Conference Report: New Generation Jobs from Appalachia's Natural Assets

by Fred D. Baldwin

"Play to our strengths," Kentucky Governor Ernie Fletcher, 2006 states' co-chair of the Appalachian Regional Commission (ARC), advised attendees at a conference on using Appalachia's natural assets to create "new generation jobs." The conference, held in Pikeville, Kentucky, October 11-13, 2006, drew approximately 280 participants. It covered a range of asset-based strategies, including energy development, sustainable forestry, and value-added agriculture.

Keynote speakers and panelists emphasized sustainable development. They contrasted the Appalachian Region's historic reliance on exports of coal and raw timber with a future in which Appalachia's communities generate wealth closer to home by squeezing more value from natural resources and improve their residents' quality of life by protecting and preserving the natural environment.

"Our land, as it always has been, will be the key to the Region's future," said ARC Federal Co-Chair Anne B. Pope. "We have to use the land in a way that will be respectful of the future. Let's not eat our seed corn. To tap our resources, let's find the right niches and develop the right way."

A highlight of the conference was an announcement by Pope and Fletcher of an "energy blueprint" for Appalachia, a plan for regional economic growth based on aggressive but efficient development of both traditional and alternative energy resources.

The energy blueprint is built around three key elements:
1) energy efficiency as a contributor to economic competitiveness;
2) renewable energy resources, especially biomass; and
3) conventional energy resources, especially coal, to be developed in innovative and environmentally friendly ways.

Fletcher noted that Appalachia's wealth in coal and timber has historically made the Region a major supplier of energy for the nation, but at the cost of highly cyclical economic outcomes and environmental damage. In the future, he insisted, the Region can and must manage its natural assets more effectively. "When we see the depletion of oil reserves in the world," he summed up, "we know coal will be more important. Not only can we extract energy from that resource, we can do it in a way that is environmentally sound. If we come together, we can focus on strategic priorities that will let us get the most value from every dollar of investment."

Pope announced that ARC would sponsor a challenge-grant competition for projects to develop energy resources and improve energy efficiency. Information on preparing requests for proposals for these grants will be available on the ARC Web site.

Pope described the Commission's new energy blueprint as the product of a collaborative effort by ARC staff, the governors' offices in all 13 Appalachian states, and a wide range of energy and economic development experts. The energy blueprint, she explained, should be understood as the centerpiece but not the sole component of a comprehensive asset-based strategy.

"ARC has a long history," Pope said, "of addressing the deficits of the Appalachian Region. We need to continue to do that—to improve education, add jobs, complete the highway system. But we need to take advantage of our vast assets. We have identified developing our energy resources as our next great opportunity."

Energy Efficiency and Conservation

The first element of the energy blueprint—efficiency and conservation—provided the theme for a keynote address by Michael Kinsley, a senior consultant for the Rocky Mountain Institute and co-founder of that nonprofit organization's economic renewal program.

Conservation and efficiency measures pay off in multiple ways, Kinsley explained. For example, reducing electricity consumption saves money for consumers and reduces the need for new power plants, whose costs must sooner or later be factored into retail rates. Factoring energy efficiency into investments in buildings and equipment pays off immediately in the form of lower operating costs, and reduces the need for expensive retrofits if environmental regulations become more stringent. Kinsley commented that ignoring energy efficiency and environmental issues when planning economic development is as foolish as ignoring costs when evaluating a business's profit potential.

"Energy efficiency is a very low-risk, very predictable, very high-return investment," Kinsley said. "In this region, efficiency has been underutilized. This is a terrific opportunity. If we think of economic development as a bucket that provides prosperity when it's full, we spend most of our time finding hoses. But any local economy is full of leaks. If we devoted as much creative thought to leak plugging as we now do to increasing throughput, we'd see tremendous benefits."

Kinsley offered example after example of communities that captured substantial savings from relatively modest efforts. Some use eBay-like networks to facilitate local business purchases from nearby suppliers. Others market public offerings of common stock to create needed businesses. Still others practice "waste matching," in which one business's waste products—for example, waste heat from high-temperature manufacturing operations—become another firm's low-cost input. Cheaper raw materials and lower disposal costs typically lead to new job creation.

At a separate plenary session, Gerry Yurkevicz, managing director of Global Insight, a Lexington, Massachusetts, consulting firm, spoke about three areas of energy-related opportunity for Appalachia. Energy efficiency headed the list as "low-hanging fruit that really needs to be picked." He next noted the potential of biofuels, both ethanol and biodiesel, for use in transportation. Yurkevicz also predicted a steadily growing increase in demand for electric power, primarily from clean coal technology. Finally, he predicted an important role for renewable sources like solar power and wind energy in some Appalachian sub-regions and states.

Concurrent Sessions: Asset-Based Development Strategies

A dozen break-out sessions featured presentations by experts on a wide range of asset-based development strategies. Some sessions offered tightly focused discussions on issues like energy efficiency standards for buildings, risk assessment in siting energy facilities, and occupational development, some gave a more general perspective on the key points of the ARC energy blueprint, and some focused on other assets, such as agricultural products, sustainable forestry, and adventure tourism. Highlights from several of the sessions are summarized below.

