A Bigger Bang Approach to Economic Development

An Application to Rural Appalachian Ohio Energy Boomtowns
Photo: Bloomberg Philanthropies/Powering Past Coal Alliance

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A new economic development model centering high-multiplier investments in energy efficiency, weatherization, distributed generation, and education could help struggling Appalachian communities spark job, population, and income growth, according to a new study from the Ohio State University’s Swank Program in Rural-Urban Policy.

The report, “A Bigger Bang Approach to Economic Development: An Application to Rural Appalachian Ohio Energy Boomtowns,” uses a ‘synthetic control’ approach to demonstrate how the once-struggling coal town of Centralia, WA leveraged economic transition funding to achieve job and economic growth double the national average.

After two decades of zero job growth, the Centralia micropolitan statistical area, which includes surrounding Lewis County, looked to be on the verge of a downward “death spiral” when the town’s local coal mine and coal-fired power plant, the two largest employers in the area, announced plans to shut down operations. As the mine and power plant started shedding workers, Centralia negotiated a $55 million Coal Transition Grant Program with the facilities’ owner, TransAlta, to invest in clean energy, energy efficiency, and education, with a particular focus on construction, small businesses, and firm startups. 

The results have been “remarkable.” Since the program started distributing grant funding in 2016, Lewis County’s declining economy has rebounded, adding new jobs at twice the rate of the nation and triggering wage growth 50% greater than the national average.

According to co-author Nick Messenger, a doctoral candidate in Agricultural, Environmental, and Development Economics at The Ohio State University and a researcher with the Ohio River Valley Institute, “The Centralia Model is particularly intriguing due to its relatively low cost and its emphasis on utilizing latent local inputs. By focusing on high-impact forms of economic development, rather than hoping outsiders save the day or providing expensive subsidies to large corporations, it taps the community’s own assets to lift growth prospects and make local economies more resilient.”

The study’s “synthetic control” demonstrates a causal link between the Centralia Model’s investment priorities, first outlined by a 2021 Ohio River Valley Institute report, and Lewis County’s remarkable economic reversal. Messenger and co-author Dr. Mark Partridge, Professor of Agricultural, Environmental and Development Economics and Swank Chair of Rural-Urban Policy at The Ohio State University, constructed a counterfactual synthetic control variable using aggregate data from nearby communities with demographics and economies similar to Centralia’s. In the years immediately following grant distribution, Lewis County grew jobs and personal incomes nearly 2% faster than the synthetic control county.

Because their economies are very similar to Centralia’s in its pre-boom era, struggling energy communities in Appalachian Ohio and across the Ohio River Valley may be able to replicate Lewis County’s economic turnaround by implementing the Centralia Model, the report finds.

According to federal economic data, many communities in the region, and particularly those with a history of resource extraction, have fallen behind the nation in job, population, and income growth. Since the beginning of the shale gas boom in 2008, the largest gas-producing counties in Ohio, Pennsylvania, and West Virginia have lost more than 10,000 net jobs and nearly 47,000 residents, according to new research from the Ohio River Valley Institute. Efforts to spark a petrochemical renaissance with the region’s abundant natural gas reserves have similarly produced poor economic outcomes. After Pennsylvania invested $1.6 billion in public subsidies to launch the Shell Polymers Monaca petrochemical complex, research shows surrounding Beaver County has fallen behind the nation in nearly every indicator of economic activity.

“The shale gas boom and other failed or failing visions of gas-based economic prosperity, including the Appalachian Storage Hub, the ballyhooed petrochemical renaissance, and emerging plans for regional blue hydrogen hubs, are structurally incapable of delivering on promises of job growth and local economic prosperity. And, as Appalachian natural gas production plateaus, it’s increasingly clear the oil & gas industry will never become the economic savior many hoped it would be.” notes Sean O’Leary, Senior Researcher with the Ohio River Valley Institute. “Meanwhile, The Centralia Model offers policymakers the opportunity to build economic growth from within by leveraging local resources and improving the quality of life for residents and employees of companies that choose to come and expand.”

“A Bigger Bang Approach to Economic Development” explains that oil and gas development produces relatively small “multiplier effects,” or spillovers of positive economic activity. New economic activity generally triggers a ripple of job growth as supply chains form or expand to meet the needs of new industry or as new workers spend their wages in the local economy. But compared to other industries, few jobs are created to help support the oil & gas supply chain, and few local jobs are created as a result of oil & gas worker spending, the report shows.

Conversely, the industries targeted by the Centralia Model trigger relatively large multiplier effects. Centralia’s transition grant funding invests in highly labor-intensive local economic activity, such as energy efficiency and weatherization work conducted by local contractors and construction companies. These investments create local jobs, generate additional monthly utility savings, and increased property values. Other uses of the funds include investments in quality-of-life amenities in the area, local business improvement, and attracting additional outside dollars from partners to fund novel start-ups and research into how Centralia can capitalize on technological changes in the new energy economy.

Now, money is on the table to help distressed communities in Ohio and across northern Appalachia replicate Centralia’s economic turnaround. Ohio’s 32 Appalachian counties are eligible for $500 million in planning and development grant funding for projects to support infrastructure development, workforce development, physical and mental health, and programs for substance use aid. The Inflation Reduction Act’s Greenhouse Gas Reduction Fund sets aside $27 billion to help low-income and disadvantaged communities deploy zero-emission technology and make homes and buildings more energy efficient.

By utilizing funding from these and other sources wisely, and creating partnerships to leverage funding, distressed communities across the Ohio River Valley can build stronger, more diverse, and resilient economies that leverage local residents’ skills and improve health, incomes and employment, and quality of life.