Education: A new coal subsidy would come at a high price
To stop the recent spate of coal-fired electricity plant closures, Energy Secretary Rick Perry wants power markets to reward them for their "resilience" in the event of big storms or other natural disasters — in effect, paying them enough to keep all coal plants open for the foreseeable future.
Taken at face value, the idea is perplexing. The market already pays for this added reliability -- for example, through higher prices when supply tightens during bad weather. Perry says power providers need plants that can keep 90 days' worth of fuel on hand, as only coal- and nuclear-powered plants can. There's no such need, because the market already well assures an adequate fuel supply.
What Perry is proposing amounts to re-regulation of wholesale power markets -- a giant step backward. Since they were deregulated in the 1990s, these markets have grown ever more efficient. As the price of natural gas has fallen, its use has increased, and many coal plants have been converted to natural gas or shut down. The ones that have closed have tended to be those that burn fuel least efficiently.
The Federal Energy Regulatory Commission will say whether the new plan goes ahead and, if so, exactly how it would work. A big subsidy could keep coal plants running around the clock -- significantly boosting air pollution, carbon emissions and consumer-electricity prices. A small one might see them producing little more power than now -- causing less environmental harm but also doing little to help the ailing coal industry. The fact is that coal faces a dim future either way, unless the Trump administration discourages use of natural gas, a cheaper and cleaner fuel. That would make no sense.
Perry argues that other energy sources benefit from subsidies. True. It would be better to phase them out and use a carbon tax to support clean energy. But regardless of where you stand on that, a new subsidy for coal is bad policy. When FERC rules on the plan next month, it should turn it down flat.
— Bloomberg View
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