As debate on the nation’s energy and environmental policy continues in Washington, coal lobbyists weighed in with a study showing that coal production and generation is responsible for between $163 and $659 billion in increased economic output in the U.S.

The study, Projected Economic Impacts of U.S. Coal Production and Utilization, examined the impact of coal-generated electricity on state economies in the continental United States. Most of the economic benefits derive from the extraordinary interdependence of the U.S. economy, and the fact that coal fuels half the power in the country, it said. Coal-based electricity produces powerful ripple effects that benefit the American economy as a whole. The study also compares the economic effects of coal-power, versus the use of “a higher cost fuel” such as natural gas.

The study was conducted by Dr. Adam Rose and Bo Yang, economists at Penn State University, for the Center for Economic and Energy Development, an organization of coal producers, utilities and suppliers to the coal industry.

This latest salvo on behalf of the coal industry comes as the Republican-led Environmental Protection Agency (EPA) prepares a report on potential changes to the New Source Review (NSR) program of the Clean Air Act. The Bush administration appears to be moving to moderate charges of NSR violations made by the Clinton administration against a number of coal-burning utilities. Clinton’s EPA claimed the utilities had made significant modifications to their power plants without complying with the NRS rules that require them to make major environmental improvements in conjunction with other upgrades. The dispute lies in what is considered a significant modification as opposed to maintenance-related activities.

The Justice Department recently backed the EPA’s actions against a large number of dirty coal and oil-burning power plants and oil refineries (see Daily GPI, Jan. 16). DOJ, which had called a temporary halt to EPA enforcement against the facilities after President Bush took office, said it had determined after all that the EPA enforcement actions are consistent with the Clean Air Act, and ongoing prosecutions should proceed.

While the DOJ ruling appeared to go against the coal industry, the National Coal Council recently pointed out in a letter to its members that the DOJ order suggested that while the lawsuits could continue, preliminary settlements could be approved “in line with anticipated NSR policy changes.” In addition, the ruling specifically stated it was not intended to apply to future cases, and coal interests believe the language in the DOJ ruling doesn’t endorse the interpretation necessary for EPA to win out in the court cases against the utilities.

Rose and Yang used certain economic assumptions to present their findings. In the first instance, the study assumes varying levels of “linkage” (maximum versus minimum) between the coal-based electricity industry and other sectors of the economy. The linkage variable measures the degree to which coal-based electricity produces ripple effects that benefit other industries and sectors. These data are then refined by taking into account the economic effects of using a higher-cost fuel (in this case, natural gas) as a substitute for low-cost coal. By factoring in these substitution costs, the study shows how coal’s economic advantages are even greater when considering the costs of using a more expensive alternative fuel. The year 2010 was selected for modeling because regulatory programs aimed at displacing coal would need to be implemented over time.

Because reliance on coal as a fuel source for generating electricity varies from region to region, the economic benefits are not evenly spread across the nation. The economic advantages for coal-producing states are evident. More surprising, however, are the economic benefits realized by states that do not produce coal, but use it as a primary fuel for electricity generation.

The study concludes that coal-based electricity will result in substantial economic benefits for large and small states alike. For example, Illinois, Indiana, Ohio, Texas and Pennsylvania each stand to gain from $21 billion to $32 billion in increased economic output. Smaller states also share in the advantages, with New Hampshire, Connecticut, Oregon and South Dakota each projected to gain from $560 million to $720 million in expanded output.

“This new analysis proves what we have known for a long time,” said Stephen L. Miller, CEO of the Center for Energy and Economic Development (CEED). “Electricity from coal provides economic empowerment to local communities, small businesses, and working families.”

According to Miller, the study provides an additional level of details relative to the ongoing national energy policy debate. “Despite electricity from coal’s low cost and improving environmental performance, some special interest groups still believe we should abandon this abundant domestic energy resource. The Rose/Yang study provides additional empirical proof that coal- based electricity is an essential element of a balanced energy portfolio that increases energy security and provides economic empowerment for American families,” said Miller.

Dr. William A. Schaffer, professor and former chairman of the Department of Economics at Georgia Institute of Technology and one of the preeminent experts in state and regional input-output modeling, peer-reviewed the Rose/Yang study. According to Schaffer, the demand-driven multipliers used in the PSU study are well-tested in the literature and provide a solid estimate of the impact of coal on incomes in the rest of the economy. In his final peer review, Dr. Schaffer said, “(T)he study represents an impressive and massive combination of data, analytic techniques, and modeling to address a large and significant problem. The authors are to be congratulated on their boldness in arriving at what seems to be a most reasonable impact statement.”

For a complete copy of the study or more information, visit www.CEEDNet.org or call (703) 684-6292.

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