Energy & Environment

Coal Calculations

The West braces for an energy boom that could just as easily go bust.
by | June 2007

Bill Edwards, the mayor of Roundup, would not be living in this small town on the edge of Montana's High Plains if it weren't for the vast cache of coal underground. In the 1920s, Edwards' grandfather emigrated to Roundup from Wales to work in the mines that supplied coal to the old Milwaukee Line railroad. In those days, some 2,000 men worked in the Roundup mines, braving tough subsurface working conditions--Edwards' grandfather lost a leg in a cave-in. The mayor's father and uncle also were miners, but by the 1970s, the railroad went bankrupt and abandoned its tracks, three coal mines shut down and Roundup lost nearly a thousand residents.

Edwards himself runs the local State Farm insurance agency--he also broadcasts Roundup Panthers football, basketball and volleyball games for local radio. The mayor says Roundup, no longer able to support a movie theater or hardware store, has been hit so hard by the coal bust that "you come up here and it's like a depression." So Edwards was cautiously optimistic a year ago to see Brian Schweitzer, Montana's energetic governor, storming 60 Minutes and the New York Times, talking up eastern Montana's plains as the "Saudi Arabia of coal." Schweitzer, a Democrat in a rock-ribbed Republican state, promised to build two huge plants 15 miles south of town that would demonstrate the latest technologies for burning coal cleanly. One would turn coal into diesel fuel. The other would generate electricity without producing greenhouse gases. Both would get the financially troubled Bull Mountain mine bustling again, bringing to Roundup 4,000 new jobs and a $260 million payroll.

The governor's bold talk played well with national audiences at a time of rising concern over both American dependence on foreign oil and global warming. Yet Schweitzer, who typically wears cowboy boots, blue jeans and bolo ties, had a tougher time persuading folks back home in Montana. While Schweitzer won passage of the so-called "clean and green" tax breaks that are the cornerstone of his coal plans, he's also had to wrestle with a political culture that, outside of coal towns such as Roundup, is deeply skeptical of mining. Montana may well have energy resources to rival the Middle East, but many Montanans aren't so sure they want to be the nation's gas pump or its power station.

In March, Roundup got another dose of disappointment. The Bull Mountain mine shut down, was put up for sale and laid off all but seven of its 55 employees. Among those who lost their jobs was Mayor Edwards' nephew, who was keeping up the family coal-mining tradition and making $20 an hour. "That's a good job around here," Edwards says. "There's not that much in the way of work except minimum-wage jobs in grocery stores and gas stations."

The Bull Mountain coal project "has been out there for a long time, and it just seems like it can never get off the ground," Edwards continues. "I don't think anybody's counting on it happening."

AN OLD SIREN'S SONG

The fate of Roundup, like that of many Western coal towns these days, is once again in the hands of outsiders. The good news for places such as Roundup is that coal is so cheap and abundant there that nationwide demand is bound to rise, no matter how much demand also grows for renewables such as wind, solar or biofuels. The bad news is that coal is the filthiest of fossil fuels, and conventional means of burning it give off a lot of carbon dioxide, a big contributor to global warming. As states such as California seek to limit carbon emissions, they're counting on clean-coal technologies that are in the works but still largely untested. For now, Roundup is stuck waiting to see whether or not changing energy markets mean another boom is in the offing.

It's a familiar story in the West, where boom and bust has been the alternately exuberant, then melancholy, path ever since mountain men first trapped up the rivers and wiped out the beaver. During the 1970s energy crisis, the federal government planned all-out development of the region's resources. Miners, drilling crews and construction workers flocked to energy-rich towns long before the oil, gas and electricity projects began paying property-tax revenues to cover new schools, hospitals and roads. Then energy prices crashed and it became common to hear tales of towns like Rifle, Colorado, which was left with 4,000 people but saddled with roads and a water system designed for 12,000.

Once again, rising energy prices herald good times ahead. But as Richard D. Lamm, Colorado's governor during the 1970s, says, "the West has heard this siren's song before." The political challenge for Western governors today remains the same as it always has been: to nurture economic upswings in a way that makes their states stronger through the slumps.