Entrepreneurial Opportunities in Energy. Panelists describing entrepreneurial opportunities in energy outlined the challenges and rewards associated with start-up companies whose business involves renewable energy technologies and conservation. Kurt Faulhaber, acting director of the Clean Energy Incubator in Austin, Texas, emphasized that most technology-oriented energy companies are capital intensive. He urged would-be entrepreneurs and their backers to seek out public-sector grant opportunities for proof-of-concept work and to set rigorous market validation standards for ideas pitched to private investors. "Angel investors," Faulhaber joked, "are used to locking geeks in a room and pushing pizza under the door. Six months later, software comes out. You can't do that with renewable energy."

Phillip C. Badger, president of General Bioenergy, a Florence, Alabama, consulting firm, discussed commercial opportunities for the production of biodiesel and ethanol fuels in this session. Corn is the most commonly used raw material in the production process, but other substances, such as soybean oils, waste cooking oils, and wood wastes, are also used. Most new ethanol plants produce about 100 million gallons per year, well above the 50 million-gallon average for older plants. Although the industry trend is toward larger production facilities, the necessity of delivering liquid biofuel products by rail and truck, rather than through pipelines, means that relatively small operations can be competitive.

This session led to an especially lively question-and-answer period. Audience members quizzed panelists on the economics of various raw materials, the need for rail access, and technical issues involved in converting from one fuel source to another.

Adding Value to Agricultural Products. In this panel, Sherry Campbell, director of the Shoals Commercial Culinary Center in Florence, Alabama, explained that one way to add value to farm and garden products is to turn them into processed edibles—salsas, relishes, cheeses, and baked goods. Campbell described the growth trajectory of a kitchen incubator that opened for business in 2001 with the help of grants from ARC and the U.S. Department of Agriculture, and equipment donations from the Tennessee Valley Authority. The incubator now rents space and equipment to 17 businesses whose combined sales total approximately $2 million. Altogether, these businesses employ 68 part-time workers.

Campbell reminded her audience that a kitchen incubator rents out its facilities by the hour to small entrepreneurs who may never net enough to make large capital investments of their own. "It's not like a business incubator where you expect tenants to graduate in three to five years," she said. ""You need long-term goals. But after five years, we're about 70 percent self-sustaining now."

Sustaining a Local Forest Products Industry. Panelists discussing sustainable forestry emphasized multiple ways to add value to raw timber. For example, Cheryl Cook, deputy secretary for marketing and economic development in the Pennsylvania Department of Agriculture, discussed the wide range of industries associated with her state's forests. Overall, she said, the forest and forest products industry employs about 88,000 workers in activities ranging from furniture manufacture to recreation.

Cook also noted the links between forestry and asset-based energy development. She reported that the Pennsylvania Energy Development Authority recently announced grants for about 30 projects, including assistance to a wood-pellet manufacturer and to public facilities planning to heat buildings with low-grade wood waste. "I visited many of Pennsylvania's 115 agricultural fairs this year," Cook said, "and every one of them had vendors hawking pellet stoves, outdoor wood furnaces, and other alternative heating equipment."

The Future of Coal. This session offered new perspectives on the energy source that has shaped so much of Appalachia's economic, political, and human history.

Robert Powers, executive vice president of American Electric Power Utilities–East (AEP) in Columbus, Ohio, explained why AEP sees a coal-conversion process called "integrated gasification combined cycle" (IGCC) as the basis for future plant construction. The process converts solid coal into something resembling natural gas (although with a much lower energy content). The IGCC process results in much less pollution than conventional processes. The residual solids from the IGCC process are nontoxic and can be used safely in road construction. Challenges include high front-end costs. Moreover, until the recent entry of General Electric into the IGCC market, vendors of key plant components lacked the capability to integrate them into a fully operational production facility.

Randy Harris, strategic counsel for Cambridge Associates in Charleston, West Virginia, agreed that new coal technologies hold immense potential. He noted that Appalachia, located near major U.S. markets, has 21 percent of the nation's coal reserves and 16 percent of its natural gas reserves. Harris predicted that the coal gasification process described by Powers will become important around 2010. He pointed out that natural gas pipelines from the Gulf of Mexico and the Midwest have tended to terminate at the base of Appalachian mountains. This leaves Appalachian residents and businesses especially vulnerable to natural gas shortages, but it also presents a market opportunity for the development of coal gasification and biofuels plants.

Rodney Andrews, acting director of the Center for Applied Energy Research at the University of Kentucky in Lexington, urged economic development planners to pursue innovative options—"particularly if you want small scale." Andrews placed especially strong emphasis on potential labor shortages due to an aging workforce, requiring planners to place education and training high on their priority lists. As an example of a developing waste-based industry, Andrews described the advantages of mixing coal dust ("fines") with sawdust to produce briquettes. The briquettes are storable and easy to transport, and they offer a way to squeeze more value out of the waste products of two existing industries. Like other speakers, Andrews warned against expecting a "free lunch." All technologies, he said, involve trade-offs—economic, environmental, and technical.

The Future of Coal. This session offered new perspectives on the energy source that has shaped so much of Appalachia's economic, political, and human history.

Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.

April 2007