Ask some American consumers who profits most from the nation's use of coal, and you may get different answers. Most people would probably say it's the coal mining companies, or the coal-using electric utilities. Neither is close to being the correct answer - but of course, it depends on how we define profit.
This diary takes a look at where coal profits end up, what it means for environmentalists and Democrats, and what we as consumers can do about it.
Coal is a big industry in the United States, and more than 90% of American coal is burnt for electricity. About half of all U.S. electricity is generated by burning the black rocks. That comes with an environmental price: electricity production is responsible for 40% of all American CO2 emissions from fossil fuels - this is more carbon dioxide than from all U.S. transportation (cars, SUVs, trucks, aircraft, ...) combined. If you've recently compared a 2007 electricity bill with one from a decade ago, you'll know that's a lot of profit. Where is it all going?
The primary financial beneficiaries of American coal can be grouped into three general categories. They are:
- Mining companies: the corporations that get the coal out of the ground.
- Coal-burning utilities: the companies that turn coal into electricity.
- Railroads: the companies that move the coal from mines to power plants.
I'll look at each of these in turn.
MINING COMPANIES
This is the most obvious category of coal profiteer. Coal is cheaper to get out of the ground than it has ever been before. But the coal mining industry is smaller than you may expect. In a previous diary (Coal and jobs: enough with the lies already, May 30) I claimed that there is a general public misconception over the size of the workforce: most people would be surprised to learn the American coal mining industry now employs only 80,000 people. The public is generally unaware of how ruthless the industry has been with jobs: few people realize that during the 1990s, U.S. coal mining companies shed more than 50,000 jobs (40% of the workforce) while increasing annual production. Even more surprising is the fact that one state with only 5,000 mine employees now produces 40% of American coal. This state is Wyoming, and the region where most Wyoming coal is mined is called the (Southern) Powder River Basin.
Eastern coal (from the traditional coal states) is increasingly difficult to extract and can fetch a high price, but coal from out west is very cheap. Despite the low price of Wyoming coal, the major mining companies driving the state's growth to 40% of national production (such as Peabody Energy and Arch Coal) have certainly made good profits. However, they are not the greatest profiteers from coal, being much smaller than the largest utility and railroad companies. The mining companies are getting their share, but in the big picture of American coal they are small players.
COAL UTILITIES
Electricity providers can certainly save money by using coal, but the amount varies widely. It is mostly companies that are close to major mining states, have old coal plants still in use, or have had to rapidly increase supply to meet population growth demand, that continue to rely most heavily on coal.
The Southern Company (southerncompany.com) is one of the largest U.S. electricity providers, and uses coal for about 70% of its production. While its size ensures it can get a competitive price for coal despite the distance from Wyoming, it is hardly making a supernormal profit. There are few electricity providers (using coal or otherwise) that can show a return on investment as strong as the mining companies. Most are paying a lot more for coal than the mining companies charge for it. Which brings us to the third industry, the middle player betwen the mines and the power plants.
RAILROADS
Because Wyoming coal is so cheap, it can be shipped a long distance and still be a cost-effective electricity fuel. This is exactly what is now happening: coal plants as far away as Georgia are paying $40 a ton for Powder River Basin coal that would cost $10 in Wyoming. Which companies set the price utilities pay? The railroads. Which companies reap the profits? The railroads.
For many power plants out east that have switched from more expensive Appalachian coal to cheap Wyoming coal, the principal factor in the price they pay is how much competition exists for their rail link to the Powder River Basin.
Two companies dominate the flow of coal out of the Powder River Basin. They are Union Pacific (UP) and Burlington Northern Santa Fe (BNSF). It's no surprise that they are rivals, being #164 and #171 respectively in the Fortune 500 with no other railroad corporation in the top 250. Union Pacific and BNSF have similar annual revenue, with around $3 billion (20%) of it coming from coal. The two companies love coal for an obvious reason: while it's not the highest revenue load, it is highly profitable. Employee compensation/benefits is the greatest expense category for each company, and coal transportation requires very few workers. It's a very easy cargo to load, and is moved in long trains to captive markets.
Putting cargo aside for a moment, rail is a very fuel efficient mode of transport. The railroad companies know the importance of green marketing. This message is prominently displayed on the Union Pacific website front page:
Our employees understand that protecting the environment is a part of every job, and they are creating and implementing world-class energy conservation techniques that are helping us to move more freight with less fuel.
Don't hold your breath waiting for Union Pacific to give such front page prominence to its reliance on coal for profits.
To illustrate further the importance of coal to railroads, here are some extracts from the BNSF 2006 Annual Report.
In 2006, the transportation of coal contributed about 20 percent of freight revenues. ... More than 90 percent of all BNSF's coal tons originate from the Powder River Basin.
...
