Why Coal Should Not Be Saved

Coal had a good ride.  It has been a workhorse in electric power generation, accounting for an average of 52 percent of the nation’s electricity from 1920 to 1985 (see Figure).  But since then coal has steadily lost significant market share, first to nuclear and more recently to natural gas and wind.  This shift is likely to continue because most of the recent and planed capacity additions are natural gas and renewables. The shift away form coal is due in part to increasing concern about its viability in light of the push to reduce greenhouse gas emissions.  Since 1751 coal gas has accounted for about one-half of the GHG emissions from the nation’s fossil fuel energy system (Boden et al., 2013).  Any climate policy aimed at reducing GHG emissions, and any other environmental policy aimed at reducing the harm to people and the environment caused by our energy system, will accelerate the transition away from coal.

Net Generation of Electricity by Source in the U.S., 1920-2014.

Is this trend a cause for concern?  Laurence Tribe,  a distinguished professor of constitutional law at Harvard, thinks that it is.  Mr. Tribe submitted comments to the EPA regarding the wisdom and constitutionality of the Agency’s Proposed Rule to limit carbon pollution from the electricity sector.  Peabody Energy, the world’s largest private-sector coal corporation, hired Mr. Tribe to prepare the testimony and jointly submitted it with him.

I will leave discussions of the veracity of his legal arguments to the legal experts.  Some of Mr. Tribe’s colleagues at Harvard and NYU take exception to his legal reasoning.

Mr. Tribe argues that the Proposed Rule is unfair and unconstitutional because (1) the curtailment of coal will have severe economic consequences;  (2) it reverses a decades-long policy of the Federal government to promote coal use in electricity generation, and (3) the cost of curtailed coal production would be borne by a narrow segment of society.  We have heard similar arguments by Senator McConnell from Kentucky, a major coal producing state.

To borrow a phrase from Mr. Tribe, is coal a “bedrock” of the U.S. economy?  The answer is an emphatic no because the evidence clearly indicates that the total social cost of coal far exceeds its benefits.  In a world where the market accurately reflects all costs and benefits–a world that Senator McConnell and other conservatives should champion–investment would flee coal faster than rats flee a sinking ship.

The federal government poured billions of dollars in the development of synthetic fuels (oil shale, coal-to-gas, coal-to-oil) in the 1980s; that effort is now widely regarded as a failure (Grossman, 2009).  Ditto for nuclear fusion. Tiered pricing for natural gas in the 1970s and 1980s was intended to promote domestic production, but it had perverse economic consequences and is now a poster child for bad policy. The development of CFCs  in the 1930s revolutionized refrigeration, arguably one of the most important technologies of the modern era.  But we later learned that CFCs devour the protective properties of ozone in the stratosphere, so the global community banned them. The development of tetraethyl lead lead (TEL) in the 1930s as a gasoline additive eliminated engine knock and improved the performance of the internal combustion engine.  But we later learned that TEL can cause acute or chronic illness when inhaled or absorbed through the skin, so we banned it.

The point here is that both the private sector and governments sometimes make bad decisions regarding energy and the environment.  It is sound policy to reverse those decisions when experience and scientific advances reveal their folly.  Advances in climate science and public health epidemiology over the past two decades unequivocally demonstrate the leading role that coal plays in driving climate change, as well as significant morbidity and mortality from air pollution.  These costs are large, they are growing, and they are disproportionally felt by the poor and  the elderly.

Moreover, the rise of coal in the electric power sector was driven not only by the abundance of the resource and its perceived merits, but also a failure of the market to signal coal’s total cost to society.  The federal government has been a key agent of this distortion.

The leading coal producing regions in the US are on federal  lands in the West. The Department of Interior (DOI) has a legal obligation to the American public to secure a fair market value for coal on federal lands. Yet the DOI has allowed coal companies to hide sales to their network of subsidiaries and affiliates as arm’s-length transactions when they are in fact captive, non-arm’s-length transactions (Lee-Ashley and Thakar, 2015). The result is a lower tax burden on coal companies and the loss of tens of billions of dollars owed the public over the past few decades. Coal companies enjoy gaping holes in the tax code; Peabody Energy is one of several  dozen energy corporations that paid no federal income tax for at least one year from 2008 to 2012. Certain coal technologies have benefitted from loan guarantees under the Energy Policy Act of 2005, and other federal policies. The federal government subsidizes the rail and maritime transport of coal, and funds research regarding the geologic characterization of coal resources, mine health and safety, coal waste disposal, and myriad coal conversion technologies (Pendergrass, et al.2013).  The government also conducts and supports research on electricity transmission and distribution.  These subsidies distort US energy markets and produce a price for electricity from coal facilities that is below what it would be in the absence of subsidies, thus creating an unfair advantage for coal compared to other modes of power generation.

Electricity generated by coal also benefits from its massive external cost on the  environment, the economy, and human health (see the review by Grausz (2011)).  A study by the National Academy of Sciences found that non-climate damages resulting from the use of coal in electricity generation amounted to $62 billion in 2005, or 3.2 cents per kWh, nearly 40 percent of the average price of electricity in 2005 (8.1 cents per kWh). These damages are twenty times higher per kWh than damages from electricity generated by natural gas. Climate-related damages ranged from 1 to 10 cents per kWh, depending on how much damage is assigned to one ton of CO2-eq (NRC, 2010).  More recently, Shindell (2015) estimates the range of external cost, including climate change, to be 14–34¢ per kWh for coal, compared to the average retail price about 10 cents per kWh in 2014.  Epstein et al. (2011) estimated that the life cycle effects of coal and the waste stream generated are costing the United States public a third to over one-half of a trillion dollars annually. The value of electricity generated from coal in 2011 was about 0.2 trillion dollars.  Muller et al. (2011) estimated that the damages from coal-generated electricity range from 0.8 to 5.6 times the GDP generated by that sector of the economy.

