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.
Highlights
Energy is a key factor in economic development, transforming agrarian societies to modern industrial ones
Average retail electricity rates are 34% above the national average for states that do not use Powder River Basin (PRB) coal and 62% above the national average for this group without Idaho, New Mexico, South Carolina, North Carolina, Montana, and Virginia. These findings suggest that regions that do not use PRB coal are likely to have higher than average electricity rates
PRB coal plays an important role in maintaining this industrial leadership and the export capability of the U.S economy
Summary
Energy is a key factor in economic development, transforming agrarian societies to modern industrial ones. The emergence from poverty begins as countries develop transportation systems using petroleum and electricity networks, often based upon coal These technologies are capable of achieving massive economies of scale that provide large amounts of energy at low cost. Lower electricity costs encourage the adoption of advanced electricityusing technologies that reduce the direct use of fossil fuels and increase end-use energy efficiency in a wide range of applications These technologies augment productivity growth, which is the key driver for higher per capita income and wealth. The results reveal that electricity rates would increase substantially While such a switch is unlikely for a variety of economic and political reasons, this exercise illustrates the opportunity cost of not using PRB coal and, its value to the U.S economy. The paper discusses the challenges and opportunities for the utilization of PRB coal before the concluding section
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