air pollution policy.

Climate change The concern for the undesirable effects of

Environmental impact statement Appraisals of the

environmental effects of major policy decisions;

interpretation led to an expansive definition of major.

Exhaustion The using up of a natural resource.

Externality The effect of individual actions on others rather

experts knew that individuals would regret their unregulated

decisions.

Nitrogen oxides Chemicals form as the result of

of revenues - or a specific amount per unit of output.

Sulfur oxides Chemical released during combustion

because of the sulfur contained in the fuel.

Transaction costs Term for the indirect costs of information

and implementation associatedwith buying and selling goods.

Enthan the conscious participants.

Greenhouse gas emissions The various gases that

contribute to increased carbon dioxide concentrations.

The Department of Interior The US cabinet agency with

land management responsibilities including administering

most of the US governments extensive land holdings.Command and control Derisive term for policies that

tightly define rules to comply with environmental

regulations.

Cross-state pollution Harm to air quality in one

state from migration of pollutants emanating from

another state.

Depletion The using up of a natural resource.

combustion.

Progressive movement Term for those in the United States

who argued that the rise of learned professions created the

expertise to allow successful expansion of governmental

control of the economy.

Royalty A charge by public or private landowners on the

production of a commodity. It can be ad valorum - a percentrising carbon dioxide concentration in the atmosphere.Carbon dioxide A component of the atmosphere essential

to all forms of life on earth but which it is feared could cause

undesirable environmental impacts if its concentration

greatly rises.

Clean Air Act The US law that with its amendment governs

Organization for Economic Cooperation and Development

(OECD). All IEA members are OECD members, but some

OECD members initially did not join IEA.

Libertarian paternalism A term devised by Richard Thaler

and Cass Sunstein to justify intervention in cases in whichemission rights to spare. studies for industrial countries. It is assoNON-RENEWABLE FOSSIL/NUCLEAR/ELECTRICITYMARKETS

ContentsCoal: Prospects in the Twenty-First Century: Exhaustion Trumped by Global Warming?Economics of Peak OilGreen Microaccounting for Oil ExtractionModeling Reserve Growth in Natural Gas FieldsNatural Gas NetworksPrice Dynamics in Domestic Energy Markets

Coal: Prospects in the Twenty-First Century: Exhaustion Trumpedby Global Warming?RL Gordon, The Pennsylvania State University, Pennsylvania, PA, USA

2013 Elsevier Inc. All rights reserved.

GlossaryBest available control technology A term to describe

policies to require regulators to define and mandate use of

the technically best emission control technology.

Cap-and-trade A policy to set limits on emissions from a

given facility that allows selling the excess of the limit over

actual emissions and buying reductions from sources with

Intergovernmental Panel on Climate Change A UN body

of scientists engaged in the appraisal of climate change

dangers.

Internalities Daniel Spulbers term for policies that regulate

the effects of economic action on the direct participants.

International Energy Agency (IEA) An organization created

in the 1970s to effect cooperation among and supporting

ciated with thecyclopedia of Energy, Natural Resource and Environmental Economics http://dx.doi.org/10.1016/B978-0-12-375067-9.00121-2 137

dated efforts to allay exhaustion fears. (The main example is

John Holdrens contribution to the intemperate attack on

Bjrn Lomborgs The Skeptical Environmentalist in the January

20

ch

re

Table 1 shows the levels, changes, and percent increases for

the leading coal consumers. The overriding situation then is

that a small number of countries account for the bulk of world

s

n

y

138 Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Century02 Scientific American.) This change in outlook justifies the

apters shift of focus from the inappropriateness of optimism

garding coal to the implications of actual and proposed

coal consumption. The newest environmental thrust conflict

greatly with the sharp rise of coal use in China and India. I

particular, over the 19652010 period, Chinas massivelUS Energy Information Administration An independent

component of the Department of Energy charged with

producing energy data, energy forecasts, and policy studies.

The coal sector has undergone extensive transformation

throughout its history, which extends over more than two

centuries. These changes have massively altered the size and

composition of coal use and changed the location of both its

production and use. The principal determinant has been the

rise of massive supplies of petroleum and natural gas, two fuels

with numerous advantages over coal in transportation, conver-

sion, and use. As a result, the use of coal as the worlds main

general-use fossil fuel has to an increasing concentration into

electric utility use. China and, to a lesser extent, India have

emerged as major producers and consumers. Western Europe

and the former Soviet Union have greatly decreased their coal

production and use.

During this transition, the public-policy evaluation of coal

has severely reversed focus. Particularly in the 1970s, coal was

treated as the potential savior of an oil- and natural gas-

depleted world. Several countries, most notably Great Britain

and Germany, frittered away billions, at least nominally, in the

vain hope that domestic coal would be an important compo-

nent of the rescue from depletion. While this folly probably

reflected the standard inability of governments to abandon bad

policies, the coal ambitions elsewhere reflected a genuine fear

of oil and gas depletion. This enthusiasm peaked with the

Carter administrations wildly unsuccessful creation of a Syn-

thetic Fuels Corporation to subsidize development of alterna-

tive fuels with stress on the gasification and liquefaction of coal.

In any case, that argument is in a shambles. The threat of

immediate depletion has vanished, although the prophets of

doom about oil persist. Extensive ongoing work claims an

impending peak in world oil production. To top these numer-

ous alarmist efforts, a website makes available the classic work

of M. King Hubbert. The availability of cheaper-to-extract coal

in several other countries always made the preservation of old

industries a mistake, and the fears of depletion were, and

continue to be, based on a misunderstanding of the underlying

economics. Oil and gas were simply so much more available

than feared and easier to employ than coal. This reality has

now largely sunk in.

