The End of British Coal
By David Henderson
I was going through my pile of unread Wall Street Journals over the weekend and found this news story: Scott Patterson, “End of an Era: England Closes Its Last Deep Coal Mine,” December 11, 2015.
Here’s one key paragraph:
The last deep-pit coal mine in the U.K. plans to shut its doors here next week, heralding the end of a centuries-old industry that helped fuel the industrial revolution and build the British Empire.
The shutdown, targeted for next Friday, represents a victory for advocates of reducing carbon emissions after world leaders gathered in Paris to discuss how to combat global warming, with coal in the cross hairs. It also reflects a glut of energy on world markets, from crude oil to natural gas and coal itself.
As he continues, though, Patterson notes that a large part of the reason, besides the decline in demand for coal, is the availability of cheaper coal imports:
The U.K. already imports most of the coal that fuels its power plants, with imports first surpassing local production in 2001. Russia has been the biggest beneficiary of the U.K.’s increased appetite for imported coal, providing 46% of its thermal coal in 2014, according to the U.K. government. Coal supplies roughly one-third of the energy for electricity generation in the U.K., with natural gas and renewable sources making up the rest.
Kellingley, operated by U.K. Coal, is the victim of vast market forces that have pushed prices for thermal coal–the kind used to fuel power plants–to their lowest level in more than nine years at $45.10 a metric ton, according Rotterdam coal futures traded on the Intercontinental Exchange. It costs Kellingley about $65 to produce a ton of coal, compared with $45 a ton for imported coal, a company official said.
Students of the history of economic thought will find this interesting because one of the giants in 19th century thinking, one of three contributors to the “Marginal Revolution” of the late 20th century, was Stanley Jevons. Jevons wrote a book called The Coal Question. Here’s what I wrote about that book in his bio in The Concise Encyclopedia of Economics:
Jevons put much less thought into the production side of economics. It is ironic, therefore, that he became famous in Britain for his book The Coal Question, in which he wrote that Britain’s industrial vitality depended on coal and, therefore, would decline as that resource was exhausted. As coal reserves ran out, he wrote, the price of coal would rise. This would make it feasible for producers to extract coal from poorer or deeper seams. He also argued that America would rise to become an industrial superpower. Although his forecast was right for both Britain and America, and he was right about the incentive to mine more costly seams, he was almost surely wrong that the main factor was the cost of coal. Jevons failed to appreciate the fact that as the price of an energy source rises, entrepreneurs have a strong incentive to invent, develop, and produce alternate sources. In particular, he did not anticipate oil or natural gas. Also, he did not take account of the incentive, as the price of coal rose, to use it more efficiently or to develop technology that brought down the cost of discovering and mining (see natural resources).
Here’s what Jevons said in Chapter XIII of The Coal Question, “Of the Export and Import of Coal”:
IT has been suggested by many random thinkers that when our coal is done here, we may import it as we import so many other raw materials from abroad. “I can conceive,” says one writer, “the coal-fields of this country so far exhausted, that the daughter in her maturity shall be able to pay back to the mother more than she herself received. May we not look forward to a time when those ‘water-lanes’ which both dissever and unite the old and new world, shall be trod by keels laden with the coal produce of America for the ports of Britain? and in such a traffic there will be abundant use for vessels as capacious and swift as the Great Eastern.”
I am sorry to say that the least acquaintance with the principles of trade, and the particular circumstances of our trade, furnishes a complete negative to all such notions. While the export of coal is a vast and growing branch of our trade, a reversal of the trade, and a future return current of coal, is a commercial impossibility and absurdity. (italics his)