The best example of how to do that lies just south of Montana in coal-rich Wyoming, which is happily riding an all-out boom. Now Governor Dave Freudenthal, another Democrat in a state full of Republicans, is preparing to turn it to the state's lasting economic advantage. He is investing Wyoming's surging energy revenues in brand- new schools, better roads and protecting wildlife habitat--while navigating the new politics of global warming by working closely with policy makers in California. The contrast between Wyoming and Montana and their two governors is a little-noticed wrinkle in two questions that are just as critical in New York City as they are in Roundup. Where will the energy come from to power our computers, DVD players and iPods? And what are the consequences?

THINKING LOCALLY

Freudenthal was first elected in 2002 and won a second term last year with 70 percent of the vote. Known to voters as "Governor Dave," Freudenthal wears cowboy boots to his capitol office but generally prefers business suits and ties. During the mid-70s energy boom, he worked as state planning director under Governor Ed Herschler.

At the time, several Western governors had formed a regional alliance to fend off the most destructive federal projects, and to try to prepare communities for overnight population growth. The states imposed resource severance taxes, bolstered environmental protection and prodded energy developers to pay up-front costs to communities. Today, Freudenthal is applying that experience to managing Wyoming's growing coal, oil, gas and coalbed methane production.

Wyoming leads the nation in coal output, mining 400 million tons a year. There's a political consensus in Cheyenne around increasing production and keeping severance taxes on coal extraction low. Wyoming also enjoys some natural advantages over other states. Coal in Wyoming's Powder River Basin lies close to the surface, making it cheaper to mine than the deeper veins across the Montana border. Wyoming coal also is low in sulfur, a valuable trait since the federal Clean Air Act capped sulfur emissions from power plants. Wyoming ships the vast majority of its coal output to other states by train.

Freudenthal still wants Wyoming to export its energy. But like Schweitzer, he thinks there's more money to be made locally by processing coal inside the state to convert it to cleaner-burning gas, electricity and maybe liquid diesel fuel. To encourage those projects, Freudenthal collaborated with a conservative-dominated legislature to set up the Wyoming Infrastructure Authority. The independent agency is partnering with private companies to develop three new transmission lines that will carry Wyoming power to Denver, Salt Lake City and Phoenix. Freudenthal also cut a deal with the governors of California, Nevada and Utah to study building a 1,300-mile, high-voltage power line connecting Wyoming generating stations to power-hungry markets in California and around Las Vegas.

Increasingly, Freudenthal's strategy requires keeping one eye on Sacramento. California already draws 20 percent of its power from coal-fired plants in the Rockies and will have to import even more power in the future to keep its economy growing. But California recently decided that it won't buy any more power from conventional coal plants that contribute to global warming.

Freudenthal moved quickly to sign a deal with California Governor Arnold Schwarzenegger to demonstrate a new technology for burning coal in Wyoming. It's called "integrated gasification combined-cycle," or IGCC, which removes the carbon dioxide before it's released into the atmosphere. In April, the infrastructure authority reached agreement with PacifiCorp, a utility serving California and five other Western states, to add a $2 billion IGCC unit to an existing power plant in southwestern Wyoming. Montana and other coal states are promoting their own IGCC sites, but Steve Waddington, the authority's director, says, "We've got a real project."

Freudenthal is careful not to oversell clean coal's potential. Scientists have yet to figure out whether the carbon dioxide gleaned from an IGCC plant can safely be sequestered underground. Realistically, Freudenthal thinks California at first will have to meet its greenhouse standards by turning to natural gas, a cleaner- burning fossil fuel than coal. That's fine by him because Wyoming has plenty of that fuel, too.

HISTORIC TENSIONS

Brian Schweitzer is a folksy soil scientist, farmer and rancher, who came out of nowhere to nearly unseat U.S. Senator Conrad Burns in 2000. Four years later, he won the governor's office by energizing restless Democrats who had been shut out of power for 16 years. His supporters included environmental groups who had successfully fought mining projects, including a conventional coal-fired plant at Roundup.

So not many Montanans expected Schweitzer to embrace developing eastern Montana's coal so fervently. To live up to his big plans, however, the governor must work within a political culture that is more skeptical of mining than Wyoming's is.

