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Fiscal and environmental sanity get a boost as McAuliffe proposes to roll back coal subsidies

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Thanks to the state’s budget deficit, Virginia may finally scale way back a notorious fossil fuel subsidy that currently transfers tens of millions of dollars annually from taxpayers to the pockets of corporations that mine Virginia coal. The Richmond Times Dispatch reports that if Governor McAuliffe has his way, the Virginia Coal Employment and Production Incentive Tax Credit and the Coalfield Employment Enhancement Tax Credit will be limited to $500,000 per year, saving the government $20 million per year.

The refundable tax credits were intended to make Virginia coal cheaper for utilities to buy, and thus more competitive with coal mined in other states. In theory, that was supposed to mean more coal mining jobs in southwest Virginia. In practice, the subsidies meant some coal companies paid no state taxes, and actually received significant cash handouts, even as coal jobs declined. And because the subsidies are based on tons of coal mined and not on the number of people employed, mining companies suffered no penalty from capital investments that maximized production while cutting jobs.  

Critics of the subsidies thought they had won their point three years ago when the Joint Legislative Audit and Review Committee (JLARC) issued a critique of the various Virginia tax credits that was especially critical of the handouts to coal companies. As it describes beginning on page 67, the subsidies did not stop coal employment from falling 54% since 1990, or slow the steady decline in production:

“The precursor to one of the current coal credits was in place before the decline began, while the other was enacted shortly thereafter. It is important to note that with or without the credits, the decline in Virginia coal production was predicted by numerous analysts because over two-thirds of recoverable coal reserves in Virginia have already been mined.”

Indeed, the report continued, coal employment and production were actually worse with the credits in place:

“In the process of developing and refining the credit, analysts projected that coal employment and production would decline by 28 percent between 1996 and 2005 without the credit. However, actual mining employment was substantially lower than expected during this period, declining 36 percent.”

In spite of this damning analysis, in 2012 the General Assembly actually extended the expiration date of the coal subsidies until 2017. Insiders say Senate Democrats were persuaded to vote for the extension as a favor to coalfields senator Phil Puckett, who needed the backing of coal companies to hold his seat in 2013 and keep Democrats in control of the Senate. (Some might say he failed to return the favor.)

The coal subsidies have long infuriated environmentalists and community activists in the Coalfields region. In their view, Virginia taxpayers should not be forced to reward mining companies for blowing off the tops of our mountains, filling ancient stream valleys with rubble, poisoning wells and rivers, and destroying homes to get at the last, thin seams of Virginia coal.

So Coalfields activists welcomed the Governor’s proposal as a “good first step” in planning a future where coal is no longer the economic engine it once was. “We need to take our heads out of the sand and invest heavily in diversifying our economy in Southwest Virginia,” said Wise County resident Jane Branham, Vice President of Southern Appalachian Mountain Stewards. “Supporting outdoor recreation, tourism, sustainable agriculture, reforestation and a new generation of entrepreneurs is the path forward in the mountains, not subsidizing bad actor coal companies that continue to poison the natural resources our future depends on.”

Renewable energy advocates have also complained that by making coal cheaper, the subsidies make it harder for other forms of energy to compete. One would expect his argument to resonate with free market advocates, a category that supposedly includes all Virginia Republicans and a lot of the Democrats. Yet in spite of criticism from some Democrats, the subsidies have not faced serious opposition.

Acquiescence in such an expensive and counter-productive corporate welfare program mostly reflects the influence of the Virginia coal industry. (See last week’s post for a sampling of how coal companies work to buy votes with campaign cash.) But the drafters sweetened the deal with a provision that siphons off a portion of the excess cash to fund the Virginia Coalfield Economic Development Authority (VACEDA), which is supposed to help the region diversify beyond coal. (It might work better if coal executives didn’t sit on the board.)

Under McAuliffe’s proposal, VACEDA would get a direct appropriation of $1.2 million to replace the money it would lose by the scaling back of the tax credits. That should satisfy those legislators whose primary concern is helping residents of southwest Virginia.

Those whose primary concern is helping coal companies, however, aren’t likely to be happy. Congressman Morgan Griffith has already been quoted as suggesting Governor McAuliffe’s proposal to scale back the coal subsidies amounts to a “war on coal.”

He expressed no concern about coal’s war on the people of southwest Virginia. For those who care about that, Governor McAuliffe’s move feels like a breath of clean air.