{"id":10184,"date":"2017-10-10T06:49:31","date_gmt":"2017-10-10T06:49:31","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=10184"},"modified":"2017-10-11T06:51:45","modified_gmt":"2017-10-11T06:51:45","slug":"why-rick-perrys-proposed-subsidies-for-coal-fail-economics-101","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/why-rick-perrys-proposed-subsidies-for-coal-fail-economics-101\/","title":{"rendered":"Why Rick Perry’s proposed subsidies for coal fail Economics 101"},"content":{"rendered":"

Meredith Fowlie<\/a>, University of California, Berkeley<\/a><\/em> and Maximilian Auffhammer<\/a>, University of California, Berkeley<\/a><\/em><\/span><\/p>\n

In a controversial proposal, Energy Secretary Rick Perry has asked federal regulators to effectively subsidize coal and nuclear power plants at ratepayers\u2019 expense. Under Perry\u2019s proposal<\/a>, plants that operate in deregulated electricity markets \u2013 where generators normally compete to provide power at the lowest cost \u2013 would be guaranteed positive profits so long as they stockpile 90 days\u2019 worth of fuel on site. <\/p>\n

To rationalize this proposal, which a former Republican member of the Federal Energy Regulatory Commission has dubbed \u201cthe antithesis of good economics<\/a>,\u201d Secretary Perry points to uncompensated benefits generated by coal and nuclear plants.<\/p>\n

As energy economists, when we think about coal-fired electricity generation, what usually comes to mind are unaccounted-for costs \u2013 not benefits. This emerging pro-coal narrative is worth unpacking. <\/p>\n

Coal\u2019s hidden costs<\/h2>\n

When we teach the concept of externalities \u2013 the idea that economic activities can generate costs or benefits that are not reflected in their prices \u2013 we often use coal markets as a textbook example of negative externalities. It is true that burning coal fueled the Industrial Revolution and has helped propel emerging economies to modern-day heights. However, mining, transporting, storing and burning coal also have all kinds of negative health and environmental consequences that are not reflected in coal market prices.<\/p>\n

For example, burning coal produces local and regional pollutants, including mercury, nitrogen oxides, sulfur dioxide and fine particulates. These pollutants cause thousands of premature deaths and illnesses<\/a> in the United States annually. They also help form acid rain<\/a> and ozone<\/a> that damage crops and ecosystems. Even more significant from an economic perspective, burning coal is the source for almost a quarter of U.S. greenhouse gas emissions<\/a>, which lead to rising temperatures and sea levels, not just here but worldwide. <\/p>\n

The nonpartisan National Academies of Sciences estimate<\/a> the health and environmental damages per million Btu, or British thermal units, of coal at US$6.60. (British thermal units are a measure of the energy content of fuels.) For perspective, the delivered coal price in 2016 averaged $2.15 per MMBtu. Coal looks cheap, but we\u2019re paying a hefty hidden cost.<\/p>\n

The coal industry has historically fought regulations that aim to internalize these significant negative impacts<\/a>. Now, however, Perry and other proponents<\/a> are clamoring to account for alleged positive externalities from coal, such as reliability and resilience. In our view, this is like subsidizing bacon because it contains vitamins. <\/p>\n

\n \"\"<\/a>
\n <\/span>
\n EIA<\/a><\/span>
\n <\/figcaption><\/figure>\n

How did we get here?<\/h2>\n

In April 2017 Secretary Perry commissioned a study<\/a> to \u201cexplore critical issues central to protecting the long-term reliability of the electric grid.\u201d Perry\u2019s memo foreshadowed some anticipated conclusions \u2013 namely, that a recent decline in coal-fired generation<\/a> was making electricity generation less reliable and \u201cthreaten[ing] to undercut the performance of the grid well into the future.\u201d The stage was set for a study that could support a pro-coal agenda.<\/p>\n

An early draft of the study<\/a> concluded that \u201cthe power system is more reliable today due to better planning, market discipline, and better operating rules and standards.\u201d This was not what the energy secretary ordered. The summary statement about the grid being more reliable than ever was later removed. Nonetheless, the final report<\/a> offered no evidence that coal plant retirements were undermining grid reliability. <\/p>\n

Despite this conclusion, in October Perry directed federal energy regulators to guarantee cost recovery for plants that stored 90 days of fuel on site. In our view, this is a ham-handed approach to compensating resilience and reliability services. However, it effectively targets compensation at the type of plants this administration wants to prop up \u2013 coal and nuclear plants. <\/p>\n

