Beggaring ourselves through coal mining

Old joke: How do you make a small fortune breeding horses? Start with a large fortune ….

It appears that the same logic applies to coal mining here in the Northern Rockies.

With US coal use in slight decline, exports are the growth market. Metallurgical and steam coal currently export for about $140 and $80 per short ton, respectively. But the public will see almost none of that, because unmanaged quantity and “competitive” auctions that are uncompetitive (just like Montana trust land oil & gas), plus low royalty, rent and bonus rates, result in a tiny slice of revenue accruing to the people (via federal and state governments) who actually own the resource.

For the Powder River Basin, here’s how it pencils out in rough terms:

Item $/ton
Minemouth price $10
Royalty, rents & bonus $2
Social Cost of Carbon (@ $21/tonCo2 medium value) -$55
US domestic SCC (at 15% of global, average of 7% damage share and 23% GDP share) -$8
Net US public benefit < -$6

In other words, the US public loses at least $3 for every $1 of coal revenue earned. The reality is probably worse, because the social cost of carbon estimate is extremely conservative, and other coal externalities are omitted. And of course the global harm is much greater than the US’ narrow interest.

Even if you think of coal mining as a jobs program, at Wyoming productivity, the climate subsidy alone is almost half a million dollars per worker.

This makes it hard to get enthusiastic about the planned expansion of exports.

Other bathtubs – capital

China is rapidly eliminating old coal generating capacity, according to Technology Review.

Draining Bathtub

Coal still meets 70 percent of China’s energy needs, but the country claims to have shut down 60 gigawatts’ worth of inefficient coal-fired plants since 2005. Among them is the one shown above, which was demolished in Henan province last year. China is also poised to take the lead in deploying carbon capture and storage (CCS) technology on a large scale. The gasifiers that China uses to turn coal into chemicals and fuel emit a pure stream of carbon dioxide that is cheap to capture, providing “an excellent opportunity to move CCS forward globally,” says Sarah Forbes of the World Resources Institute in Washington, DC.

That’s laudable. However, the inflow of new coal capacity must be even greater. Here’s the latest on China’s coal output:


China Statistical Yearbook 2009 & 2009 main statistical data update

That’s just a hair short of 3 billion tons in 2009, with 8%/yr growth from ’07-’09, in spite of the recession. On a per capita basis, US output and consumption is still higher, but at those staggering growth rates, it won’t take China long to catch up.

A simple model of capital turnover involves two parallel bathtubs, a “coflow” in SD lingo:


Every time you build some capital, you also commit to the energy needed to run it (unless you don’t run it, in which case why build it?). If you get fancy, you can consider 3rd order vintaging and retrofits, as here:

Capital Turnover 3o

To get fancier still, see the structure in John Sterman’s thesis, which provides for limited retrofit potential (that Gremlin just isn’t going to be a Prius, no matter what you do to the carburetor).

The basic challenge is that, while it helps to retire old dirty capital quickly (increasing the outflow from the energy requirements bathtub), energy requirements will go up as long as the inflow of new requirements is larger, which is likely when capital itself is growing and the energy intensity of new capital is well above zero. In addition, when capital is growing rapidly, there just isn’t much old stuff around (proportionally) to throw away, because the age structure of capital will be biased toward new vintages.

Hat tip: Travis Franck

Hansen on The Deal

Jim Hansen kicked off the Tällberg panel with a succinct summary of the argument for a 350ppm target in Hansen et al. (a short version is here). As I heard it,

  • The dangerous level of GHGs in the atmosphere is lower than we thought.
  • 3C climate sensitivity from fast feedbacks is confirmed; the risk is slow feedbacks, which are not as slow as we thought.
  • There is enough warming in pipeline to lose arctic ice, glaciers, reefs.
  • Good news: we need to go back to the stable Holocene climate.
  • The problem is solvable because conventional oil and gas are limited; we just need the will to not burn coal, oil shale, etc., except with CCS.
  • Among other things, that requires a price on carbon; for which a tax is the preferred mechanism.
  • The only loser is the fossil fuel industry; we simply need to bring them to heel.

Hansen was a little impatient with our bit of the forum, and argued that our focus on regions (and the challenges in reaching a regional accord) was too pessimistic. Instead, a focus on fuels (e.g., phasing out coal) provides clarity of purpose.

My counterargument, which I only partially articulated during the session, for fear of driving the conversation off on a tangent, is as follows:

As a technical solution, phasing out coal and letting peak oil run its course probably works. However, phasing out coal by 2030 implies a time constant of seven years or a rate of decline in coal utilization of about 10%/year (by the 3-tau rule of thumb). Coal-fired power plants have a long lifetime, so the natural rate of decline, assuming no new coal investment, is more like 2.5% or 3%/year. Phasing out coal at 10% per year implies not only halting construction, but also abandoning many plants before their natural economic lifetime is up. Age structure complicates things a bit, perhaps making it easier in the US (where plants are disproportionately old) and harder in China (where they’re new). Closing plants ahead of schedule is going to make the fossil fuel interests that Hansen proposes to control rather vocally upset. Also, eliminating coal emissions that fast requires some combination of rapid deployment of efficiency, noncarbon energy sources, and CCS above natural rates of capital turnover, and lifestyle change to pick up the slack. That in itself is a significant challenge.

That would be doable for a coalition with enough political power to either overpower or buy off the owners of stranded assets. But that coalition doesn’t now exist, and therein lies the reason that this is a political problem more than a technical one.