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A Bad Idea: Subsidizing Coal

Aug 11, 2017 | Alan J. Krupnick

Can there possibly be a worse idea than to have the federal government give every ton of eastern coal burned a $15 subsidy—as was proposed by West Virginia Governor Jim Justice? To put this in perspective, the current price of coal from West Virginia ranges from $45 to $52 per ton, so this subsidy is very large relative to the price. Or, using the US Bureau of Labor Statistics’ estimate of coal jobs in the East (here defined as Appalachia) of 38,000, $4.5 billion translates to about $120,000 per miner per year.

The ostensible reason for the subsidy is to improve national security. While such a subsidy would undoubtedly raise profitability for coal owners and may well result in additional coal production and jobs, it will do next to nothing for national security. When we think of national security and energy, we usually think of being better prepared to avoid or deal with oil embargos and long gasoline lines. But coal is mainly used to generate power and almost no oil is used in power generation. So whatever issues we have with oil security, subsidizing coal would not address those concerns. Most coal is used to generate electricity (with a small amount of eastern coal [anthracite] used in industrial processes and competing very well without a subsidy). So, would a subsidy on coal improve electricity security? The main security issue here is the reliability of electricity supply. While the increasing use of renewables can lead to concerns about reliability, our natural gas and nuclear power plants, plus growing innovation in electricity storage will deal with that. Clearly, with our growing export of natural gas, this fuel does not have security problems. Neither does nuclear power (although nuclear power poses unique terrorism risks). One could argue that fuel diversity in and of itself makes electricity supply more secure. But coal is still 30 percent of our supply and is relatively easy to ramp up if demand (and corresponding coal price increases) warrants. If anything, coal should be taxed for its environmental damages relative to other electricity fuels to internalize its many negative externalities into its price—from mountain top removal and acid mine drainage to carbon dioxide and sulfur dioxide emissions when burned. A better plan for the $4.5 billion a year would be to support new efforts to build an enduring, modern economy in eastern coal country along with bolstering health care and job assistance programs.

The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.