The Cost of Coal

Many commodities prices have risen considerably in the last couple of years. These include oil, concrete, steel, natural gas, corn, soybeans, wheat, wood, fish, beef, and coal. The principal reason is rapidly increased demand. This demand has grown faster than the supply of these products. The increased wealth of many people throughout the world which has been brought on by a large increase in international trade and improvements in economic freedom in China, India, Brazil, and Eastern Europe has given billions of more people much more money to bid for the supply of these products. The United States exports many of them and is making a great deal of money and providing many jobs as a result.

Let us examine the case of coal. The U.S. has an abundance of coal. Presently, 600 power plants burning coal generate 49% of the nation's electricity. This is up from 43% of the electricity in 2000. However, more than 60 coal power plant proposals were terminated in 2007 due to concerns about greenhouse gases and environmental issues in 24 states. Some of the terminations were brought about by state governments and some by utilities concerned about future carbon footprint legislation. Dozens of the original 151 proposals for new coal power plants in early 2007 are being challenged in the courts.

Meanwhile coal production was cut in China this winter by heavy snowstorms and heavy rains flooded coal mines in Australia, the world's biggest coal exporter. Yes, that is Australia, not the U.S. But U.S. coal exports increased 19.2% last year and the Energy Department is expecting a further 15% increase this year. Power plants widely use Central Appalachian coal, a grade of coal with a very high energy output. This coal sold for $40 per ton in early 2007 and is now selling at almost $90 per ton. Powder River Basin coal in Wyoming and Montana has about 0.75 times the energy per ton and was selling at $10/ton in early 2007 and is now selling for $15/ton. The lower cost is not proportional to the energy content, due to longer shipping distances to most power plants and because the shipping costs are related to the weight and volume, not to the energy content. When a substantial part of the cost is determined by the world market bidding its value up, the cost of shipping relative to the energy output is even more important. The fact that the Central Appalachian coal more than doubled in cost since early 2007, while the Powder River Basin coal went up only 50% is a sure sign that the international market is playing a major role in determining the cost of the coal.

It is interesting to note that while new coal-fired power plants in the U.S. are largely being axed due to environmental concerns, Western European nations are rapidly increasing the number of their coal power plants. See the NY Times article "Europe Turns Back to Coal, Raising Climate Fears." Italy plans to produce 33% of its electricity from coal in five years, which is up from 14% now. More plants are being built in Germany and the Czech Republic. About 50 coal power plants are expected to be opened in the next 5 years in Europe. As I have pointed out before, the Europeans love to criticize the U.S. for its CO2 emissions, but our emissions are growing less rapidly than are theirs. Coal produces about two times as much CO2 per unit of electricity as does natural gas. Meanwhile, India and China are opening about 1 new coal power plant a week between them.

Both natural gas and oil are alternatives to coal for electrical power generation. Both have had larger price increases even than coal, however. Coal in 2006 cost only $1.69 per BTU, while natural gas cost $6.87/BTU. Thus, the heat output per dollar for coal was 4.1 times greater than that of natural gas. For most of us, this means that our electric bills will be going up considerably. The more we switch from coal to natural gas and oil, the more our electric bill will go up. The cost of reducing carbon dioxide emissions will be very high.

On the other hand, if we emulate the Europeans and use more coal, crops and other plants will luxuriate in CO2 fertilizer and our cool planet will perhaps become slightly warmer than it might otherwise be. Of course, over most of the last 400,000 years the planet has been colder than now. We call these colder periods Ice Ages. We are about due to begin another Ice Age, if the pattern holds up. Let us hope that producing a wee bit more CO2 will have a significant warming effect, despite the weak evidence that it might have done so to date. And if it were to cause a temperature increase, would it be cause man's emissions were significant compared to the much greater emissions from the oceans and from decaying plant matter, not to mention all of the animals breathing?