One of the Best-Kept Secrets about Coal... It's NOT the Cheapest Energy

Well over half of the electricity generated by Nebraska’s public power system comes from coal. Although coal is far and away the dirtiest fossil fuel, the state’s public power generators have insisted on using coal transported by rail from Wyoming’s Powder Basin (rather than developing our own clean, native renewable resources) because the energy cost of coal was purportedly so cheap. 

As the following article by UNL Economics Professor Hank van den Berg documents, however, those cheaper costs are illusory. Once the full costs associated with burning coal are calculated in, the price of this toxic fuel becomes economically prohibitive. Plus, coal produces exorbitant levels of greenhouse gases, which the Pentagon itself now openly states are contributing to global warming. The Pentagon’s 2010 “Quadrennial Defense Review” warns that climate change is already exacerbating international instability and conflict—and the more the climate warms, the more war there will be. 

Preserving the environment—this fragile ecosystem in which we make our home—goes to the very heart of peacemaking. We cannot ever hope to live in peace when, as Al Gore said in his Nobel Peace Prize acceptance speech, “we’re waging war on the planet.” 

HENDRIK VAN DEN BERG 
UNL PROFESSOR OF ECONOMICS 

In defending the World Bank’s approval of financing for a new $3 billion coal-fired power plant in South Africa, World Bank President Robert Zoellick stated that “Coal is still the least-cost, most viable, and technically feasible option.” (Quoted by Brooke Jarvis in Yes! magazine). Most reporters and commentators blithely took Zoellick’s words as fact. But Zoellick, in fact, was not being honest. He conveniently left out the many hidden costs of using this dirtiest of dirty fuels. 

In the U.S., we use 92 percent of the coal we mine to generate 52 percent of our electricity. We use so much coal largely because coal is indeed relatively cheap for the operator of the power plant. But the market price of coal is not an accurate price of the cost of coal. Market prices are convenient but often inaccurate. Coal is one of the worst ‘market failures’ because the market price fails to reflect so many of the costs associated with the mining, transporting, processing, burning, and disposing of the waste of coal. Costs ignored by markets are referred to in economics as externalities. Coal has external costs because coal producers and users are not required to pay for much of the damage their product causes to others, nor do markets account for the pollution, global warming and indirect health effects that result from burning coal.

Internalizing ‘Externalities’

Government can ‘internalize’ the externalities associated with using coal by imposing a tax equal to the estimated external costs. Granted, such a tax is not easy to determine, because it requires a thorough accounting of the external costs associated with the burning of coal in the power industry. The difficulty in setting such a carbon tax has enabled the power and coal industries to prevent any actual application of a carbon tax. Still, the estimates we have available show that coal is grossly underpriced, and its external costs are doing a great deal of damage. 

The key elements of the coal cycle—pre-mining, extraction, process and disposal, transportation, utilization and waste management—all have real costs that markets systematically fail to internalize into the listed price. For example, the price of coal does not include lives lost to accidents, such as the recent West Virginia explosion in an inadequately ventilated mine that killed nearly 30 miners. Between 1900 and 2009, 104,674 workers died in coal mining accidents in the U.S., or about 1,000 workers per year. We have not tried to count the number of Chinese coal miners that are still dying at work a very high rate.

There are also many of the health problems associated with mining, air quality, and waste contamination. People living in mining communities are 70 percent more likely to develop kidney diseases, 64 percent more likely to develop chronic lung diseases, and 30 percent more likely to suffer from hypertension. Less well known is the fact that people living near coal-fired power plants exhibit similar higher health risks.

There are also the costs to society of mountain-top mining and the destruction of natural habitats. Transportation of coal generates carbon emissions and other energy usage that have their own external costs. Coal causes about half of all acid rain. And the 2008 coal ash accident in Kingston, Tennessee, where sludge laced with arsenic, uranium and mercury broke through a containment dam and flooded hundreds of nearby acres before seeping into a nearby river, revealed the uncovered costs of the waste left from burning coal in power plants.

Global warming is, of course, the largest cost of burning coal in power plants. In the U.S. the International Energy Agency estimates that about one-third of all carbon emissions in the U.S. come from coal-fired power plants. Worldwide, closer to 40 percent of all carbon emissions originate in coal-fired power plants. The future costs of global warming range from 1 or 2 percent of gross domestic product (GDP) to the catastrophic demise of humanity.

