The world is having a hard time burying coal.
The “get-no-respect” energy source has rapidly moved from a pariah to a courted fuel, even if countries are reconnecting with coal grudgingly. As a result, prices have surged, and that has produced a financial windfall for West Virginia.
I’ll get to that later, but first …
The post-pandemic economic recovery significantly increased the demand for energy, while Russia’s invasion of Ukraine and the subsequent sanctions have Europe scrambling to keep the lights on.
Climatewire reports, “Coal is one of the few short-term options available to parts of Europe, including its biggest economy, Germany.” According to Reuters, “Germany, Italy, Austria and the Netherlands have all signaled that coal-fired power plants could help see the continent through a crisis.”
Alternative fuels cannot fill the void.
Robert Bryce, host of the Power Hungry Podcast, wrote in The Hill that renewables are falling short because of “intermittency, land constraints, lack of sufficient high-voltage transmission capacity, and the staggering quantity of commodities such as concrete, copper, steel and rare earth elements that would be needed.”
Australia and other countries that have been moving away from fossil fuels are being forced to backtrack. “A national electricity crisis is showing that fossil fuels are hard to drop,” the Wall Street Journal reported.
The significant increase in demand has driven up prices for thermal coal and metallurgical coal (used to make steel) to record levels. Combine that with an increased demand, and thus higher price, for natural gas, and you have a dramatic rise in severance taxes flowing into the state treasury.
The state collected $769 million in severance taxes for the just-completed fiscal year. That is 233% above estimates and the third single largest source of revenue for the state, after personal income taxes and consumer sales taxes.
The significant increase in severance tax collections contributed to an astonishing $1.3 billion budget surplus, which is now driving Gov. Justice and Republican legislative leaders to push tax cuts.
As I wrote last week, it is appropriate for the government to return money to the taxpayers when it collects more than it spends. However, public policy makers should keep in mind that the energy market is highly volatile. Dramatic price swings are the norm.
Economists are warning of a recession. That would ease the demand for coal and lower the price, thus reducing severance taxes. Meanwhile, renewables will continue to take up more market share. BP’s Statistical Review of World Energy reports energy production from renewables grew by 15% last year, stronger than the previous year’s 9% and higher than any other fuel in 2021.
But for now, countries that have been trying to wean themselves off coal have rushed back to the mines. Climate change is a real problem, but so is not having enough electricity.
