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A Federal Coal Subsidy Is the Latest Insane Policy Idea

West Virginia governor says that Trump is "really interested. He likes the idea."

WestVirginiaCoalScottnodineDreamstimeScottnodine/DreamstimeA federal subsidy of $15 per ton of Appalachian coal is West Virginia Gov. Jim Justice's bright idea for bringing back his state's hard hit coal mining industry.

Justice, a Republican, proposes using taxpayer funds to bribe electric power generation companies to burn coal instead of cheap and abundant natural gas. As a result of the fracking boom, the supply of natural gas has soared and its price fallen. Consequently, the price of gas used in utility plants fell last year as low as $16 per megawatt hour (a million watts generated continuously over an hour) compared to around $22 for coal.

In 2008, almost 50 percent of electricity in the United States was generated by burning coal and just over 20 percent was generated using natural gas. In 2016, coal was the fuel for just over 30 percent of generation, compared to nearly 34 percent from natural gas.

Although clean air regulations played a role, the switch by utilities from coal to natural gas was largely the result of market forces. So what do politicians do when they don't like what markets are telling them? Fix them so that they come out "right."

Apparently, Justice proposed his coal subsidy plan when he appeared with President Donald Trump at the Boy Scout Jamboree. The governor told Bloomberg News the president is "really interested. He likes the idea." In addition, he justified the subsidy proposal as a matter of national security. As Bloomberg reports:

Justice rejects the notion that his plan amounts to a "bailout" or "subsidy" for Appalachian coal. Rather, it's a matter of national security, he said, because terrorists could easily blow up important gas pipelines or derail freight trains shipping coal to the east, leaving large swaths of the country lacking power-plant fuel.

Of course, national security is the last refuge of a scoundrel, to paraphrase Samuel Johnson, and proposing fossil fuel subsidies is a particularly scoundrelly idea. But Justice might ask, why shouldn't coal get a subsidy? After all solar, wind, biofuels and now even nuclear power get subsidies.

How about this idea: Let's get rid of all energy subsidies.* As I explained in my book, The End of Doom:

Those of us who appreciate the power of competition and market incentives to call forth new technologies and drive down prices must recognize that governments have been massively meddling in energy markets for more than a century. Consequently, it's really impossible to know what the actual price of energy supplies would be in a free market. ... [Another] result is retarded innovation in the technologies of energy generation. A big first step toward renovating our energy supply systems would be to eliminate those impediments to understanding the real comparative benefits and costs of the production and use of energy.

Justice's proposal to subsidize coal mining in his state is just another such impediment. Surely President Trump is not crazy enough to propose a federal coal subsidy, right?

*Actually, just eliminate all subsidies.

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  • WakaWaka||

    Can they just turn around when coal production increases and claim that it's due to the 'free market', as others argued was the case when coal production declined due to EPA regulations? Or does that lie only work one way?

  • NotAnotherSkippy||

    Coal production has already increased this year and electricity generation from coal is now higher than gas.

  • Ron Bailey||

    N: Yes, and exporting natural gas will also probably raise it prices further improving the prospects of coal in U.S. energy markets. That's how markets are supposed to work.

  • NotAnotherSkippy||

    I thought coal was going away, Ron.

    LNG exports probably won't have that much effect and even then it will be years from now. We're not australia. Our domestic production/consumption are significantly larger than our export capacity.

  • Ron Bailey||

    N: In late 2016, the price of gas per $/mmBtu rose above that of coal. Even so gas offers more flexibility and convenience than does coal. With regard to exports the EIA guesses: Higher natural gas exports and growing domestic natural gas consumption in 2018 contribute to the forecast Henry Hub natural gas spot price rising from an annual average of $3.06/MMBtu in 2017 to $3.29/MMBtu in 2018.

  • JWatts||

    "...annual average of $3.06/MMBtu in 2017 to $3.29/MMBtu in 2018."

    Yep, that looks a lot like not much effect.

  • Scarecrow Repair & Chippering||

    How'd you like a 10% wage cut, or 10% increased mortgage?