More critically, the long campaign to lessen the environ-

mental impacts of fossil fuel use has extended to concerns over

the greenhouse gases emitted from combustion causing a

harmful increase in atmospheric temperatures, necessitating

radical changes in the way energy is provided. This stress on

climate change has also led to a strong reversal of concerns over

resource depletion. Instead of worrying about fossil fuel avail-

ability, much advocacy of rapid moves away from fossil fuel

prevails, at least among environmentalists, who treat as out-US Environmental Protection Agency The agency charged

with promulgating and enforcing US environmental

policies.

policies for controlling the environmental aspects of coal

utilization.

It is elementary economics that the role of coal and its

alteration reflect the changing comparative costs. Part of the

cost consideration is that the side effect (or in economic

terminology, externality) aspects of coal production and use

are deemed serious enough to warrant extensive regulation.

This has produced intercession that goes far beyond the con-

ventional vision of externalities. At the outer extreme, it was felt

that private operation was so inept that coal industries should

be nationalized. This occurred not only in the communist

states devoted to as much as possible of government control,

but also in social democratic states such as Great Britain and

France that selectively nationalized industries deemed impor-

tant. (While Britain reprivatized these industries, France did

not. It did, however, close its coal industry.)

Clear environmental pollution externalities arise from the

mining, transformation, and use of coal. There is considerable

uncertainty, however, regarding the nature and effects of such

pollution. Concerns have escalated over time. The initial stress

was on the highly visible emission of ash. Attention then

turned to the health effects of the ash and sulfur contained in

coal and released during burning. This extended to the acid

rain effects on streams and forests of both the sulfur dioxides

from the sulfur in coal and the nitrogen oxides produced by

any combustion process. At one point, the trace amounts of

mercury emitted from coal emerged as an issue. More precisely,

the 1990 Clean Air Act Amendments included a long list of

toxic chemicals including mercury whose pollution effects

were deemed serious enough to warrant regulation, and over

time, mercury emerged as a prime concern.

However, the potential coup de grace is the widely publi-

cized concern that the carbon dioxides emitted from fossil fuel

combustion were producing a worldwide harmful rise in sur-

face temperature. Since coal emits more carbon dioxide per

unit of input than other fossil fuels, restriction of coal use (or at

least its carbon dioxide emissions) is particularly critical to

policies to reduce carbon dioxide emissions.

In the United States, a further more immediate complica-

tion is the rise of formidable competition from natural gas.

For many decades, natural gas grew in importance in electric

power as the addition of natural gas-fired plants proved at-

tractive because of low capital costs, stable natural gas prices,

faster construction time, and lesser regulatory barriers. The

development of technology to extract at dramatically reduced

costs gas trapped in shale has increased the competition

from gas.

Pe

65

.9

.4

.5

.1

.7

.5

.3

.2

.1

.2

.0

.3

.2

Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Century 139increased coal use caused its share in world coal consumption

to rise from 8% to 48%; this is perhaps an experience too good

to be true. Indias consumption share went from 2.5% to 7.8%.

(Here, as with the other data cited, the starting dates are deter-

mined by data availability.) Even so, India is a poor third. In

both cases, indigenous production met most of the consump-

tion although imports also arose. The effect is a further radical

skewing of the distribution of coal production and use. The

underlying BP data show that a critical influence on these high

shares of coal usage is the high coal dependence of China and

India. Both account for far higher shares in coal use than in

total energy use, causing the larger cumulative share in coal use

of the countries shown here.

The United States at 15% of 2010 consumption and pro-

duction fell to a distant second-place participant in coal. The

Table 1 Coal: consumption

Million tons oil equivalent 1965 1990 2010

19

China 112.3 525.3 1713.5 7United States 291.8 483.1 524.6 20India 35.5 95.5 277.6 2Japan 43.6 76.0 123.7 3Russian Federation n/a 180.6 93.8South Africa 24.7 66.4 88.7 1Germany 163.5 129.6 76.5 11South Korea 5.0 24.4 76.0 0Poland 59.5 80.2 54.0 4Australia 16.0 36.5 43.4 1Taiwan 3.0 11.0 40.3 0Indonesia 0.1 4.0 39.4 0Ukraine n/a 74.8 36.4Kazakhstan n/a 40.2 36.1Turkey 3.7 16.8 34.4 0United Kingdom 117.4 64.9 31.2 8

Source: BP Statistical Review of World Energy, June 2011.United Kingdom, the birthplace of the modern coal industry,

was selected as the cutoff country because of its striking change

in coal use.

Another striking feature is the decline in the levels of coal

production and use in major European countries including

the former Soviet Union, Great Britain, Germany, and

France. The last three substantially reduced coal production.

Indeed, France and Japan eliminated coal production. Japan

thus has the unique position of a large consumer of coal

that is obtained entirely from imports (principally from

Australia and Indonesia). Taiwan also has ceased coal pro-

duction, and South Korean output has fallen to about 2

million tons.

Another feature of the change is the growing role of elec-

tricity generation in coal use. The US alteration is particularly

dramatic. The share of US electricity generation in coal con-

sumption has risen from 17% in 1949 to 92% in 2010. How-

ever, the share of coal in energy use for electricity was 48% in

2010. This was a decline from the 54% peak reached in 1997.

The natural gas share went from 12% to 20% over the same

period. The roles of other sources changed in many different

ways. Despite the absence of new nuclear capacity, the nuclearshare rose slightly to 21%. The oil and hydro shares declined,

and the only unconventional source to gain ground was wind

(from 0.1% to 2.33%).

