Should we get rid of coal?

According to the New York Times, the elimination of coal as a power generation source in the United States is the “potentially historic centerpiece of President Obama’s climate change legacy.” The EPA is currently working on regulations to do just that. Setting aside the very real constitutional issues of whether the executive branch has the authority to take such broad economic planning steps, let’s just ask two simple questions: what would the elimination of coal power plants cost and what would we gain?

A precise analysis would be very complex, but we can make a quick ballpark estimate. Let’s start with some simplifying assumptions. First, no new coal-fired power plants will be built. With current low natural gas prices, few new coal plants would be competitive in the marketplace with or without government regulation. Second, the proposed regulations would shut down all existing coal plants by 2020. It is theoretically possible but unlikely that existing coal plants could meet the new regulations (whatever they turn out to be), since carbon capture and storage technology (CCS) is not technically ready, let alone economically viable. Finally, let’s assume that the current coal plants are replaced with equal parts of natural gas combined cycle, onshore wind farms, offshore wind farms and large solar installations.

According to the Energy Information Administration (EIA), through October of 2013, US coal plants generated about 1.3 trillion kilowatt-hours (kWh) of electricity. Let’s gross this up by 20% and estimate total 2013 coal generation at 1.6 trillion kWh. Per our assumptions, we replace this amount with 400 billion kWh each of natural gas, offshore wind, onshore wind and solar. My latest estimates for the costs new power generation from these sources, including capital, operating and fuel costs, would be 4.7¢/kWh for natural gas, 20.5¢ for offshore wind, 9.3¢ for onshore wind and 18.1¢ for solar. The total annual cost for generating 1.6 trillion kWh from these power plants would be about $208 billion. We would save only the fuel and operating costs for the shuttered coal plants, since the capital cost is already sunk. There would of course be reclamation costs unless we wish to leave these dead generating stations as permanent eyesores, but let’s ignore these costs for the moment. Coal costs about 2¢/kWh and plant operating costs (fixed and variable) another 1¢ for a total savings of 3¢ per kWh or a total annual savings of $47 billion. Our switchout would therefore cost us a total of about $161 billion per year, most of which would be reflected in higher electricity bills for consumers. With about 110 million households in the US, the average electricity bill would increase by about $120 per month. There would naturally be substantial regional variations, but on a national scale, that’s a pretty heavy burden on the middle class.

This estimate does not reflect the substantial difficulties and costs associated with integrating renewable energy into the grid. Since electricity demand is instantaneous while wind and solar power are intermittent, the power system requires either extensive storage or back-up fossil fuel generation to incorporate these technologies. At present, wind and solar account for about 4% of our electricity generation. In my scenario, their share would rise to 30%.

Even if excessive renewable energy proves not to be a problem, what would we get in return? According to the EIA, American coal-fired power plants emitted about 1.31 billion tonnes of carbon dioxide in the first ten months of 2013, so let’s estimate total 2013 emissions at 1.57 billion tonnes. The total cost of this carbon reduction would therefore be roughly $100 per metric tonne. Is that good or bad?

Last November, the White House updated its estimate of the “social cost of carbon” the official estimate of the cost of emitting a tonne of carbon dioxide into the atmosphere. The new estimate is $37 per tonne – a little over one-third of the estimated cost of shutting down all US coal-fired power plants. (If you’d like to see an exercise in tortured logic, take a look at the report that generated this number, which you can find at http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCYQFjAA&url=http%3A%2F%2Fwww.whitehouse.gov%2Fsites%2Fdefault%2Ffiles%2Fomb%2Finforeg%2Fsocial_cost_of_carbon_for_ria_2013_update.pdf&ei=MsbyUtaPMM2BogTCr4CQBw&usg=AFQjCNEYMkkDA_ad6D5lk6BX-O153P9u2A&bvm=bv.60983673,d.cGU.)

By the government’s own logic, shutting down our coal plants would cost 2½ times more than it’s worth. The Climate Community answers, “So what? We have to do something to save the Earth.” OK, but the EIA estimates total global carbon dioxide emissions in 2020 at about 36.5 billion tonnes per year. The shut-down of all US coal plants would therefore reduce global carbon emissions by just over 4%. We can’t even measure carbon emissions within 4%. In effect, we would be paying $161 billion per year for a rounding error.

To put the problem in perspective, shutting down US coal power plants by 2020 would reduce our annual emissions output by about 220 million tonnes each year. Over that same period, the EIA projects that China will increase its annual carbon emissions from coal use by an identical amount. In other words, the program to shut down US coal plants barely offset the growth in China.

The willingness of the Climate Community to support such measures is based on one of the great fallacies of the climate change debate. Other countries, so the argument goes, are waiting on the United States to take the lead. When the US shows a “real willingness” to accept the costs of carbon reduction, the rest of the world will follow. This argument reprises the assertion that the world would eliminate all its nuclear weapons if the US would just “take the lead” and disarm unilaterally.

China, the world’s largest carbon emitter has embarked on a two-fold endeavor of historic proportions. The Chinese government wants to bring nearly a billion people out of poverty and at the same time expand China’s geopolitical reach into East and Southeast Asia and later into the world as a whole. Reducing carbon emissions is inconsistent with both goals. It’s easy for the Chinese to talk about their sincerity in fighting climate change and to encourage the West to take steps that weaken their economies. The belief that China cares about carbon mitigation is one of the great self-delusions of our time – equivalent to the common view in the 1930s and 40s that Stalin was trying to create a fair and just society.

Climate “action” is difficult precisely because the costs of even small carbon reductions are very high. No matter what you believe about climate change, the President’s program is the worst possible outcome – no meaningful reduction but at a very high cost.