Mises Wire

Did The Free Market Kill Coal?

Would you like to know my secret to turning my environmentalist friends into stalwart defenders of the marketplace? The answer is simple: coal.

You would be amazed by the reversal in rhetoric witnessed right before your eyes, typically accompanied by a big dose of schadenfreude aimed at Appalachian people.

The “free market killed coal” adage apparently qualifies as ironic humor in leftist circles. Never mind the tens of thousands of families, hundreds of communities, a plethora of near-bankrupt school districts, and so many others left behind in the wreckage of coal’s decline. Environmentalists may even laugh as states who have endured generation after generation of poverty face choppy fiscal seas, forcing indelicate, hammer-doing-a-scalpel’s-job reductions in infrastructure, education, and health spending. None of these things seem to matter when it isn’t their political constituency on the destructive end of creative destruction.

My instinctual reaction to this “meme-ification” of my home state of West Virginia’s suffering was anger. I wanted to show everyone how truly uncompassionate the left is about these sorts of things. But now that I’ve spent plenty of time getting under the hood of energy policy, I realize I should have questioned the merits of the claim first.

A Government-Subsidized “Marketplace” 

The less-informed greens who relish in the suffering of Appalachia want to say the rise of renewable energy sources have given the coal industry an ultimatum. They contradict themselves by clinging to the notion of “market competition” while the Barack Obama administration cut tens of billions of dollars in checks to well-connected green energy companies. This argument, admittedly the weaker of the two, is only made possible by the army of lobbyists and “government relations consultants” who descend on Washington DC to win tax privileges and direct subsidies for their employers. In no universe, under no version of conservatism or libertarianism, would this be considered a free-market victory over coal.

The more astute and harder-to-combat narrative is the one about cheap natural gas.

It is true that cheap, plentiful natural gas rendered many coal-fired power plants uncompetitive. Why draw power from coal when gas is more profitable? “The gas, not the EPA, killed coal.” That argument writes itself and makes much more sense when you look at power companies’ decision to move away from coal.

Government Regulation Has Prevented Modernization of the Industry

Most coal-fired power plants are decades-old and built during an era where they were merely expected to burn coal, not meet a whole host of regulatory requirements. Regulatory burdens such as the rules put forth by environmental agencies in Washington DC and the permits required to build coal-fired power production have grown tremendously over the years. The waiting period between the time investors agree to finance a project and the project’s realization has grown accordingly.

For any wealthy investor looking to back a project that will make him money, why would he sit on his capital for years, waiting for the permits to clear and federal regulators to settle on a standard the plant needs to meet, rather than put it into something else? Investing elsewhere will often provide a much quicker, much safer return. The opportunity cost, as economists would say, is too great to justify investments in the coal industry.

The greatest damage regulators have done to the coal industry is to make modernization prohibitively expensive. The end result are “zombie” power plants. Just ask the folks in the industry. Relics of decades past with piecemeal technological equipment intended to allow the plant to scrape by whatever new regulatory requirements have come out. At the plant’s heart, however, there is an aging skeleton unable to compete with modern standards of energy generation.

A power plant near my college town of Morgantown, West Virginia, is a working model of what a modern coal-fired power plant looks like. The plant has been profitable in a market dominated by cheap natural gas. Likewise, it shows dramatically reduced carbon emissions when compared to the coal-fired power plants of the past. I’m no engineer, so I won’t pretend to understand or explain the science of the plant, but the moral of the story is clear. Coal technology has advanced substantially from the old days. But bureaucracy has erected near-impenetrable obstacles to financing the construction of these next generation coal-fired power plants.

Reprinted with permission. 

Image Source: Coal Train by "railsr4me" www.flickr.com/photos/railsr4me/
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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