In 2009, electricity accounted for 52% of coal use in China,

but this produced 90% of the electricity; the corresponding

Indian shares were 80% and 70%.

Production is similarly skewed, but because of wide differ-

ences in involvement in international trade, the leaders after

China, the United States, and India are quite different. In the

world coal industry, a few producers primarily for export have

emerged. The dominant cases are Australia and Indonesia.

They rank fourth and fifth respectively as producers. (The

rankings differ by source. BP shows India producing more

than Australia in tons of physical coal but less on a heat

content basis. However, EIAs heat content figures show India

rcent of world (%) Percent increase19652010 (%)

Cumulative percentof world (%)

1990 2010

23.7 48.2 1425.321.8 14.8 79.8 62.94.3 7.8 680.9 70.73.4 3.5 183.8 74.28.1 2.6 76.93.0 2.5 259.8 79.45.8 2.2 53.2 81.51.1 2.1 1435.0 83.73.6 1.5 9.3 85.21.6 1.2 171.1 86.40.5 1.1 1249.3 87.50.2 1.1 30411.6 88.63.4 1.0 89.71.8 1.0 90.70.8 1.0 836.7 91.62.9 0.9 73.5 92.5as a somewhat larger producer than Australia.) Conversely,

Japan, Germany, South Korea, and the United Kingdom

with sharply declining coal production rank much higher as

consumers than as producers.

Within the United States, the location of production has

altered profoundly. In particular, Wyoming has risen from 1%

or less of output from 1946 to 1970 to 41% percent in 2010.

The leading eastern mining states West Virginia, Kentucky,

Pennsylvania, Illinois, Ohio, and Virginia display declines in

amounts for varying time periods and varying magnitudes too

intricate to present here. The change involves both the rise of

coal-fired generation west of the Mississippi and displacement

of Middle Western coal not only from the West North Central

States, but also in coal-producing states, particularly Illinois.

Another element of US coal development is the turnover in

company ownership. Basically, the industry historically was

comprised of companies for which coal was their only busi-

ness. In the 1970s, oil companies became heavily involved,

mainly by creating new coal operations but sometimes by

buying existing ones. Then the oil companies retreated, but

foreign mineral companies entered. Most notable were the

multinational Rio Tinto; RAG, the sole German producer of

regularly generates massive documents presenting both the

140 Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Centurybroad case for its interventions and that for specific decisions.

Both skeptics and affected industries offer responses.

As a result, applied environmental economics suffers from

an ill-resolved conflict. The relevant literature deals poorly, if at

all, with the implications of inept implementation. The litera-

ture unanimously recognizes that the absurdly detailed pro-

cedures adopted to cure perceived environmental dangers are

monstrously inefficient. These are routinely denounced as

command and control. Some concern also exists over thebituminous; and Rheinbraun, the leading German lignite

producer. All of the last three exited. Thus, in 2012, most

leading US coal companies are US domiciled publicly traded

operations producing only coal. The exceptions include several

untraded firms.

In contrast, a quartet of firms has emerged to dominate coal

production in Australia, South Africa, and Colombia. These are

the long extant BHP-Billiton, Rio Tinto, and Anglo-American

and the newer Xstrata.

Coase, Coal, and Coal Regulation

Coal-related intervention unremarkably follows patterns en-

demic to modern government policy. The enabling legislation

is characteristically complex, and the convolution has grown

over time. A further problem is that these laws routinely leave

details for the relevant executive agency to complete. That

implementation often proves protracted. Moreover, this in-

completeness and imprecision of the laws leaves them open

to lawsuits that can and do produce long delays in implemen-

tation and then lead to orders to expand the scope of the

controls.

A vast literature exists on how this resulted from the Pro-

gressive movement with its belief that good government would

flow from delegation of operation to boards of impartial

experts. Many observers argue that this vision was fatally

flawed. The core defect is the invalidity of the underlying

faith in the existence of expertise that could soundly and dis-

passionately design controls of complex systems. That com-

plexity precluded centralized determination of optimal results.

Second, the faith in insulated implementation proved a delu-

sion; political pressures still dominated. Third, often the wrong

expertise was employed; attorneys and other generalists, rather

than specialists in the areas regulated, took charge. Even when

such specialists were utilized, they could not match the quality

and quantity of their counterparts in the industries being

regulated.

The Progressive thrust, in turn, was an effort to use the

emergence ofmodern social science to justify the long-standing

pressures to supervise market economies. The left proposed

socialism better to enrich the masses. The right wanted the

aristocracy to continue to achieve glory rather than ceding to

a nation of shopkeepers.

These broad doubts necessarily apply to the massive dele-

gation involved in pollution control. Advocates of pollution

abatement tacitly argue that the US Environmental Protection

Agency (EPA), in the face of the complexities, still produces net

environmental improvement. Critics see a mindless effort ever

to increase controls without regard for the costs involved. EPAtendency to regulate in areas where the damages are too

small to justify action.

However, the standard tacit reaction is that this is better

than nothing. As is so often the case in many policy areas, this

ignores the much cited, but inadequately applied, work of

Ronald Coase. (Many reprints are available of that article,

and hundreds of commentaries exist, none satisfactory as a

guide to the others.) The key points for appraising environ-

mental policy start with his recognition that real economies are

not frictionless and action involves implementation (transac-

tion) costs. When such transaction costs are considered, the

total costs of removal of apparent market imperfections may

exceed the benefits. Governments can pool resources to reduce

such transaction costs but so can private alliances. It is unclear

first whether either can attain total costs less than benefits.

