Trump’s Pro-Coal Policies Unlikely to Boost State Coffers

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

President Donald Trump’s pledge to bring back coal and lift Obama-era environmental rules shouldn’t give coal-heavy states hope that a boom from taxes will follow.

Environmental deregulation is “highly unlikely to have a significant impact on production, job growth or growth in severance taxes,” said Lucy Dadayan, a senior policy analyst at the State University of New York’s Rockefeller Institute of Government.

The coal industry, however, takes a different view, predicting that a clawing back of environmental rules would help business.

The Environmental Protection Agency “has done nearly inestimable damage to coal, costing jobs and driving a good deal of the education budget shortfall that is impacting the lives of many in Wyoming today,” Rick Curtsinger, spokesman for Wyoming-based coal company Cloud Peak Energy, told Bloomberg BNA.

States that collect significant revenue from severance taxes on fossil fuel extraction are re-evaluating operating budgets and taxation structures to address revenue shortfalls, caused in part by reductions in global demand, economists have told Bloomberg BNA. Trump’s March 28 executive order made that process more complex.

Wyoming and West Virginia, the No. 1 and No. 2 coal-producing states, both face significant budget gaps, and they have instituted spending cuts to make up the difference. Support needed to increase severance taxes in these states doesn’t exist. In fact, rates have been declining.

Currently, West Virginia lawmakers are considering S.B. 705, backed by the West Virginia Coal Association. It would lower the rate of coal severance tax to 4 percent from 5 percent beginning in July, and to 3 percent from 4 percent in July 2018.

However, Gov. Jim Justice (D), a billionaire who invested heavily in coal, has said he believes the president’s plan to target funding for former President Barack Obama’s Clean Power Plan and recent lifting of a restriction on the release of coal waste water are steps in the right direction.

Industry Praises Trump

The Clean Power Plan was designed with the “express goal of closing even more coal-powered electricity generation,” Curtsinger said.

In a statement, the West Virginia Coal Association welcomed Trump’s executive order to “start the process of turning back the Clean Power Plan rules, which became final in 2016 and were a major contributing factor to power plant and coal mine closures across the country.”

Some evidence suggests the coal industry is responding to Trump’s promises to bring back coal.

In the last few months, two of the country’s largest coal companies, Peabody Energy Corp. and Arch Coal Inc., came out of bankruptcy. Miner Ramaco Resources Inc. held the industry’s first initial public offering in two years, and Warrior Met Coal LLC is planning its own.

Those are signs the industry may be recovering from a market collapse that, just a year ago, sent coal prices plunging to their lowest level in more than a decade. The downturn shut hundreds of U.S. mines, leaving thousands out of work.

Still, Susan F. Tierney, senior adviser with Analyst Group Inc. and former assistant secretary for policy at the U.S. Department of Energy, told Bloomberg BNA that she doesn’t think Trump’s environmental policies will likely lead to a turnaround for coal and an increase in tax revenue for states.

Whatever impact they have will probably be most felt on production on federally owned lands in Western states, such as Wyoming, where technology and mining techniques are much less labor intensive, she said.

Market Forces

The principal factors that have been driving down demand for coal, and hurting state revenue from severance taxes, have little to do with environmental regulation, Tierney said.

“Low gas prices have substantially led to reduced demand for coal in the power sector, which is otherwise the biggest market for coal produced at U.S. mines,” she added.

Increased demand for wind, solar and other renewable energy resources, which is driven by a combination of states’ policies and declining costs of new wind and solar technologies, are hurting coal, Tierney said.

Besides, overall demand for electricity in the U.S. is flat.

“The president’s executive order fundamentally does not change that equation,” she said. “Market forces are against him.”

These factors are working against coal states like Kentucky, Pennsylvania, Illinois, West Virginia and Wyoming.

“Overall, reliance on a single industry or a single source of tax revenue is not a sound fiscal policy,” Dadayan told Bloomberg BNA. “Therefore, states that have high reliance on severance taxes should think about diversification of their tax structures.”

Optimism in West Virginia

Still, in West Virginia, lawmakers and residents are fairly optimistic that relaxing environmental regulations will lead to more jobs and better economic conditions for the state, according to economist and West Virginia University law professor James Van Nostrand.

The reason for this misplaced optimism is that “political leaders in the state for the last eight years have been complaining about the ‘war on coal,’ and the alleged devastating impact that Environmental Protection Agency regulations have had on the coal industry,” Van Nostrand, director of the university’s Center for Energy and Sustainable Development, told Bloomberg BNA.

“This narrative has been bipartisan,” with leaders of both parties unanimous in their condemnation of virtually every major piece of environmental regulation, including the Clean Power Plan and Stream Protection Rule, he said.

Politicians have deceived the citizens of West Virginia about the true causes of the decline in the coal industry, namely mechanization, geology, economic forces, international concerns about climate change and the impact on exports, Van Nostrand said.

It’s a “cop out” to blame everything on the EPA, “as it relieves these political leaders from having to initiate the tough conversations that this state has needed for the last 10 to 15 years about the necessary transition away from coal,” he said.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State