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Economics & Economy

Rethinking the Future of Subsidizing Coal

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It’s been 20 years since Virginia started subsidizing coal companies with tax credits that have cost the state more than $500 million.  As lawmakers review the governor’s budget for the next two years, some experts say it might finally be time to stop propping up King Coal in Virginia. 

Richmond-based Massey Energy was once the top producer of coal in Central Appalachia.  Journalist Peter Galuszka recounted the company’s history in a book called Thunder on the Mountain: Death at Massie and the Dirty Secrets Behind Big Coal.  He says the company had been fined many times for safety violations, but there were things the public didn’t know.  

“When there were federal inspectors coming into the mine, allegedly, there were all kinds of warning systems to let people know to cover things up.”

In 2010, prosecutors say Massey’s disregard for safety caused a massive explosion that claimed 29 lives at the Upper Big Branch mine.  Again, Peter Galuszka.

“The fire balls ripped seven miles underground, and the miners were either ripped apart or died of instant asphyxiation from the carbon monoxide that replaced the air.”

But even after the Upper Big Branch disaster, Massey’s chief competitor, Alpha Natural Resources, stepped up to buy the company for more than $7 billion.  Massey - after all - produced metallurgical coal.

“That coal is used to make coal in places like China and South Korea.  Well guess what happened?  China is undergoing a major economic downtown, so the global demand for steel has gone down.  The demand for metallurgical coal has gone down.”

And that could help to explain why this summer Alpha Natural Resources declared bankruptcy.  So what does that have to do with coal subsidies in Virginia. 

“Alpha Natural Resources, which just went bankrupt, was in the top ten of political donors to Virginia politicians.”

The company has given more than three million dollars since 2003, but a bankruptcy trustee may block future campaign contributions, and lawmakers will find it difficult to justify future subsidies.

“The legislature’s own audit and review commission found that those tax credits that were adopted to help grow jobs in that industry have not met their intended purpose.”

Michael Cassidy, executive director of the Commonwealth Institute -- a fiscal policy think tank, says the state could find better ways to spend that money.

“Whether it’s investing in the education of the families and workers of those communities.  Whether it’s investing in the infrastructure to build things that they need to turn the corner on their local economies, those could be better uses of that money.”

And earlier this year Governor McAuliffe signaled he might be ready to end tax breaks for coal companies when he vetoed legislation to extend them through 2019.  The debate will unfold as the former chairman of  Massey Energy goes on trial October 1st for conspiracy to violate mine safety rules and for lying to regulators and shareholders. 

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