Moreover, given the limitations of government, even if a net

benefit arises, the superiority of government action is not

certain. The possibility that actual environmental policies fail

to meet the Coase criteria is inadequately considered. The

patchwork of programs designed to offset the supposed ill

effects of the production and use of coal are prime examples.

On the production side, deficiencies arise with leasing of the

extensive coal resources owned by the US government, the

regulation of mine health and safety, and the control of recla-

mation of land disturbed by coal mining.

The rationales for intervention range from the dubious to

the clear with some of the most critical involving imperfectly

understood problems. The most questionable interventions

relate to second-guessing market decisions particularly about

the terms and conditions of work in coal mines. This type of

intervention into market decisions has received remarkably

little analytic attention. A key exception is Daniel Spulbers

discussion of internalities, essentially intervention to offset

supposed limited information. Spulber concludes information

provision is preferable, but the long tradition in intervention,

now termed libertarian paternalism, argues otherwise.

The next step of controlling the surface-land effects of coal

mining is at the edge of relevance. Both the internality of effect

on the surface-land owner and possible external effects on

others are involved. In each case, enormously complicated

enabling legislation and creation of a new specialized enforce-

ment agency were involved.

US federal coal leasing, in retrospect, proved an area of

fruitless intervention. A long frustrating process of rationaliz-

ing policy turned out both ineffective and irrelevant. A flurry of

coal leasing in the 1960s without corresponding immediate

production surges produced a 1971 moratorium on coal leas-

ing. Efforts in the Carter administration were stymied in 1977

by a successful suit objecting to the adequacy of the environ-

mental impact statement on the program. Completion of

compliance was so protracted that leasing did not resume

until 1981.

However, the first major sale after resumption was criticized

for its deficiencies. The initial concern was over a reputed leak

of data, but that allegation has never been substantiated. At-

tention turned to questions of administration. The Department

of Interior decided to produce estimates of what would be

adequate bids for the leases. However, data were available

only on one recent sale. Interior employed and modified nec-

essarily ad hoc adjustment measures to cover the differences

Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Century 141between that prior tract and the lands to be leased. Such

adjustments were unavoidably subject to and, therefore, were

subjected to second-guessing. The situation was aggravated by

a hasty revision of the estimates.

The effect was a series of predictable responses. First, a study

commission was appointed to review the situation; I was a

member. Second, that commission correctly found the process

sloppy and predictably but unwisely advocated better proce-

dures. Third, Interior dutifully produced extensive documents

setting up absurdly complex procedures to guide future leasing.

Fourth, leasing remained limited during the following three

decades. The prior rush to lease had provided enough access to

permit the extensive expansion that occurred after the morato-

rium, led by that in Wyoming noted above. Thus, everyones

premises proved false. The initial leasing was to meet the de-

mands that emerged, and development followed. The stated

fixation among politicians for impeccable appraisal methods

clearly unwisely makes seeking assurance for the highest pos-

sible payments for access excessively dominant over providing

the maximum possible market availability of economically

viable coal resources. The demands for extensive appraisal,

moreover, are unrealistic.

Even so, the coal leasing fiasco is simply a further example

of the dysfunction of US government land ownership. That

land is largely leased for routine commercial use. The proce-

dures are set up to favor particular uses and thus preclude

transfer to more efficient options. The limited-duration ap-

proach taken in coal, oil, and natural gas leasing is but one of

many prime examples. Others include the favoritism toward

grazing on western land, the inability to produce the promised

efficiency gains by creating national forests, and the creation of

many Park Service sites devoted to obscure people and events.

Buyers with a mineral extraction goal care only about prospects

during the lease life; those who believe that permanent non-

extraction is preferable need to offset these offers to exploit

every time a lease is offered and reoffered.

The system also tries to do too much. A key is that the

concept of optimal lease timing is a chimera. Market forces

are such that if it is not efficient immediately to develop a lease,

the lease simply will be held until the best time to start.

Ofcourse, lease length limits will prevent optimal holding

when the best starting date is after the lease expires. The only

efficiency problem in timing is that the mineral is not leased

initially or after forfeiture early enough for extraction to occur

at the optimum point.

The stress on percentage royalties and securing initial pay-

ments equal to the net value of the lease produces further

administrative nightmares. Given the royalty requirement, the

remaining net is by definition greatly reduced. The total value

is difficult enough to predict; the reduced amount after deduc-

ing royalties is necessarily even tougher to estimate. Royalties

have the textbook defect of discouraging otherwise profitable

output. A further practical problem is that collection requires at

least output monitoring. In addition, locational and output

quality differences often complicate calculation of the correct

price of that output.

However, the key problem policy area is the five-decade

long federal effort to control pollution from the burning of

coal. The first federal pollution law was the 1955 Air Pollution

Control Act; it concentrated on research. Many modificationsarose particularly in 1963, 1970, 1977, and 1990. (The 1963

revisions were so extensive that some sources treat the changes

as the first meaningful law.) The program has involved multi-

ple, overlapping governing principles. The key organizational

problems are that implementation is left to EPA, and its de-

cisions can be and have been subjected to court reviews that at

a minimum slow and in many cases disapprove of the pro-

posed execution. Among the consequences of these problems,

several major changes in environmental law implementation

were made in 2011 twenty years after the last major changes

in the law. Basically, these new actions used several different

provisions of the acts to tighten emission limits. A more fun-

damental difficulty is that of satisfactorily quantifying the costs

and benefits of action.

