TITLE:
Powder River Basin Coal: Powering America
AUTHORS:
Timothy J. Considine
KEYWORDS:
Coal; Scale Economies; Natural Gas; Electricity; Environment
JOURNAL NAME:
Natural Resources,
Vol.4 No.8,
December
30,
2013
ABSTRACT: Powder River Basin (PRB) coal in Wyoming and Montana is used to produce 18 percent of the electricity consumed in the United States. Coal production from the PRB more than doubled between 1994 and 2009. PRB coal companies produced greater amounts of coal at declining real prices over much of this period through investment in equipment and production systems that achieved massive economies of scale. The bulk of PRB coal is shipped to the middle part of America from Texas in the south to Michigan in the north and New York in the east. States that consume significant amounts of PRB coal have electricity rates well below the national average. The largest industrial users of electricity are in these regions. Replacing PRB coal would require almost 5.5 trillion cubic feet of natural gas per year, representing a 26 percent increase in demand. Such an increase in gas consumption would increase prices for natural gas by roughly 76 percent. In such a world, U.S. energy users would pay $107 billion more each year for electricity and natural gas. Hence, by using PRB coal, the U.S. economy avoids $107 billion per year in higher energy costs. Estimates reported in the literature indicate that the gross environmental damages from PRB coal production are $27 billion. Hence, the net social benefits of PRB coal are $80 billion per year. Given the large size and low cost of these reserves, PRB coal will likely supply societal energy needs well into the future as long as the public and their elected officials are willing to accept the environmental impacts in return for the substantial economic benefits from using PRB coal.