The economic costs of burning coal

An intriguing new study published in the well-respected journal, American Economic Review, attempts to calculate the economic damage from air pollution from various industries across the nation and compare those to the value of the products those industries produce.

The study’s conclusion about coal-fired power plants is drawing some attention, and should draw more. As an article in The Charleston Gazette summarized it, “According to the study, the gross external damages (GED) of coal-fired power plants cost about twice the annual value added to the economy by those facilities.”

In a huge, but not inaccurate simplification, the study found that coal-fired power plants cause twice as much damage to America’s economy as the value of the electricity they produce. That is, by far, the worst finding for any of the industry sectors studied, according to the report:

Coal plants are responsible for more than one-fourth of the GED from the entire U.S. economy. The damages attributed to this industry are larger than the combined GED due to the three next most polluting industries: Crop production, $15 billion/year, livestock production, $15 billion/year, and construction of roadways and bridges, $13 billion/year.

As Ken Ward Jr. noted at his Coal Tattoo blog, this is a complicated study that attempts to find a methodology that would ?”have economic decisions fully account for environmental impacts like air pollution and public health effects of that air pollution.” The methodologies are far from perfect. But where they fall short, they appear to do so in under-estimating the economic damage.

For instance, the 2-1 ratio of damage to value added for coal-fired plants takes into account only air pollution. It does not factor in environmental damage from mining coal (though the mining sector is studied separately in the report) or coal ash waste disposal. Water pollution, from either power plant emissions or mining, is similarly uncounted. Clearly, with these externalities counted, the Gross Economic Damage from coal would be far, far higher.

At Appalachian Mountain Advocates, a big part of our goal and the focus of most of our efforts is to ensure that the coal industry is forced to pay for its external costs ? which are otherwise shifted onto society at large, while the industry takes all the profits. This important study begins the work of actually quantifying those external costs through an economically valid method, though even the authors know there is much work yet to be done.

But even at this preliminary stage, this study makes clear that the coal lobby’s protest about over-regulation is completely unwarranted. At its basest level, regulation can be understood as the effort of ensuring that an industry is not allowed to shift its costs of doing business onto others. By that measure, regulation of the coal industry and coal-burning utilities has been an unqualified failure.

As Grist’s David Roberts wrote, “It’s remarkable, really, that we don’t have any established way of calculating these damages built into the accounting systems of OMB, CBO, and other agencies. The public just absorbs these costs, in health-care spending, missed work days, lower productivity, and simple suffering (the ill effects of which are?not?spread evenly among classes, races, or regions), yet we pretend like these costs just happen, like they have no origin or responsible parties.”

At least partly, that’s due to the fact that the public doesn’t understand the extent of the public health, economic and environmental damages associated with coal mining. While studies such as this are not meant for mass consumption, they could lead to policy changes that encourage the calculation of more external costs at the national level.

Such a development would help policymakers make better informed decisions about regulation and give the public more information to form its own impressions.


  1. John Kolshak says:

    What power plant was the testing performed? I thought these plants had emission control systems that were recorded 24 hrs a day with the state.

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