An Appalachian Initiative for the 21st Century: Building Energy and Infrastructure

Excerpts from the Appalachian Initiative – September 2017 Report

(Bipartisan Policy Council) – Energy and infrastructure are two areas of critical importance for improving Appalachia’s long-term economic prospects, attracting new industry, and providing a better quality of life for citizens. Recent years have seen real progress toward developing new energy resources and addressing persistent infrastructure gaps, but further investment and innovative approaches are needed to realize the region’s potential and overcome remaining challenges in these sectors.

Of course, Appalachia has long been known for its abundant coal resources, and coal production which, despite recent hardships for the industry, remains an important part of the region’s economy. Less widely known is the fact that Appalachia is also rich in natural gas and unconventional oil resources (e.g., oil sands and oil shale) and that development of these resources has been expanding rapidly. In fact, Pennsylvania, Ohio and West Virginia recently joined the ranks of the top ten states in the country for natural gas production.

In addition, Appalachia has significant potential to develop renewable and alternative energy resources such as wind, solar, hydropower, waste products, biofuels, and biomass. The region’s wind potential is   concentrated in the mountains, where wind speeds are faster. There are also a handful of geothermal hotspots yet to be harnessed and numerous rivers and watersheds that offer opportunities for small hydro projects. Many of these renewable resources are underdeveloped but offer significant opportunities to diversify the region’s energy portfolio and provide job creation.

Thus, while coal still provides a significant fraction of the energy used to generate electricity in the United States, growing demand for natural gas and renewable energy is already changing the economic dynamics of the region. As a significant natural gas producer, for example, Appalachia is well positioned to build out natural-gas-based chemical and advanced manufacturing industries. Technologies for capturing and sequestering or utilizing carbon dioxide (CO2) emissions from energy production and industrial processes, for example, have been developed, but additional cost reductions are needed. Meanwhile, abandoned coal mines can be reclaimed, providing prime locations for new energy projects, economic development, and other creative uses, including tourism and outdoor recreation activities such as hunting and fishing.

Like much of the country, Appalachia needs updated infrastructure. But the region’s steep terrain and rugged topography often make infrastructure projects more technically difficult and more expensive per mile to construct and maintain. Historically, highway engineers often bypassed local towns when laying down the initial interstate system, and current federal highway programs, many of which base funding amounts on an area’s population, have not provided sufficient resources to address these gaps. These challenges are particularly acute in Appalachia’s rural areas where, because of low population density, infrastructure is more expensive per user to build and operate, and therefore less attractive to private investors. On the other hand, completing key road projects could greatly improve the region’s connectivity and reduce the region’s economic isolation, while spurring business investment and growth. Very sparsely populated areas also need roads to improve workers’ access to job opportunities.

Appalachia’s infrastructure challenges, however, are not limited to gaps in the surface transportation network. The region also features concentrations of economically distressed communities that lack other types of essential infrastructure, from modern water and sewer systems, to broadband Internet access. For example, more than 25 percent of the region’s population is not served by a community water system and must rely on private well water for household drinking water needs. Similarly, availability of broadband in the region remains lower than the national average and is unevenly distributed, particularly in economically distressed counties. Even where broadband is available, it is often more expensive and download speeds in underserved areas are often significantly lower than the national average.

A multi-faceted approach is needed to confront these challenges and leverage the region’s existing resources to take advantage of new  economic opportunities. This approach must look beyond simply seeking increased federal support. Comprehensive long-term strategies that consider the region’s diverse needs, including the needs of both urban and rural communities, while encouraging state and local cooperation, are needed.

Key Areas of Focus

  • Building on Appalachia’s past experience with the energy industry, its geographic location, and its abundant resources, to identify new industries and diversify its energy portfolio. Building on the region’s history to target new competitive industries is key to economic revitalization. Task force members identified a number of industries that could utilize the region’s unique strengths and  resources, such as natural gas, chemicals, advanced manufacturing, and extraction of rare earth elements (critical minerals) from coal and coal byproducts. Promoting these industries on a wider scale could require streamlining certain regulations to support the development of critical technologies and additional federal and state cooperation, along with public-private partnerships and financing in regional economic development efforts.
  • Including distressed Appalachian rural areas in future infrastructure investment efforts. Due to its geography and other barriers, Appalachia’s infrastructure needs have been difficult and costly to meet. However, continued investment in transportation, broadband, and other infrastructure is essential to ensure that companies can do business in the region and to connect rural areas more closely to the rest of the country. While past efforts have made headway, key transportation projects across the region remain unfinished.
  • Streamlining federal permitting while maintaining environmental protections to speed up the process of improving the region’s infrastructure. Task force members highlighted the complexity and length of the permitting process as a barrier to the completion of key infrastructure projects and a major source of cost to the public and private sectors. Both the  Department of Transportation (DOT) and the Office of  Management and Budget (OMB) were given legislative authority to streamline current permitting processes under the Fixing America’s Surface Transportation (FAST) Act, but changes have not yet been implemented.

