on oil & gas wells that produce a small volume. Our effective tax rate on severed natural resources compares favorably to our neighbors.

Historically the revenues from coal severance were often four times the revenues from all other severance taxes combined. Given the huge leap in gas production made possible by hydraulic fracturing, this is changing. Table 1 shows that as of 2015 tax revenues from oil and gas production represented more than half of the amount from coal production. By 2030, the revenues are expected to be roughly equal.

Table 1 – Severance Tax Revenue 2011 to 2015 (in 000s)

Source: WV State Tax Department   

Year 2011 2012 2013 2014 2015
Coal $526,817 $531,108 $451,646 $407,148 $375,558
Oil & Gas $72,947 $99,235 $115,014 $229,466 $215,362

How Severance Tax Revenues Are Allocated.

The West Virginia Center for Budget & Policy did a study of the severance tax in December 2011 that is quite helpful in understanding these issues. The CPB described how severance tax revenue was distributed in FY 2011, which is typical of distributions in later years. 

The first $24 million in severance tax revenue in FY 2011 went into an infrastructure fund to cover the externalized costs of extraction industries, such as damage to roads and bridges. This is required by law every year. 

The large bulk of the revenue, more than 86% in FY 2011, went into the general revenue fund with no spending strings attached. 

Finally 8.9% of the tax revenue was distributed to counties and municipalities. This happens in two ways. One formula directs a portion of the revenues to counties from which the resources are actually severed. There is a list of these counties for coal and one for oil & gas. For example, six counties (Marshall, Tyler, Harrison, Wetzel, Doddridge and Ritchie) principally benefitted from the formula for distributing oil & gas tax revenues.

But under a second formula all counties and municipalities benefit from direct distribution of severance tax revenues based on population. For example, in FY 2018 Martinsburg received $20,000 from oil & gas severance taxes, Charles Town received $5,000 and Shepherdstown $6,000.

Should We Increase the Severance Tax Rate on Oil & Gas?

There has been a lot of debate on this question recently. In the April 11, 2018 issue of the Spirit of Jefferson, former Delegate John Doyle argued that we should double the severance tax rate on oil & gas. Then in the Charleston Daily-Mail for April 14, 2018, the former President of the West Virginia Independent Oil & Gas Association (and current lobbyist) Philip Reale argued that we should be cautious in raising the tax and increasing production costs because oil & gas producers might choose to drill wells in other less costly states. In my opinion, Doyle gets the better of this argument.

First, as Doyle points out, if the state’s production of oil & gas continues to expand as predicted, doubling the severance tax could mean an additional $560 million in revenue for the state. That would be a huge shot in the arm for a state struggling to address daunting social and economic problems. The injection of that additional revenue into the state’s economy would also have a multiplier effect. A 2010 study from Penn State found that for every $100 million in severance tax revenue, Pennsylvania would see a net gain of 1,100 jobs from increased state spending in areas such as infrastructure and schools.

The beauty of the West Virginia severance tax is that, for the most part, West Virginians don’t pay it. The tax burden of a severance tax on oil & gas mainly falls out of state in increased consumer prices for gas and oil consumption. Furthermore, most of the companies involved in gas drilling and production upon which the tax would be levied are not West Virginia companies and their stockholders are spread world-wide. Think of the oil & gas severance tax like the hotel/motel tax that travelers to West Virginia pay on their hotel stay. They get the tax burden; we get the benefit.

But what about Reale’s point that raising production costs in West Virginia might discourage drilling activity here in favor of other states like Ohio and Pennsylvania? The empirical evidence does not support this concern. Severance and income taxes are only a small part of the overall cost of operating for an oil & gas company. Pennsylvania has no severance tax whatever, but still West Virginia gas & oil production set a new record in 2016, and our prime producing counties are a stone’s throw from the Pennsylvania border.

A 1999 study in Wyoming and a 2008 study in Utah both came to the conclusion that the severance tax rate had very slight effect on the level of industry activity. Different tax rates and structures between states seem to have little impact on amount of investment in each state.  In 2001 Montana reduced severance tax rates and while Wyoming increased rates. Both states had a boom, but Wyoming experienced better growth in production and revenue. Industry certainly did not flee Wyoming.

The West Virginia Future Fund

In my opinion, the only downside to increasing the oil & gas severance tax rate substantially is that it would make our budget even more exposed to the boom and bust cycle. As severance tax revenue becomes an ever larger proportion of our general revenue fund, the sudden loss of those revenues because of price volatility can wreck budgets. But we may already have a solution to this problem.

