ST. LOUIS — Tom Clarke is planting the seed that he hopes will save, or at least cushion the fall, of the coal industry that is so tied to the Appalachian region he calls home.
Actually, for his plan to work, he’ll have to plant hundreds of millions of them.
The Roanoke, Virginia, hospital executive and conservationist turned heads last week when his Virginia Conservation Legacy Fund said it would acquire some of the last remaining assets of Patriot Coal, subject to bankruptcy court approval.
Through a new coal company it formed, ERP Compliant Fuels LLC, Clarke’s environmental group would assume some $400 million of bankrupt Patriot’s liabilities for mine restoration and worker compensation. It would take over some closed mines and one that’s still producing.
And it would keep mining coal there.
Meanwhile, his group would plant trees. Millions of them. Enough to suck up 10 percent to 30 percent of the climate change-causing carbon dioxide that burning the coal would emit. They’d get the amount certified and attach it to the coal, creating a premium product.
“What we’ve created is a brand new compliance instrument,” Clarke said. “It’s a whole new product. It’s just like derivatives on Wall Street. It’s a financial instrument.”
The land is available for reforestation, says Clarke, who runs the Conservation Fund when he isn’t busy as CEO of Kissito Healthcare. And the organization that verifies the carbon offset credits — the American Carbon Registry — already exists and turns similar reforestation projects into securities for use in California’s carbon credit market.
His group, in partnership with privately managed tree planting and carbon offset group GreenTrees, has already planted tens of millions of trees, he said. And last week’s announcement is only the first.
“That’s the beginning of our coal company,” he said. “You’ll be seeing a lot of announcements. A lot of them. Fast and furious.”
Clarke’s bold strategy comes as the industry is reaching for a life preserver. Coal was knocked down by oversupply and new competition from cleaner natural gas brought on by the fracking revolution. The Environmental Protection Agency is keeping its boot on the industry by regulating carbon and other pollutants. Current rules would keep it from ever regaining its former market share, and efforts to cut carbon further could ultimately end its use as a fuel for electricity in many countries.
The sector’s current difficulties and bleak future have led to mounting bankruptcy filings, including the second for Patriot in less than two years. The company, formerly based in suburban St. Louis, moved to West Virginia in January.
Clarke acknowledges that the industry’s decline will continue as the world tries to reduce carbon emissions to minimize the impacts of climate change. But the transition has been devastating to the Appalachian economy, with tens of thousands of people out of work.
What if the miners whose jobs are cut as production declines could plant trees, Clarke said, offsetting carbon released by the coal burned from remaining mines?
“My No. 1 priority is not to stop burning coal because that’s not going to happen for 30 to 50 years,” Clarke said. “If a company shuts down in St. Louis, you can go somewhere else (in the region). If a coal mine shuts down in West Virginia or southwest Virginia, there’s nowhere to go.
“We really see this as an opportunity — not to expand coal, it’s going to shrink anyway — but let’s make sure we can at least keep people employed in Central Appalachia with this offset.”
Forest for the trees
But is Clarke’s plan legally possible under the EPA’s new Clean Power Plan? Would utilities pay the premium for the carbon offset? Can industry giants — Peabody Energy, Arch Coal and Foresight Energy — follow suit?
“The coal industry needs to be thinking outside the box,” said Jeff Archibald, a senior technical specialist at consulting firm ICF International who follows the industry.
While Archibald said he hadn’t given the legal considerations a close look: “Anything innovative is worth a try is my gut feel.”
Many are skeptical. For one, the EPA says it isn’t an option because the agency’s legal authority for the new carbon rules only applies to power plants.
“As a result, qualifying measures for (Clean Power Plan) compliance must reduce emissions from those regulated units,” the EPA said. “While offset projects that reduce carbon dioxide emissions from other sectors (e.g., agriculture, forestry, and transportation) or in other countries may effectively mitigate atmospheric carbon dioxide levels, they do not affect emissions from the units regulated by the CPP.”
It may be outside-the-box thinking for regulatory compliance, but Kris Inton, a coal industry analyst at Morningstar, said it won’t solve the industry’s competitive woes. “Adding costs isn’t going to help their bigger problem of natural gas,” Inton said. “It’s answering one problem but making another problem bigger.”
Clarke readily admits the EPA has said his carbon offsets aren’t allowed under the Clean Power Plan. But he notes that regional carbon markets already exist in California and New England. He plans to lobby for his tree offsets to be allowed in a U.S. strategy to cut carbon emissions.
“If the EPA does not want to accept it, I think I’ve got a number of state governors we’ve already had conversations with, and we’re going to push it as hard as we can,” Clarke said.
If the EPA allows California to continue with its market, he said his coal bundled with carbon offsets should be allowed.
Morningstar utilities analyst Charles Fishman, however, said it’s difficult to monitor tree planting carbon offsets. Plus, he expects existing regional carbon markets to mimic EPA’s new rule.
“That’s what’s going to drive it,” he said. “The regional programs will adapt to meet this thing.”
It doesn’t deter Clarke and his plan for the coal industry. He knows it will be a hurdle, and he doesn’t know how long it will take to win legal acceptance.
But he was confident enough to assume millions of dollars of Patriot’s black lung responsibilities and mine reclamation and environmental liabilities. His lawyers couldn’t talk him out of it.
“Do you know you’re putting your entire land trust at risk? Do you know you’re putting yourself personally at risk?” he said they told him. “Absolutely, but someone needs to be bold.”
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