Report Identifies Large Benefits to National Economy from American Coal Exports

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The Energy Policy Research Foundation, Inc. (EPRINC) has released an assessment of the economic benefits of American steam coal exports showing net gains to the American economy of $2-$6 billion per year.

Although domestic demand for coal has declined as a result of new regulations and competition from low cost natural gas, demand and prices for American steam coal in Asian markets continues to grow. Coal exports from the Powder River Basin in Wyoming and Montana alone could grow to 50-100 million short tons per year. These coal exports would provide a net economic gain to the national economy between $40 and $60 per short ton, a total of $2 to $6 billion dollars per year. This net gain to the national economy shows up in higher returns to invested capital, greater employment opportunities from expanded investment, higher revenues to state, local and federal governments, and higher lease values on coal reserves from federal and state lands.
Another important feature of U.S. coal exports is that neither net world coal combustion nor carbon emissions will change as a result of an expansion of U.S. coal exports. The U.S. is an infra-marginal coal producer and the world coal price is set by higher cost producers whose delivered costs to Asian markets are likely to remain between $90 to $110 per metric ton. As a result, U.S. production will merely replace higher cost production with minimal effect on world coal prices given the size of the world coal market.
The United States has the world’s largest endowment of low-cost, high quality coal reserves. These coal reserves can be competitively produced and shipped to high value destinations through rail and seaborne transport. Coal’s low cost and abundance continues to make it a highly preferential fuel for power generation in the developing world.
When asked whether American coal exports could address the power crisis in India, EPRINC’s president, Lucian Pugliaresi, said “India is suffering from a regulatory program that prohibits virtually any adjustment to either price, supply or cost realities. With appropriate regulatory reform in India, U.S. coal could provide higher volume exports for power generation there. Our domestic challenge is to reform the U.S. regulatory program so that the national economy can benefit from opening not just coal exports, but the entire range of U.S. conventional fuels and associated value added production, including crude oil, LNG, refined petroleum products and petrochemicals. In many cases, U.S. regulatory programs on conventional fuels do not prohibit exports, but limit or prohibit construction of essential transportation and plant infrastructure essential for exports to take place. The benefits from trade in the conventional fuels market works for imports as well. EPRINC has completed several assessments outlining the high cost to the national economy of regulatory constraints on the construction of new pipeline capacity to bring Canadian oil sands production from Western Canada to U.S. refiners in the Gulf Coast.

The full report can be found at http://www.eprinc.org/pdf/EPRINC-COALEXPORTS-2012.pdf

EPRINC is a non-profit research organization that published economic research on all aspects of the energy industry. Reports are made available free of charge to all interested organizations and individuals. EPRINC was founded in 1944.

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Lucian Pugliaresi

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