Read that last sentence again: coal imposes costs that are about as great or greater than its contribution to the economy.  If coal’s actual costs were included in the price of electricity, it would not remain a viable economic activity over the long run. The levelized cost of electricity from natural gas, geothermal, hydropower, and onshore wind is already cheaper than coal in the US (EIA, 2014), and they all have substantially lower external costs.

The magnitude of coal’s social costs are exacerbated by the inequity of their distribution. The poor bear the brunt of the economic and health impacts of fossil fuel externalities, a relationship that holds within every nation, and between rich and poor nations.  For example, the poor are disproportionately harmed by fossil fuel subsides (Vagliasindi, 2013), air pollution from fossil fuel combustion (Maxwell, 2004), and they are most vulnerable to climate change (IPCC, 2014). Such vulnerability ranges from the cost and availability of food (Nelson et al., 2013), mortality and morbidity (Hales et al., 2014), and displacement by sea level rise (Dasgupta et al., 2009).

Subsidies and externalities paint a clear picture.  Coal’s rise to prominence was fueled in by government handouts that distort market signals, and by imposing large costs associated with is production and use on society in the form of externalities.  Prudent public policy would eliminate the subsidies and internalize the externalities.   The Proposed Rule is a step in that direction.

The claim of substantial economic harm from diminished coal use does not hold hold water. Coal is extremely important important for states such as West Virginia and Wyoming.  But for the national economy coal mining is a drop in the bucket.  According to the National Mining Association (2014), coal mining accounted for less than one-half of one percent of the nation’s jobs and GDP.  The replacement of coal by natural gas, nuclear solar, and/or wind would create new jobs.  In fact, Wei et al. (2010) find that renewable and low carbon energy sources and energy efficiency investment generate more jobs than the fossil fuel sector per unit of energy delivered.  Protecting a few states’ economies at the expense of much larger national and international obligations is not sound federal policy.

Mr. Tribe argues that a move away from coal-fired electricity will reverse  “…decades of a bipartisan federal policy emphasizing increased use of domestic coal to achieve U.S. energy independence, reduce imported foreign oil, and provide the Nation with reliable and affordable electricity.”  The implication that a move away from coal would diminish energy and natural security and raise costs does not align with the facts . The federal government actively discouraged the use of oil to generate electricity in the 1970s and 1980s, and in its place promoted coal and other domestic energy sources.  The result is that oil today accounts for a minuscule fraction of electricity generation (see Figure).

Net Electricity Generation by Source in the U.S., 2014

 

 

 

 

 

 

 

 

 

But a decrease in coal  would not result in an increased in oil-fired generation capacity–no market analyst suggests this.  Coal would be replaced by some combination natural gas,  nuclear, wind, solar, hydropower and other renewables.  The nation has very large domestic sources of most of these resources.  In terms of affordability, new natural gas, hydropower, and onshore wind facilities already are cheaper than new coal facilities.  Coal’s cost is certain to grow as pressure mounts to internalize its prodigious external cost.  It must also be emphasized that many forms of energy efficiency are cheaper than all new sources, and efficiency gains do not come from foreign sources.

Mr. Tribe argues that the Proposed Rule is discriminatory because “…would fall harshly on the Midwestern United States and on other selected regions throughout the country, while largely bypassing the coastal areas.”  But the distributional issue should be viewed through a broader lens that include all people who benefit from, and who are harmed by, the coal fuel cycle.

Despite great progress in air quality, about 75 million people in the U.S. lived in counties with pollution levels above the  National Ambient Air Quality Standards in 2013 (EPA, 2015).  Many of these people live in the “coastal areas” mentioned by Mr. Tribe. Each increase in fine particulate matter is associated with an increased risk of all-cause mortality of 14 percent, and with 26 and 37 percent increases in cardiovascular and lung-cancer mortality, respectively (Lepeule et al., 2912).  Long-term exposure to fine particulate matter in the United States produces an approximate loss of 0.7 to 1.6 years of life expectancy (Pope et al., 2009). Exposure to combustion byproducts in the U.S. accounts for about 200,000 premature deaths per year due to changes in the concentrations of fine particulate matter, and about 10,000 deaths due to changes in ozone concentrations (Caiazzo et al., 2013).  Coal is a major–but not sole–contributor to these problems. About 90 percent of city dwellers in Europe are exposed to pollutants at concentrations higher than the air quality levels deemed harmful to health. In the EU, PM pollution was associated with about 348,000 premature deaths in 2000, corresponding to a loss of about 3.7 million years of life (AEA, 2005).  Fine particulate matter (PM2.5) is estimated to reduce life expectancy in the EU by more than eight months (EEA, 2014).  In China, outdoor air pollution causes 1.2 million premature deaths and 25 million healthy years of life lost in 2010 (HEI, 2013).

These observations suggest that the harm caused by coal, and thus the benefits generated by a reduction in its use– are far broader than the impacts felt in a few coal mining states.  Federal policy that explicitly mitigates some of these impacts will generate broad and significant social benefits that could far outweigh the hit taken by a handful of coal-producing states.

The notion that coal is a bedrock of the economy is an illusion created by a market that is severely distorted by government subsidies, by the large and growing external costs of coal, and by the political power of multinational energy corporations that dominate state politics and that care little about efficient  markets and the broader well-being of society.  It is precisely the role of the federal government to address these problems.  Economic costs associated with the transition away from coal will be offset by the new economic opportunities that abound in the delivery of energy efficiency and low carbon source of energy.

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