A $2.3M Check for Every Coal Miner: Cheaper than Keeping Coal Around

January 22, 2017

With Trump’s 2016 victory in Ohio and Pennsylvania, coal and the jobs related to it have clearly become political players. While many may be sympathetic to coal miners and the risks a changing energy, market pose to those jobs, the benefits of doing away with coal are so large that we cannot conceivably justify its expense. If the US were to replace all the energy produced from coal burning plants in the US within ten years, on net, we would be more than $400 billion better off within the decade. The benefits are so large that the 174,000 people working in the coal industry today could each be compensated for their lost job with a check of more than $2.3 million – more than their lifetime earnings.[1]

 

The True Cost of Coal and It’s Dimming Future

 

The Harvard T. H. Chan School of Public Health estimates the unseen, externalized costs of coal in the US to be between a third and half a trillion dollars annually. While costs imposed by coal’s related greenhouse gas emissions come to $61 billion in the low-end estimates that we will be focusing on in this piece, the public health costs imposed on coal mining communities and workers are the single largest externalized cost at more than $75 billion annually – equivalent to annual spending on food stamps in 2014. And this $75 billion does not include the higher rates of cognitive impairment or the tens of thousands of premature deaths from coal inhalation annually that occur outside of Appalachian coal country.

 

Even with these massive externalized costs, the coal industry in Appalachia is not self-sufficient. Kentucky’s coal industry takes around $643 million in state subsidies and only contributes $528 million in tax revenue. Meanwhile, the Energy Information Administration (EIA) estimates that the Federal government dished out $3.17 billion in coal subsidies in 2007.

 

Forbes writes that coal, which now satisfies 33 percent of America’s energy demand, will decline even without any further regulation: “Fracking has made natural gas cheaper than coal for power generation.” Additionally, the EIA shows that a new kilowatt of wind energy is as competitive as coal, even when excluding tax credits and subsidies as well as the enormous externalities costs of coal.[2]

 

Science reports that coal is the cheapest new source of energy in a mere 13 percent of US counties. In other words, even ignoring the potential future costs related to coal – such as a carbon tax –  other energy options would still be cheaper. If the Clean Power Plan were to take effect, coal would be an efficient investment in even fewer counties – a mere 3 percent of American counties.

Beside the gains to be had in existing Appalachian mines, where costs have already been sunk, even without a Clintonian ‘war on coal,’ coal will not survive – and, conscious of the true cost of coal, coal should not survive.

 

But the words of the President, who claims coal country will grow and survive, seem to offer a very different vision – one at odds with the facts and simply in line with petty political promises. On his recent ‘victory tour’ Trump said, “We’re going to get those miners [of Ohio, Pennsylvania, and West Virginia] back to work ... the miners, which was [sic] so great to me last week, Ohio and all over are going to start to work again, believe me. They are going to be proud again to be miners.”

 

Net Benefit of Replacing Coal with Wind or Renewables

 

To understand the scale of benefits from getting rid of coal and replacing it with a cleaner source of energy, we have to first understand the benefits the US currently enjoys from coal.

When coal is purchased, it is not the dark, sulfuric stuff that consumers are after; they are after its energy. To think about the benefit of coal to our economy, our society, we have to consider how much energy coal produces times the price folks are willing to pay for energy.

 

In 2015 1.32 trillion kW hours of coal energy were produced (33 percent of the US’s total energy production of 4 trillion [AD1] kW hours). In that same year, energy prices averaged $105 per megawatt hour – roughly the same as the $109 levelized cost of producing an extra megawatt hour from coal.[3] This means the economic benefit of this energy totaled around $138 billion in 2015.

 

If replacing coal with a cleaner substitute raised average utility prices, then the benefit of replacing coal would be lowered. Thankfully, substituting clean energy would not raise average energy prices. According to research on the cost minimizing optimal combination of renewables, a smart energy grid can almost entirely power America’s energy demands by renewable electricity at the same price as current utility prices.

 

This is only reinforced by the fact, quoted previously, that the net present value of onshore wind energy has dropped to prices comparable to that of coal, even when continuing to exclude the externalized damage to the environment, our health, and our climate from coal.

 

A utility size (2 megawatt) wind turbine costs, at the very most, $4 million (with a more likely cost of around $1.6 million).[4] Unlike coal or natural gas, once a wind turbine is installed, there is hardly any additional costs throughout its 20 or so year lifespan. With turbines this size producing around 6 million kWh per year, some 266,666 turbines would require some 266,666 turbines  to replace the 1.32 trillion kW hours coal produced in 2015. This would sum to $1.06 trillion or 1/16th of annual output in the US, about the size of the 2009 stimulus package.

 

Through some combination of loans and direct investment of $100 billion annually over the next 10 years in wind turbines –or some other comparably priced mixture of renewables – coal could be phased out with a net social benefit of around $400 billion over the first decade. Assuming costs and benefits of replacing coal with wind energy at the very conservative end of the spectrum in the table below, I estimate the net benefit at $429 billion over ten years.[5]

 

There would only be a viable argument for the continuation of coal if the economic benefits, particularly the cost of renewables needed to replace it, were much greater than the negative externalities. But when we acknowledge that there exists a simple mechanism [AD2] of directly compensating those who will be most hurt by doing away with coal – the 174,000 blue collar workers who directly work for the coal industry – there is no reason to stand by the industry’s existence and persistent role in economic life.t

 

[1] In 2015, coal production was related to some 174,000  fulltime jobs – 83,000 of which are fulltime miners the remaining fulltime jobs were related to transporting coal (30,000)  and working in coalfired power plants (60,000).

 

[2] These EIA figures are estimates of the average net present value, which in the energy industry is termed the levelized cost of energy, of a new energy plant over its lifetime. A discount rate is not included.

 

[3] The levelized cost of coal, or any energy source for that matter, is the regionally adjusted net present value of producing an extra unit of energy from coal.

 

[4] The European Wind Energy Association estimated in 2006 that the average initial required investment for a 2 megawatt wind turbine was 1.3 million euros ($1.6 million in 2008) in Western Europe, with about 75 percent of the cost dedicated towards the turbine. However, one of the chief wind energy groups in the US, windustry, estimates that the initial required investment of a large, 2 megawatt utility-size wind turbine lay between $3 and $4 million.

 

[5] It should be noted that this estimate does not include the potential cost of Federal borrowing or the economic losses from increased taxation.

 

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