The initial main distinction was between criteria for the air

quality in each state and emission limits for specific sources.

Both concepts became increasingly convoluted over time. The

first regional distinction was simply between noncompliance

areas where the pollution levels were not met and those areas

with better than required air quality. The latter ultimately were

required to prevent significant deterioration of air quality a

concept so vague that quantitative criteria for allowable change

had to be legislated. An additional regional goal of preserving

visibility near national parks also arose.

Emission limits began with new-source performance stan-

dards. These were initially set as simply maximum rates of

emission from specific types of facilities. The 1977 amend-

ments shifted to requiring best available control technology

(BACT). It became mandatory to comply by employing

scrubbers devices to capture sulfur oxide emissions after

burning. (Interestingly, the prime critics of the rule are advo-

cates of active intervention.) The key difference from prior

requirements was giving no credit for shifting to coals naturally

lower in sulfur content. In principle, this could lead to in-

creases in emissions. The maximum feasible pollution reduc-

tion scrubbing high-sulfur coal could produce higher

discharges than from burning a low-sulfur coal without scrub-

bing. The amendments compounded the problem by adding a

provision allowing requirements to use locally produced coals;

that provision was never implemented.

As is routinely noted in the applicable economics literature,

the new-source approach has the intrinsic drawback of encour-

aging maintenance of old units. Thus, an irony of 2011 efforts

to tighten standards on old plants is that one justification is

that the plants had been exempt from the pollution controls

applied to new plants. This exemption, to the extent it existed,

was conscious policy, and thus, it is questionable to use back-

door measures to reverse legislative decisions, no matter how

ill advised. Moreover, these plants were already subject to

indirect control through state implementation plans and direct

control through other measures. BACT and the local-coal re-

quirement were obvious but futile efforts to thwart the ten-

dency to adopt low-sulfur western coal as a compliance

strategy. A further issue that arose is determining how much

plant modification constitutes development of a new source.

The tighter the criteria, the less attractive is upgrading old

plants. Predictably, EPA, nevertheless, opted for rules that

subjected most improved units to new-source rules.

The 1990 amendments added two major complications.

The first and most immediately relevant was imposing

fits from action mainly by using a far lower discount rate than

142 Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Centuryemission limits on high-polluting units of electric power

plants; the law listed the affected units. This extreme

command-and-control provision was mitigated with imple-

mentation clauses allowing the affected companies to select

compliance methods including reducing pollution at other

units or paying outsiders to reduce emissions. This approach

was epitomized as cap and trade. Environmental economists

longing for some recognition of the principles of efficient

emission control avidly examined the implementation and

were delighted by its efficacy.

This ignores two serious problems. Most obviously, the

enthusiasm for market implementation ignored the heavy-

handed nature of the initial targeting. Second, the law was

rushed through before completion of a national acid rain

study. When that study appeared, it concluded that the dam-

ages to forests and lakes that were the nominal basis for the

controls were far smaller than previously claimed. At best, the

remaining rationale for action was that further reduction in

health damages was produced.

The second area of toxic chemicals proved difficult to re-

solve. In late 2011, EPA issued its latest effort to set compliance

rules. These rules were justified almost entirely (all but a billion

dollars of the $33$89 billion cumulative benefits on various

assumptions) by reduction in particulate-matter emissions.

Nominal benefit was attributed specifically to reducing mer-

cury pollution or actually improving visibility. An obvious

issue is that the law covered a large list of specific chemicals

while particulates were always an EPA concern. This discon-

nection produced extensive criticism of this use of a policy

directed at one specific problem to further control of a differ-

ent, long heavily regulated pollutant. Of course, toxic chemi-

cals are a type of particulate. This leaves open why special

controls should be added on top of general limits. This partic-

ular action inspired an extensive counterattack by those

affected, and extended litigation is expected.

Another 2011 regulation dealt with cross-state pollution.

These rules required reduction in sulfur dioxide and nitrogen

oxide emissions in the eastern United States because these

emissions lead to concentrations of ozone and fine particles

that produce violation in other states of the air quality criteria

for those pollutants.

Still another 2011 regulation presented the latest effort to

enforce the visibility requirements. Again, the solution was

increasing limits on already controlled pollutants.

While these rules had very different bases, the chosen ratio-

nales of all three were identical substantial health benefits.

The minimum concern is that so many routes are open to

dealing with the same problem of seemingly dangerous emis-

sions. In the toxic material and visibility cases, the claimed

health benefits, as noted, arise from controlling pollutants so

long regulated that adequate control should already exist. An

immediate further difficulty is the slowness with which these

rules are formulated, a tardiness to which extended litigation is

a major contributor. The situation is aggravated by the readi-

ness of judges to require changes.

Further regulation ruled that mountaintop coal mining

caused water pollution under the Clean Water Act. Such de-

terminations are a vexing aspect of that law; the application of

the law to puddles often produces news reports (and extensive

more formal criticism).most other modelers. (This difference produced strong criti-

cism from many of these other modelers.) Richard Tols 2009

survey of the literature explicitly concludes all the economic

modeling is unsatisfactory. Thus, caution is appropriate.

