In times of economic instability, when millions are unemployed and our climb out of the financial hole into which we were plunged by reckless gamblers is frustratingly slow, the language of economic growth has emotional and political power. As a result, almost every corporation seeks to wrap its own self-interested pursuit profits in the public interest by labeling their activities as job or income creation.
Recently, a group funded by the nation’s largest energy companies released a brief report claiming to show that the export of Powder River Basin coal from Montana and Wyoming would “yield a net economic gain to the national economy…of $2 to $6 billion dollars per year.” “This net gain to the national economy shows up in…greater employment opportunities.”
Jobs and income! What more is there to say?
Well, first of all, it is interesting how these energy industry folks calculated the national economic benefits. They estimated what it would cost to mine Powder River Basin coal, ship it by train through Montana and Washington cities to yet-to-be-built west coast ports, and then put it on ocean-going ships to Asia where it would be sold for $100 to $120 per ton. Since they estimated the costs to mine and ship the coal would only be about $60 per ton, the coal companies would make $40 to $60 on each ton sold in Asia. Being modest, these coal industry spokespersons assumed only 50 to 100 million tons of Powder River Basin coal would be shipped to Asia. That would earn the coal companies $2 to $6 billion in profit each year.
What is interesting about this calculation is the incredible profits that are being projected. Currently Powder River Basin coal is selling at the mine for less than $10 per ton. It costs between $6 and $8 to produce. That means that the coal companies are currently making about $2 to $4 per ton over costs. According to this study, selling the coal in Asia will bring them 10 to 30 times as much profit per ton of coal sold. Now that is a quite profitable step up!
Note that what is being labeled the economic benefit to the nation is simply the profits the coal companies hope to earn by selling the coal to Asia rather than to American electric generating plants. It is these potentially huge profits associated with shipping American coal to Asia that has gotten the American coal industry, facing stagnant or declining domestic markets, so excited about coal exports and the ports needed to make them possible.
Expanding American coal mining to serve growing Asian coal demand has many Americans worried. The coal still has to be mined, tearing huge holes in the earth and reducing mountains to rubble that is dumped into river valleys. It still has to be shipped through our communities. And it still has to be burned producing toxic emissions and greenhouse gases.
The coal industry seeks to use the language of economics to argue that significant increases in American coal exports will not cause any increase in air pollution when that coal is burned. The combustion of our coal in Asia will be “pollution-free,” the coal industry argues, because our coal will simply displace more costly sources of coal that otherwise would have been burned. And those other coals that our coal exports block from being burned are often much dirtier than our coal. So exporting and burning our coal, according to the coal companies’ wishful thinking, may actually help improve air quality worldwide.
This brash display of economic illiteracy is stunning in its ignorance or dishonesty or both. If, as the coal industry has calculated, Powder River Basin coal can be sold for $40 to $60 of profit per ton in Asia, American coal companies will soon be shipping all of the coal they can possibly mine. There will be a huge flow of Montana and Wyoming coal to Asia. Of course, that coal can be sold in Asia only if it undersells other suppliers. The surge in the quantity of less expensive coal being sold into the Asian markets will drive coal prices down below what is currently being paid. Those Chinese, Australian, Indonesian, and South African companies currently serving those Asian markets will not passively give up their share of the market. They will fight back, reducing their costs and lowering their prices. The various coal companies operating in the Powder River Basin will also compete with each other to get as large a share of these extremely profitable markets as they can, also driving coal prices down.
The very coal mining cost data this coal industry report provided indicated that if the Powder River Basin were to ship 100 to 150 million tons of coal to Asia, coal prices would drop from $100 per ton to $80 per ton, a 20 percent decline. That, according to statistical studies of how Asian coal consumption adjusts to price changes would lead to almost a 25 percent increase in the consumption of coal.
This is simply supply and demand. Boost the supply and price will be pushed downward. Push prices downward and consumption will increase.
That is, the exported coal would not simply displace coal that was going to be burned anyway, but would lead to a significant net increase in coal consumption and a resulting increases in air pollution that will blow back to the United States’ west coast and an increased threat to the climate from the larger volume of greenhouse gases emitted.
In bragging about the economic benefits of American coal exports, the coal industry boldly equates coal profits with improved American economic well-being while boisterously declaring that the economic laws of supply and demand have been magically repealed. This new public relations dressing of coal exports in economic jargon does little to hide the fact that coal remains the dirtiest and most dangerous of the fuel alternatives available to us.
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