Cost Problems Hurting Appalachia : Coal Use Still on Rise, but Utilities Look to Cheaper Foreign Suppliers

The “black diamond” that fueled the Industrial Revolution and at one time supplied 90% of the fuel and power used in the United States is making a rapid comeback, after taking a back seat for decades to oil and natural gas.

Coal is the one fuel that Americans have more of than the Arabs do oil, and it is relatively cheap. Last year it produced 23% of the nation’s energy, up from an average 18% share in the 1970s.

The U.S. Energy Department projects that coal consumption will increase by another 6% this year, to 835 million tons, largely because of several new coal-burning power plants. At the same time, overall energy demand is expected to rise only 2%.

“Coal is probably where our future is,” says Energy Secretary John Herrington.

Just how soon that future will arrive and what role the government should play in bringing it about has the Reagan Administration at odds with both environmentalists and some coal industry boosters.

The 1973 Arab oil embargo caused coal prices to double and stimulated new mining that continues to supply the nation and the world with more coal than it needs.

Despite a current 12% to 25% surplus in U.S. production capacity, the Reagan Administration has tried to accelerate the leasing of vast government-owned coal reserves in the West at what critics call giveaway prices.

The White House also has led the opposition to acid rain legislation that would result in further economic damage to already depressed Appalachia and the ability of its high-sulfur coal to compete with low-sulfur varieties in the West.

Acid Rain Debate

Citing the lack of conclusive scientific evidence that coal-burning power plants in the South and Midwest are responsible for acid rain in New England and Canada, President Reagan rejected a proposal of his former Environmental Protection Administration chief, William Ruckelshaus, for more moderate reductions in sulfur dioxide pollution.

At the same time, however, the Administration has steadily reduced government spending on coal research at a much faster rate than for nuclear power. That includes using federal tax dollars to subsidize commercial development of new, so-called “clean coal” technologies.

“The government should not be making these kinds of entrepreneurial risk decisions,” says William Vaughan, the Energy Department’s assistant secretary in charge of fossil fuels. “That is an exercise our predecessors attempted without very good results.”

The Administration also has balked at helping the coal industry and electric utilities in their battle against the railroads to win eminent-domain rights to slurry pipelines that would move coal and water from mines to power plants.

And, earlier this month, it sided again with railroads in their claims that deregulation has not led to skyrocketing increases in coal transportation rates. Both utilities and mine owners have blamed high freight rates for some electric companies deciding to look to foreign producers instead of Appalachian coal suppliers.

While the United States is both the world’s largest producer and the largest exporter of coal, it also could be importing as much as 10 million tons annually in the next decade--compared with imports of 1.2 million tons in 1984--according to both government and private analysts.

Cheap Transportation Factor

Because of a surplus in both world coal supplies and ship bottoms, “it will continue to be possible to bring coal all the way from Australia to the East Coast of the United States for about $12 per ton” in transportation costs, says Forrest Hill, a private coal analyst.

That compares with $18 to $20 a ton that railroads charge for transporting coal from mines in Kentucky and West Virginia to Boston, or to power plants on Florida’s coasts.

Just two years ago, Exxon Corp., the nation’s sixth largest coal producer, decided to mothball a new mine in Wayne County, W. Va., while pouring $1.5 billion into a new strip mine in Colombia.

“The market did not develop as envisioned,” Richard Kiddoo, president of Exxon’s international coal subsidiary, said of the West Virginia mine.

Meanwhile, Kiddoo acknowledges that Exxon is aggressively trying to interest utilities in New England, Florida and along the Gulf Coast in some of the 2.8 million tons that its Cerrejon mine in Colombia will produce annually.

“Marine transportation from Colombia will cost about $8 a ton,” he said. “Cerrejon coal . . . offers some palpable benefit to the customer--competitive price, supply diversification or superior quality. We hope to be able to offer one or more of these benefits to a number of U.S. consumers.”

