Building Montana Economy Around Coal Exports Not a Productive Strategy

Coal demand, like all economic demand, is not a fixed immutable number

By Thomas M. Power & Donovan S. Power

State Sen. Alan Olson in his recent guest column on coal exports (Sept. 10 Beacon: “Asian Coal Demand Will be Supplied, Why Not by Us?”) talks a lot about how powerful the “free market” is in motivating businesses to supply existing demands. In the process he makes the same erroneous assertions that coal companies have made about the impact of opening Asian markets to massive shipments of Montana and Wyoming Powder River Basin coal.

According to the coal companies and Olson, Asian demand for coal will increase at a pre-set high rate no matter what because the energy needs of billions of Asians have to be met. If Montana coal does not help meet that demand, then Canadian coal or coal from other countries will. Because of that, whether Montana coal is exported or not, we are told, the same amount of coal will be burned worldwide.

That is not how markets work. Coal demand, like all economic demand, is not a fixed immutable number. It is strongly affected by price. “Free markets” are built around suppliers competing with each other to serve demand. That competition involves alternative coal suppliers seeking to undercut each other by offering a somewhat lower price or a type of coal that can be used at a lower cost. Montana coal would have to successfully compete not only with Canadian coal but also other U.S. coal sources, Chinese domestic coal and coal from Australia, Indonesia, Mongolia, and Russia, to name a few.

Olson’s enthusiasm for the “free market” is shared by most economists because competition among suppliers tends to drive down the price that customers have to pay for products, including coal. Lower coal costs, however, will encourage higher levels of coal consumption and reduced investments to improve energy efficiency. Coal-fired electric generators have extremely long lives. New coal-burning generators brought on line now and in the near future, partially because of lower coal prices, represent a 50-plus-year commitment to burning coal.

The Powder River Basin is the source of one of the largest and cheapest coal resources in the world. The net impact of joining other American and foreign coal suppliers in a competitive free-for-all in Asia will not be zero. Carbon pollution levels from the burning of coal will rise above what they otherwise would have been.

Senator Olson sees an incredible boom in jobs and payroll for Montana in the coal industry. He promises that “we’ll add literally thousands of new, high-wage jobs in our state.” But the number of workers employed in coal mining in Montana in 2013 was approximately 1,200. That was about the same as the number of Montanans employed in coal mining 35 years ago. Over that time period, however, annual coal production in Montana rose 50 percent, from about 30 million tons per year to about 45 million tons in 2008 before the Great Recession struck the economy.

That relatively static number of coal mining jobs in Montana can be contrasted with the ongoing growth in total Montana jobs. Currently there are about 650,000 jobs in the Montana economy, 250,000 more than there were in 1980. That is a 63 percent increase, a quarter of a million new jobs added to the Montana economy while coal mining jobs hardly increased at all despite significant increases in Montana coal production. Those 1,200 coal mining jobs currently represent two-tenths of one percent of total Montana jobs. Olson would have Montana hitch its economic future to this non-growing slim reed and turn its back on the industries that have been the actual source of job growth in Montana. In the process, Olson would have the nation walk away from any effort to slow or reduce the carbon pollution unavoidably associated with the burning of coal. That is not a positive strategy for either Montana or the world.

Thomas M. Power
Professor Emeritus in the Economics Department University of Montana

Donovan S. Power
Geologist and Principal in Power Consulting, Inc. Missoula

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