A new economic analysis published in the highly prestigious American Economic Review has made a damming assessment of the costs of pollution from fossil fuel industries, and concludes that coal is doing more harm to the US economy than good – and that doesn't take into account its climate impact.

The paper by respected economists Nicholas Muller, Robert Mendelsohn (Yale) and William Nordhaus (Yale), models the physical and economic consequences of emissions of six major pollutants (sulfur dioxide, nitrogen oxides, volatile organic compounds, ammonia, fine particulate matter, and coarse particulate matter) from the country's 10,000 pollution sources. It is an update of a previous study concluded in 2009.

It concludes that the "gross external damages" (GED) from the sickness and death caused by the pollution, is larger than their value add in several key industries – coal- and oil-fired electricity plants, solid waste combustion, sewage treatment, stone quarrying, and marinas!

The most damning assessment is of coal, which is fingered for about $53 billion in damages a year. This estimate does not include climate change and uses a conservative estimate of health risks. The authors say that coal's damages bill ranges from 0.8 to 5.6 times value added.

Instead of being cheap and affordable, the study finds coal is likely the costliest source of electricity. Which is not to suggest that it immediately be shut down, they say, but that it should be understood that for every one-unit increase in output, the additional costs are higher than the revenues.

The paper is timely in the context of the US political debate, where the Republican right and business groups have been attacking the ability of the Environmental Protection Agency to regulate those emissions – which in the absence of a cap-and-trade scheme or a carbon tax is about the only method available to reduce greenhouse emissions. The EPA, and the White House, reasons that if you cut back on major pollutants, you can cut back on greenhouse emissions by default.

And it also puts an interesting perspective on any cost/benefit analysis. As New York Times columnist Paul Krugman noted in a column this week:

“At one level, this is all textbook economics. Externalities like pollution are one of the classic forms of market failure, and Econ 101 says that this failure should be remedied through pollution taxes or tradable emissions permits that get the price right.

“What Muller et al are doing is putting numbers to this basic proposition – and the numbers turn out to be big. So if you really believed in the logic of free markets, you’d be all in favour of pollution taxes, right?"

And then Krugman laughs, noting that today’s American right "doesn’t believe in externalities, or correcting market failures; it believes that there are no market failures, that capitalism unregulated is always right. Faced with evidence that market prices are in fact wrong, they simply attack the science."

Interestingly, the lobby groups seeking to limit the scope of the EPA’s power are now questioning the EPA’s assumptions on electricity reliability – a common theme in the debate about the future of coal-fired generation in Australia. The coalition’s petition contends the EPA is rushing to judgment and questions the EPA’s assumptions on electric reliability.

As another aside, Bloomberg’s monthly Markets Magazine, has an interesting and detailed insight into Koch Industries, the secretive US conglomerate controlled by the wealthy Koch brothers (each worth around $US20 billion), which has been underwriting the Tea Party campaigns, the fights against government regulation, as well as the work of many climate sceptics, denialists and delayists.

Here’s the conclusion of the Bloomberg article: “For six decades around the world, Koch Industries has blazed a path to riches – in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.” Bloomberg, remember, is a staid publication. It’s worth a read

Giles Parkinson. Coal is not so cheap. 4 Oct 2011 http://www.climatespectator.com.au/commentary/coal-not-so-cheap

Coal is the most important and useful resource for human life, but if we keeping using it and agree by government to keep consuming that. It does not matter how cheap of the coal and how many profits can create from the coal. It will be harmful and polluting the environment. For the long term, our government should stop using the coal and stop any company to use the coal.

In economic, I think the government and the company whom consuming the coal is right. Because the coal is cheap and it can create lots of the profits and consumer will agree with it. But on the science, we are using the un-renewable resource and we are polluting the environment. Finally, we will paying the double costs and time to fix the environment problems. How to balance the economic and environment will be the important part we have to consider.