    Not much at all. Puny, in fact.

  • NotAnotherSkippy||

    Considering it has fallen by over 300% a 10% fluctuation ISN'T much of an effect.

  • Scarecrow Repair & Chippering||

    Well shit then, let's extend the period covered and we can make any number legitimate!

    You don't by any chance work for IPCC? Name of Mann perchance?

  • NotAnotherSkippy||

    Yes, clearly a price fluctuation of 10% after a decline of over 300% is equivalent. How could I not see that?

  • Scarecrow Repair & Chippering||

    How could I not see that?

    Same way you didn't see or answer

    Let's extend the period covered and we can make any number legitimate!
  • NotAnotherSkippy||

    I didn't realize that the only legitimate time period was the daily spot market. Silly me. Prices in 2016 were half what they were in 2014. Is 2 years too long?

  • Scarecrow Repair & Chippering||

    Ron chose one example, you denied his was legit in favor of your own. Pick and choose, cherry pick, how does that work?

  • WakaWaka||

    EPA regulations on electric companies to reduce coal use to roughly 30% of generation remains. At least, that was what was occurring when people claimed that the decline in coal usage was due to the 'free market'. The courts may have suspended the rule.

  • Ron Bailey||

    W: Obama's Clean Power Plan was not implemented.

  • NotAnotherSkippy||

    But the threat to producers was real and still had some impact. Additionally many states have their own version of market interference. Why, I'm lucky enough to live in a state with a social cost of carbon. Yay me.

  • WakaWaka||

    This was the last portion of the entire project. There were additional EPA rules that made coal costly. Additionally, whether or not the plan was implemented, electric companies had already sunk money into replacing coal in anticipation of this rule (with a few exceptions).

    If you think that the mandates are good- fine, then argue that. But, to look at an industry that is being regulated and say- "well, that's just the free market at work" is disingenuous.

  • Ron Bailey||

    W: I did note that "clean air regulations played a role....." And at least one recent econometric study finds "According to our estimate, the declining price of natural gas relative to coal, on an energy-adjusted basis, explains 92% of the decline in coal production."

  • WakaWaka||

    That's for the explanation. Appreciate you responding to even critical commentators

  • NotAnotherSkippy||

    Yes, I know. My only point was that there was an overshoot in coal declines due to some pricing transients in gas. Shale gas is not economically viable at $2/mmbtu. Of course subsidies and regulations can make the market "price" be whatever they want until things get bad enough to collapse.

  • Citizen X - #6||

    *Actually, just eliminate all subsidies.

    How are all the rent seekers supposed to get their beaks wet then, huh? WON'T SOMEONE THINK ABOUT THE RENT SEEKERS?!?

  • mtrueman||

    Rent seeking is not receiving subsidies. Rent seeking is getting an income by virtue of ownership, and nothing else. Like a land owner blocking a road and charging a fee to those who pass through. Libertarians generally support this kind of rent seeking, I've noticed.

  • Ron Bailey||

    m: Really? Rentseeking: Rent-seeking is the use of the resources of a company, an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation. An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don't create any benefit for society; they just redistribute resources from the taxpayers to the company.

  • mtrueman||

    The coal miners produce coal, subsidized coal, yes, but it is a benefit for society.' Hence it is not rent seeking. Contrast this with the land owner blocking the road. This income is due solely to the land owner's ownership and nothing else, and as you say, doesn't create any benefit.

  • Scarecrow Repair & Chippering||

    You're denser than coal, even denser than uranium. Someone ought to harness your density in a power plant.

  • Scarecrow Repair & Chippering||

    I mean .... I mean .... (Alice's Restaurant voice) ... I just do not understand how you can put such intentional ignorance on display and not be a very inept troll. But I have met, in person, people as baffled by the simplest of logic, so I do believe people like that can exist. It's just that usually they are content to mutter while bowling and not exerting enough effort to sign up on a blog.

  • mtrueman||

    You disagree. Is that it, or is there more?

