By Taylor Kuykendall

West Virginia's coal industry enjoys broad support in the state Legislature, and the issue of coal is often a lightning rod for state voters in national elections. Many in the state, however, are increasingly critical of broad measures to support coal production over other forms of energy and economic development.

Ted Boettner, executive director and co-founder of the West Virginia Center on Budget and Policy, examines economic trends in West Virginia's coal industry, including the ongoing decline in production, productivity and employment, and fiscal aspects of the energy sector such as severance and property taxes.

The organization has made a number of proposals for economic and coal legislation in the state, frequently challenging energy producers and public officials with its reports, legislative testimony and other outreach efforts.

Boettner spoke with SNL Energy and shared his thoughts on the current impact and future of the West Virginia coal industry. The questions and answers below have been edited for clarity and brevity.

SNL Energy: You have been critical of some state legislative measures designed to benefit the coal industry in West Virginia via tax breaks or other means. What role has the state government played in coal's success or failure, and what role do you think it should play in the future?

Ted Boettner: We try to look critically at all issues, whether it's a severance tax credit or an early childhood intervention program. For example, last week the West Virginia House Energy Committee passed out of committee a bill to give coal companies a $3/ton credit on the severance tax for coal that is sold in-state to a utility or industry above a certain threshold.

While the perceived aim of the legislation is to boost in-state coal production, the incentives are pointed backwards. If anything, the state should be giving the utility or factory the tax credit for purchasing more expensive West Virginia coal. The bill is nothing more than rent-seeking and it highlights how West Virginia coal companies are unable to compete with higher-taxed coal in Wyoming and how much they are looking for government to step in and help with their market woes. It will only work if the coal companies were forced to pass along the tax savings to in-state coal purchases, but that's not in the bill.

Instead of giving handouts to coal companies that will do little to boost production or employment, the state should be using coal revenue to diversify its economy and help coal miners' transition. We should also explore other less harmful uses for coal and implement smarter rules to ensure mining health and safety.

While the positive economic impacts of the coal industry are often touted at state and national levels, you have written about what you describe as negative impacts in West Virginia. What are some of those negative impacts, and what would you recommend as a solution?

It would be irrational to only look at the benefits of the coal industry without considering its costs. Natural resource extraction of any kind can be very hard on communities and has been heavily associated with political corruption and uneven development. Typically in West Virginia, it is very difficult to have an evidence-based discussion about the costs of coal because of the strong influence of the coal industry on political discourse and at the state Capitol.

The largest externality of coal is health and well-being, where the costs are well into the billions. The negative impact on investment and attainment of human capital is also prevalent in communities and in the state, although West Virginia has done a decent job investing in higher education over the last two decades. Other externalities include the enormous toll on our roads from heavy coal trucks where the state doesn't collect enough in fees to cover the costs.

Like I mentioned earlier, the coal industry isn't engaged in free market capitalism and they benefit tremendously from state tax subsidies and public projects like locks and dams.

The solution is to mine coal responsibly with smarter and more effective regulations and enforcement so that communities can attract other industries and have clean drinking water and stronger infrastructure.

Is there any sort of coal-related legislation you are watching in West Virginia's 2014 legislative session?

For over the last five years, we have been pushing the state to create a permanent mineral trust fund or Future Fund with a portion of severance tax revenue from coal, oil, and natural gas. Several other states and countries have similar funds — including Wyoming, Alaska, Alberta, Canada and Norway — and they ensure that their people will always benefit from their states non-renewable, depleting resources.

Unfortunately, many lawmakers feel that we've already missed the boat with coal, but there is a lot of momentum to create a fund from the increased share of severance tax revenues from shale development. Senate President Jeff Kessler has been leading the charge and I think he can make it happen this year. Just think how wealthy West Virginia would be if it took 5 percent of the coal, gas, and oil wealth from the state and invested it in a fund 100 years ago. We would be one of the richest states in the country and our fund would be bigger than Alaska's Permanent Fund at $48 billion.

Based on the data you have examined, does coal have a future in West Virginia?

Yes, especially in the metallurgical markets as long as economic growth continues in places like India and China.

Does that vary by region?

While steam coal production will continue to decline in southern West Virginia, it will most likely stagnate in the northern part of the state for the next several decades. This is why it so imperative for policymakers to plan for the future, especially in the southern coalfields that will continue to lose population and jobs if nothing is done. Recently, Kentucky Gov. Steve Beshear and Rep. Hal Rogers from eastern Kentucky launched an initiative called SOAR, or Shaping our Appalachian Region, that could be something for West Virginians to emulate.

How would you describe the health of West Virginia's economy, and what role has coal played in it? What are your thoughts on the state's future?

West Virginia is a low-wage economy. It is probably the central reason why the state ranks so poorly in income and other economic indicators. That being said, the economy has gotten more diverse over the last couple of decades. However, we are still very dependent on extractive industries, especially for jobs that do not require a post-secondary degree.

Since we didn't have a big housing boom in our state, and the fact that the shale boom coincided with the beginning of the economic crisis, West Virginia has done relatively well compared to other states. While coal employment declined because of the lack of global and interstate demand during the recession, it bounced back quickly up until the beginning of 2013 when the industry was getting hammered by competition from shale gas and cheaper coal from Wyoming and Illinois. Fortunately, the boom in shale development has mostly made up for the decline in coal jobs, although those jobs are primarily in the northern part of the state and the coal job losses are in the southern part of the state.

Coal is still a big piece of our state' economic pie, but its power is waning. This is also evident by looking at how the political power of the state is shifting north to the shale gas fields and to the eastern panhandle where the population is growing.