In 2014, the West Virginia Legislature exercised rare foresight when it established the West Virginia Future Fund. This is a sovereign wealth fund that is intended to capture and invest 3% of severance tax revenue that would otherwise go into the general revenue fund. The idea is to permit us to benefit over the long term from the interest in the invested funds. Several western states have taken the lead on this type of fund. Wyoming, a large coal producing state, created its Permanent Wyoming Mineral Trust Fund in 1974. As of 2015, the Fund had assets of $6.8 billion and had generated $4.7 billion in interest income for the state’s general revenue fund.

The Future Fund is different than our “rainy day” fund. We actually have two of these – one into which budget surpluses are deposited and the other into which the state’s tobacco litigation settlement payout was deposited. These rainy day funds have been used to make up budget shortfalls in the last two years.

The Future Fund is entirely empty at present because of restrictions on when severance tax revenues can be diverted to it. One restriction is that no deposit to the Future Fund can be made unless the rainy day fund is at least 13% of the state’s general revenue fund budget for the preceding year. Another is that no deposit can be made if the rainy day fund was called upon in the preceding year to make up a shortfall in the general revenue fund budget.

It is hard to quibble with these restrictions, but as anyone knows who is trying to save for retirement, putting money away for the future requires discipline. The Future Fund will never work as intended if the restrictions prevent a deposit most every year. If this continues, the restrictions will have to be revisited.

The interest from the Future Fund can, by law, only be spent on economic development and diversification projects, infrastructure improvements and “tax relief.” It cannot be used directly to smooth out the effects of the boom and bust cycle on the general revenue fund. However, once we begin drawing down interest from the Future Fund for these specified purposes, our tax dollars that would otherwise be spent on them can be freed up to deal with other spending needs — even during years when market conditions create a bust in severance tax revenue.

Increasing our oil & gas severance tax to take advantage of the current boom coupled with actual, sustained use of the Future Fund is smart business for West Virginia.   




The Carbon Dividend: An Environmental Proposal to Consider

In February 2017, the U.S. Supreme Court dealt a blow to the Obama Administration’s climate centerpiece, the Clean Coal Plan. The Court put a hold on federal regulations to implement the Plan that would have curbed carbon-dioxide emissions from power plants. These emission reductions were the main way the U.S. proposed to meet its commitment under the Paris Climate Accord. The legal case attacking the Clean Power Plan was commenced by West Virginia Attorney General Patrick Morrisey, among others . Then President Trump doubled down by “withdrawing” the U.S. from the Paris Accord, claiming that our commitment forced American workers and taxpayers to absorb the cost “in lost jobs, lower wages, shuttered factories, and vastly diminished economic production.” Now given the hostility of EPA Administrator Scott Pruitt to the mission of that agency, it is hard to be optimistic about our chances for avoiding climate disaster. Where do we go from here?

At least one suggestion has come from an unlikely source. Several elder Republican statesmen have come forward with a proposal for a gradually increasing carbon tax imposed at the first point that fossil fuels enter the economy – the well, mine or port. The tax might start at $40 per ton. The revenue from this tax would be returned as a tax-free dividend to each American with a social security number in periodic checks or direct deposits. At $40 per ton the dividends would be $2,000 for a family of four in the first year. The initial proposal is that all of this tax revenue would go directly to dividends – none would be diverted to other purposes, even to climate R&D.

Among the proponents of this plan are James Baker, George Schultz, Lawrence Summers and Henry Paulson, all senior former government officials and thought leaders in the country. They rightly assert that “[t]he opposition of many Republicans to meaningfully address climate change reflects poor science and poor economics.” For them, the Carbon Dividend is a way for the GOP to return to the environmental achievements of earlier Republican administrations and properly align itself with voter sentiments.

Since the Plan was initially proposed in February 2017, it has attracted support from Exxon-Mobil, BP, General Motors, Pepsico, Proctor & Gamble and many other huge corporations. The value for these organizations comes in the form of better public relations, fewer “command and control” regulations and an end to federal and state tort liability for emitters. We should also not discount the possibility that the corporate executives making the decision to support a Carbon Dividend are concerned about the future of the planet like the rest of us.

In any event, the Carbon Dividend proposal shouldn’t be skeptically received simply because it is favored by some Republican conservatives and large carbon emitters. In order to achieve the critical national purpose of controlling greenhouse gasses we will need everybody on board. Instead, the Plan should be evaluated first on whether it would make meaningful reductions in greenhouse gasses and then on whether it could generate sufficient political support for adoption.