  • BYODB||


    The coal miners produce coal, subsidized coal, yes, but...

    Stop right there, you just admitted it's rent seeking. Done. Case closed. Unless you admit you simply had no idea of what the actual definition of rent seeking was, which might be more humility than you can muster or more good faith than your spirit can handle.

  • Scarecrow Repair & Chippering||

    He does so much as admit that, elsewhere. Not explicitly, of course, but by clear example.

  • mtrueman||

    Read Ron's definition.

    " to obtain economic gain from others without reciprocating any benefits to society through wealth creation."

    The question is whether or not the mined coal is a benefit or not. I say it is. Ron and you disagree, apparently.

  • BYODB||

    So it is, indeed, more humility than you can muster and/or more good faith than your spirit can handle.

    As expected.

  • Scarecrow Repair & Chippering||

    By your alogic, getting a government subsidy of $1000 per ordinary apple is not rent seeking, eh?

  • mtrueman||

    "By your alogic, getting a government subsidy of $1000 per ordinary apple is not rent seeking, eh?"

    Does it produce a benefit to society? Once you answer this question, you'll have your answer. You don't need me.

  • Scarecrow Repair & Chippering||

    You don't need me.

    We don't even need you to tell us this!

  • mtrueman||

    I sense you are resorting to lame retorts just to get 'the last word.'

  • KBeckman||

    No, coal is being mined regardless. What value does the subsidy bring to the table?

  • BYODB||

    Have you heard the phrase 'money is fungible' before, by chance?


    I mean, you've already made it clear you've never taken a single economics class or read an economics book in your entire life, so we don't really need to ask that.

  • Ron Bailey||

    B: ?

  • BYODB||

    In response to MTrueman's claim that 'rent-seeking' somehow meant charging someone rent to live on a property, which is perhaps the dumbest thing I've heard this year.

  • Ron Bailey||

    B: Just checking that you weren't talking about me. :-)

  • mtrueman||

    Ask him about his global warming is caused by solar flares theory.

  • BYODB||

    Your understanding of energy appears to be on roughly the same level as your understanding of basic economic theory trueman. You should truly stay away from any topic that involves science. Not to mention I have literally never made that claim, you just misunderstood one of the things I've said through your own lack of cursory knowledge on the subject.

  • mtrueman||

    "Not to mention I have literally never made that claim"

    You're not disavowing the ingenious solar flares theory, are you? It captured the heat of the sun and flares, too. Very persuasive. What are you replacing it with?

  • BYODB||

    I'll just leave this here, Trueman, for your own edification.

    How Not to Argue

  • BYODB||

    Lord no, Ron, you obviously get it. ^_^

  • mtrueman||

    He knows what rent-seeking is, he just thinks that mined coal is of no benefit to society. He's entitled to his opinion, and all that, but the market place disagrees.

  • Scarecrow Repair & Chippering||

    What does the market place have to do with definition of an economic buzzword?

    That's amazing, illustrating ignorance of two things in one comment. Your efficiency is as astounding as your ineptitude.

  • mtrueman||

    "What does the market place have to do with definition of an economic buzzword?"

    Ron implies mined coal is no benefit to society. I say the fact that coal is bought and sold in the market shows that there is at least a perceived benefit to the coal produced. Sorry I didn't spell that out explicitly before you felt the need to comment.

  • Scarecrow Repair & Chippering||

    Ron said no such thing.

  • mtrueman||

    That's why I wrote 'implied.'

    You see, rent seeking is about taking in money without producing anything in return. Since we have produced coal, we don't have rent seeking. We have a misallocation of resources, I suppose what we're talking about here is another species of misallocation of resources, where, at the end of the day something is produced, however doubtful its value..

  • KBeckman||

    Except they're taking money for something they were already doing beforehand. That's not adding value.

  • Diane Reynolds (Paul.)||

    Environmentalists believe in market-driven solutions. I'm pretty sure they'll be against these subsidies.

  • NotAnotherSkippy||

    If you want reliable energy and keep subsidizing "renewables" then something like this is inevitable. Just look at energiewende.

