Sunday, April 21, 2013

Coal Mining Moratorium

There are stupid policies. Then there are really stupid policies. Then there are ignorant policies. I doubt there is any policy in our nation that is as collosally ignorant than selling publically owned coal resources.

For example, the Bureau of Land Managment recently leased 400 acres of land in Colorado to Peabody Energy for a price of $800,000. The land is expected to produce 3.2 million tons of coal, so we are selling it for a whopping $0.25 a ton. The market price for coal from that area is around $35/ton, so right off the bad, it looks like we are getting a bad deal, only capturing a fraction of a percent of the final sales price.

However, the real issue is that both coal mining and coal burning wreak havoc on public health and the environment. Each of those tons of coal will result in about 2460 kilowatt hours of electricity, and the most comprehensive estimates of the fully externalized costs of coal (including mining, power plant emissions, etc) are nearly $0.18 per kwh! That implies that each ton of coal causes almost $440 of damage to the public for each ton burned, in terms of destroyed land, fouled water, toxic chemicals and fine particles released into the air, and climate change. We are literally selling something for pennies that will have hundreds of dollars of costs blow back into our faces. The $800,000 we received for leasing those 400 acres is trivial relative to the over $1.4 billion in damages that mining and burning that coal will cause.

I have seen governments implement a lot of bad policies over the years, but I doubt I have seen any that fails cost-benefit by three orders of magnitude. Not only should we place an immediately place a moratorium on coal-related leases on public lands, we should take back any we have already issued and compensate the lease-holders justly. It would be much better for us to hand Peabody $5 million and renege on the lease than let them mine the coal, which would cost us hundreds of times more.


Post-analysis: What about jobs?

First, the coal industry does not employ many people, 134,000 at all levels across the US. With over a billion tons produced per year, that's about 8000 tons per worker per year, implying about 400 man/years to mine the 3.2 million tons noted above. That would imply a cost of well over $3 million per man/year even assuming this 400 figure was true. However, it is not, at least if you believe in free market economics, which would not leave the capital and workers idle but rather shift them to the next best resources, which would likely employ about the same number of people. "Counting jobs" has always been an exercise which I find to be totally pointless and no more accurate than counting pinhead-dancing angels. If anything, it is pretty clear that coal employs fewer people per kwh than other forms of energy, which is one of the main reasons it is "cheap".