Last week a New York Times op-ed called for the federal government to account for carbon emissions in the price of coal: “The federal government should also take into account the economic consequences of burning coal … [and] the added costs associated with the impacts of greenhouse gas emissions.”
New research from RFF’s Alan Krupnick, Joel Darmstadter, Nathan Richardson (of the University of South Carolina School of Law), and Katrina McLaughlin explains why “federal coal seems like a logical target for launching a carbon pricing policy.” They argue that the Bureau of Land Management “does have the statutory authority and regulatory ability to increase royalty payments on new coal leases to account for externalities related to CO2 emissions.” However, they caution that while the legal case for such a fee seems strong, the economic case “appears noticeably weaker.”
Here is some of what you find when you follow the "new research" link:
In a new RFF discussion paper, we take a look at coal. Forty percent of US coal is produced on federal land managed by the Bureau of Land Management (BLM). We examine whether BLM could—and perhaps should—impose an upstream carbon charge on this production. Because coal is the most carbon-intensive of fossil fuels, and because our research shows a significant discrepancy between the price of coal from federal lands (around $12 per ton) and the estimated global damages of coal (around $94 per ton, given the administration’s middle estimate of around $46 per ton of CO2 for 2020), federal coal seems like a logical target for launching a carbon pricing policy. …
However, whereas the legal case for an upstream carbon pricing program under BLM seems fairly strong, the economic case appears noticeably weaker. Because most government coal leases have only one bidder, bid prices for the land might be reduced to account for the greater royalty rate. At the same time, depending on the competitiveness of the coal market, operators on federal land might have to absorb the carbon charge in lower profits. Both cases would result in no change in the coal price (and therefore no internalization of the related climate externalities). The effectiveness of a significant charge upstream also would be weakened because 60 percent of US coal is not produced on federal lands. That said, market demand for non-federal coal would likely rise if a significant carbon charge were implemented on federal coal, partly mitigating any price increases. Further research is needed to determine how much production would potentially shift away from federal lands to private, state, and tribal lands and what the impact would be on coal prices. …
We did not focus on the appropriate size of the ultimate carbon charge in our research, but a motivating starting point could be the social cost of carbon estimates, mentioned earlier. In this case, and using the midrange of these estimates for 2020 of about $46 per ton of CO2, the carbon charge would be over $90 per ton of coal, far above the current price of federal Powder River Basin coal ($12 per ton). The implication is that without a long transition period (one that could occur somewhat “naturally” if the charge was levied only on newly leased coal, as we believe existing leases cannot be reopened), this approach could be highly disruptive to the coal market, the electricity market, and the economy as a whole.
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