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Top Three Ways That American Taxpayers Subsidize Dirty Coal Development

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"Top Three Ways That American Taxpayers Subsidize Dirty Coal Development"

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by Jessica Goad and Stephen Lacey

Environmentalists and public health advocates often talk about the harmful “external” costs of coal that are not accounted for in its price.

Those externalities include damage to the local environment, threats to public health, and, of course, climate change.

In a study last year, Dr. Paul Epstein of the Center for Health and the Global Environment at Harvard Medical School attempted to quantify how harmful coal is:

Our comprehensive review finds that the best estimate for the total economically quantifiable costs, based on a conservative weighting of many of the study findings, amount to some $345.3 billion, adding close to 17.8¢/kWh of electricity generated from coal…. These and the more difficult to quantify externalities are borne by the general public.

While these costs are very real, the economic argument can still be abstract to people. So it’s helpful to look at more tangible ways the coal industry is being subsidized by the American taxpayer. Indeed, coal companies benefit from tax breaks, public land loopholes, and subsidized railroads that help them continue being “cheap.”

Below are a few examples of the kind of government support we give the coal industry.

1.  Tax breaks

Just as the oil and gas industry receives tens of billions of dollars in taxpayer subsidies, coal companies also receive preferential treatment from the Internal Revenue Service.  The Treasury Department estimates that eliminating just three tax preferences for coal would save $2.6 billion between 2013-2022:

Expensing of exploration and development costs:  Under current law, coal companies can expense costs incurred by locating coal ore deposits.

Percentage Depletion for Hard Mineral Fossil Fuels:  As the tax code currently stands, coal companies can claim a tax deduction to cover the costs of investments in mines.

Capital Gains Treatment for Royalties: Some coal royalties for private owners are treated as long-term capital gains, so they are taxed at a lower rate.

2.  Public land loopholes

According the Energy Information Administration, 43.2 percent of U.S. coal comes from public lands.  However, the coal industry benefits from a number of loopholes that make obtaining leases on public lands easier and cheaper.

For example, the nation’s largest coal producing region, the Powder River Basin in Wyoming, is not legally classified as a “coal-producing region.”  This means that coal tracts within it are rarely competitively leased, which shortchanges taxpayers for the value of the land and the coal underneath it.

Additionally, some have alleged that the non-public process by which the Bureau of Land Management determines fair market value for coal on public lands is flawed.  In a lengthy legal brief, Tom Sanzillo of the Institute for Energy Economics and Financial Analysis outlines how the value established by the government is much lower than would the market would command: “In the broader economic arena where coal is bought and sold, the FMV lease process does not capture the full value of the coal.”

3.  Subsidized railroads

Coal is the most important commodity transported on railroads in America.  As the Association of American Railroads describes, “In 2009, coal accounted for 47 percent of tonnage and 25 percent of revenue for U.S. railroads.”  U.S. railroads get loans and loan guarantees from government agencies like the Department of Transportation/Federal Railroad Administration and have received numerous tax incentives for investments in new infrastructure.

The relationship between coal and railroads becomes more important when considering coal exports. On Tuesday, the Associated Press reported that American coal exports have “surged” to the highest levels since 1991. A large portion of these exports are going to Asian countries, where coal use has exploded. This begs the question: are American taxpayers subsidizing the coal boom in countries like China, thus helping accelerate global warming at an even faster rate?

In the end, the taxpayer is paying more for coal than the industry would like you to believe.

Jessica is the Manager of Research and Outreach for American Progress’ Public Lands Project. Stephen Lacey is a blogger with Climate Progress.

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4 Responses to Top Three Ways That American Taxpayers Subsidize Dirty Coal Development

  1. “Expensing of exploration and development costs: Under current law, coal companies can expense costs incurred by locating coal ore deposits.”

    On this one, you should make it clear that you’re not saying companies shouldn’t deduct legitimate expenses incurred in running their business, it’s that they need to treat money expended to find new coal as an investment that is depreciated over a long period instead of being counted as an immediate expense in the year the costs are incurred. The categorization of costs as annual expenses instead of investment is an old dodge, but it still works, and we need to put a stop to it in this context.

  2. Todd says:

    Gehrlicher Solar plans a 250 MW PV plant in Spain with NO subsidies. Coal is a dead man walking, a zombie. Listen to the CEO of NRG Energy, David Crane, on http://www.smartplanet.com, who explains how PV is about to turn the entire electricity utility industry on its head.

    • Linda Miilu says:

      Unfortunately, coal is not dead in West Va, or Kentucky, or Tennessee. CA has coal plants; the MidWest has coal plants. Coal may be a zombie, but something (lobbyists?) keeps it moving.

  3. Frank Zaski says:

    There are also considerable US, state, county and city (US taxpayer!) subsidies for:

    ROADS and BRIDGES used by overloaded coal trucks hauling coal out of Appalachian Mountains.

    US SEAPORT development and maintenance for shipping highly subsidized coal to foreign buyers.

    RIVER DREDGING, LOCKS and DAMS used by coal shipping barges on our rivers.

    Coal accounts for 58% of barge cargo on the Ohio River. http://outreach.lrh.usace.army.mil/Industries/Coal/default.htm

    And, US taxpayers pay for 90% of inland waterway locks and dam construction and maintenance. The industry wants 95%. http://www.iwla.org/index.php?ht=d/sp/i/5034/pid/5034