Why is the US Government So Bullish On Coal?

Energy Department forecasts at odds with industry.
This post is part of the research project: Northwest Coal Exports

US energy policies prop up coal consumption in a variety of ways, some clear and some less so. For example, the Bureau of Land Management has lately come in for a drubbing for leasing public lands to coal mining companies at comically low rates, and to the detriment of taxpayers.

Official bullishness on coal extends to other government agencies too, such as the Department of Energy, which produces the nation’s energy forecasts. If you sift through the new coal projections in the EIA’s Annual Energy Outlook 2012 you’ll find something rather curious: the US government has a more favorable outlook for coal than virtually any other major forecasting institution.

Take a look at US projections for coal exports, and you’ll see that they are more aggressive than any other major forecast:

Where most models—including even the US government’s circa 2010—see declining coal exports, the Energy Department projects growth that would reach record-setting levels and then continue to grow for more than 20 years.

There’s a similar picture for domestic US coal consumption:

Although official 2012 projections showed a very substantial (16 to 19 percent) downward revision in US coal use from the 2010 numbers, the official government forecast still shows domestic coal use rebounding from a 2015 low and maintaining at roughly current levels until 2035.

US energy officials also project higher prices than other analysts:

The other major forecasts—including, again, the US government’s 2010 model—predict roughly flat real prices for the foreseeable future. But the new 2012 forecast sees prices rising in inflation-adjusted terms by about 20 percent over the next two decades.

To be clear, I’m not saying that the official US projections are wrong (and the EIA gets credit for including in the 2012 AEO the data from alternative forecasts that I’ve used here). I have no idea if any of these projections will prove to be right, and forecasting is damnably tricky work. But I do think it’s worth noting that Energy Department estimates are, at least broadly speaking, inconsistent with other respected models and forecasts.

The forecasting inconsistency is important because the official US numbers have a strong influence on both private and public investment decisions. Electric utilities and port operators consult these figures, as do elected officials who set energy policy. Bullishness on coal can easily become a self-fulfilling prophecy. When official government numbers point to rising prices, sustained high consumption, and robust exports, all that can push decision-makers to do things that foster the continued use of coal.

 

Notes: Thanks for Pam MacRae who provided invaluable research assistance.

IHSGI (sometimes known as Global Insights) is an economic research firm. INFORUM, affiliated with the University of Maryland, produces a range of economic modeling and forecasting services. ExxonMobil and BP are, of course, big oil companies. IEA is the International Energy Agency. EVA, or Energy Ventures Analysis, is an energy consulting firm.

Some data shown here was originally reported in heat content (BTUs) rather than volume (tons), including BP’s figures for exports and BP’s, ExxonMobil’s, and IEA’s figures for consumption. To produce comparable data for these charts, we used conversion factors calculated from EIA’s data, which is reported in both heat content and volume.

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Comments

  1. Benn says:

    ..Alternatively, a prediction of rising demand and rising prices into the future could influence domestic utilities to dump coal in favor of less costly alternatives…

    I’m not saying that the administration is actively cooking the books to this end. It is not really fair to look at the 2012 versus the 2010 numbers and infer there has been a change in government policy. The shift is more likely due to the underlying data on global demand. The 2010 forcast was most likely based in numbers from the height of the recession and were from a time when wind and solar were more highly subsidized in the US. The 2012 numbers likely reflect increased strength in Asia and the reality of decreasing subsities for alternative engery in the US, particulary in the face of the domestic natural gas supply boom.

  2. Pete says:

    Stop burning coal!

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