Keeping Coal in the Ground, or, Sequestering Carbon Before It’s Burned

The following is a very rough draft of an idea I’ve been discussing on twitter, posted here for reference and continued conversation. I’ll eventually clean it up and put it on my own site.

I am a carbon mitigation skeptic. That is, I doubt the social and technological tools at our disposal can avert the next hundred years of likely anthropogenic climate change. Without a breakthrough in energy production, free CO2 capture, or both, atmospheric concentrations of CO2 will remain high enough to continue to force global warming.

Despite the optimistic claims of the pro-mitigation establishment, as represented by the International Panel on Climate Change, the climate problem is, at the moment, an insoluble one. That is, we don’t yet know the means by which we will stabilize and reduce atmospheric CO2. Global demand for inexpensive energy, especially in the developing economies where coal is essential to continued growth, will continue to outpace our supply of non-fossil sources, which is why neither China nor India is likely to implement carbon constraints in the forseeable future. As long as coal remains cheap—-as long as its price excludes the externalities of carbon pollution—-utilities will continue to use it rather than gas or nuclear power for electric generation.

Mainstream proposals make unreasonable assumptions about the likelihood of aligning global incentives or encouraging technological investment in renewable energy sources. Plans that attempt to reconcile carbon abatement with the inevitable continued use of coal are especially weak on this point. A 2007 interdisciplinary study published by MIT, for example, endorses carbon capture and storage (CCS) as the most promising way to reduce emissions from new coal-fired power plants overseas, and insists that any new plants be built with CCS. Even if the U.S. could, as the report recommends, encourage developing nations to test and implement CCS, this would only improve the emissions from newly constructed facilities, and the parasitic load of capture equipment would require more coal to be burned to produce each unit of output. Even a high-profile study from a flagship American institution advises little more than a program of wishful thinking with meager results.

An energy-efficient system minimizes the number of state changes through which the energy must pass. An elegant policy solution to CO2 emissions will similarly operate in as direct a manner as possible. Reducing carbon by burning coal to power a device to strip CO2 from flue gas makes no sense to anyone without a direct interest in promoting such boondoggles (like this writer, a few years ago).

The ideal solution to carbon pollution is a zero-carbon energy source cheaper than fossil fuels. In the absence of such a technology, the developed economies have tried to price CO2-related externalities into the market cost of coal, oil, and natural gas, in hopes that alternatives would become less expensive in comparison. Because coal is more carbon-intensive than natural gas or petroleum, it is the fuel source most sensitive to the imposition of carbon-based penalties, and offers the greatest potential for single-source carbon reduction. None of the various attempts to reduce CO2 emissions, such as a carbon tax or a credit trading market, have been successful, in part because advocates have shifted their efforts among several strategies, allowing their opportunistic opponents to shoot down each weakly-defended idea one at a time. The U.S. carbon abatement community lacks a clear focal point toward which its policy efforts can be coherently directed.

So, as my gift to America’s environmental policy entrepreneurs, here’s a proposal that focuses on the fuel source and sector with the greatest potential for incremental carbon abatement, could reduce emissions by about 40 percent of the reduction that a full switch to low-carbon resources would accomplish, uses currently available technology, does not require unrealistic levels of international cooperation, does not create artificial markets in ephemeral government-enforced carbon credits, and can be financed with federal debt spending, rather than by a distributed tax on energy consumers. Its only major counterfactual assumption is the political will to pay for averting carbon emissions with an enormous lump of debt spending, but I’m going to assume that particular can opener for the sake of argument. A preference for carbon reduction is concentrated among the political elite, so the least-impossible solution would be one that exploits the tools available to the US’s permanent government (regulation and deficit spending), rather than one that assume popular acceptance of higher energy costs.

The Proposal

The U.S. government should borrow {$x} from citizens of the year 2120 and use the funds to buy up mineral rights to the country’s abundant coal resources, beginning with the most economically viable reserves and continuing down the supply curve until the spot price for coal meets that of natural gas. The purchased reserves would be placed off-limits to extraction in perpetuity. Since the U.S. contains the largest share of the world’s coal reserves, and exported 126 million tons in 2012, domestic market shifts could cause natural gas and renewable energy sources to become more competitive with coal on a global basis without the need for internationally binding agreements. Additionally, because coal deposits are so widely distributed, this policy is one that could be reproduced and extended by other coal-producing nations where policy elites endorse carbon mitigation.

Replacing coal-fired electric generation with natural gas builds on an existing trend: thanks to the shale gas boom and recent regulations restricting coal, the shift from coal to natural gas is already underway in the U.S. Additional regulations, like treating power plant ash as a hazardous waste, or the monitoring and control of mercury emissions, are likely to nudge the relative price of coal higher still. Since natural gas has about half the carbon content of coal per unit of energy, the switch to gas reduces the country’s carbon intensity, allowing us to generate the same amount of economic output for fewer tons of CO2. There’s nothing innately irreversible about this; natural gas prices could rebound and coal could regin some of its lost market share. A government-induced shock to coal prices, though, could lock in this domestic shift, perhaps permanently.

Financing the buyout

For the purposes of this proposal, I am assuming that the intermittent and perpetually-deferred political impetus for action on climate change can somehow be converted to a pool of debt-funded federal spending. If the damage from climate change is as severe as the establishment consensus argues, future Americans will not begrudge us this investment.

This is, of course, a rhetorical cop-out, but it’s worth considering which financial resources are most closely associated with a political interest in mitigating carbon emissions. The fact that a carbon tax would fall on those who emit the most carbon is both an obvious advantage to such a tax and the source of its fatal political opposition. The same pundits and politicians who support carbon mitigation, though, also enjoy an extremely high tolerance for public debt expenditures, so a debt-financed solution to carbon emissions would align these two broadly congruent preferences.

Coalitions, for and against

Buying up prime coal reserves and rendering them off-limits to mining would cut the coal industry off at the knees. This is a feature of any meaningful carbon abatement plan, though, since CCS is both unproven and expensive. A tough regulatory environment would prepare the battlefield by whittling away at the domestic market, so my proposed buyout would look, in comparison, like a more graceful exit for coal owners.

Natural gas producers would stand to gain, as would the holders of those coal reserves left on the open market, at lest in the near term.

Obstacles and Complications

Increasing the market price of coal increases the economically recoverable reserve base. Technological progress that lowers the cost of mining could undercut the government-bid price, and mining companies could leapfrog over the off-market reserves to previously less accessible deposits.

Gas prices are volatile, and could become higher than coal if the unconventional gas boom dies out.

Suggest other problems.

Macroeconomic Implications

What would be the macro implications?

Ballpark Numbers

How much money would this take? How much would it move prices?

Updates:

7/3/2013 Updated 2012 export number, added some questions to the last two sections

Notes

  1. mwfrost posted this