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The Enormous Social Cost of Cheap Coal

Air pollution from coal prematurely kills millions of people each year. And there’s an obvious fix.

Steam billows from the coal-fired Merrimack Station in Bow, New Hampshire, in early 2015. (AP Photo/Jim Cole)

On Wednesday, a global research team reported in the top-tier scientific journal Nature that air pollution prematurely kills about 3.3 million people a year around the world. In the U.S., the annual toll approaches 55,000 deaths—with power plant emissions the leading contributor. And by 2050, in the absence of any major changes, those mortality figures are expected to double.

When it comes to energy-related emissions capable of killing human beings, the main culprit is coal. For decades, oil wore that crown of carbon, but in the early 2000s coal became the greatest fossil fuel emitter, and hasn’t looked back. As a recent chart from the journal PNAS shows, the trajectories of oil and coal as shares of total global emissions are moving in opposite directions:

The share of emissions from various fossil fuel energy sources over time. (PNAS)

In a new essay published in another top scientific journal, Science, Ottmar Edenhofer of the Berlin-based Mercator Research Institute on Global Commons and Climate Change offers a strikingly simple reason for “the renaissance of coal”: it’s too cheap.

The “right” price on a resource is often a matter of perspective. To consumers and energy providers, cheap coal might seem like a good thing. Wind- and solar-based power can cost $70 or $80 per megawatt-hour to generate, respectively, because companies need to supplement these clean options when it’s not breezy or sunny, according to Edenhofer. Meanwhile coal goes for $50 a megawatt-hour, keeping energy bills nice and low and profit margins nice and high.

Trouble is, that price fails to reflect the social costs that coal imposes on our general welfare—costs that take the form of things like 3.3 million premature deaths from air pollution. Economists like to call these types of costs “externalities,” but you can also think about them as subsidies or discounts. So from the perspective of society at large, or from officials who take their charge of maintaining public health seriously, the “right” price of coal should be far higher.

Just how much higher? That’s not an easy question to answer, but earlier this year the International Monetary Fund ventured a (highly educated) guess. IMF estimated “post-tax” energy subsidies—meaning, unpriced externalities like air pollution—at upwards of $5.3 trillion in 2015, or about 6.5 percent of global GDP. The bulk of that subsidy, at nearly 4 percent of GDP by itself, comes from coal:

Global pre- and post-tax energy subsidies by resource, 2011-15. (IMF)

A closer look at coal, found in the IMF chart below, traces the bulk of that bulk to the social costs of local air pollution. In this case, a failure to charge for the health impact of those emissions accounts for three-quarters of the subsidy that keeps coal so cheap (at least, in 2013). “[C]oal is the most carbon-intensive and air-pollution intensive energy product (per unit of energy),” writes IMF, “yet no country really imposes meaningful taxes on coal use from an environmental perspective.”

Global post-tax subsidy components, by energy source, 2013. (“Other” factors, which include things like congestion and car crashes, only apply to petroleum.) (IMF)

There’s reason to believe the benefits of imposing such taxes on energy would be nearly as enormous as the costs they currently exact. IMF estimates the global revenue would amount to some $3 trillion—enabling governments to invest in alternative resources and resolve many deficits in basic provisions and infrastructure. Eliminating energy subsidies would also lead to a global drop in carbon emissions of 20 percent, and cut premature air pollution deaths in half.

The environmental gain from eliminating energy subsidies, 2013. (Regional key: CIS = Commonwealth of Independent States; ED Asia = Emerging and Developing Asia, LAC = Latin America and the Caribbean; MENAP = Middle East, North Africa, Afghanistan, and Pakistan.) (IMF)

But when it comes to coal in particular, Edenhofer argues in Science, the “window of opportunity for successful price reform is rapidly closing”:

As many quickly growing countries continue to invest in coal-fired plants, they lock in carbon-intensive infrastructure, which substantially increases the costs of future emission reductions. Getting prices right before this infrastructure is built is essential. If the opportunity to correct the distortion in fossil fuel pricing is missed, climate policy is in peril.

The hidden cost of coal-reliance, like that of car-reliance, requires an uncomfortable reckoning. High taxes on common goods have consequences, and in the short-term, some of these effects would be painful—namely, higher electricity bills for consumers, and cutbacks for companies. But society as a whole would get something for its money, in the form of a healthier world.

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