Signature Sponsor
As Government Spending is Cut to the Bone, Wyoming is Spending Millions to Promote Coal. Will It Pay Off?



December 6, 2020 - The bad news came on Nov. 16.

Wyoming Gov. Mark Gordon handed down $500 million in additional reductions across nearly every department that day.

Funding for public services and K-12 education budgets shrunk by double digit percentages.

For weeks, state agencies had been bracing for another round of budget cuts to drop. But two lines on Wyoming’s budget came out relatively unscathed from the austerity measures.

They included a pair of programs aimed at saving the state’s struggling coal industry: a “clean coal marketing program” and an effort to sue the state of Washington for blocking a coal export terminal. The governor proposed funding both at or near pre-pandemic levels.

It’s true, the total $3.45 million allocation for these pair of initiatives represents only a small fraction of a percent of the state’s overall budget.

In comparison, the Department of Health will likely be reduced by $135.7 million. The University of Wyoming’s general fund budget could be cut by $62.5 million, according to the governor’s budget proposal.

But the lack of cuts to coal underscores just how committed the state is in its fight to reverse the misfortunes of the state’s traditional industry, even amid an economic downturn partially driven by coal’s decline.

Renny MacKay, a senior policy adviser to Gordon, defended the governor’s decision. Funding for the state’s coal programs was evaluated on similar criteria to other aspects of the budget: namely, the impact a reduction in funding would have, versus the potential payoff of keeping that line item in the budget, he said.

Tourism funding, for example, was also left largely intact in the most recent round of budget reductions, MacKay noted.

“Some of these programs don’t create revenue in the same way that coal does, but they create jobs and are very important to state and local economies,” MacKay said. “Those are the types of programs that will help us restart the economy after COVID-19.”

Still, the Wyoming Tourism Board’s general fund budget will lose $4.2 million, about 15% of its budget. The coal marketing program faces a 5% cut, and the port lawsuit will receive the same amount of funding.

Wyoming’s current investment in coal is a small bet on a risky hand, according to interviews with several energy analysts. But if successful, it could have a huge payoff for the state. Yet when resources are more limited than ever, is it a wager Wyoming can afford to make?

Preserving a Market For Clean Coal

Last year, Wyoming’s Legislature authorized $1 million in funding for a venture they called the “coal marketing program.”

The program gives the governor’s office the authority to distribute money to “to protect and expand Wyoming’s coal markets and coal facilities and to address impacts cities, towns and counties have experienced or will experience due to changes in the coal market,” according to the bill.

But after the bill was signed into law, there was some public confusion over what a marketing program for coal actually meant.

To the governor’s office, it has meant beefing up lobbying to keep coal-fired power plants open and championing the economic benefits of Wyoming coal across the country.

That work is being carried out by a 501©(4) called the Energy Policy Network.

Wyoming has a $500,000 contract with the group. The Wyoming Energy Authority pays one half of this amount each year of the budget cycle, according to Randall Luthi, the governor’s chief energy adviser.

Any remaining funds slated for the state’s coal marketing program have yet to be expended.

But advocating to save Wyoming coal — once the premier economic engine for the state — has done little to stop powerful market trends from barreling forward.

Demand for Powder River Basin coal has continued to tumble this year. Utilities have forged ahead in slating coal-fired power plants for retirement nationwide as they turn to less expensive natural gas to supply electricity to customers.

Travis Deti, executive director of the Wyoming Mining Association, has called the market conditions for coal during the pandemic nothing less than “dreadful.” The Energy Information Administration predicts coal production could fall by 26% this year in the U.S.

Coal’s misfortunes predate the pandemic too.

Since peaking in 2008, coal production nationwide has been on a precipitous decline. Last year, U.S. production volumes reached their lowest since 1975, according to an EIA analysis. A decade ago, Wyoming’s coal epicenter produced over 400 million tons of the commodity. Last year, the basin’s mines pumped out 267 million tons.

Despite the colossal hit to coal in recent years, Wyoming still produces more tons of the commodity than anywhere else in the nation.

What’s more, mining jobs often present the best opportunities for non-college educated workers to make a living. About 4,600 workers are employed in coal mining in Wyoming, as of last year. That’s down from about 7,000 workers less than a decade ago, in 2011.

And the revenue generated from mining and burning coal in Wyoming still contributes a sizable chunk of money to the state’s economy. Coal funnels money to the state and counties through coal lease bonuses, two types of mineral taxes and property taxes.

The taxable valuation of coal production in Wyoming last year came out to $2.5 billion. (That’s down from nearly $4 billion in 2014.)

The coal marketing program’s proponents contend it’s the least the state can do to defend its central industry, as well as the communities that depend on it.

In his budget message, Gordon described the difficulty of deciding how much to cut from agencies supporting the state’s main economic driver, energy.

“We are doing what we can to not cripple the largest source of state and county revenues while not compromising Wyoming’s environment and agricultural industry,” he wrote.

States Built on Coal

Politically, fighting for the preservation of coal jobs is a winning argument for many politicians of both parties across the country.

Leaders in well-known coal states like Kentucky and West Virginia have been fighting tooth and nail to save the industry.

Even Illinois Gov. J.B Pritzker — a Democrat — has invested significant effort in propping up that state’s coal mining sector, as his administration faces one of the most dire economic situations in the nation.