The increasing tax on production of carbon-based fuels will make them more expensive relative to renewable energy sources. This tax-created advantage for renewables would spur their use. The higher cost of products made with fossil fuels would be passed on to consumers in the form of higher gasoline prices and electricity bills. Consumers would gradually demand cheaper products and energy from renewable sources.

The dividend feature would also, in theory, encourage more responsible consumption on an individual level. The dividend would be calculated by dividing the total tax revenue by the number of recipients in the taxing jurisdiction. Although this is not explicitly stated, presumably the amount of the dividend would be calibrated to meet the additional cost of fossil fuel products incurred by the consumer. A consumer would be rewarded by reducing his or her carbon footprint, because by doing so the positive spread between the dividend and the higher cost of energy-related goods would increase. It is estimated that approximately 70% of Americans would come out ahead.

But it seems that the real beauty of this proposal is the way it addresses the psychological resistance people have to acting in their own best interest on the climate issue. A white paper published by New America explains this point. The threat of global warming lacks immediacy, seeming to be remote and disconnected from everyday lives. It is difficult to convince people to endure costs now that will benefit others in fifty years. The dividend provides immediate benefits for behavior that is required to secure a much larger, though long-term benefit. It fundamentally alters the cost-benefit time horizon and it would make political support for adoption much more likely.

Is a Carbon Dividend plan politically possible? It would be certain that powerful political interests in states heavily involved with fossil fuel extraction – West Virginia, Texas, Wyoming, Louisiana, and others – would be opposed. Without a “silver bullet” a Carbon Dividend plan would have no better chance than a cap and trade scheme. In other words, no chance. But the dividend might just be that silver bullet. By immediately distributing a financial incentive to support the plan directly to voters, the Carbon Dividend would pay us to do what we should want to do anyway.

There is, of course, the problem of workers whose jobs might be lost because of the decline in fossil fuel industries. This is a problem that exists now for coal miners due to cheaper natural gas prices and automation. A Carbon Dividend Plan would hasten the demise of these industries. Hard as it is for many in West Virginia to accept, the necessity for an effective national response to climate change may require some decisions that have unpleasant local effects. These local effect cannot be the tail that wags the dog.

Rep. Alex Mooney Ignores the Panhandle’s Economic Needs

Let’s face it. Panhandle voters did themselves no favor when they elected Alex Mooney as West Virginia’s 2nd District Congressman. Characteristics we’d like to see in a Congressman – independence of thought, sensitivity to constituent needs, flexibility in problem solving – appear to be lacking in Rep. Mooney. His actions and statements show him to be one dimensional. Whatever outrage President Trump proposes for the environment with the false promise of putting coal miners back to work is just fine by him.

For proof of this I invite anyone to review Rep. Mooney’s website for his public statements and news releases. Don’t expect to find any evidence of initiative in Congress meaningful to the Panhandle. Instead, a favorite Mooney posting is a “statement” lauding something President Trump has done and repeating tired Republican attacks on the Obama administration. Here is one issued on March 28, 2017:

Today, President Donald Trump signed an Executive Order that rolls back devastating [Clean Power Plan] regulations on American energy production. . . . . This Executive Order is just one of the many ways President Trump is standing up for West Virginia energy production and I am proud to stand with him in this fight. For eight years, former President Barack Obama waged an all-out war on coal and West Virginia values. As unemployment skyrocketed and coal mines closed, President Obama and his left-wing supporters focused on executing on his promise to bankrupt the coal industry.

Earlier, Rep. Mooney celebrated President Trump’s roll-back of the Obama administration’s Stream Protection Rule, which was designed to blunt the harmful effects of mountaintop removal mining. Based on wildly inflated figures from the National Mining Association, Rep. Mooney claimed that the Rule would have cost 70,000 coal mining jobs. Pretty soon Rep. Mooney will have to come up with some ideas that actually move us forward, instead of ritually dismantling what was done during the previous administration. But don’t hold your breath. This may take a while.

Six of eight counties in the Eastern Panhandle are part of the 2nd District – Jefferson, Berkeley, Morgan, Hardy, Hampshire and Pendleton. According to Census Bureau estimates, the 2016 total population of these six counties was 231,766, making up 37% of the 2nd District. Simply from the standpoint of the total votes in the Panhandle, you would expect Rep. Mooney to pay some attention to our economic needs.

There is no coal mining in the Eastern Panhandle. Our economy is heavily weighted toward white-collar jobs in healthcare and government, tourism and agriculture. Our conservation and environmental interest groups are thriving. A ruined environment, fueled by Big Coal and science-denial, directly harms our means of achieving prosperity and our enjoyment of life. Rep. Mooney’s dogged support of the coal industry is completely out of touch with our needs. In fact, it is out of touch with the needs of the entire state. Coal mining jobs make up only a minor slice of West Virginia’s current employment. Counting generously, there are 20,000 miners employed in West Virginia out of total employment of 740,000.