The reasons why go back a century, to the days when copper barons practically owned the state. Anaconda Copper ran most of Montana's newspapers and dominated state government. But when the ore played out, the once-prosperous mining town of Butte was left with an abandoned copper pit that began filling with toxic water. Montana passed the nation's strictest strip-mining regulations, a 30 percent coal severance tax and tough environmental protection standards. Ever since, environmentalists have used those laws and ballot initiatives to resist mining projects, even as communities such as Roundup wanted them.

More recently, the failure of electricity deregulation stoked Montanans' distrust of out-of-state energy interests. Ten years ago, Montana was one of the first states to restructure its power market-- at the time the legislature approved the bill, drafted by Montana Power, with little debate. The utility then sold its low-cost dams and coal-fired plants to Pennsylvania Power and Light and its distribution grid to a South Dakota utility. Since then, Montana's electricity rates have doubled, making it difficult for low-income residents to pay their winter heating bills.

These historic tensions rippled throughout the legislature's session this spring. When legislators began working on a plan to reregulate electricity, Schweitzer angered lawmakers by sitting out the debate, even as he made frequent appearances on national TV. The governor ultimately went on to sign the reregulation bill, but even Schweitzer's fellow Democrats complained that the governor seemed more interested in polishing his media image than working through energy issues. "Our governor should come back home and figure out what's best for Montana," says Bob Raney, a Public Service Commissioner and fundraiser for Schweitzer's 2004 campaign.

Yet Schweitzer proved that he could get most of what he wanted on energy. In a special session last month, the legislature passed his clean and green plan, which consisted of property-tax cuts for windmill farms, biofuel plants, long-distance electrical transmission lines and the clean-coal projects Roundup so desperately wants. Schweitzer teamed with eastern Montana Republicans to win support. A roomful of coal, transmission line and labor lobbyists helped draft the final touch-ups during hurried meetings of the Senate Tax Committee. Jim Elliott, the Democratic chairman, says, "This harkens back to the days when Montana Power Company used to write these things."

The final bill cut Montana's property-tax rates on energy infrastructure to levels comparable to what Wyoming and North Dakota levy. Attorney Leo Berry represents Great Northern Properties, the coal giant that is planning an IGCC plant near Circle, Montana. Berry says Montana's new tax breaks will boost that project as well as those near Roundup "as much for the message as for the financial incentives." Still, five of the tax panel's six Democrats opposed Schweitzer's plan, arguing that out-of-state companies don't need the tax breaks.

The debate revealed how badly Montana is still split over energy development. On the empty high plains, communities such as Roundup see energy as their salvation. In the scenic western Montana mountains, prosperous Missoula and Bozeman residents fear coal development will suck water from rivers and destroy wildlife habitat, only to ship power out of state without solving Montana's own energy shortages. The first projects to benefit from Schweitzer's tax breaks will likely be transmission lines headed north to Canada and southwest to Las Vegas. Once Montana starts exporting power to Las Vegas, worries Senate Energy Committee Chairman Greg Lind, a Missoula Democrat, "we'll be paying Las Vegas prices here."

Schweitzer believes he's delivered on his energy promises. "Thirty years from now," he said while the legislature was still meeting, "they'll look at this legislative session in Montana and say the things they did about clean and green energy were revolutionary." Others aren't so sure. Republicans insist that Montana coal can't compete with Wyoming's so long as Montana's severance tax remains twice as high as Wyoming's. Montana did create an infrastructure office to serve more or less the same purpose as Wyoming's authority, but it won't have the ability to sell bonds. And Schweitzer vetoed two bills that would have offered Roundup financial aid to deal with development pressures if that hoped-for coal boom actually does arrive. Senator Kim Gillan, a Billings Democrat, voted for Schweitzer's bill but calls it "more of a statement than an energy policy."

Roundup Mayor Edwards isn't impressed, either. At best, it will be another five years before the Bull Mountain clean-coal projects get started, if that ever happens. Edwards isn't getting his hopes up. There's one more member of Edwards' family whose job depends on coal: his brother-in-law in Wyoming, who makes a good living driving a truck in Gillette. The Powder River coalfields there are booming. "They're going great guns down there," Edwards says. "I wish we were more like Wyoming."

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