  • mtrueman||

    We should just keep subsidizing oil and coal as God intended.

  • Greg F||

    We should just keep subsidizing oil and coal as God intended.

    On a per unit of energy oil and gas don't even come close to "renewables".

  • JWatts||

    There's no substantial subsidies to oil and gas, assuming you aren't disingenuously counting research money or mineral depreciation tax deductions.

  • WakaWaka||

    Although there is one large subsidy that is in fact given to oil and gas- "green energy subsidies".

  • mtrueman||

    Who pays for the security of Persian Gulf supply routes? Or does that not count? It only comes to the trillions of $US over the years.

  • Greg F||

    Who pays for the security of Persian Gulf supply routes?

    Oil is not a significant source for generating electricity.

  • mtrueman||

    "Oil is not a significant source for generating electricity."

    Supply routes need protecting, regardless, You can't expect the producers to pay for it from their own pockets.

  • NotAnotherSkippy||

    Israel and afghanistan are known suppliers of most US energy imports. It is known.

  • mtrueman||

    "Israel and afghanistan are known suppliers of most US energy imports. It is known."

    That's heroin. Persian Gulf is oil.

  • NotAnotherSkippy||

    So your thesis was wrong again? I'm shocked.

  • mtrueman||

    "So your thesis was wrong again?"

    Which thesis is this? I have so many thesises.

  • Longtobefree||

    How is a tax deduction different from a subsidy?
    In one you have to file a piece of paper to get taxpayer money, in the other, it is just given to you.
    What is disingenuous about lumping direct subsidy with tax deductions? Both direct taxpayer money to companies.
    disingenuous: not candid or sincere, typically by pretending that one knows less about something than one really does.

  • mtrueman||

    I imagine if you ask various people you'll come across varying opinions. I don't have a strong opinion on the matter and am willing to defer to yours unless it's particularly boring.

  • juris imprudent||

    ICP - Insane Coal Policy?

  • BYODB||

    Great, so now the Republicans are pulling the same idiocy as the Democrats when it comes to energy policy. Honestly, that is totally expected.


    No one is interested in letting a company succeed or fail on it's own merits. Hell, they aren't even willing to let that happen at the individual level in most cases although it seems to me the left is worse on that particular. Both of them are pretty damn terrible when it comes to energy policy though.


    Hopefully the ITER comes online sooner rather than later.

  • NotAnotherSkippy||

    You don't know much about ITER...

  • BYODB||

    It's a test-case for a fairly huge fusion reactor, although as I understand it they aren't 100% sure if it will actually work or not. Perhaps I'm misinformed.

  • BYODB||

    Or, perhaps, you mean that it's only in existence because of massive government involvement and expenditure rather than a 'free market' which is absolutely true. Sadly.

  • SKR||

    And it has been plagued with delays.

  • BYODB||

    That's an understatement, but yeah. It's just the 'biggest' and most recognizable project of it's kind (or was when it started anyway, not sure about now).

    It's one of those unfortunate cases where something I think is really cool also happens to be in existence through processes I hate. Unfortunately this seems to be par for the course in science these days, but it also goes to show that oil and gas are nowhere near a critical enough level for these projects to happen organically.

  • NotAnotherSkippy||

    Yes.

  • BYODB||

    I'm assuming this is a response in regards to how 'free market' the project is (not at all, in other words) but I am curious what your opinion on actual feasibility might be.

  • SKR||

    At this point I'd bet on Lockheed coming in before the clusterfuck that is ITER.

  • NotAnotherSkippy||

    No.

  • ernieyeball||

    "Surely President Trump is not crazy enough to propose a federal coal subsidy, right?"

    Republican President Pork Chop Pud is a self confessed active sexual pervert.
    Besides grabbing pussy he is crazy enough to do anything.

  • JWatts||

    If Trump were actually interested in the idea then we would have already read the tweet.

  • Unlabelable MJGreen||

    Good post Ron, and always, your willingness to engage in the comments is as appreciated as it is pitied.

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