Instead of legislation to improve our economic prosperity, Rep. Mooney seems more interested in right-wing social legislation. He has twice introduced a Bill called the Life at Conception Act (H.R. 816), and has introduced a resolution (H. Res. 514) imploring the states to permit individuals to disregard laws and regulations on the ground of their personal religious beliefs. In the 114th Congress none of the Bills introduced by Rep. Mooney became law.

Certainly, there is more to being an effective legislator than the number of your Bills that are passed. But Rep. Mooney was one of those Congressmen who wouldn’t meet his constituents in face-to-face town hall meetings to explain what he’s doing for us. No doubt he was afraid to hear the pent up anger in his District. There is still time in his current term for Rep. Mooney to demonstrate that he understands the Panhandle’s economic needs. But it is hard to be optimistic.

Rep. Alex Mooney Deals a Blow to West Virginia’s Mountain Streams

Rep. Alex Mooney (WV 2nd) is celebrating the demise of the Interior Department’s Stream Protection Rule. This Rule, made effective in the waning days of President Obama’s tenure, would have created a buffer zone between mountain streams and mine sites and would have protected drinking water in accordance with modern technology. The Rule would have mainly affected mining done by mountaintop removal where mining refuse is pushed into stream valleys. But Rep. Mooney and his Big Coal backers claim that the Rule would have killed over 70,000 jobs in the coal industry. Unfortunately, Rep. Mooney’s grasp of coal economics and employment numbers is feeble, perhaps influenced by his ideological impulse to dance on the grave of the Obama Administration.

The scientific evidence of the harm done by mountaintop removal with valley fills is unassailable. In January 2010, Science Magazine published an article detailing that harm, written and researched by twelve preeminent scientists including one from WVU. They found that burial of headwater streams by valley fills causes permanent loss of ecosystems. Stream biodiversity and water quality suffer. As they emerge from valley fills, mountain streams are saturated with sulfate, calcium, magnesium and other harmful ions. These persist even after mine-site reclamation. Groundwater samples from domestic supply wells have higher levels of mine-derived chemicals than well water from unmined areas. The article, written before Obama’s stream protection Rule, concludes

mine-related contaminants persist in streams well below valley fills, forests are destroyed, headwater streams are lost, and biological diversity is reduced; all of these demonstrate that [mountaintop removal with valley fill] causes significant environmental damage despite regulatory requirements to minimize impacts.

Balanced against this certain environmental harm is Rep. Mooney’s rather hysterical claim that huge numbers of West Virginia coal jobs would have been lost under the Rule. It should surprise no one that Rep. Mooney’s numbers come straight from the National Mining Association. That group’s analysis asserted that as many as 77,000 jobs might be lost nationwide under the worst scenario, but possibly far fewer under more likely scenarios. Those are not all West Virginia jobs, or even Appalachian jobs. And there is good reason to doubt the bona fides of NMA’s numbers because they do not take into account the reclamation and compliance jobs that would be created by the Rule.

Congress required the Office of Surface Mining Reclamation and Enforcement to estimate the proposed Rule’s impact on employment, not just on coal jobs. In a document entitled SPR Myths vs, Facts, it debunks industry claims that between 40,000 and 77,000 jobs would be lost:

The final [Stream Protection Rule] will not have an adverse impact on jobs. The regulatory impact analysis (RIA) for the rule estimates overall that employment will show [an annual average] increase of 156 full time jobs. Where coal production is unprofitable under market conditions, jobs are predicted to decline by an average annual aggregate of 124 fulltime jobs. This will be more than offset by an average annual gain of 280 fulltime jobs needed to comply with the rule where mining remains profitable, such as additional jobs like heavy machine operators for materials placement and water sampling professionals. For purposes of comparison, the Energy Information Administration reports that total coal industry employment in 2015 was equal to 65,971, decreasing 12% from 2014.

In a February 22, 2017 opinion piece, the Morgan Messenger took Senators Capito and Manchin to task for claiming that rolling back the Rule would save state coal jobs. “They don’t do our state any favors by pretending to have turned back the loss of coal jobs,” the Messenger said, noting that coal jobs have been declining for years due to economic factors unrelated to environmental regulations. Rep. Mooney is guilty of the same and more. By accepting and further promoting the coal industry’s false narrative about a “war on coal” he delays the reckoning we in West Virginia must have about replacing coal jobs and severance revenues. He keeps us in the perpetual coal rut. The roll back of the Stream Protection Rule is no cause for him to celebrate.

