Expand All | Collapse All

The Impact of Coal
on the Budget

Executive Summary

Download Executive Summary PDF

Download Full Report PDF

Economics of Coal and
Future Prospects

Introduction

The Economics of Coal
in Kentucky

Mining Employment
and Production Trends

Economic Impact of Mining Wages

Economic Status of
Coal-producing Counties

Electricity Prices

The Competitiveness of
Coal in Kentucky

Introduction

Production Costs

Transportation Costs

Regulatory Challenges

Seeking New Markets

Role of Federal Subsidies

Summary

Download the Economics
of Coal PDF

Home

FOR IMMEDIATE RELEASE

June 25, 2007

Mountain Association for Community Economic Development (MACED)
Contact: Justin Maxson, jmaxson@maced.org, 859-986-2373

New report finds coal is costly for Kentucky’s state budget

Kentucky spends a significant amount of public resources every year to subsidize the coal industry, according to a new study by the Mountain Association for Community Economic Development (MACED).

The report finds that coal industry-generated state revenues from the coal severance tax and other taxes are less than the costs associated with supporting the industry. For 2006, spending exceeded revenues by an estimated $115 million.

“We are in the midst of a critical period for our state’s energy, fiscal and economic policy,” notes MACED President Justin Maxson. “It is increasingly important for Kentuckians to better understand the role and impacts of coal in our state so we can make smart decisions.”

The report estimates that coal is responsible for $528 million in state revenues and $643 million in state expenditures for 2006. The $528 million in revenues includes $224 million from the coal severance tax and revenues from the corporate income, individual income, sales, property (including unmined minerals) and transportation taxes as well as permit fees.

The $643 million in expenditures includes $239 million to address the industry’s impacts on the coal haul road system as well as spending to regulate the environmental and health and safety impacts of coal, support coal worker training, conduct research and development for the industry, promote education about coal in the public schools and support the residents directly and indirectly employed by coal. Total costs also include $85 million in tax breaks and preferences designed to subsidize the mining and burning of coal.

“The report’s findings are particularly concerning given the historic decline in coal employment in Kentucky and the future challenges coal faces in a clean energy era,” notes Maxson. “In addition, they beg important fiscal policy questions in the midst of a serious state budget crisis.”

While coal was once a major employer in Kentucky, it now makes up only 1 percent of state-wide employment. In those counties with the highest share of employment in coal, mining jobs range from 3 to 23 percent of local employment. But those counties struggle with significant long-term unemployment and poverty rates as high as 37 percent.

Additionally, Kentucky coal faces substantial competitive challenges in the coming years. It has fared poorly compared to western U. S. coal due to higher production costs, and official sources project continued decline in Kentucky coal production as the easily recoverable coal is depleted.

Kentucky coal will face new challenges as aging coal-fired power plants meet retirement and new laws on carbon emissions raise the price of coal relative to cleaner alternatives. Those realities will also lessen Kentucky’s historic advantage of low-price electricity.

The study covers only a portion of the full costs of the coal industry to the state. It does not address the externalized costs associated with coal extraction and production including direct impacts on health and the environment.

The report’s recommendations to the state include:

Compare future investments in coal to investments in energy alternatives with an assessment of the full costs and benefits of the choices.
Pursue economic diversification particularly for the state’s coalfield communities.
Examine the way coal is taxed and subsidized in the state.

“Kentucky faces major challenges and difficult choices in the coming years due to our reliance on coal for jobs and electricity,” says Maxson. “We must think carefully about how we will engage with the transition in front of us and make informed choices with a stronger accounting of the costs and benefits of our options. This report contributes to that critical conversation.”

“The Impact of Coal on the Kentucky State Budget” and companion research on the current and future economics of coal in Kentucky are available at www.maced.org/coal or by calling 859-986-2373.

MACED is a 33-year-old community development organization that works in eastern Kentucky and Central Appalachia to create economic opportunity, strengthen democracy and support the sustainable use of natural resources.

# # #