Helpful Thoughts About Coal

Coal is a dead man walking

                                      -Kevin Parker (Deutsche Bank Executive)

Well, I don’t know about that, Kevin. On a billboard greeting travellers at the airport in Ranchi (India), the capital of the Indian state of Jharkhand, ‘Welcome to the Land of Coal’ is present in block letters, and in case you are seriously curious you will not have any difficulty finding someone influential in that country to proclaim that coal is the way to go, and such will be the case for many years in the future. India needs more coal, and apparently will continue to need it in order to maintain the momentum of economic development. Moreover, in the International Energy Agency (IEA) World Energy Outlook for 2011, it was easy for my students to detect and comment on a pronounced failure of aggregate coal  output to match the accelerating demand.

In the film ‘The Formula’, Marlon Brando informs a Swiss colleague that, “Today it’s coal. In ten years it will be gold”. As owner of a large part of the hard coal deposits in the U.S., as well as a superior process for producing synthetic oil from coal, the Brando character may well have known what he was talking about. Of course his time frame was very likely wrong: it wouldn’t be ten years, but several decades before the billions of dollars started to roll in, although in terms of historical time it hardly makes a difference. Besides, in showing that they know something meaningful about the future importance and use of coal, the writers, directors, producers, and maybe even the actors involved with this film gave the impression that they were better informed about coal than many (and perhaps most) energy economists.

I’m sure that my opinion of Hollywood is similar to that often expressed by Mr Brando in his more articulate off-screen moments, but one thing the movie decision-makers must be given credit for is that they understand the way that some political and industrial celebrities take care of real business:  hypocrisy, public relations, bribes and taking advantage of the naiveté of drowsy voters. If you study game theory, an introductory course might emphasize players, payoffs, and strategy, but more comprehensive game theory literature pays particular attention to information, and in particular incomplete information, which is a condition in which some players can have access to very important information which is not in the public domain. As David Lloyd-George, prime minister of England during the First World War, said of the general public at one particularly traumatic point during that struggle: “Of course they don’t know – how could they know.” What he didn’t say was that this arrangement suited him perfectly.

As I often mention when the subject is coal,  the largest Swedish utility, Vattenfall, is/was building a pilot coal-burning installation in Germany in which CO2 emissions into the atmosphere are supposedly close to zero. This facility of 30 megawatts – as compared to a thousand megawatts for most new nuclear (and probably some coal) installations – may not be ready to be evaluated for perhaps ten years. If the news is good, a 250 megawatt demonstration plant will ostensibly be constructed. In other words, the (unspoken) intention was that the financing of these new, quantitatively inconsequential  installations, will not interfere with the bonus program initiated some years ago by Vattenfall, and just as important, will not interfere with the flow of cash to the owners of Vattenfall. Among these owners we find the Swedish Government, who need this money to pay their dues to perhaps the most grandiose parasitical organization in the industrial world, which is the European Union (EU).  Exactly what contribution these efforts will have to the reduction of ‘greenhouse gases’ remains to be seen – although, in all fairness, it may turn out to have a great deal if admirers and taxpayers are prepared to wait a few decades – or even to mid-century –  to judge the results.

Now  for the statement by Mr Parker at the top of this note. It so happens that in the U.S. in the two years 2009-2010, construction was not commenced on a single coal fired power plant, and  coal use (= 498 million tons oil equivalent in 2009) showed an 8% decline since 2000. But in India (and also China) the dead man was (and is) in wonderful health, as indicated in the opening paragraphs of this contribution. 

Please make an effort to believe that it is also in good health in Denmark, the Promised Land of Wind Energy, although e.g. many office holders, bureaucrats, busybodies  and amateur energy economists believe that coal’s day is over, and it is time to move on to something else. As they are almost certain to find out, the truth is that there is no something else where this issue is concerned: globally, the demand for energy continues to increase, and there is too much energy in coal for the remainder of that resource to be cast aside like clothes or shoes that have gone out of fashion.

A former Swedish prime minister called nuclear energy “obsolete”, and the present U.S. president apparently has similar thoughts about coal, but the objective macroeconomic situation in the world economy is going to change many minds in the U.S. and elsewhere, and perhaps sooner rather than later. Without adequate energy, the competitive strength of the U.S. economy could be drastically weakened, and since this is well known to many (but not all) decision makers and their advisers, coal will remain a major producer of electric power in the U.S. and elsewhere for the foreseeable future.

And not just electric power. In the book ‘The Global Economy’ (1993), we were told that “oil and gas will probably be exhausted first, after which coal will increasingly be converted into liquid and gaseous fuels until it too is used up.” I won’t bother to go into the details of that process here, but I hope that Senator Lisa Murkowski – a future boss of the U.S. Senate Energy Committee – is made aware that the exhaustion of liquid and gaseous fuels will take place long before the music commences at the New Year’s Eve parties welcoming the 22nd Century into a world that might contain ten billion persons or more. Accordingly, the experts who assured her and ‘similar spirits’ that other than a paltry export of U.S. oil and gas made economic and political sense, now or later, may have lost the plot! In fact, a sharp limitation of the exports of energy (or exhaustible energy resources like oil and natural gas) should become part of the culture, and not just for the U.S.

In economics there are many trivialities, and I am genuinely afraid that many colleagues and their students remain too occupied with these trivialities and esoteric analyses to obtain the information they might need about important topics like energy economics. The argument being presented above is that sooner or later there is going to be a huge increase in the use of coal, with much of this increase taking place in countries where coal use is presently condemned, and what happens as a result of this situation is left for students, teachers, and interested readers of the energy economics literature to investigate as soon as possible, and to make their findings as widely known as possible. 


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