Homework Answers Chapter 7 Coal Bonus Question 1 Which issue is most likely to dominate the fate of coal? a. Global climate change b. Water pollution c. Thermal pollution d. Coal ash . Global climate change

Homework Questions Chapter 7 Coal Note that there are some bonus “quiz” questions sprinkled throughout the Q & A for instructors who want to motivate their students to pay careful attention to the homework.

Homework Answers Chapter 7 Coal Question 1 What are the two major uses for coal? Which one does the chapter focus on, and why? Metallurgical (coking) coal, a hard, hot-burning coal used by industry such as steel firms that use it to heat iron ore Steam (thermal) coal, used by electric utilities to generate the heat and steam in the electricity generation process.

Question 2 Explain what type of coal Germany uses, including its characteristics, and why they have increased their use of it in recent years. Since making the decision to accelerate the phase-out of nuclear energy in response to Japan’s 2011 Fukushima disaster and the high cost of renewables they have promoted, Germany has stepped up its use of lignite, a soft coal that when burned, results in high carbon emissions.

Question 3 Compare the characteristics of the four types of coal. In the U.S., which ones are used most and least? Lignite Sub-Bituminous Bituminous Anthracite Coals are listed from least to most hard, least to most heat content, most to least water content. Bituminous and sub-bituminous are by far the most used, in the range of 40-49%. Lignite accounts for about 7%, and anthracite less than 1%.

Quiz Question 1 The future of coal in the U.S. depends upon developing a “clean coal” technology. Describe the U.S. experience with ”clean coal” syngas, referring to the Duke Energy plant in Edwardsport Indiana and the FutureGen project in Illinois.

Question 5 One technique for extracting coal is mountaintop removal. What stage of the supply chain is extraction, what are the environmental concerns about mountaintop removal, and what procedures does the U.S. have for dealing with these concerns? Extraction is upstream. Mountaintop removal causes land and ecosystem degradation as well as water and soil pollution. Coal companies are required to post bond before they begin construction, which is returned only if they restore the land. The Surface Mining Control and Reclamation Act (1977) is a federal standard requiring reclamation.

Question 6 What is the primary mode of transporting coal? Approximately what percent of the delivered cost of coal is due to this transportation? What are advantages and disadvantages of a utility owning its own coal mines? Rail accounts for 70% of coal transport, and 40% of the delivered cost of coal. Advantages to utility owning its coal mines- Vertical integration can reduce costs. Avoid transactions costs of dealing with another company. Avoid supply interruptions, reduce coal storage inventory costs. Disadvantages- May overcharge customers using imaginary transfer prices. And could experience labor relations problems and bad publicity, as Duke Energy did in Harlan County, KY.

Quiz Question 2 Of Wyoming Powder River coal, Illinois coal, and Appalachian coal: A. Wyoming coal is the lowest in sulfur and the highest in heat content. B. Wyoming coal is the lowest in sulfur and the lowest in heat rate. C. Appalachian coal is the lowest in sulfur and the lowest in heat rate. D. Appalachian coal is the lowest in sulfur and the lowest in heat rate.

Question 7 Distinguish among Appalachian coal, Illinois coal, and Wyoming coal as far as characteristics and cost. Provide a scenario for each of the three when an electric utility would choose that source of coal. Appalachian coal: High heat content, relatively low sulfur, medium cost and price. Illinois coal: Slightly lower heat content, high sulfur, low-medium cost and price. Wyoming coal: Low heat rate, very low sulfur, low cost and price. Utilities in the Northeast may prefer Appalachian coal, with its low sulfur, high heat rate, and low transportation costs. Utilities choosing WY (Powder River) coal prefer the coal price and low sulfur, although transportation costs may be high. Utilities with scrubbers (FGDs) can use Illinois coal, and may choose it if they save on transportation costs.

Question 7 Compare the capital costs and safety of underground and surface mining. Which one is more common in the U.S.? Underground mining is more costly, including higher capital costs, than surface mining, at least in the U.S. where surface mining is more common. In countries such as China, underground mining predominates as the coal is buried deep.

Question 8 Describe two major accidents related to coal ash, and why coal ash is of concern. Does the U.S. Environmental Protection Agency regulate coal ash? What about North Carolina (you find out; the details are not in the text or slides (yet; I may add more details on it.) ? The largest coal ash spill by far was in 2008 in Kingston, TN. The third largest was a spill into North Carolina’s Dan River in 2014. The second largest was in 2011, but was not discussed in the text. It was near Milwaukee and swept debris into Lake Michigan. It got surprisingly little publicity. The EPA does not yet regulate coal ash; regulation is left up to the states. North Carolina has begun to regulate coal ash, but the major issues of the type of storage and whether utilities and their stockholders or ratepayers will pay for the cleanup are still being contested.

Question 8 Provide examples related to the coal industry that demonstrate competition and monopoly. For each, draw a graph to show how price and quantity are determined. Coal at the mine mouth is competitive. Large number of companies. Company stores and company housing had monopoly characteristics. For graphs, see earlier chapters.

Question 9 Compare the capital costs and safety of underground and surface mining. Which one is more common in the U.S.? Underground mining has higher capital costs and is less safe than surface mining. Not surprisingly, surface mining is more common in the U.S. Nevertheless, underground coal mining creates jobs, and it is common that multiple generations of families have been in this profession, leading to a strong political constituency to preserve this form of mining.

Question 10 Explain George Stigler’s (1971) capture theory of regulation (described in an earlier chapter of the text) and its possible connection to the Freedom Industries coal-cleaning chemical spill in West Virginia. Stigler theorizes that regulators favor the groups with more influence, typically industry as opposed to consumers. In West Virginia, where coal is king, regulators may be tolerant of practices by firms involved in the coal supply chain, knowing that these industries are responsible for jobs and in addition, may be politically influential.

Question 11 Provide examples related to the coal industry that demonstrate competition and monopoly. For each, draw a graph to show how price and quantity are determined. If coal is viewed as a commodity, its characteristics would seem to be a reasonably good fit for the model of competition. Large number of firms, no barriers to entry, homogeneous product, good information of price and product characteristics. Until recent bankruptcies, four firms made up about half of coal production in the U.S., and with huge price spikes, there were suspicions of cartel-like behavior. Students simply need to draw the model of competition and monopoly. The easiest way is draw S and D, with the competitive P and Q at S and D intersection. In the same graph, they can construct MR twice as steep as D, and show the monopoly outcome where MR and MC (the same line as S) intersect. Monopoly P is on the demand curve directly above the quantity where MR and MC intersect.

Question 12 Provide an example of a monopsony related to the coal industry. Draw a graph to show how price and quantity are determined. Now provide an argument for your example that the market was competitive and not a monopsony. Also show graphically. Company town. Only employer of labor See Natural Gas Chapter 6: Japan: only LNG buyer, for graph. Fishback disagrees. Workers could move. They received much of their salary on payday.

Question 13 Which of the following statements support the argument that coal miner deaths and illnesses are externalities? Coal miners are compensated for these negative effects They voluntarily become coal miners They have little information on the risks of coal mining Coal miners suffer a higher rate of deaths and illnesses than other occupations. c. They have little information on the risks of coal mining

Quiz Question 3 The future of coal in the U.S. depends upon developing a “clean coal” technology. Describe the U.S. experience with ”clean coal” syngas, referring to the Duke Energy plant in Edwardsport Indiana and the FutureGen project in Illinois. U.S. has experienced large cost overruns and construction delays on the two syngas projects. The Duke Energy plant is operating, resulting in high electricity bills for Indiana ratepayers. The U.S. has suspended funding for FutureGen.