The coal industry may be a ticking time bomb for energy investors, power companies, and taxpayers, says a new report entitled “Don’t Get Burned: The Risks of Investing in New Coal-Fired Generating Facilities.” Prepared for the Interfaith Center on Corporate Responsibility, an international coalition of 275 faith-based institutional investors, by Synapse Energy Economics, Inc, the report warns against Bush’s proposal to grant $8 billion in subsidies to coal, and opposes the roughly 130 new US coal-fired power plants slated for construction over the next two decades. Michael Dworkin, director of University of Vermont Law School’s Institute for Energy and the Environment, wrote a foreword for the report. Dworkin helped present the report to security generals, investors, and members of the media in New York this February at a briefing for the New York Society of Security Analysts. Plenty caught up with him, to discuss coal’s potentially bleak horizons.
What risks does coal-industry growth pose for American taxpayers?
There are two, maybe three kinds of risk here. One is that there will be a lot of money lost. Another is that there will be significant harm to the climate because of carbon emissions. A third is that other environmental harms will result from increased coal combustion. That includes mercury, asthma, tuberculosis, and other problems associated with lung diseases. Most high carbon coals have a lot of mercury within them, so when it’s burned, the mercury is released in the atmosphere. In fact, the major source of mercury in the air is the combustion of coal for fossil-fired plants.
Is carbon regulation the main reason the report calls coal a risky investment from here on out?
Carbon regulation is the biggest and most obvious factor, but not the only one. The rising costs of plant construction and coal transportation are also a major factor: New cost estimates are far higher than the old cost estimates. Coal-fired power plants were expected to cost approximately $1 billion apiece to build, but the big ones are costing closer to $3 billion apiece. Early cost estimates looked at what would happen if each plant was built by itself, but if we build dozens at a time, the competition for engineers and steel and concrete becomes very acute. So there’s major international competition going on.
In terms of fuel price, a lot of these plants are being built because people estimated that the price of coal would be relatively low for years to come, but coal prices today are about twice what they were two years ago. And US coal is now being sold overseas—put on ships and taken to markets that really need it and are willing to bid a higher price than we’ve been used to seeing. That’s a problem especially because when analysts predict that these plants are cost-effective, they’re assuming 30-50 years to pay off the bonds raised to construct them. In other words, the plants only make sense if you think that the fuel will be accessible for the next 40-50 years.
Finally, the railroads needed to get coal from mines to power plants are already overloaded—they’re operating at over 90 percent capacity. We don’t have the rail system in place to carry all the coal that would be needed to build 60 or 80 new power plants, and building those railways is going to be very expensive.
A main thrust of the report is that coal will experience a downfall similar to the one nuclear power saw in the 1970’s. Wouldn’t critics argue that nuclear power has since recovered, and that coal could do the same, especially with Carbon Capture and Storage (CCS) technologies?
Nuclear power recovered only after a great many investors lost a great deal of money. Something like $35 billion was written off. Several dozen nuclear power plants were cancelled—they just stopped halfway through building them. If you’re a coal investor, the odds that your plant will be one of the casualties are a lot higher than people have been saying.
I see CCS happening in 15 years, with the cost of it being as much as one-third of the total cost of running a power plant. The plants being built today should set that money aside now instead of saying they’ll come up with the money in a decade.
With carbon regulation on the horizon, do you feel that enough young lawyers are going into environmental law?
Worldwide, energy problems have been dealt with either by soldiers or by lawyers. Lawyers are better. I prefer solving problems with law than with combat.
Story by Tobin Hack. This article originally appeared in "Plenty" in April 2008.