Distribution Cost Reduction as an Incentive for Coal Conversion

Abstract

A linear transshipment model was used to determine the extent to which delivered coal prices could be reduced through gains in efficiency in coal transportation and distribution. Aggregate savings for coal users in southern Minnesota of as much as $10.8 million per year were shown to be possible. It was argued that the savings thus obtained would have the same effect as large direct subsidies to potential coal users in encouraging coal use. A program to reduce delivered coal costs would involve less public funding than subsidies in addition to providing coal delivery by truck to industries not able to receive it by rail. Furthermore, the benefits from reduced coal distribution costs would accrue to all local users, not just those selected for public payments.