\n \"\"<\/a>
\n <\/span>
\n EIA<\/a><\/span>
\n <\/figcaption><\/figure>\n

Does coal keep the lights on?<\/h2>\n

The proposed regulation is based on some key arguments that contradict DOE\u2019s own expert analysis in the grid report. First, it assumes that coal plants are indispensable to keeping the lights on and meeting electricity demand. <\/p>\n

To assure reliability, electric grids need to balance supply and demand in real time or risk cascading blackouts. One supplier shirking its responsibilities can lead to problems for all users of the grid. So we can think of reliability of supply as a positive externality, in the same way that pollution is a negative externality. <\/p>\n

But unlike pollutants such as carbon dioxide, electricity markets have internalized the external costs and benefits of reliability to a significant extent. The detailed rules and regulations that govern power grid operations require utilities to have more generating capacity than they need. They also compensate some plants for standing by to provide power in case of emergencies. (Typically, these are natural gas plants that can start up quickly.) Power markets compensate producers for providing reliable capacity and penalize them when they fail to meet their obligations. <\/p>\n

The proposed regulation also assumes that the resilience of the nation\u2019s electric grid is \u201cthreatened by premature retirements of power plants that can withstand major fuel supply disruptions caused by natural or man-made disasters.\u201d What kind of disasters are we talking about here? One example might be cyberattacks. There is no evidence that coal-fired power plants are less likely to be hacked, or will be quicker to recover, than natural gas, wind or solar generators. <\/p>\n

Large-scale environmental events such as hurricanes, floods and extreme cold weather could also threaten grid resilience. There is redundant natural gas pipeline transportation capacity in much of the country, which reduces fuel supply risks substantially. Still, during some weather disruptions, coal rail networks could be more reliable than gas pipelines. <\/p>\n

But after Hurricane Harvey, flooded coal piles forced one of America\u2019s largest coal plants in Texas to close two of its units and convert others to natural gas<\/a>. Frozen coal piles<\/a> and train derailments<\/a> have kept coal plants elsewhere from operating during cold winter weather. A recent report<\/a> by the Rhodium Group states:<\/p>\n

\n

\u201cOf all the major power disruptions, nation-wide over the past five years, only 0.0007 percent were due to fuel supply problems. The vast majority were the result of severe weather knocking down power lines.\u201d <\/p>\n<\/blockquote>\n

\n \"\"<\/a>
\n National Guardsmen clear debris in Cayey, Puerto Rico, Sept. 30, 2017, following Hurricane Maria. The storm left the island\u2019s power plants largely undamaged, but took down so many power lines that rebuilding the grid is expected to take months.<\/span>
\n Staff Sgt. Wilma Orozco Fanfan, US Army National Guard<\/a><\/span>
\n <\/figcaption><\/figure>\n

Coal\u2019s negative balance sheet<\/h2>\n

Subsidizing utilities to burn more coal would worsen coal\u2019s major negative externalities in the name of some dubious positive externalities. Deregulated power markets already have measures in place<\/a> to support efficient levels of investment in reliability and resilience. There is surely room for refinement, but Perry\u2019s proposal is the opposite of refined. It asks government to interfere in well-functioning markets, which is not something Republicans usually support \u2013 especially since it will come at great expense to ratepayers.<\/p>\n

\"TheSubsidizing coal for its reliability attributes is like subsidizing bacon for its nutritional content. There are better ways to get your vitamins, and better ways to keep the lights on.<\/p>\n

Meredith Fowlie<\/a>, Associate Professor of Economics, University of California, Berkeley<\/a><\/em> and Maximilian Auffhammer<\/a>, Pardee Professor of Sustainable Development, University of California, Berkeley<\/a><\/em><\/span><\/p>\n

This article was originally published on The Conversation<\/a>. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Meredith Fowlie, University of California, Berkeley and Maximilian Auffhammer, University of California, Berkeley In a controversial proposal, Energy Secretary Rick Perry has asked federal regulators to effectively subsidize coal and nuclear power plants at ratepayers\u2019 expense. Under Perry\u2019s proposal, plants that operate in deregulated electricity markets \u2013 where generators normally compete to provide power at […]<\/p>\n","protected":false},"author":44,"featured_media":10185,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1862],"tags":[1874,1683,2020,192,3323,2325,2519,1602,1799],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/10184"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=10184"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/10184\/revisions"}],"predecessor-version":[{"id":10186,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/10184\/revisions\/10186"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/10185"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=10184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=10184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=10184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}