The new threat posed by Colombian coal plus Venezuela’s likely emergence soon as a competitor have prompted the United Mine Workers of America, the industry’s chief union, and several coal-state congressmen to call for an $8-per-ton tariff on imported coal.

‘Strange Way to Spend’

“At a time when our own coal industry has the ability to produce 100 million to 200 million tons more than we can consume, this is a very strange way for an American company to spend money,” said Richard Trumka, the UMWA’s brash, young president, during a recent congressional hearing. “If ever there was an example of ‘carrying coal to Newcastle,’ this is it.”

The Reagan Administration, however, has made clear it has no intention of softening its free-trade ideology with a new tariff to save the 3,000 mining jobs the Commerce Department says might be lost as a result of increased imports.

“The Administration is intensely committed to increased energy trade . . . by supporting a free-market environment that encourages economic efficiency,” says Michael Kelly, deputy assistant secretary of commerce. He called proposals of tariffs or other restrictions on imported coal “troubling.”

Likewise, Energy Department and budget officials so far have rebuffed the idea of subsidizing the commercial-sized demonstrations of so-called “clean-coal technologies,” although Congress last year set aside $750 million for their development.

Most of the research on those technologies--such as “fluidized” beds and gasification chambers that remove sulfur from coal as it is being burned, instead of afterward--has been completed, and much of it is successful.

An Energy Department advisory board earlier this month said the $750 million that Congress set aside, spread over the next five to seven years, would cover about a third of the cost of a dozen projects demonstrating the commercial acceptability of the new technologies.

The panel’s chairman, Eric Reichl, a director of the government’s Synthetic Fuels Corp. and a former research chief for Consolidation Coal Co., said electric utilities lack the resources to do it alone.

Cleaning Up Burning Methods

“Coal use is going to increase, that’s not our concern,” Reichl said. “The main problem we see with coal for the next 20 years is cleaning up existing power stations, and technologies that do that are where the bulk of the money should go.”

Kurt Yeager, a vice president of the utility industry’s Electric Power Research Institute, says coal technologies under development could reduce the cost of new coal-burning power plants by 30% to 50%.

He called the Reagan Administration’s philosophy of financing only high-risk, long-term research projects and rejecting subsidies for commercial-size demonstrations “seizing defeat from the jaws of victory.”

According to Jack Ferguson, president of Virginia Power Co., most state utility commissions will not allow power companies to recover the cost of demonstration plants using fluidized bed and other clean-coal technologies.

“We could easily have a situation in which . . . everyone could be waiting for someone else to take the hazardous trek across the desert in search of the fertile lands beyond,” he said. “It is often not the pioneers, but the followers, who gain the greatest benefits.”

Still, coal supporters say the Administration should not be judged solely by the tax dollars it is willing to devote to coal research.

“That’s just not an appropriate thermometer,” said Denny Ellerman, executive vice president of the National Coal Assn. and one of the industry’s chief lobbyists.

Surface Mining Expanded

“The Administration and the industry differ on coal slurry pipelines and we will probably differ with them on tax reform,” he said. “But on environmental regulation, deregulation in general--such as in the Office of Surface Mining--and leasing, they’ve been very supportive. They certainly support energy development.”

Ellerman and other boosters say coal also is getting a more sympathetic ear in Congress, even among representatives and senators from non-coal states.

“For too long, coal has been on the defensive in Congress,” says Rep. Nick Rahall (D-W. Va.). “But as domestic oil and gas reserve estimates are raised and lowered much like a Paris fashion designer’s view of women’s hemlines . . . the abundance of U.S. coal reserves remains.”

Both Rahall and Ellerman said an indication of the changing attitude toward coal is the failure of environmentalists to win serious consideration of acid rain legislation this year.

“There’s a far more positive attitude toward coal than has existed for a long time, despite the environmental problems,” said Ellerman.

“It’s abundant,” he said, “and it’s American.”