On top of these problems, designing a sensible implemen-

tation policy proved infeasible. Another key aspect of Coases

analysis is that either a tax on damage creation or a subsidy of

damage avoidance can efficiently produce control of social costAt a minimum, the experience shows why emissions taxes

are far preferable to command and control. What remains

open is whether in a world in which action depends on com-

plex command and control, multiple concerns of wildly vary-

ing merit, delegation of implementation to EPA, and ease of

judicial challenge, the policies actually yield benefits in excess

of their costs. The EPA valuation estimates are based on its own

mathematical model whose bases are not clearly delineated.

The Coase Conundrum and Global Warming

Global warming is yet another environmental issue in which

moral indignation tries to silence technical debate. Proponents

of action assert that the disasters resulting from failing to

control are so severe that further analysis is irresponsible. The

advocates of additional study stress the defects of the support-

ing research. Their implicit moral argument that massive action

against an imaginary problem would divert resources from

reducing world poverty is mildly stated. In any case, given the

moral arguments supporting both sides, only careful analysis

can resolve the debate.

Similarly, the source of research funding is never a valid way

to evaluate the reliability of results. The government does not

allocate all its research funds on the sole basis of merit. Even if

private firms seek to advance their interests, their concerns are

not automatically invalid. Consultants are hired because their

prior independently formed views support the sponsor, public

as well as private. Thus, denunciation of research sponsorship

is invariably a way to evade making a reasonable response to

the criticism. Yet, it is perennial. Three decades ago, my mem-

bership on the coal leasing commission was denounced be-

cause of one small grant from Exxon. The part available on

Amazon of Penn State climate researcher Michael Manns book

defending his questionable statistical analysis of global tem-

perature change uses the fuel industry support calumny early

and often.

The vast literature suggests that the physical science and

economic impact research is far less settled than proponents

insist. Certainly, the physical science dissents involve respect-

able academics. More critically, physical science is only the first

part of the argument. The costs, benefits, and feasibility of

action must also be considered, and the deficiencies are vast.

The economic modeling to evaluate the payoff is clearly and

necessarily inadequate. The task of analyzing the next century

cannot succeed given the inherent limitation of economic

modeling particularly the impossibility of foreseeing what

new things will emerge. Simply observing the work makes clear

that the results, as is so often the case in economic modeling,

are extremely sensitive to assumptions. The work by the British

research team headed by Nicholas Stern produced large bene-

Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Century 143and no clear a priori basis exists for preferring taxes over

subsidy. (The essence of the enormous literature trying to

critique these findings is that the proper tax or subsidy is

dauntingly difficult to design.) The debate over how to respond

to the threat of global warming is a dramatic illustration of

Coases policy choice argument.

A subsequent prices versus quantity debate examined the

potential equivalence between an optimum tax and setting the

optimum level of compliance as a quota. Curiously, this liter-

ature concentrated on which method was best given different

areas of uncertainty. Conceptually, this overlooked that given

multiple different uncertainties all with unknown impacts, a

sensible choice was unclear. A more critical, probably fatal

neglect was of the practical experience with tariffs versus quotas

in international trade. At a minimum, unseemly debates arise

about to whom to award the windfalls from quotas; often,

rampant bribery for access arose. This alone suffices to make

charges clearly preferable to cap and trade.

As shown, three nations dominate coal use. Given the high

rate of greenhouse gas emissions from coal, these states must

undertake substantial reduction or control of coal use. A basic

concern is whether it is fair for countries emerging from pov-

erty to pay for control of emissions made dangerous by the

actions of the already rich. Thus, China and India demand

compensation for their compliance, but rich-country govern-

ments, already facing fiscal stress, have no inclination to pro-

vide such assistance.

This reality dominates the literature on control of climate

change. Proponents of action, perhaps more than opponents,

stress the centrality of getting a control agreement including

China and India. Reductions elsewhere would fail to offset

rises in China and India. In the meantime, the European

Union succeeded, but the United States failed, in implement-

ing a unilateral emissions policy. The 2009 United States fail-

ure is yet another graphic example of the complexities that

plague environmental policies. The US House of Representa-

tive passed a massive bill centering on greenhouse gas control.

The core was setting caps on emissions and devising rules to

allocate quotas within these caps. These were designed initially

to favor those, particularly coal-using electric utilities, most

affected by the caps. However, these grants were to be phased

out. Numerous provisions indirectly to produce emission re-

ductions by favoring nonfossil fuel alternatives supplemented

the direct controls.

The cap-and-trade approach proved doubly problematic.

The blatant political bribery involved in the initial grants pro-

duced a backlash. The ultimate turnover of the income from

permit sales to the federal government involves major public

policy concerns. Optimists hoped that this revenue from a tax

that ideally would enhance, rather than reduce, economic

efficiency would allow reduction of reliance on the highly

distorting existing income tax system. Predictably, doubts

arose about that hypothesis.

This array of provisions proved so unattractive that the US

Senate failed to act on the bill or the various alternatives

offered. A further factor in the decision was a (5-4) decision

by the United States Supreme Court that the Clean Air Act

required EPA to consider regulating any potentially dangerous

emissions. This produced the expected divide. Advocates of

action considered accepting the Supreme Court approval ofaction a desirable route and argued that the environmentally

concerned Obama administration could and would act. Be-

lievers in limited government (and at least one leading advo-

cate of heavy intervention Lawrence Tribe) considered this an

unwarranted expansion of government power.

