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Report finds future climate policy is major fiscal risk to coal-reliant regions

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Report finds future climate policy is major fiscal risk to coal-reliant regions

U.S. communities dependent on the coal industry face substantial financial risks from potential climate policies that could wreak havoc on local employment and tax revenues, a new report highlighted.

Nationwide, coal production had already fallen by about one-third between 2007 and 2017, but even "moderately stringent climate policy could create existential risks" for the sector, said a new report from Columbia University's Center on Global Energy Policy and the Brookings Institution's Economic Studies program. Climate policies with provisions to fund coal-dependent communities could support the economic development of the areas, the authors wrote.

"A logical source of funding for such investments would be the revenues from a price on carbon dioxide emissions, a necessary element of any cost-effective strategy for addressing the risks of climate change," the report said. "A small fraction of revenue from a federal carbon price in the United States could fund billions of dollars in annual investments in the economic development of coal-dependent communities and direct assistance to coal industry workers."

The report classifies 26 U.S. counties as "coal-mining dependent," based on coal employment levels. Some of the most coal-dependent counties ranked by coal workers as a share of the workforce include Boone County, W.Va.; Campbell County, Wyo.; Oliver County, N.D.; McDowell County, W.Va. and Dickenson County, Va.

"While climate-related risks to corporations have received scrutiny in recent years, local governments — including coal-reliant counties — have yet to grapple with the implications of climate policies for their financial conditions," the report said. "Importantly, the risks from the financial decline of coal-reliant counties extend beyond their borders, as these counties also have significant outstanding debts to the U.S. municipal bond market that they may struggle to repay."

A review of outstanding bonds suggests municipalities are "at best uneven and at worst misleading (by omission) in their characterizations of climate-related risks," the report said.

"In considering reforms, several questions emerge for stakeholders," the authors wrote. "These include whether regulators should develop additional requirements for the disclosure of risks from future climate policies; whether ratings agencies should increase attention to the risks to local governments of climate policies; and whether stakeholders in the municipal bond market, such as borrowers, insurers, and underwriters, are appropriately accounting for risks to the coal industry."

Those regions also depend on the coal sector for a mix of property, severance, sales and income taxes; royalties and lease bonuses for production on state and federal lands; and intergovernmental transfers. The report suggested that local policymakers focus on diversifying their economies and otherwise planning for "a potentially rapid and dramatic decline in the coal industry."

The report pointed to three illustrative counties where coal-related revenue funds up to one-third or more of the total budget. A complex system of local revenue instruments and intergovernmental transfers make it difficult to parse out the impact of losing the coal industry in many of the counties, the authors wrote, adding that ripple effects from lost economic activity and jobs compound potential impacts on the local economy.

"While some politicians in coal-reliant areas may claim to have a path to bringing coal back, such bluster is irresponsible given the robust negative projections for the industry," the report concluded. "To be sure, diversifying an economy that is so integrated with a particular industry is a difficult task, but to shirk the challenge is to commit one's community to an unacceptably high risk of fiscal stress."