Wednesday, April 22, 2009

Coal is too expensive too

The way to keep huge carbon reservoirs like tar sands and oil shale out of the atmosphere is to ensure that the world price of oil is well below the cost of production for these messes. And, we've seen that these carbon sources are horrible for our economy because they are barely energy sources at all. Oil is only useful as an energy source if it is cheap to produce.

For oil, we need to cut our consumption to match the declining availability of useful oil so that we don't encourage the development of economically harmful oil. Consumption is our lever for this because we don't control supply.

But, with coal, we do control supply. And there may be as much as 20 years of coal left of a quality not too dissimilar to what has been used in the last decade or so. To be sure, the quality of the coal supply is declining with less energy produced per miner than in the past. But, the decline is still at a fairly slow stage compared to the current decline in high quality oil.

For new power generation, wind is now the lowest cost choice so there should really be no reason to increase coal production at this point but there are reasons to cut coal production to fight global warming, end mercury pollution, end the destruction of the environment surrounding coal mines, and, most importantly, to stop the horrible toll of coal mining deaths which has ceased to reduce. How to do that?

The EPA thinks we should make carbon more expensive. But, from an economic point of view, making energy less expensive is something necessary for increased prosperity. Now, we already know that coal is not the least expensive form of new generation. What would be a way to ensure that replacing existing coal generation is done at the lowest cost so that the sunk costs associated with closing existing power plants that are still serviceable are compensated? The method to do this would be to lower the cost of generation for a period so that the sunk costs can be covered more quickly. To do this, we need to only use the coal which is the least expensive to mine, modulo environmental and safety concerns. Thus, the EPA approach of raising the price of carbon does not seem to be the best path to follow. A better approach is to place price controls on coal so that economically marginal mines are closed and the cost of coal powered generation can be cut.

Power producers will see lower fuel prices, but also lower availability. A portion of their savings on fuel prices can go into supporting conservation efforts so that less fuel will be needed and a portion can repay outstanding obligations for power plant construction faster so that the plant is ready to be shut down when the price of coal (and it availability) reach zero.

And, a zero price for coal is surely what we want in the end since this is the price of its main future competitors, wind and solar. There is not a fuel charge for these and so it should be for coal as well. A price control regime would seem to be more certainly effective and much less expensive than any method of setting a higher carbon price to discourage consumption. Price control selects the most efficient mines to continue operating into the transition and thus keeps costs down where raising the price would not. Further, coal mines shut down mine-by-mine rather than having scattered layoffs throughout the industry. With scattered layoffs, we pay for unemployment in the mining sector while mine-by-mine shut downs can be addressed with replacement employment such as polysilicon refineries.

So, if the EPA is concerned about costs, price controls for coal would be the best approach.

13 comments:

stephan Tychon said...

It's Dirty Cheap Energy, guys!
We need "Atlantic Unbundling": decoupling the (natural gas) euro from petrodollar warfare.

European energy/power intelligence of the World Stability Council:

http://twitter.com/cheapOil
http://pollutico.com
http://global-war.ning.com

Anonymous said...

I seriously hope I am too dense to see your blog is an attempt at sarcasm.

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Zno nanoparticles said...

We should more consider to the alternate energy sources such as Solar, Wind and water energy treatments for save our world from the big crisis of Global Warming.

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green investments said...

All we can hope for is that over time coal will gradually be phased out and replaced by natural gas.

renewable energy investments said...

Agreed!

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