In any case, efforts are already underway indirectly to lessen

greenhouse gas emissions. Critics suspect that the rash of tigh-

ter regulations just sketched of coal use is itself another round-

about way to control. Most certainly, the massive federal and

state efforts to foster alternative energy clearly are designed as

indirect climate change policy. On 27 April 2012, EPA an-

nounced rules for carbon dioxide emissions from power

plants. These rules state that new coal-fired plants are expected

to employ still totally unproved technologies to sequester

(i.e., store underground) these emissions. The key problem is

that the desirability of the chosen options and the means

adopted to stimulate them are questionable. The goal in elec-

tricity is to make competitive technologies that are centuries

old wind and solar technology. These have not emerged as

important power sources because of severe problems including

the limited number and remoteness of sites at which these

resources can be employed and the stark conflict between the

need of electric power systems for uninterrupted flows and the

irregularity of sunshine and wind.

The various energy bills since the oil price shock of 1973

include numerous efforts by subsidy and tax breaks to improve

the competitiveness of these sources. The results are at best

unimpressive and have led to massive failures. The clearest

defect of these mandates is neglect of the unmanageable scale

of the stated ambitions. The task of radically altering how

electricity is generated is expensive and time-consuming.

Given that the best sites for wind and solar are far from the

locales of existing power plants, the requirements include mas-

sive investment in transmission lines. The variability of the

sources is such that backup (fossil fuel) generation will be

needed.

A further dilemma is that many of the leading proponents

of action on global warming long ago declared that nuclear

energy, the one proven nonfossil energy source that is physi-

cally capable of providing electricity on a large scale, was an

anathema. Thus, the advocates are caught between recanting or

insisting that solar and wind suffice. Examples of both posi-

tions arose. Of course, securing new nuclear capacity by the

government guarantees provided is no better policy than sub-

sidy for any other alternative.

Severe critics of these initiatives observe, correctly, that the

environmental groups seemingly pushing these initiatives also

oppose implementation. Offshore wind farms and transmis-

sion lines for renewable energy in remote locations draw the

same attacks as coal-fired power plants, new natural gas pro-

duction technologies, and oil pipelines.

Economists dealing with this issue tend to oppose these

backdoor choices as further undesirable command and con-

trol. These economists prefer a tax or an emission limit. More-

over, the long unhappy history of quantitative controls, of

which the failed House of Representative bill is but another

reminder of a proven but politically unpopular point, suggests

that a tax is far preferable.

In any case, any policy radical to reduce greenhouse gas

emissions would require massive adjustment by coal

At least three sprawling realms of related material exist the

energy prognosis literature, the energy data area, and the

bers. The fuel-specific reports include commentary. These re-

ports are downloadable from libraries that are OECD

144 Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Centurydepositories, but the underlying computer files must be pur-

chased. The IEA data start with 1960 with at least older mem-

bers and 1971 for nonmembers.environmental policy writing. On the first, see Gordon for

note of the many surveys of overall energy issues that have

appeared. The authors range from governments to freelance

writers. No obvious focal treatments are available on the other

two areas so the basics are sketched here.

At least four sources of worldwide energy data exist, and

they differ radically in coverage, accessibility, and usability. The

United Nations (UN) has long published total production and

consumption data on energy in every country of the world and

at some point added statistics on the end use details. However,

these data are not easily accessible.

The International Energy Agency (IEA) provides both a

four-part collection of energy data and coal-, petroleum-,

natural gas-, and electricity-specific compendia. The energy re-

ports consist of (1) figures in oil equivalent tons for OECD

members, (2) similar figures for nonmembers, (3) statistics in

regular units for members, and (4) similar data for nonmem-consumers. The proposed response of capturing the gases and

storing them underground is still an untested technology. Its

physical feasibility and cost remain to be determined.

Conclusion: Festina Lente

Neither the prior enthusiasm for increasing coal use nor the

current desire to ban coal use is well grounded. The ardor was

based on erroneous views about oil and gas availability. The

pressure to eliminate fossil fuel use is based on physical

science whose very strident promotion should raise doubt,

grossly inadequate economic analyses, and to date insupera-

ble implementation problems. Those who lived through such

prior confident predictions as of famine, overpopulation,

resource depletion, and nuclear power disasters wonder

about the similar confidence about action on global warm-

ing. In the global warming case, the proponents of action

want several countries massively dependent on coal to under-

take the enormous, time-consuming task of coal replacement.

The stress on alternatives that vary radically in availability is a

further problem.

Notes on the Literature and Data on Coal

A profound paradox arises in analysis of coal. The literature

primarily concerned with coal is thin, but the material that

treats aspects of coal treated here is unmanageably large. The

isolated coal policy issues that arise are insignificant compared

to those over oil and natural gas. Examining the leading energy

economics journals (Energy Policy, The Energy Journal, and

Energy Economics) unearths little directly treating coal but

much about related issues. Several trade publications exist,

many are expensive, but some free ones are available.BP has a special role in making available without charge

more quickly than others Excel files of its Statistical Review of

World Energy; it contains original unit andoil equivalent tondata

on the total use of the main forms of energy. BPs consumption

and oil production data start with 1965, natural gas production

data with 1970, and coal production data with 1981.

The US energy data system is elaborate but variable in the

form of availability and historical continuity. When the Energy

Information Administration (EIA) was established in 1979, it

assumed the energy data gathering efforts of the US Bureau of

Mines, the Federal Power Commission, and the Federal Energy

Agency. Initially, the result was generation of more numerous,

more formal reports, and making the underlying data avail-

able. Over time, the coverage has diminished, and most reports

are available only as PDF files on the Internet. In the case of

reports covering individual electric companies and plants, da-

tabase files replaced reports. However, data accessibility has

generally increased. In many but not all cases, the PDF versions

are supplemented with Excel spreadsheets. The availability on-

line of PDF and Excel versions differs among reports. EIA main-

tains three data sets showing historical data. First is the still

printed Annual Energy Review with coverage, where possible,

back to 1949. Second, the online only Monthly Energy Review

has monthly data from 1973 on. The State Energy Data System

computer files give by state data on consumption in Btus and

natural units and production from 1960 on and prices and

expenditures from 1980 on. Otherwise, the reports cover only 1

or 2 years, anddata combinationmust bemade.Among the areas

covered are data on individual foreign country consumption and

production; computer files replaced the report on this area.

