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Different Energy Boom, Same Mistakes?

Critics say West Virginia, which is enjoying an explosion of natural gas production and jobs, is repeating the missteps it made with the coal industry.

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(AP)
Economists sometimes write about a “resource curse.” A country or region blessed with rich natural deposits can end up in serious economic trouble. The dominance of a few extractive companies and politically powerful players discourages other investment. In this sense, few places have been as cursed as West Virginia.

For most of the 20th century, the state was heavily reliant on coal. But that industry has famously fallen on hard times. Even when the mines were at their most productive, West Virginia ranked among the poorest and most poorly educated states. Coal wasn’t taxed heavily and the coal companies weren’t asked to contribute much in the way of corporate citizenship. There wasn’t much emphasis on managing the environment. The preoccupation with coal seemed to crowd out other kinds of development. 

More recently, the state has seen a boom in natural gas. Production has spiked more than fivefold in West Virginia over the past decade. Last year, the number of jobs in natural gas topped 13,000, pulling nearly even with coal. State officials have done everything they can to promote extraction. Gov. Jim Justice, himself a coal billionaire, appointed a former coal executive to head the state Department of Environmental Protection. “We want to advance the industry so [the state] can get out of your way and let you do what you do,” Mike Hall, the governor’s chief of staff, told the International Oil and Gas Association of West Virginia in February. 

This approach -- along with the state’s low severance tax -- has led to complaints that West Virginia is making the same sorts of mistakes with gas that it made with coal. “Most of the natural resources here are not owned by the people who live here,” says Ted Boettner, executive director of the West Virginia Center for Budget and Policy. “They come here to get what they’re going to get, and they leave.”

But when West Virginia teachers complained about their salaries, kicking off a series of walkouts that have spread to several other states, Justice made a surprising suggestion. He proposed a “grand bargain” between natural gas and education, calling on teachers themselves to lobby for higher severance taxes on gas to fund salary increases. “Solve the gas issue. Solve it,” he told teachers at a town hall meeting.

It turned out that teachers couldn’t solve the gas tax issue. Legislators balked at the governor’s proposal, choosing to finance a raise for teachers through program cuts elsewhere. Hampering a growing industry in a poor state is something that most West Virginia politicians had no interest in doing. “The No. 1 tax that everyone said we should raise was natural gas severance,” Boettner says. “But they just have overwhelming power.”

Alan Greenblatt is a senior staff writer for Governing. He can be found on Twitter at @AlanGreenblatt.
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