Planning for Montana’s Energy Transition: New Report Out by Headwaters Economics

Credit: Larry Mayer for the Montana Standard

Guest blog post written by Oliver James.

The U.S. coal industry is in a tailspin.

Faced with cheap natural gas prices, weak coal export markets, changing consumer demand, and tightening environmental regulations, domestic coal production dropped to a 30 year low in 2015. Peabody, the world’s largest private coal mining company, is expected to file for Chapter 11 bankruptcy in the coming weeks, joining fellow industry giants Arch, Alpha, and Patriot, all of which declared bankruptcy in the last year. Perceived as a permanent decline for the industry, big banks are pulling their financial support. Meanwhile, coal communities are bearing the brunt: thousands of coal workers have already been laid off (Peabody has cut 20% of its workforce) and their pensions jettisoned—all while company executives are raking in record bonuses.

What does this sea change mean for Montana, the 7th largest coal-producing state in the country? A new report published last month by Headwaters Economics, an independent, non-profit research group based in Bozeman, Montana, describes the outlook for the Treasure State.  

While declines in coal production are likely to be felt acutely in three rural counties, Montana as a whole is in a strong position to transition to a low-carbon energy portfolio. Ensuring that this transition is a just one—that coal-dependent communities receive the necessary support to diversify their local economies, secure sustainable employment for affected workers, and reclaim mined lands—will be a crucial consideration for the state in the following years.

The Times are Changing

The way we produce and consume energy is changing in response to new economic and environmental realities. In 2015, for the first time, natural gas overtook coal as the country’s primary fuel in electricity generation:

Figure 1: The Percent Share of Power Generated from Coal and Natural Gas in the U.S., 1949-2015.

Meanwhile, domestic oil production nearly doubled over the last seven years, fueling a plunge in oil prices, and wind and solar energy had another record year.

Coal has been left out in the cold. Demand at home and abroad is down. U.S. coal exports to China were predicted to drop to around 500,000 tons in 2015, a decline of 95 percent in the last three years. The U.S. Pacific Coast states, together making up approximately the 7th largest economy in the world, are on a mission to dump coal entirely.

This creates uncertainty for Montana, as the large majority of coal mined in-state is carried by rail out of Montana to be exported internationally (29%) or used by other states (50%): 

Figure 2: Distribution of Montana Coal by Destination (Millions of Tons), 2014

What’s more, a large percentage of the coal that stays in Montana and is subsequently burned for power generation gets delivered by transmission lines to customers out of state. The point being: as consumer demand continues to change, the fate of the Montana coal industry is largely out of its own hands.

The Forecast: Sunny Skies with Local Thunderstorms

Fortunately for Montana, the state economy has already prepared itself for some growing pains.

Between 2001 and 2014, the state economy, job creation, real personal income, and real per capita income all grew faster in Montana compared to the nation as a whole. Unemployment is below the national figure and the state is adding jobs across diverse industry sectors, predominately in urban areas: 

Figure 3: Montana Compared to the U.S. in Terms of Population, Employment, Personal Income, and Per Capita Income Growth, 2001-2014.

The bottom line is that the state economy, as a whole, is no longer dependent on coal: only 2.1% of total state and local government revenue is derived from coal royalties and taxes. (This is in stark contrast to other coal states, like West Virginia.)

In 2015, coal-related employment in Montana accounted for only 0.3% of total statewide employment. This is partially due to the fact that Montana’s surface coal mines are highly efficient (second only to Wyoming), meaning that the industry employs relatively few workers compared to overall productivity. Simply put, surface coal mining just doesn’t generate that many jobs. And the jobs that do exist are concentrated primarily in three rural counties (Big Horn, Musselshell, and Rosebud).

The prognosis? The transition to a clean energy portfolio poses general opportunity and localized hardship.

In 2013, over two-thirds of the state’s employment was located in just seven counties:

Figure 4: Job Concentration in Montana

These counties, which are also the seven fastest growing counties in the state, house the biggest cities, the economic engines of the state. With better access to markets and an educated work force, these communities are well poised to capture investment and jobs associated with the coming energy transition.

Meanwhile, Big Horn, Musselshell, and Rosebud counties, for whose workforces coal mining and burning account for 30%, 20% and 14% respectively, are not sharing in that growth. Without a plan for economic aid and diversification to support sustainable employment, coal communities are at risk of getting left behind.

At the 50,000 foot perspective, the economic outlook for Montana is optimistic. On the ground, the reality is that all Montanans are not equally equipped to navigate the coming change.

So I’ve Read the Report. What Does it Mean for Montana?

Ensuring a Just Transition

Today, the push towards a low-carbon economy in response to climate catastrophe must necessarily scale-down dirty energy production, thereby contracting the workforce in the fossil fuel sector. It is a matter of basic fairness that policy changes that benefit the greater social good are not shouldered by a small minority.

As the state prepares for the coming energy transition, one of the most pressing concerns will be to ensure that coal communities are fully supported. Although the transition to renewable energy is slated to create millions of jobs, ensuring a just transition for Montana coal workers won’t be as simple as building big solar projects on reclaimed mine land. The location of future renewable energy jobs may not match seamlessly with coal-dependent communities, and the prerequisite skills may exclude some workers without re-training.

Furthermore, a just transition goes beyond job creation: it also includes ensuring that pay, working conditions, benefits, and quality of life do not suffer. The greatest threat posed to coal-dependent communities in Montana, even more so than lost jobs, will be lost revenue. For example, the Colstrip power plant and the Westmoreland mine pay 77% of local property taxes in Rosebud County. Because these counties are not competitively situated to capture new investment they will have a difficult time making up the gap.

Protecting Workers and the Land

Ensuring that depleted mine lands are fully reclaimed to protect the health and safety of people and wildlife and to avoid significant legacy costs left to mining communities will be an essential aspect of any just transition blueprint. The Surface Mining Control and Reclamation Act (SMCRA) requires coal companies to post bonds to cover the full reclamation of mined lands according to a timely and comprehensive recovery program. Because of weak agency enforcement and industry insolvency, the burden of reclamation is at risk of falling squarely on the public.

Next Steps

There is no time like the present.

According to Headwaters, the sooner Montana begins planning for major changes in the energy sector, the better prepared it will be to capture the economic opportunities that will come with the change. Past transformation in the Defense and Tobacco industries are precedents that can inform wise transition. Montana should work directly with coal communities to assess community needs and ensure sustainable economic development as it embraces a low-carbon economy.


Headwaters Economics is an independent, nonprofit research group based in Bozeman, Montana that works to improve community development and land management decisions in the West.

Oliver graduated from Wesleyan University with a double degree in Biology and Environmental Studies in 2014. He has held field jobs studying birds from the Arctic Ocean to the Peruvian Amazon and has worked as a naturalist guide in his home state of California. He was our Winter Wildlife & Energy Intern in NRDC's Northern Rockies Office in Bozeman, Montana, this past winter. Oliver’s internship was made possible by a generous grant from Robert and Dana Reisse in memory of their son Andrew.

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