Coal revenues for 2006 increased 19 percent versus a year ago. The revenue increase was primarily driven by a 10 percent increase in volumes.
...
In February 2005, the Company received a Civil Investigative Demand from the Antitrust Division of the Department of Justice requesting information concerning the Company's pricing activities relating to the shipment of coal from the southern Powder River Basin. The Company continues to respond to requests for information.
All that could just as easily have come from the Union Pacific annual report with just a very minor alteration of the percentages. It is remarkable how the two have dominated and evenly shared the lucrative Wyoming coal business.
For further reading on the role of rail in coal, it's hard to find anything better than the book Big Coal: The Dirty Secret Behind America's Energy Future by Jeff Goodell, published by Houghton Mifflin, 2006. Goodell describes how plants with one choice of rail provider can pay 50% more for coal than other plants a similar distance from Wyoming that have a choice between competing railroads. The power of the rail giants is aptly summed up in this quote by an energy utility CEO from the book:
"If there's one thing you don't want to do in this business, it's piss off the railroads."
If all the above shows anything, it is this: while coal mining companies and coal burning utilities share what little public scrutiny of the dirty fuel exists in the United States, much of the profit from coal is going to an industry that portrays a very clean green public image - and most of it to two companies in particular, Union Pacific and BNSF.
But not all profit can be measured in dollars. If we want to ask who gains the most political profit from coal, there is a clear winner - and as with Railroads, it starts with the letter R.
THE REPUBLICAN PARTY
It's no secret which political party enjoys a special relationship with coal. The following graphic is a partial reproduction from page xviii of Goodell's book Big Coal that I mentioned above. They show federal campaign contributions to parties and candidates from 2000-2004, in millions of dollars (top graph) and as a percentage of revenues (bottom graph).
Where are the railroad contributions for comparison? Their political activities are more secretive and difficult to quantify. As the Center for Political Accountability states in its 2007 Transparency Report on Union Pacific (PDF file)
Despite its political involvement, the company has almost no disclosure of its procedures and policies for how it handles its political spending, and no disclosure of its political expenditures.
According to available records, Union Pacific has contributed over $2.9 million in corporate funds since the 2000 election cycle. However, a review by the CPA suggests that Union Pacific’s political spending may be significantly understated ...
The rest of the report is littered with all the names you'd expect to see: the Republican State Leadership Committee, Tom DeLay, Texans for a Republican Majority, and others.
One website that has some limited information on railroad political contributions is the Open Secrets page for Railroad PAC contributions to federal candidates, 2005-2006. The UP and BNSF PACs were by far the top two givers from the industry, giving about a million dollars each with three quarters of it going to Republicans. I wonder about the contributions that are never made public - do Republicans get only three quarters of those, or a much higher proportion?
WHAT WE CAN DO
It's obvious to all but the most committed climate change deniers that coal burning is a major cause of anthropogenic global warming. While some people refer to fossil fuels as "dead dinosaur," most coal predates those creatures and comes from a plant utopia era when there were few herbivores, the sea level was far higher (placing most modern cities underwater) and the atmospheric CO2 level was more than a thousand parts per million. Humans have already raised CO2 levels from a historical cyclic range of 180 to 280 ppm over the past 400,000 years, to 385 ppm today as the graphic here shows (source: www.globalwarmingart.com). How close to 1000 ppm will we get before the last coal plant is shut down?
There appear to be two simple truths about coal in the United States:
Every ton of coal that is burnt causes more dangerous climate change.
Every ton of coal that is burnt helps get Republicans elected.
The United States burnt nearly three and a half short tons of coal for each man, woman and child in the country for electricity last year.
Do you know how much coal is burnt for your electricity? You should. Depending on your power supplier, coal could provide anything from 0% to 100% of the electricity you use at home. Even California, the state with the lowest per-capita electricity use in the nation, relies on imports from neighboring states that burn coal.
But there are things you can do. The most important step, regardless of how much coal is burnt for your electricity, is to conserve - with lifestyle changes (like allowing more variation in room temperature, and taking shorter showers) and also by improving efficiency. This step is just as important even if you get your electricity from a 100% renewables supplier, because every joule they don't have to sell to you is a joule that can offset fossil fuel generation elsewhere.
The next step is to get the electricity you consume from the cleanest supplier available. The Green Power Network is one excellent resource for this. By visiting the Can I Buy Green Power In My State? map, you'll find options for green electricity where you live. If you cannot get your power directly from a green supplier, you can buy Renewable Electricity Credits. Even for the state of Wyoming, the source of 40% of American coal, there is a long list of green power options.
The "But where I live, all the power companies burn coal" argument is dead. Everyone in the country can help fund vital alternatives to coal, at a very small additional cost on their electricity bill. There is no excuse.