In some realms, data availability has declined. Two key

cases are federal lands data and electric utility fuel receipts.

Reports of total federal acreage and agency ownership seem

to have vanished as have data on production from federal coal

leases. EIA has deemed confidential fuel receipts by nonutility

generators, generously defined nonutility, and thus lessened

the completeness of plant coverage.

An enormous, indigestible literature covers the environ-

mental issues sketched here. The contributors include govern-

mental agencies, the numerous groups arguing for increased

environmental controls, private research organizations includ-

ing several devoted to limited government, and many indepen-

dent observers. The Lomborg survey noted above is but one of

the skeptical reviews coming from various sources including

both committed advocates of free markets and clearly indepen-

dent observers. The environmental movement has undertaken

so excessively comprehensive an agenda of opposition that

book-length critiques of excesses regularly appear and often

produce vigorous efforts to refute. EPA generated many mas-

sive documents relevant to the issues discussed. They include

statements of policies in specific area, supporting regulatory

impact studies, surveys of the impacts of the major pollutants,

and even three overviews of the estimated costs and benefits of

pollution control.

The core of global warming advocacy is the work of the

Intergovernmental Panel on Climate Change. The US State

Department prepares a periodic report on US progress in the

area. The supporting literature is enormous. The dissenting

literature comes largely from several market-oriented research

organizations such as the Cato Institute, the Heartland

Institute, and the Competitive Enterprise Institute; a weekly

newsletter The Week That Was presents extensive material skep-

tical about action on global warming and other environmental

realms. Several economists, most notably William Nordhaus at

Yale, have generated estimates of the economic impacts of

warming.

See also: Allocation Tools: Coasean Bargaining; EnvironmentalCost-Benefit Analysis; Climate Change and Policy: Carbon Taxes;Intergovernmental Panel on Climate Change (IPCC); Markets/Technology Innovation/Adoption/Diffusion: TechnologicalChange and Climate Change Policy; Media Non-Biological:Economics of Exploration for and Production of Exhaustible Resources;Non-Renewable Fossil/Nuclear/Electricity Markets:Economics of Peak Oil; Policies/Incentives: Enforcement; PriceInstruments; Prices versus Quantities; Quantity Instruments; SO2Program; Standards; Political Economy: Political Economy ofInstrument Choice; Political Economy of International EnvironmentalAgreements; Renewable/Alternative Energy: EconomicImplications of Wind Power Intermittency; Economics of Wind Power:An Introduction.

Further Reading

Ackerman BA and Hassler WT (1981) Clean Coal/Dirty Air; or How the Clean Air ActBecame a Multibillion-Dollar Bail-out for the High-Sulfur Coal Producers and What

Analysis No. 684.

International Energy Agency (annual) Coal Information. Paris: Organisation forEconomic Co-operation and Development.

Lomborg B (2001) The Skeptical Environmentalist: Measuring the Real State of theWorld. Cambridge: Cambridge University Press.

Mann ME (2012) The Hockey Stick and the Climate Wars: Dispatches from the FrontLines. New York: Columbia University Press.

Spulber DF (1989) Regulation and Markets. Cambridge, MA: The MIT Press.Taylor J and Samples J (2007) The delegation of legislative powers. In: Boaz D (ed.)

Cato Handbook for Policymakers, 7th edn, 8390. Washington, DC: The CatoInstitute.

Thaler RH and Sunstein CR (2003) Libertarian paternalism. American Economic Review93(2): 175179.

Tol RSJ (2009) The economic effects of climate change. Journal of EconomicPerspectives 23(2): 2951.

Tribe LH, Branson JD, and Duncan TL (2010) Too Hot for Courts to Handle: FuelTemperatures, Global Warming, and the Political Question Doctrine. Washington,DC: Washington Legal Foundation.

Relevant Websites

http://www.bp.com/ British Petroleum.http://www.cato.org/ Cato Institute.http://cei.org/ Competitive Enterprise Institute.http://heartland.org Heartland Institute.http://www.hubbertpeak.com Hubbert Writings.http://www.ipcc.ch Intergovernmental Panel on Climate Change.http://www.kohlenstatistik.de Statistik der Kohlenwirtschaft.http://webarchive.nationalarchives.gov.uk and http://www.hm-treasury.gov.uk/

sternreview_index.htm Stern Report.http://www.sepp.org The Week that Was.http://www.eia.gov US Energy Information Administration.http://www.epa.gov US Environmental Protection Agency.

Non-Renewable Fossil/Nuclear/Electricity Markets | Coal: Prospects in the Twenty-First Century 145Should be Done About It. New Haven: Yale University Press.Gordon RL (2011) The gulf oil spill: Lessons for public policy. Cato Institute Policy

Coal: Prospects in the Twenty-First Century: Exhaustion Trumped by Global Warming?GlossaryCoase, Coal, and Coal RegulationThe Coase Conundrum and Global WarmingConclusion: Festina LenteNotes on the Literature and Data on CoalFurther ReadingRelevant Websites