Accounting for the Full Costs

When the costs of lost lives and health costs are added, the real cost of coal rises substantially. Utility commissions in many states have been estimating the total costs of burning coal for electricity generation for as long as 20 years. In the early 1990s, Massachusetts’ utility regulator estimated a cost of $24 per ton of carbon emitted. New proposals for power plants were required to add these estimated external costs to their cost-benefit studies. Also in the early 1990s, the California Public Utilities Commission used an estimate of $33 per ton of CO2 emitted because Western coal is softer and dirtier. California also added the costs of emissions of sulfur dioxide and nitrogen oxides, which cause acid rain. 

When the lower Massachusetts estimate of external costs of coal is factored in, the average $46-per-ton price of coal delivered to a New England power plant increases to about $200! Various other university studies, as well as studies by the National Research Council and GreenPeace, estimate that the true social cost of coal (that takes into consideration lost lives, health issues, local pollution and the most likely global warming scenarios) falls somewhere in the range of $150-$200. Another independent study by two environmental economists (interestingly, one from the University of Wyoming, which is funded in part by tax revenue from coal mining in the Powder Basin) concludes that “coal is by far the most underpriced energy resource.” (Todd L. Cherry and Jason F, Shogren , “The Social Cost of Coal: A Tale of Market Failure and Market Solution,” working paper, 30 September, 2002.) 

In short, at a true price of $150-$200 per ton of coal, coal-fired power plants are no longer the “least-cost” suppliers of electricity. In fact, they are among the very highest-cost producers. Even at today’s market prices, coal costs more than natural gas and geothermal power plants. Of course, natural gas still emits about two-thirds as much carbon as coal. Geothermal power is not entirely free of external costs either.

The stunning (at least to those who have accepted the ‘cheap coal’ myth) result from studies that internalize the externalities is that renewable sources of energy, such as wind and solar, are the true least-cost sources of energy. Yes, they are more expensive than what we think we are paying for coal. But in truth, we are paying much more for coal than we—and our future generations—will pay for clean energy alternatives. And we have not even factored in the likely reductions in the cost of alternatives if we move toward their large-scale adoption. Nor have we factored in the relatively low costs of changing our lifestyles and using less energy in general.

Also missing from all estimates of the full costs of the various energy sources is risk of international conflicts over finite resources. The myth of cheap coal prevents us from embracing renewable energy sources that can ultimately replace our need for non-renewable energy sources like oil. The wind blows and the sun shines everywhere. Even cloudy Germany has already shown that solar energy is viable there. 

We’ve known this for a long time!

The examination of all the evidence on the true costs of energy reveals that the above conclusions are not new. An article summarizing the costs of alternative sources of energy in The Atlantic magazine 17 years ago said:

“...under any external-cost scenario, coal’s price advantage erodes. Natural gas becomes a more cost-efficient generating fuel, since it emits less sulfur. More important, renewable resources like geothermal energy, wind and solar energy, at five to twelve cents per kilowatt-hour, suddenly become competitive, because they carry few or none of the external costs associated with coal.” (Robert Cullen, “The True Cost of Coal,” The Atlantic, December 1993.) 

So the discussion of externalities above is nothing new. We knew that coal was not cheap at least two decades ago. The coal industry, our political leadership and our so-called ‘free press’ have done a marvelous job of hiding that information from the general public.

The author of the 1993 Atlantic article was convinced that the true relative costs of energy would lead policymakers and industry itself to adjust its investments towards non-polluting alternatives. He naively concluded with a study that predicted renewable resources could by the year 2010 account for as much as 50 percent of the country’s new generation capacity, with coal dropping to ten percent.” Granted, the author did hedge by saying that “Much depends on whether the federal government imposes on the states some kind of uniform requirements for external-cost calculations.” 

We now know that the government did not do this. Are we still so naive as to think that our Congress and president will make it happen this year, when industry lobbying is more intense than it was in 1993? 

With people like World Bank President Robert Zoellick perpetuating the myth of cheap coal and the current economic recession on the minds of nearly everyone, most people no doubt have the impression that a carbon tax would be too costly. Better to stick with the “least-cost most viable, and technically feasible option!” 

True, but that option is renewable energy, and most definitely not coal. 

 

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