A story covered by Bloomberg News details the damages that Massey Energy Company may have to pay out if it loses a lawsuit brought by hundreds of West Virginia residents. According to the article, Massey may have to pay $125 million in damages, and potentially as much as $1 billion in punitive damages for environmental harm that has affected many of the state’s residents. Massey has been one of the top performers in the Standard and Poor’s 500 index for the last year, but that could change as investors begin to factor in these litigation risks.

In our talks with Bank of America on their financing of coal-fired power plants and coal mining operations (see post below), one of our arguments in calling for a moratorium on coal financing was the financial threat of litigation. Coal is relatively cheap to extract and use as an energy source only if external costs such as contaminated water, flooding, ruined property and global warming are not factored in. If these externalized costs are calculated, coal no longer looks like a good deal.

And operating mines are only part of the problem. As with most mining companies, Massey owns many mines that are well past their productive stage. But once a mine ceases to produce coal, it continues to pollute, exposing the company to indefinite liabilities. Mining companies often go bankrupt once liabilities become too great - leaving financial institutions which have loaned them money, with a loss.

I think that an increasing number of lawsuits over mining damage - combined with a carbon dioxide tax - will at least begin to reveal the true cost of coal.

This entry was posted on Thursday, July 3rd, 2008 at 10:37 am and is filed under In the news, Environment, Chris. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.