Making Mining Safer With One Simple Change

The news of a tragic coal mine explosion at the Upper Big Branch coal mine in West Virginia has been front-page news for a couple of days. As of the writing of this blog, at least 25 miners were killed with four still missing. Investigations show that the owner of the coal mine, Massey Energy, had thousands of safety violations, including some serious ones related to venting.
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The company as a whole has paid fines and been cited repeatedly for safety violations. There is, of course, an outcry for stronger regulation. Clearly this mine was operating unsafely. Federal coal mine safety chief Kevin Stricklin said, "We know it wasn't operating safely, or we wouldn't have had an explosion. It's quite evident that something went very wrong here. All explosions are preventable. It's just making sure you have things in place to keep one from occurring."

So we know it was preventable, yet the coal mine company did not prevent it. Why not? I believe it was primarily because it's just not in their financial interest to do so. The monetary impact is much too small. After a 2006 accident at a different mine that claimed two lives, the company was fined only $4.2 million. That's small pickin's for an enormous energy company like Massey. The mine in question, Upper Big Branch has been assessed only $2.2 million in fines since 1995--for more than 3,000 violations! They have only paid $791,327. Massey is contesting $1,128,833 in fines and has delinquent fines of $246,320. (More here)

I would suggest a very simple solution that would almost certainly reduce accidents in coal mines to almost zero immediately: a $100 million dollar fine for every loss of life in a coal mine. No exceptions. No "Acts of God." Every loss of life exacts this fine. Injuries would have smaller, but still significant fines. The only way this policy could work in practice would be to make it without exceptions. As soon as exceptions start to be made, then the whole system gets politicized and eventually it unwinds.

If Massey knew in advance that a major accident could cost them $2.5-$2.9 billion dollars (which is what this accident would cost), they would have done the risk management calculations that showed investing in safety would be well worthwhile. They would pull workers out of dangerous areas when each one is worth a potential $100 million. I suspect coal companies would take out insurance against major losses like this. That's fine. Unquestionably the insurance companies would make absolutely certain that the risks are completely minimized. They would likely do a much better job than the mine safety regulators, because they would have no ties to the industry and would have a very sizable and direct financial investment in risk reduction. They would be all over Massey constantly, making sure their insurance policy would not need to be paid out.

In real life, it seems impossible that such a simple system could be put in place. Instead there will be more and more complicated rules and regulations put into place. In the end, though, unless much, much larger fines are imposed and upheld, the companies will not make anything more than cosmetic or marginal changes. If a company knows that its entire existence may be threatened by a major accident, then it will act accordingly.