Coal Alchemy and Corporate Welfare

A Wyoming love story

For thousands of years, alchemists tried to change base metals into gold. Today, this lofty goal rests unachieved, but its legacy remains. Now, instead of changing lead to gold, crafty alchemists look to change money from the pockets of taxpayers to their own, and governments seem happy to assist. High on the alchemy hit list in Wyoming is the coal-to-liquids scheme—a boondoggle that could waste even more hard-earned tax dollars in the future as Wyoming politicians scramble to appear to be doing something to grow the economy and create jobs.

But wait! Putting money into the pockets of private companies violates the Wyoming Constitution. Article 3, Section 36 prohibits appropriations to "any person, corporation or community not under the absolute control of the state." This prohibition prevents the direct transfer of tax dollars into private pockets, however, it doesn't prevented legislators from using creative methods to hand out money to private companies indirectly, as we'll see.

Back in 2004, a Houston-based company called DKRW suggested building a $2 billion coal-to-liquids plant in Wyoming. According to DKRW's 2007 project proposal, construction of the $2 billion plant would begin in 2008, be complete by 2012, produce 20,000 barrels per day of transportation fuel and other energy products, employ 2,307 people in construction and create 450 full time jobs.

Sounds good, so good in fact that in 2009, DKRW received a $1.2 billion loan guarantee from the Department of Energy, under its $8 billion Loan Guarantee Authority for coal-based power generation, gasification and carbon sequestration. This is a subsidy program similar to the one that backed the solar-panel manufacturer Solyndra, which defaulted on its $535 million loan in 2011, leaving taxpayers to pick up the tab.

Does Wyoming enjoy a coal-to-liquids plant in 2015? Seems not. A lonely cement slab sits on the site destined for DKRW's dream machine, near Medicine Bow, Wyoming.

Arch Coal, a partner in the coal-to-liquid plant recently wrote off its $57.7 million debt and investment in DKRW. How much did DKRW cost taxpayers?

Although the state of Wyoming has provided no direct subsidies to DKRW because the constitution prohibits it, Wyoming taxpayers have funneled money towards this non-project that could have been used for something else. This open funnel could possibly be much wider in the future.

For example, back in 2007, the Wyoming Business Council gave Carbon County a $1.9 million handout to reconstruct 13.2 miles of County Roads No. 1 and 3 to provide access to DKRW. That is a lot of money for a road to the future site of a cement slab.

You would think politicians would have learned a lesson from that experience, but no. The cement slab now actually exists, so it seem to merit a better road and the state approved an additional $10 million for roads for Carbon County in the 2015 supplemental budget. That $10 million will come, should plant construction actually start, from the Permanent Wyoming Mineral Trust Fund Reserve Account.

Stop and think about that one for a moment—$10 million from a state savings account to pay for a road to a facility that after 10 years of company promises, is nothing more than a cement slab. This is a responsible use of tax dollars?

It gets worse. Also during the 2015 session, the legislature passed HB53, creating a minerals-to-value-added products program so the state could give mineral supply guarantees of up to $50 million per company. The idea is to attract companies, such as DKRW, to the state to turn lower valued minerals into higher valued products. Can you say–coal alchemy?

Right now, DKRW's construction permit from the Industrial Siting Council will expire in July 2016 if construction doesn't begin by then. Will the permit be extended yet again or will this farce finally come to an end?

As the steward of scarce tax dollars, government has a duty to act responsibly and not provide money for roads to nowhere and multi million dollar supply guarantees to private companies in a frenzied effort to appear to be creating jobs. If an investment is a good idea, a company will build what it needs to without government help. Government must recognize that it is the market that decides winners and losers; it must end these subsidy programs.