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The Impact of Coal
on the Budget

Executive Summary

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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

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of Coal PDF

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Transportation Costs

Deregulation of the railroads played a major role in increasing the competitiveness of western coal. In the past, high transportation costs gave the Central Appalachian region a competitive advantage. Because the majority of coal transport is done by rail, high rail rates made it difficult for western states to compete in Kentucky’s key coal markets. However, the deregulation of the railroad industry provided new opportunities for western states to tap into distant markets, bolstering their competitiveness in the eastern United States. This shift took hold in the early 1990s, and Central Appalachia started losing market share to western producers. According to a 2000 report from the Energy Information Administration (EIA), “Concurrently, the combined portion of coal supplied by the Powder River Basin and the Rockies soared from 18.8 percent in 1988 to 36 percent in 1997.”¹⁸ This trend has continued as western states have capitalized on lower costs and thicker and more accessible coal seams. Western states significantly increased their distribution relative to other coal-producing states between 1990 and 2004, while Appalachian states saw a significant decline (see Figure 16).

Figure 16: Coal Distribution by Region

The price of oil may also impact the relative competitiveness of eastern and western coal, as rising oil prices give the railroads competitive advantage over trucking companies. Railroads have expanded as a result, opening new travel routes (and hence potential markets) for western coal in recent years.¹⁹ On the other hand, eastern states could benefit from a rise in oil prices relative to western states in the short term, due to shorter transport routes.²⁰ According to the EIA’s July/September 2008 Quarterly Coal Report, the rise in fuel prices and slowing economy have reduced the demand for coal from the Powder River Basin, while Appalachian producers have captured more of the international markets due to their proximity to ports in Maryland and Virginia. These developments benefit West Virginia producers more than Kentucky producers, and may continue to do so in the short term. Nevertheless, these trends are not expected to reverse the dominance of western coal in the long run.²¹

18. Energy Information Administration. 2000. Energy Policy Act Transportation Rate Study: Final Report on Coal Transportation. Retrieved March 20, 2009 (http://www.eia.doe.gov/cneaf/coal/coal_trans/chap2.html#table5).

19. Thornton, Emily. 2008. “Rail Renaissance.” Business Week Issue 4106, November 3, p. 58.

20. Kentucky Legislative Research Commission. 2004. The Competitiveness of Kentucky’s Coal Industry (Research Report No. 318). Frankfort, KY: p. 28.

21. Energy Information Administration. 2008. Quarterly Coal Report. July/ September. Retrieved March 20, 2009 (http://www.eia.doe.gov/cneaf/coal/quarterly/qcr_sum.html).