More Corporate Welfare In the Midst of a West Virginia Budget Crisis

Several committees met December 5, 2016, as part of the Interim Session of the West Virginia Legislature. The pall of a significant revenue shortfall hung over everything.

At a meeting of the Standing Committee on Education, Chancellor Sara Tucker of the Community & Technical College system did an admirable job explaining how the institutions in the system were adapting to the reduced revenue situation. Community colleges have begun a program of sharing personnel resources – not every college needs its own Human Resources Director or General Counsel. She was followed by Dr. Jerome Gilbert, President of Marshall University, who described the measures taken at his institutional to deal with the sharp decline in state funding.

Immediately following that meeting the Joint Committee on Tax Reform, Subcommittee A gathered to hear two presentations. It was almost as if this Subcommittee was functioning in an alternate universe. Here’s why.

Incoming Senate President Mitch Carmichael (R – Jackson, 04) has announced a goal for the upcoming session to make West Virginia’s tax structure “competitive” with surrounding states. In a statement reported in the State Journal on December 4, Carmichael said that cutting taxes on manufacturer’s equipment and inventory will be considered. This and other measures would serve the laudable goal of “creating an environment that the private sector can hire people and put them back to work.”

At the Subcommittee meeting, Mark Stowers, Vice President of Asset Management for Alpha Natural Resources made a presentation about corporate property tax on mining machinery. Alpha is one of the largest coal companies in the country and operates numerous mines in West Virginia. Stowers was plain spoken and direct about what Alpha wanted.

West Virginians pay personal property tax on vehicles they own on July 1 of each year. It’s the same for corporate equipment and machinery. Stowers explained that not all of Alpha’s mining machinery is in use at once. Of course, if a piece of equipment is in productive use at a West Virginia mine on July 1, Alpha pays the property tax on it. But if the equipment is idle, Alpha moves it out of state before July 1 to avoid the West Virginia property tax. Virginia and Kentucky have no such tax.

Stowers described a depot in Wise, Virginia with 900 pieces of equipment, most of which was moved there to avoid West Virginia property tax. This is not obsolete equipment. Stowers claimed simply that it was expensive to transport that equipment back to West Virginia, implying that Alpha might decline to move it back here to start up a new mine job.

One would expect an official of a large taxpayer to be reticent about admitting conduct that was undertaken for the sole purpose of tax avoidance. Under West Virginia law, a willful attempt to evade taxes in any manner is a felony, although it is unclear whether this provision applies to corporate personal property tax. But none of the legislators seemed concerned in the least that moving equipment out of state to avoid tax might be inappropriate. In fact they were generally sympathetic. The discussion focused on how the West Virginia Code could be amended to provide relief to Alpha and other similarly situated corporations.

For example, Sen. Mike Hall (R – Putnam, 04) mused aloud about whether the Code could be amended so that idle machinery could be valued at little or nothing, thereby producing tax revenue of little or nothing. Del. Rupert Phillips (D – Logan, 24) declared that the coal industry was “near and dear to my heart” because of the number of coal industry jobs in his district. The one Panhandle legislator present, Del. Eric Householder (R – Berkeley, 64), appeared to be busy with his cell phone and had nothing to say.

With the express intent to avoid corporate property tax Alpha is playing a shell game that ordinary citizens could never get away with. Imagine moving your automobile to a county just over the state border on June 30 and then claiming that no property tax was owed because it was not within a West Virginia county on tax day. This would be a non-starter because the law taxes “all personal property belonging to persons residing in this state, whether such property be in or out of the state.”

If providing Alpha and other coal companies with property tax relief had the effect of increasing employment or coal production upon which the state’s severance tax would apply, then maybe there would be some logic to the property tax relief. But shouldn’t that first require some hard evidence that the property tax is actually causing coal companies to decline mining opportunities in West Virginia? Are we simply going to take a coal company’s word for it? A real loss of severance tax, if there is one, could be compared with the amount of revenue to be lost from cutting corporate property tax and then a proper policy choice could be made. But there was certainly no inquiry of this sort from the Subcommittee.

Really, in a time of starkly reduced revenue for all the important things the West Virginia government does, why does our Legislature spend any time considering tax relief for coal companies? If West Virginia actually collected the property tax on machinery taken out of state to avoid tax, instead of letting coal companies get away with this shell game, imagine how useful the revenue would be for our universities and community colleges. Relief from property tax sounds like just another example of corporate welfare we simply cannot afford.