David R. Henderson  

The End of British Coal

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I was going through my pile of unread Wall Street Journals over the weekend and found this news story: Scott Patterson, "End of an Era: England Closes Its Last Deep Coal Mine," December 11, 2015.

Here's one key paragraph:

The last deep-pit coal mine in the U.K. plans to shut its doors here next week, heralding the end of a centuries-old industry that helped fuel the industrial revolution and build the British Empire.

Patterson continues:
The shutdown, targeted for next Friday, represents a victory for advocates of reducing carbon emissions after world leaders gathered in Paris to discuss how to combat global warming, with coal in the cross hairs. It also reflects a glut of energy on world markets, from crude oil to natural gas and coal itself.

As he continues, though, Patterson notes that a large part of the reason, besides the decline in demand for coal, is the availability of cheaper coal imports:
The U.K. already imports most of the coal that fuels its power plants, with imports first surpassing local production in 2001. Russia has been the biggest beneficiary of the U.K.'s increased appetite for imported coal, providing 46% of its thermal coal in 2014, according to the U.K. government. Coal supplies roughly one-third of the energy for electricity generation in the U.K., with natural gas and renewable sources making up the rest.

Kellingley, operated by U.K. Coal, is the victim of vast market forces that have pushed prices for thermal coal--the kind used to fuel power plants--to their lowest level in ​more than nine years at $45.10 a metric ton, according Rotterdam coal futures traded on the Intercontinental Exchange. It costs Kellingley about $65 to produce a ton of coal, compared with $45 a ton for imported coal, a company official said.


Students of the history of economic thought will find this interesting because one of the giants in 19th century thinking, one of three contributors to the "Marginal Revolution" of the late 20th century, was Stanley Jevons. Jevons wrote a book called The Coal Question. Here's what I wrote about that book in his bio in The Concise Encyclopedia of Economics:
Jevons put much less thought into the production side of economics. It is ironic, therefore, that he became famous in Britain for his book The Coal Question, in which he wrote that Britain's industrial vitality depended on coal and, therefore, would decline as that resource was exhausted. As coal reserves ran out, he wrote, the price of coal would rise. This would make it feasible for producers to extract coal from poorer or deeper seams. He also argued that America would rise to become an industrial superpower. Although his forecast was right for both Britain and America, and he was right about the incentive to mine more costly seams, he was almost surely wrong that the main factor was the cost of coal. Jevons failed to appreciate the fact that as the price of an energy source rises, entrepreneurs have a strong incentive to invent, develop, and produce alternate sources. In particular, he did not anticipate oil or natural gas. Also, he did not take account of the incentive, as the price of coal rose, to use it more efficiently or to develop technology that brought down the cost of discovering and mining (see natural resources).

Here's what Jevons said in Chapter XIII of The Coal Question, "Of the Export and Import of Coal":
XIII.1
IT has been suggested by many random thinkers that when our coal is done here, we may import it as we import so many other raw materials from abroad. "I can conceive," says one writer, "the coal-fields of this country so far exhausted, that the daughter in her maturity shall be able to pay back to the mother more than she herself received. May we not look forward to a time when those 'water-lanes' which both dissever and unite the old and new world, shall be trod by keels laden with the coal produce of America for the ports of Britain? and in such a traffic there will be abundant use for vessels as capacious and swift as the Great Eastern."

XIII.2
I am sorry to say that the least acquaintance with the principles of trade, and the particular circumstances of our trade, furnishes a complete negative to all such notions. While the export of coal is a vast and growing branch of our trade, a reversal of the trade, and a future return current of coal, is a commercial impossibility and absurdity. (italics his)


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COMMENTS (7 to date)
JK Brown writes:

Coal, the original alternative energy. Most never consider what the world would be like if we humans had continued with wood as our primary fuel source.

