Electricity from coal creates economic empowerment

Mar 11, 2002 01:00 AM

Using abundant US coal reserves to generate electricity creates economic empowerment for millions of American businesses and working families. That is the finding of a new study by a team of economists working at Pennsylvania State University.
The study, Projected Economic Impacts of US Coal Production and Utilization, examined the impact of coal-generated electricity on state economies in the continental United States. The study found that coal-based electricity, including the production of coal, creates substantial benefits to the overall US economy.

Today, coal provides the fuel for over half of the power consumed in the United States, and the economists concluded that in 2010 coal production and electricity generation would be responsible for:
-- $ 163 to $ 659 bn in increased economic output;
-- $ 40 to $ 224 bn in increased household earnings; and
-- 800,000 to 6.4 mm additional American jobs.

Most of these economic benefits derive from the extraordinary interdependence of the US economy. Because all businesses rely on electricity to produce and sell goods and services, the economic power of the electric utility industry extends far beyond the generation and sale of electricity. Coal-based electricity produces powerful ripple effects that benefit the American economy as a whole.
The study was conducted by Dr. Adam Rose and Bo Yang, economists at Penn State University. Dr. Rose is a professor and head of the Department of Energy Environmental, and Mineral Economics, and Yang is a graduate research assistant in the same department.

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 modelling 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 bnto $ 32 bn 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 mm to $ 720 mm in expanded output.
"This new analysis proves what we have known for a long time," said Stephen L. Miller, President and CEO of the Centre 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 pre-eminent experts in state and regional input-output modelling, 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, "The study represents an impressive and massive combination of data, analytic techniques, and modelling 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."

Source: Centre for Energy and Economic Development
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