Costs and Benefits of Appalachian Coal

Mining’s environmental costs are high, but many residents of coal-mining communities support continued mining because they rely (directly or indirectly) on mining jobs. Now, reports Ken Ward Jr. of the Charleston Gazette, two researchers have put price tags on the economic costs and benefits of coal mining in Appalachia, and found that the benefits don’t even come close to covering the costs:

Writing with co-author Melissa Ahern of Washington State University, [West Virginia University’s Michael] Hendryx reports that the coal industry generates a little more than $8 billion a year in economic benefits for the Appalachian region.

But, Hendryx and Ahern put the value of premature deaths attributable to the mining industry across the Appalachian coalfields at — by one of their most conservative estimates — $42 billion.

“The human cost of the Appalachian coal mining economy outweighs its economic benefits,” they wrote.

The paper has just been published in the peer-reviewed journal Public Health Reports, but it’s available only to subscribers. In his article, Ward goes into some detail about the methodology:

In the new study, Hendryx and Ahern cited a 2001 University of Kentucky study that valued the economic impact — from direct, indirect and induced earnings — of the coal industry in Appalachia at $6.5 billion a year. They adjusted that number for inflation, and added other benefits from various coal industry taxes.

The researchers also factored in the recent declines in coal industry employment.

“The number of coal miners in Appalachia declined from 122,102 to 53,509 between 1985 and 2005,” the paper said. “This decline corresponded to increases in mechanized mining practices and the growth of surface mining, which requires fewer employees than underground mining per ton mined.”

After these calculations, Hendryx and Ahern came up with a final annual regional economic gain of $8.1 billion.

Next, Hendryx and Ahern calculated a number of excess age-adjusted deaths in coal-mining areas, compared to non-coal areas of the region. The number varied from 3,975 to 10,923, depending on the years studied and comparison group. Then, they plugged in what they described as a low estimate of the value of life — about $3.8 million — and, using the highest number of excess deaths, got a figure for the cost of coal-related excess deaths of $41.8 billion a year.

At his Coal Tattoo blog, Ward hosted an online chat with Hendryx. Here’s an exchange between the two about what the study didn’t capture:

Ken Ward Jr.:  Would it be fair to say that the numbers you used to calculate the economic benefits of coal were broad and pretty inclusive, but that the numbers you have used for calculating the costs are not as broad — and perhaps leave out many things that a true cost-benefit analysis would want to include?

Michael Hendryx:  I think that is a fair statement.   I may not have been able to count all tax benefits, such as property or business taxes, but otherwise the benefits are pretty well captured I think. I was not able to estimate some of the additional costs, like medical care costs for increased illness. I also couldn’t estimate the costs of destroying natural resources like forests and streams; some limited research on this suggests that those costs could be enormous and outweigh even the mortality costs.

In a blog post about the story, Ward points out that studies like this one ought to be of great interest to lawmakers who are figuring out their positions on future coal-mining activities. When Ward contacted West Virginia Governor Joe Manchin about a previous study by Hendryx on the impacts of coal mining, though, Manchin passed it off as a federal issue. These days, though, the Manchin administration is telling the federal government not to meddle in West Virginia’s coal business. Perhaps now that Governor Manchin has decided that coal mining is actually an issue to be handled at the state level, he’ll be interested in this latest study.

Finally, from the chat, here’s Henryx’s recommendation for what should change, given the huge gulf between coal-mining costs and benefits:

Coal mining counties and towns should receive more of the coal severance tax, and less should go to state government. The tax should be used to promote education and job creation.

Also, air and water quality around mining should be more carefully monitored and controlled. And mountaintop mining should be eliminated.

Comments

  1. #1 shulquist
    June 24, 2009

    I don’t agree with the numbers. If they don’t mine coal, they starve or live in poverty. The 3.8 million figure is not what the region pays for death under worker comp so any number place on those deaths are ballooning his theory. It is like saying there are four times the indirect costs for the direct costs of accidents. It just doesn’t add up in real life. If the cost is so high, how can the business survive?

  2. #2 Liz
    June 25, 2009

    “If they don’t mine coal, they starve or live in poverty.”

    It’s hard to just stop relying on an industry that’s historically been crucial to an area, but it’s possible – Pittsburgh, for instance, used to be a steel town and is now a center of science and technology. One of Hendryx’s suggestions is to make sure that the coal-mining communities get more of the revenue from mining, so that they can invest in education and entrepreneurial development and diversify their local economy.

    The $3.8 million figures is a low estimate of the value of a life, and it doesn’t necessarily come from workers’ compensation – for one thing, regulatory agencies come up with values of statistical life in order to guide their decisions (EPA just lowered theirs to $6.9 million). Then, the researchers multiplied $3.8 million by the number of estimated excess deaths related to coal mining. The problem is that the mining companies are *not* paying these costs – they fall on families and communities, and ripple out from there.

  3. #3 Peter
    June 27, 2009

    This study will have no political impact. The economic benefits they describe (which do not actually correspond to what economists consider benefits, by the way) are real money, the costs are not. The value of life figure they give is an attempt to capture the psychic cost of premature death: how much a community of individuals would be willing to pay in the aggregate for the reduction of this health risk. But the money is not actually paid; it is conjectural. To see the oddity of the method, consider that the value of life number comes from labor market studies that are predicated on the view that workers are fully compensated for safety and health risk through higher wages. If this is so, one must deduct from the coal mortality total those who die because of their exposure as miners, since they are already compensated. Doing this would be madness, of course, and would strike most readers as bizarre, but it would be entirely consistent with the methodology.

  4. #4 Liz
    June 29, 2009

    There’s definitely a big component of what you call psychic costs, but premature deaths do involve a lot of actual costs, too – loss of income to the family, loss of tax revenue to the state, and a loss of economic activity to the community. So, yes, the costs in this study are conjectural, but they correspond to actual (if hard to measure) economic impacts that exist in the state.

  5. #5 Peter
    July 2, 2009

    Liz, I am completely in agreement with you that we should deal aggressively with workplace and environmental threats to life and health. We would have a healthier, happier population. The question is whether we can convince policy makers by inventing fictitious “economic” numbers. The methodology used in the studies to get the EPA number are not based on any adding up of different motives (psychic, supporting the family, etc.) in the way you describe, but on statistical analysis of large surveys of workers, their jobs, their wages, etc. — and on the assumption that each work is exactly indifferent between holding their current job and some other (or none at all). (You can read a full description in my book Markets and Mortality.) These numbers are strictly “what if” and do not correspond to any actual financial costs or benefits faced by individuals, businesses, families or communities.

    As for premature mortality, there are two areas of dueling studies. One is the bottom-up approach, exemplified by research into the economics of premature mortality from cigarette smoking. Some economists, like Viscusi (the main guy behind the EPA number), say that these deaths actually *reduce* aggregate economic cost via less medical expenses, post-retirement support etc. Others dispute this strongly. Then there is a top-down debate about the impact of mortality changes on aggregate economic growth, often from international statistical comparisons. There has been a long-running debate about the economic impact of malaria on growth, for instance.

    All this is probably more than you want to get into. My short advice is to be extremely careful about latching onto to “magic numbers” that seem to prove that good workplace practices or better environmental health will line the pockets of people who think only about their bottom line. The what-if dollars of economists are not real dollars, and real dollars (unfortunately) rule.

  6. #6 Liz
    July 6, 2009

    That’s a helpful explanation, Peter – thanks!