Recommendations

  • Use Appalachia’s vast natural gas resource to build out value-added chemical and advanced manufacturing industries. The first step is to develop a storage and trading hub for natural gas liquids. This would provide a powerful anchor for economic revitalization in the region. A hub would also be in the nation’s interest as Appalachia’s abundant natural gas resources and location near the Midwest and East Coast could make the area a top national center for the U.S. petrochemical and plastic resin manufacturing industries. Ultimately, the region could rival the Gulf Coast as a center of the petrochemical industry. Researchers believe the geological formations surrounding the Ohio River, including parts of Ohio, Pennsylvania, and West Virginia, would provide ideal conditions for underground natural gas liquid storage. In addition, a storage hub would create well-paying jobs and help the regional economy diversify beyond resource extraction. A recent report by the American Chemistry Council found that build-out of this energy infrastructure could stimulate 100,000 permanent new regional jobs and attract $36 billion in capital investment. Congress and the Administration can help reduce uncertainty and incentivize investment through public-private financing tools such as the Department of Energy’s (DOE’s) loan program, as proposed in legislation, the Capitalizing American Storage  Potential (CASP) Act, introduced by Senators Manchin (D-WV) and Capito (R-WV). Additionally, to better inform efforts to develop a hub, Senators Capito (R-WV), Manchin (D-WV), and Portman (R-OH) introduced the Appalachian Ethane Storage Hub Study Act of 2017.
  • Conduct further federal research to develop technology that can be commercialized for extracting rare earth elements from coal byproducts. The U.S. needs to diversify its supply of rare earth elements instead of relying on sources from other countries, such as China, which currently supplies 85 percent of the world market. This could increase America’s competitiveness and national security. Rare earth elements are important for defense applications, consumer electronics and some medications. Coal byproducts contain rare earths, which are highly valuable components of the new energy economy that could be mined with emerging techniques and technologies. Researchers at Duke University have found that Appalachian coal contains some of the highest concentrations of rare earth elements in the country. The first step is to conduct further research and develop partnerships between universities with accredited mining engineering programs and mining companies to improve extraction technologies. Pilot projects at West Virginia University, the University of Kentucky, and Virginia Tech have begun receiving support from DOE and the National Energy Technology Laboratory.
  • Accelerate the commercialization of carbon capture, utilization and storage (CCUS) technologies, which are necessary to ensure that (1) our abundant coal resources are competitive in domestic power markets; and (2) the U.S. is a leader in exporting clean coal technology to developing nations like China and India. Many CCUS technologies are mature and already used in commercial applications, but additional cost reductions are needed. Several key elements are required to secure the successful commercialization of CCUS including (1) an outcomes-based program for fossil energy R&D funding at the Department of Energy with a sustained focus on CCUS; (2) reform of the 45Q sequestration tax credit; and (3) build-out of CO2 pipeline infrastructure. The United States needs additional clusters of projects networked by CO2 pipelines to form the backbone of a national U.S. CCUS ecosystem. The best strategy for meeting this need is a combination of tax incentives for capturing carbon and revenue from selling captured CO2 into the enhanced oil recovery market for other end uses. An expanded and reformed 45Q tax credit, in particular, will incentivize additional commercial-scale CCUS projects, providing technology learning for developers and de-risking for financiers. One other key policy objective that is important is the inclusion of CO2 pipelines in any federal infrastructure initiative; and competitive power market reforms.
  • Complete the Appalachian Development Highway System (ADHS). Task force members view the ADHS as the region’s highest transportation priority. This region-wide system is essential, nationally significant, and 90 percent complete. It will connect some of the country’s most economically distressed areas to economic opportunities. Funding is needed for the 13-state region as a whole, with varying funding requirements for individual states. Each state’s costs to complete its respective portions of the ADHS are comparable to the cost of individual projects in more densely populated areas. Any federal infrastructure legislation should ensure that distressed rural areas receive federal investment. These areas need special consideration to enable them to compete with more densely populated regions. The current infrastructure debate provides an opportunity for Appalachia to join with other rural regions that have concentrations of economically distressed communities to ensure the allocation of federal investment to where it is needed most. The task force also found Congress should consider ensuring distressed rural areas can fairly compete for infrastructure investment dollars.
  • Improve and streamline federal permitting while maintaining environmental protections. The complicated and often lengthy permitting process is costly for both the public and private sectors. Further, sequential issuance of permits and reviews by different agencies often adds unnecessary time and costs to a project. One way to improve the permitting process includes OMB and DOT should complete the implementation of FAST Act permitting provisions a and the federal government should ensure permitting is done simultaneously across agencies with minimal delay. Additionally, DOT and other federal agencies should consider institutionalizing and expanding the use of FAST Act Permitting Dashboard authorities. Authorities granted to the Federal Permitting Improvement Steering Council (FPISC) under the FAST Act should be used to provide greater accountability and predictability for projects under federal jurisdiction. Adding projects to the Permitting Dashboard will allow for more transparent tracking of permitting requirements, timelines, and federal agencies’ responsibilities. In addition, agencies are not only required to conduct simultaneous reviews, but are held accountable for falling off schedule. Covered projects therefore receive the benefit of enhanced predictability and accountability. They are also provided enhanced legal protections in the form of a two-year statute of limitations to challenge any authorizations and the requirement that environmental challenges must have been raised during the public comment period. Greater use of the FPISC’s authorities and the Permitting Dashboard would be a significant step in the right direction. Significant infrastructure projects in Appalachia should apply to be part of the FAST Act’s voluntary permit streamlining process so that they can benefit from the permit dashboard, greater coordination with agencies and states, and expedited review and scheduling.

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The original article and full report can be found here.

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