By Institute for Energy Research —— Bio and Archives December 21, 2017
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Discussions of U.S. coal policy generally focus on coal mining or coal burning, but hardly ever on coal transportation, the critical link between the two. Yet, transportation is a significant percentage of the total cost of electricity from nearly all coal-fired generators. And hidden in that link between mining and generation is a protective layer that is likely to slow the decline of coal in the American energy system.More specifically, the post explains that “rail transportation of coal to many power plants comes with fat margins for the railroads.” Therefore, at least for these particular power plants, even a stiff new carbon tax would not translate entirely into higher operating expenses for the plant, the way simple calculations based on coal’s carbon content would suggest. Rather, the study—which looked at the coal industry response to increased competition from natural gas—estimates that a large fraction of the extra cost (associated with a carbon tax) would be borne by the railroads, which would reduce their profit margins in order to keep their business moving coal. How big an effect are we talking about? Borenstein explains: OK, the effects of fracking are interesting, but what should really grab the attention of policymakers is what this implies for the effects of carbon pricing on coal plants. The estimates of the response to natural gas prices can be applied to forecasting the possible response of coal generation to a carbon price. Preonas shows that for the most captive coal plants as much as one-quarter of a carbon price would be absorbed by shippers, meaning that those plants would effectively be responding to a 25% lower carbon price than other generators or any other producers of [greenhouse gases]. [Bold added.] This is a pretty big result, especially because coal-fired power plants are some of the chief targets in the climate policy debate.
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.