A state tax policy change designed to provide incentives for West Virginia utilities to switch to coal produced in the state would support between 150 and 196 jobs in the state’s economy.

Those are the findings of a study conducted by the West Virginia University Bureau of Business and Economic Research, which operates within the College of Business and Economics. The study was commissioned by the West Virginia Department of Revenue after lengthy discussion about such policies during the 2014 session of the West Virginia Legislature. No bills were passed at that time, but the Department of Revenue sought research and data about the proposed tax policies.

The WVU study found that in 2013, utilities and other coal users in West Virginia consumed 31 million tons of coal, of which approximately 41 percent was imported from outside the state. The study examined the potential impact of two policies that would provide incentives for utilities to burn in-state coal, including a severance tax reduction that would be passed along to utilities and a subsidy for the purchase of in-state coal that could be applied to electric utilities’ business and occupation taxes.

Researchers found that either of these policies would increase coal demand for West Virginia producers by approximately half a million tons of coal, and generate as much as $34 million in new economic activity.

“It’s somewhat surprising that in a known coal-producing state that our utilities are using coal imported from outside West Virginia,” said John Deskins, director of the BBER and co-author of the study. “These policies would help the state recapture some of that demand for in-state coal producers.”

The policies’ effectiveness is limited by a number of factors, according to the study. First, the policies that were considered required that the tax subsidies would be applied only to coal above and beyond a base year in order to limit the impact on state tax revenues. Also, though the state imports 13.6 million tons of coal, as much as 8.6 million of that total is unlikely to be displaced by policy intervention due to logistical or price competitive reasons.

“We found that the price of coal was not necessarily the only factor utilities were taking into consideration when buying coal for power production,” said Eric Bowen, BBER research associate. “That had the effect of reducing the economic impact of the policies we considered.”

The full report is available for free download in PDF format at be.wvu.edu/bber. For further information about the WVU College of Business and Economics, please visit be.wvu.edu.

-WVU-

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CONTACT: John Deskins, WVU College of Business and Economics
304.293.7876; John.Deskins@mail.wvu.edu

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