Europe’s first true “wood crisis” occurred in the late 12th century as a bit of collateral damage from a Christian crusade to destroy the continent’s tree-rich sanctuaries of pagan worship and open up enough farmland to make possible the European population explosion of the following centuries. A lot more Europeans meant a lot more wooden carts, wooden houses, and wooden ships. It also meant a lot more wood for the charcoal to fuel iron smelters, since smelting one pound of iron required the charcoal produced by burning nearly eight cubic feet of wood. By 1230, England had cut down so many trees for construction and for fuel that it was importing most of its timber from Scandinavia, and turned to what would then have been called an alternative energy source: Coal.
--William Rosen, 'The Most Powerful Idea in the World
Charley Hooper writes:

I'm continually amazed at how many "experts" have made incorrect predictions.

"I confess that in 1901 I said to my brother Orville that man would not fly for fifty years. Two years later we ourselves made flights. This demonstration of my impotence as a prophet gave me such a shock that ever since I have distrusted myself and avoided all predictions."
-- Wilbur Wright in a speech to the Aero Club of France, 1908

jw writes:

American coal is not far behind, having been regulated into bankruptcy by Obama's EPA.

No matter. Like ANWAR, all of this green nonsense is merely disincentivizing the use of US energy reserves. When other countries actually do exhaust their reserves and the US is cold and the economy is grinding to a halt due to lack of energy, those green policies will be abandoned in a heartbeat.

The physics behind solar, wind, and other alternatives simply doesn't add up. Unless there are yet to be conceived of major breakthroughs, we will continue to be a carbon driven planetary economy indefinitely. Since there is at least a century of oil and centuries of coal, I am not foolish enough to make any predictions as to timing, but eventually things will get interesting.

Until then (or until we regain or senses), we will simply pay a wasted premium for energy based on poor "science".

Sridhar Loke writes:
The shutdown, targeted for next Friday, represents a victory for advocates of reducing carbon emissions after world leaders gathered in Paris to discuss how to combat global warming, with coal in the cross hairs...

None of the information provided points to reduction in coal consumption. Just market pressures moving production of coal to different parts of the globe. How is this a victory for the so called advocates?

David R. Henderson writes:

@Sridhar Loke,
Good catch. I caught it too, which is why my “though” after the second quote, which was probably too weak a way of countering. I, instead, wanted to focus on what I focused on. But, as I say, good catch.

Mark Bahner writes:
American coal is not far behind, having been regulated into bankruptcy by Obama's EPA.

Even if a coal-fired power plant meets all U.S. EPA requirements for: 1) mercury and air toxics, 2) sulfur dioxide, 3) nitrogen oxides, and 4) particulate matter (including PM, PM10, and PM2.5) it's still a much greater source of all those air pollutants per megawatt-hour of electricity generated than other forms of electricity. Plus, a great deal of coal comes from federal lands, where less-than-market prices are paid for the coal. So that's still a lot of externalities for which coal-fired power plants are not paying. If they paid for all their externalities, coal-fired power would probably be very expensive.

When other countries actually do exhaust their reserves...

Per the excellent observations of Dave Rutledge and others, coal reserves are essentially *never* 100% used. In fact, the average percentage of estimated reserves of coal used is less than 33%, with 50% or more of reserves almost never used.

Coal and the IPCC (RCP 8.5 = nonsense)

From that reference:

On the other hand, for coal the pattern has been that countries produce only a small fraction of their early reserves, and then late in the production cycle the reserves drop to match the coal at the last working mines. This pattern is seen in the UK (cumulative production of 19% of early reserves), Pennsylvania anthracite (42%), the Ruhr Valley (14%), France and Belgium (23%), and Japan and South Korea (21%). This means that the reserves criteria have been too optimistic...
The physics behind solar, wind, and other alternatives simply doesn't add up. Unless there are yet to be conceived of major breakthroughs, we will continue to be a carbon driven planetary economy indefinitely.

Electricity prices for wind and solar are falling rapidly. I predict that the last coal-fired electric power plant in the U.S.--note that the average age of the 290 coal-fired power plants in the U.S. is now 38 years--will shut down by mid-century.

Mark Bahner writes:

New prediction: :-)

I was probably too aggressive in predicting that the last of the remaining ~290 coal-fired utility power plants will shut down by mid-century. But I will predict that fewer than 50 will be left.

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