Yale Economist: Trump Order Unlikely
To Alter Tightening U.S. Coal Market

President Trump today lifted a moratorium on the federal coal leasing program, predicting that it will create new jobs and reduce U.S. reliance on foreign energy sources. The order will do neither, predicts Kenneth Gillingham, a Yale economics professor who has published extensive research on the program.
The Trump Administration today lifted an Obama-era moratorium on the federal coal-leasing program, predicting that it will create new U.S. jobs and reduce the nation's reliance on foreign energy sources.
Gillingham head EEOB 4
Kenneth Gillingham
The new order will do neither, predicts Kenneth Gillingham, an assistant professor of economics at the Yale School of Forestry & Environmental Studies (F&ES). Gillingham, who has published extensive research on the federal coal-leasing program, says the program, which was temporarily halted last year by President Obama, was failing in critical ways: it didn’t address the social costs of coal extraction or whether taxpayers were receiving fair value for this public resource.
 
In an interview, Gillingham says that Trump’s executive order does nothing to change those realities — nor will it alter the market factors that have driven down the U.S. coal sector in recent years. If anything, he said, opening up federal lands — particularly in the western states — is more likely to eliminate coal jobs in the Appalachian region.
 
“Coal plants have been closing over the past two years, and this is not being driven entirely by regulation by any means,” he said. “This is primarily being driven by market forces. Natural gas is a very cheap fuel right now and renewables are getting much cheaper, too. These two factors, along with energy efficiency driving down demand for electricity in general, means that coal is less competitive than it was before.”
 
Gillingham spent a year as Senior Economist for Energy and the Environment at the White House Council of Economic Advisers (CEA) during the Obama administration.
 

A new executive order lifts a moratorium on the federal coal-leasing program, which President Trump has called an attack on the coal industry. But in a recent Science article you highlighted other concerns with the program. What did you find that you considered flaws with the program?


KENNETH GILLINGHAM: There are two major categories of flaws. The first is that the environmental costs of coal production and combustion are not being accounted for whatsoever. So, this means that the social cost of carbon is not being accounted for in any way, shape, or form. The social cost of coal-bed methane is not being accounted for. Any of the other environmental damages from coal extraction are not being included. There is statutory language that permits the secretary of the Department of Interior to incorporate these costs into the coal-leasing system, because it is required that the program be managed for the public good.  
 
The second category is that there are very real concerns that the federal coal leasing system is not managed in a way that provides a fair return to the taxpayer for the use of the federal resource — owned by all citizens. Now, there’s a real question about what a fair return to the taxpayer is. You could say that a fair return to the taxpayer is that all of the profits from federal coal should be given to the taxpayer. Or you could say that a fair return is that none of the profits are given to the taxpayer since the coal companies are the ones taking it out. So there is a subjective element to the question of what far return to the taxpayer even means. However there is a lot of precedent in how the government makes decisions about a whole variety of other situations: relative to concessions in national parks, where the federal government earns a greater return. Relative to oil and gas leasing: oil and gas leasing charges much higher leases than coal. The federal coal-leasing system is somewhat exceptional in how low the royalties are and how little revenue that it brings in relative to the institutions that govern a variety of other public resources.
 

Even if the lease program is restored, and new sources are opened up for mining, can coal be competitive in the current energy marketplace?


GILLINGHAM: That’s a great question. We already see there are roughly 40 coal plants that are slated to be closed in the next two years. Coal plants have been closing over the past two years. And this is not being driven entirely by regulation by any means. 

This is primarily being driven by market forces. Natural gas is a very cheap fuel right now and renewables are getting much cheaper, too. The combination of these two actors, along with energy efficiency driving down demand for electricity in general, means that coal is less competitive than it was before.
 
It’s interesting when it interacts with the federal coal-leasing system, because much of the coal being shut down is higher-cost eastern Appalachian coal. [More than 80 percent of federal coal comes from the U.S. West.] That higher-coast eastern Appalachian coal also requires more labor per ton of coal. So there are more jobs associated with it. Western coal, particularly Powder River Basin coal, is surface coal that requires far fewer jobs per ton of coal produced. Which means that it’s very efficient, and which means that it’s likely to be some of the very last coal that will still be used for thermal power plants in a transition away from coal. So opening up the federal coal leasing program again is actually more likely to lead to fewer jobs in Appalachia than it is to lead to more coal. It still will lead to somewhat more total coal, but it will lead to less coal in Appalachia and more coal in the West. Which may mean, in net, fewer coal jobs.
 

Given the current market forces, how much benefit would U.S. taxpayers receive if Western coal was produced at the costs needed to make it competitive with, say, natural gas? Would it have to be sold on the cheap to be a viable option?


GILLINGHAM: Well, right now they are selling it on the cheap. The price of federal coal is generally around $10 per short ton. The price of eastern coal is in the range of $50 per short ton. Now there are differences in the characteristics of the different types of of coal. But even after adjusting for those differences, you still find that there’s a dramatic difference between the price of federal coal and the price of eastern coal.
 
Predominantly what we’re seeing on the market is eastern coal being hit very hard while federal coal [in the west] is increasing its market share — and largely continuing to produce. Opening up new lands to coal leasing would continue to increase that share further. On the other hand, increasing the royalty rates for federal coal, such as putting on a social cost of carbon or some other approach — as shown in my work — would produce somewhat less coal from the federal basin. But it would produce somewhat more in the east, coal jobs could actually increase because you’d keep more jobs in the east, and you’d bring in significantly more revenue. Some of that revenue from federal royalties is split between states and the federal government, so some of that money could be used to compensate for the coal-producing regions, including eastern ones but also western ones.
 

The administration is expected to frame the expansion of coal extraction as a way to reduce American dependence on foreign energy sources. Will it have any impact in that regard?


GILLINGHAM: No, there’s absolutely no way it’s going to change our reliance on foreign or imported energy. The vast, vast majority of our fuel used to produce electricity is domestically produced. What we do import is oil, but that’s dominantly used for transportation. So this claim is fundamentally misunderstanding the energy system in the United States. So not only is it going to create fewer new net jobs — since you’ll be reducing jobs in the east in exchange for more jobs in the west and given the low cost of natural gas — and not make a big difference in terms of the net amount of coal produced and the net number of coal jobs. It’s just not going to change the amount of imports into the United States at all. Those are just basic economics.
Share this page:
 
PUBLISHED: March 28, 2017
 

Stay up-to-date with F&ES!

Subscribe to an F&ES newsletter...

Weekly Newsletter

Monthly Newsletter