The geology part of classifying coal as reserves is a lot of work, but it’s doable — with enough drilling logs and other data, you can determine where the coal is, how much of it there is, and its general quality. Once you’ve got that concrete geologic understanding, it’s unlikely to change drastically — it might be refined modestly over time, maybe increasing as mining technology improves… but if you’ve done the work well, you’re probably not going to suddenly discover that 90% or 99% of the coal you thought was there actually isn’t.
The economic part part of classifying coal as reserves is fundamentally different, and more changeable with time, because market conditions change much more quickly than geology! I think the experiences of the UK and Germany are particularly interesting, because they were both early large coal producers, part of the first wave of fossil fueled industrialization. They’re extremely mature hard coal mining provinces that have fallen off their peak production dramatically — they’re ahead of the curve that most of the rest of the world is still on.
The drastic downward revisions that both the UK and Germany made were due to changes in economic policies and domestic politics — not geology. Both nations historically had strong labor interests tied to coal mining, and the desire (like most nations) to maintain an indigenous energy supply. But as the cost of supporting the industry grew and its productivity fell, the political logic of maintaining the illusion of a viable coal-based energy system faded away. In Germany, it seems likely that popular support for the nation’s ambitious Energy Transition made it easier for the nation to face up to geologic reality. In the UK the politics seem to have been influenced by the Thatcher government’s desire to privatize previously nationalized industries like coal mining, as well as the discovery of massive offshore natural gas reserves in the North Sea. In both cases the “proven reserve” numbers appear to have vastly overstated to begin with, but the political desire to support the industry and maintain the illusion of long-term energy independence was a powerful incentive to ignore the geologic reality.
However, in the end, geology wins.
Where are we headed?
The EIA’s admission that we have not, as a nation, officially and transparently evaluated the economics of extracting our vast coal resources opens the topic up for discussion. The economic and political forces at work today in the US may be different than they were in 1980s Britain, or early 2000s Germany, but they’re pushing in the same direction. A powerful incumbent coal industry is weakening both financially and politically — because of their own increasing production costs, low natural gas prices, flat electricity demand, plummeting renewable energy costs, and concerns about both traditional pollution and greenhouse gas emissions. This gives us the opportunity to re-evaluate our policies around them. What should we change?
We might start with ending the practice of soft pricing in uncompetitive BLM coal lease auctions, as laid out by the Government Accountability Office in February. However, by far our largest subsidy to the industry is our acceptance of the externalized costs they impose on us. A 2011 Harvard study (on which CEA co-founder Leslie Glustrom was a co-author) estimated these costs to be roughly $345 billion/year in the US — equivalent to adding $0.18/kWh of coal fired electricity (explore the study graphically, or see the full peer-reviewed paper).
Even if we ignored traditional environmental impacts and public health consequences, and just applied the modest $37/ton social cost of CO2 calculated by the US Office of Management and Budget, that would add roughly $60 to the cost of a ton of coal! With current PRB production costs in the neighborhood of $10/ton, and operating margins often less than $1/ton ($0.28/ton in the case of Arch last year), this — or even a smaller carbon price — would likely be a crushing blow to the fuel.
Given the current state of the industry, even without these “drastic” policy changes it’s possible that we are headed for our own major downward reserves revision. This isn’t “running out of coal”. Britain and Germany both still have enormous amounts of coal — it’s just not worth digging much of it out of the ground, given the available alternatives. It’s time to figure out whether we’re in the same boat, admit it to ourselves and the world if we are, and move on to the task of building real solutions.
Two Possibilities, One Course of Action
There’s an irony in all this, which is that regardless of whether we’re running short on economically recoverable coal, we need to expunge the fuel from our energy systems as quickly as possible in order to avoid catastrophic climate change. If the global reserves numbers reported by the WEC are accurate, then we need to leave 60-80% of those reserves in the ground. This was highlighted most famously by Bill McKibben in Rolling Stone in 2012, and implies that a huge fraction of the world’s fossil fuel assets are in fact worthless, unburnable carbon, and most of the world’s coal companies and unconventional hydrocarbon extraction projects are destined for bankruptcy. On the other hand, if the reserve numbers need to be revised downward because most of the listed coal isn’t economically extractable, then a lot of the coal industry’s supposedly bankable assets are worthless and the industry’s growth potential is seriously constrained.
In either case, the right thing to do is stop planning as if today’s coal plants are going to continue operating for much longer, figure out a way to take them offline, and replace them with cost-effective, low risk, zero-carbon generation resources and energy efficiency.
- US EIA on the Economics of Coal: No Comment
- A Long Time Coming: Revising US Coal Reserves
- In Good Company: A Brief History of Global Coal Reserve Revisions
- Coal Geology vs. Coal Economics & Politics