But Illinois — like Wyoming — is becoming a rarity among coal-producing states.

The passage of amendments to the Clean Air Act opened the door for Wyoming’s low-sulfur coal to begin displacing Appalachia coal in recent decades, and states east of the Mississippi River began moving away from coal, relinquishing the political will to save it in favor of newer opportunities like oil and gas.

Though Wyoming’s coal industry is in decline, it is not dead yet, and lawmakers have stressed that developing new markets domestically and overseas could help reverse those fortunes.

But time is running out.

Barry Rabe, a professor at the University of Michigan who studies state and federal energy policy, said that the tipping point for coal states still hanging on to coal could come as early as the next federal stimulus package under President-elect Joe Biden.

“There are going to be energy bills linked to that stimulus bill,” Rabe said. “And every state is going to be looking for the most advantageous terms. It’s really questionable that coal is going to be center stage in any kind of major stimulus package. I just do not hear the word ‘coal’ as part of the American or global energy future very widely anymore.”

Even if the U.S. Senate remains in Republican hands — giving officials like Sen. John Barrasso the leverage to help Wyoming get a seat at the table in those discussions — Congress can only do so much.

Rabe, who has written several books on the politics of climate change, noted that most of the significant regulatory actions regarding coal since the 1990s have come from the executive branch. And even in friendly administrations, coal has continued its sharp decline downward — a trend expected to continue under Biden.

“They handle everything through unilateral executive action, and every indication is that the Biden administration will move pretty aggressively,” Rabe said.

At some point, Rabe said, Wyoming may run into the same question that other coal-producing states have had to grapple with: How far should the government extend itself in propping up a flailing industry?

“That’s not normally an idea we associate with conservative Republican governments,” Rabe said. “Yet, what you’re seeing in Wyoming is an embrace of coal and investing scarce government dollars in one industry when there are competitors. That idea is directly opposed to letting market forces work.”

Taking Coal to the Highest Court

In the weeks before the coronavirus began moving like wildfire through the country, Wyoming’s governor joined Montana in asking the U.S. Supreme Court for a hearing on a dispute with the state of Washington.

The lawsuit alleged Washington unconstitutionally stopped the development of a proposed coal export terminal that could have helped transport Powder River Basin thermal coal to global markets. The two landlocked states argued Washington violated the Dormant Commerce Clause and Foreign Commerce Closure of the U.S. Constitution by inhibiting the export of a commodity.

In October, the Supreme Court invited the acting solicitor general to file a brief to express the position of the federal government on the case.

Gordon’s supplemental budget published on Nov. 16 asks the Legislature to set aside $2.5 million to fund the possible court case over the blocked coal export terminal.

The Millennium Bulk Terminals proposed for the West Coast would be the largest in North America. It would allow Montana and Wyoming to export more Powder River Basin coal to other countries during a time when domestic demand for the commodity slows.

An export terminal for coal there could have been a boon for the basin. Montana’s Powder River Basin mines already export thermal coal from a West Coast terminal up in Canada. Proponents point out that many countries around the world will only continue depending on coal for years and years to come. Why not have it be Powder River Basin coal?

But skeptics say winning the lawsuit is still a long shot. And even if Wyoming won, substantial roadblocks — from other blocked permits to a lack of available capital — could still plague the terminal.

When all is said and done, some wonder if a market for thermal coal will even be there to justify the project. Powder River Basin coal operators have tried repeatedly to profit off exports to other countries, including coal-reliant Japan, over the years, but with mixed success.

During the pandemic, the prospects haven’t been so rosy for Powder River Basin coal exports either. For instance, the volume of thermal coal exported from the Westshore Terminals in British Columbia has plummeted, according to a recent report by the Institute for Energy Economics and Financial Analysis, an energy think tank. Third-quarter exports this year were just half what they were in 2019.

What’s more, Prime Minister Yoshihide Suga announced in October that Japan would work to achieve carbon neutrality by 2050, in part by divesting from coal.

On Thursday, Lighthouse Resources Inc. — the coal company behind the Millennium Bulk Terminals in Washington — filed for bankruptcy. In its filings, the insolvent company indicated an interest in selling off the rights to the unrealized export terminal to interested buyers.

Many analysts agree investing in a coal export terminal project is a relatively high risk venture under today’s market conditions, explained Rob Godby, an associate professor of economics at the University of Wyoming. He is also a member of Wyoming’s Consensus Revenue Estimating Group and frequently provides guidance to the governor on energy matters.

“We’re still fighting a war that in a lot of ways is over — whether it’s the election, energy policy or public health,” Godby said. “I really wish the state would spend as much time thinking about community transitions. For example, $2.5 million would be a good start (for) community transitions.”

Godby said he understands the few million dollars dedicated to preserving coal isn’t a large amount of money when it comes to the state’s overall budget. But right now, during a recession and pandemic, “every dollar counts,” he said.

Rather than abandon communities built from the revenues generated from the coal mines, many of the state’s leaders and lawmakers say they want to hold out hope: for new international customers, or even alternate uses for coal, like carbon products. But it’s a tricky bet.

Nonetheless, to MacKay, Gordon’s adviser, “we’ve got to try.”