THE UNSEEN COSTS OF COAL-GENERATED ELECTRICITY


This research explores both explicit and implicit factors that influence the cost of producing electricity from different sources. The explicit, or seen, costs of electricity include the costs of power plant development and construction, operation & maintenance, and transmission infrastructure. Often overlooked, however, are the implicit, or unseen, costs of electricity caused by government subsidies, mandates, and regulations that distort the electricity market. These unseen costs have real impacts on American consumers and taxpayers.

KEY FINDINGS


Coal-generated electricity has both explicit and implicit costs. The explicit, or seen, costs of coal-fired electricity include the costs of power plant development and construction, operation & maintenance, and constructing and maintaining transmission infrastructure. Often overlooked, however, are the implicit costs of coal-fired electricity, such as those costs associated with pollution, federal financial support, mandates, and regulations that distort the electricity market.

In 1980, the United States generated about 50 percent of its electricity from coal, more than from any other energy source. By 2014, coal supplied 39 percent of US electricity. The percentage of U.S. electricity that comes from coal is declining due to stringent regulations, competition from natural gas, and political disfavor.

One of the key justifications for government intervention in the energy market is to address social and environmental costs. Social and environmental costs include potential health problems that power plants create for the nearby population, negative effects of energy production on the environment, and effects on global climate change.

The EPA has set carbon emission standards for all coal-fired power plants. Known as the Clean Power Plan (CPP), these standards will require electric utilities to reduce carbon emissions to 32 percent below the recorded levels from the year 2005 by 2030. The EPA cites global climate change as its justification for regulating CO2 emissions, claiming that the CPP will not only mitigate environmental costs, but also create economic benefits. This is a contentious issue, and different assumptions lead to different estimates of the costs or benefits of the CPP, including estimates that project massive costs.

States have also enacted policies that encourage or discourage the production of electricity from coal. These policies represent another implicit, or unseen, cost that should be considered by policymakers. There is no uniform trend among state-level coal policies. In some states, coal generates most of the electricity and employs a large portion of the state’s workforce. These states tend to enact coal-friendly policies. Other states, usually those that generate low amounts electricity from coal, can pass anti-coal policies with little political cost and great political gain.

The cost of federal policies that favor specific industries creates another implicit cost for coal-generated electricity. The electricity sector receives two general forms of support from the federal government: tax expenditures, which reduce the amount of taxes an organization or individual pays, and direct expenditures, which provide direct cash outlays to energy producers and consumers. The coal industry has received around $72 billion in subsidies over the last 50 years.

Subsidies, mandates, and regulations burden US taxpayers and electricity consumers with unwanted costs, and discourage innovation in energy technology. If US policymakers were to leave financial resources to market forces instead of attempting to anticipate America’s energy needs, taxpayers and electricity consumers alike would benefit.