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Energy Jobs, Part One

One of the arguments that sold President Trump was that he’d bring back the coal industry.   This was appealing, because over the past 30 years, a lot of miners have lost their jobs:

US_Coal_mining_employment_1985-2015

Viewed in terms of employment, the coal industry is dying.  The most obvious factor of the past 30 years (at least if you’re in the energy industry) is the growth of concerns about global climate change, and the regulations surrounding it.  Thus it’s easy to blame regulations for the decline of coal.

But let’s develop our habit of knowledge.  After all, jobs aren’t the only way to measure the health of an industry.  Wall Street types talk about a company’s fundamentals.  If you’re talking about an industry, one of those fundamentals is how much product it makes.  

And here we find a different story:  

US-coal-production-1985-2015

The two graphs tell a common story:  technology increases productivity, so that industries need fewer workers.  As a general rule, recent job losses—say those that have occurred within the past four hundred years—are due to technology improving the productivity of workers, so that industries need fewer workers.  So consider the logic that helping an industry helps workers:

The most important thing to remember is that corporations don’t want more jobs:  they want more output from fewer workers.

What does this mean?  It’s possible that deregulation will “bring back coal.”  But what it won’t do is it won’t bring back coal jobs.  Those are gone, because today’s coal miner products three times as much coal as his father did in 1985.    The only way to bring back coal jobs in the numbers of 1985 is to triple production levels.

And that’s where things get problematic.  The easiest way to triple production levels is to triple consumption.  But coal already provides 1/3 of US energy, which means that a significant increase in coal consumption is not possible without a significant decrease in the consumption of other energy sources.  

But what other sources?  U.S. electricity is generated by several means.  However, coal can’t compete with three of them, because they offer price predictability.  In particular:  the cost of producing electricity is predictable, and not subject to market variations and the political stability of Certain Countries.  

Businesses like predictability, so they preferentially use these types of sources.  Thus, airlines could simply buy fuel at market rate.  If they’re unlucky, fuel prices will skyrocket, forcing them to pay high prices, which they’ll pass on to consumers in the form of fuel surcharges.   On the other hand, if market prices fall, airlines pay less for fuel, and airlines drop surcharges offer free in-flight meals.  As an alternative, an airline could sign a multiyear agreement to buy fuel at a fixed cost, which protects them against variations in fuel costs:  Southwest Airlines did this a few years ago, and succeeded wildly, though this works against them if fuel prices drop.  

What about energy?  There are three sources of energy that have price predictability:  hydroelectric, solar, and wind.  All three have one common component:  the major expense is building the generating station; after that, the major cost is maintenance.  We can add one more to the list:  nuclear.  While nuclear power plants do need periodic refueling, they don’t need it very often, and so they have a modest amount of price predictability.  These four sources produce about 1/3 of US electricity.

Now, hydroelectric and nuclear are hard to kill, because those power stations have already been built and will produce electricity whether or not you make faces at them.  Renewables are a little easier, because solar and wind installations are still being built, so coal might be able to find a bully an advocate to push them into non-existence.  

The problem is that it won’t help much:  solar provides just 0.6% of US electricity, and wind only 4.7%.  So even if you killed both industries and replaced every solar panel and every wind turbine with a coal power plant, you’d only get a 5.3% growth in coal consumption, versus the 200% growth you’d need to reach 1985-level employment.

So if coal is going to grow, it has to take on the source of the remaining 1/3 of electricity: natural gas.  Yet most analysts believe that cheap natural gas is in fact one of the primary reasons that coal is stuck at 1/3 of US energy production.  If you want to significantly increase domestic coal consumption, you have to kill natural gas.

But let’s get back to the main issue:  jobs.  Again, corporations don’t want to create jobs; they want to make more product with fewer workers, so merely helping businesses doesn’t guarantee employment.  What will create jobs is creating new industries.  We’ll talk about that next.

 

 

 

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