A Case for the United States' Opposition of International and Domestic Coal Subsidies

• Author: Josh Fieldstone
• Position: J.D. candidate, May 2013, at American University Washington College of Law
• Pages: 31-31

31FALL 2011

A CASE FOR THE UNITED STATES’ OPPOSITION OF

INTERNATIONAL AND DOMESTIC COAL SUBSIDIES

by Josh Fieldstone*

Since the United Nations’ Framework Convention on

Climate Change1 came into effect in 1994, international

f‌inancial institutions have provided more than $37 bil-

lion in direct f‌inancial support for at least 88 new and expanded

coal plants.2 Although the United States has stated that it wants

to deter international f‌inancial institutions from subsidizing

coal,3 it supports its vast domestic coal subsidies.4 So long as

these subsidies remain, the United States should refrain from

opposing international coal subsidies in order to maintain its

credibility.5 The United States faces the following dilemma:

it could either actively oppose domestic and international coal

subsidies even though the subsidies are in its short-term energy

interest, or it could continue supporting coal subsidies despite

coal’s long-term damaging effect on the environment and human

health. The United States should prioritize public health and

environmental interests and oppose all coal subsidies domesti-

cally and internationally. Specif‌ically, it should begin by with-

drawing tax credits for domestic coal production and pressure

the World Bank to stop funding coal projects internationally.

International f‌inancial institutions have continued to f‌inance

coal projects despite the emergence of climate change as a major

international issue.6 Meanwhile, the United States refrained

from applying political pressure to curb such f‌inancing. In 2010,

the International Bank for Reconstruction and Development

(“IBRD”), one of f‌ive institutions that compose the World Bank

Group, funded a record high $4.4 billion for coal projects7 in

the face of both substantial protests8 and a recommendation by

the World Bank’s Extractive Industries Review to refrain from

f‌inancing coal.9 The United States Executive Director abstained

from voting on—and using its substantial political clout10 to

oppose—the largest of the projects,11 a $3 billion loan to a South

African coal-f‌ired power plant.12 However, if the United States

takes a more active stance against coal projects, it could send

a stronger message of opposition to international institutions

that fund coal, in which the United States is involved, including

the Inter-American Development Bank13 and the African Devel-

opment Bank.14

The United States has not only refrained from opposing

international f‌inancial institutions’ funding of coal, it has also

continued subsidizing coal domestically. A great percentage of

these domestic subsidies come from the Internal Revenue Code

Section 45k15 credit for production of nonconventional fuels.16

This tax credit amounted to a $14 billion subsidy between 2002

and 2008, which has primarily benef‌ited coal producers.17 In

addition to tax credits, the United States’ subsidies for coal

include low-interest loans18 and loan guarantees.19

The United States has a strong incentive to promote coal

subsidies because it has substantial short-term interest in

maintaining—and even expanding—its present coal use to

reduce energy costs and unemployment.20 The United States

has more coal reserves than anywhere else in the world and is

the second largest producer after China.21 In 2009, coal mines

alone employed 90,000 people in the United States.22 Coal can

generate usable energy at a cost between $1 and $2 per Million

Metric British Thermal Units (“MMBtu”) compared to $6 to $12

per MMBtu for oil and natural gas, providing an inexpensive and

relatively stable energy source.23 Additionally f‌ifty percent of

electricity generation in the United States is dependant on coal,

illustrating both the United States’ interest in coal use and the

importance of its domestic coal policy.24

Even though the United States’ short term interests favor

coal subsidies, its long term interest are against them. Some

of the downsides of coal use are immediately tangible such

as harm to the environment25 and health hazards to those

working at coal facilities.26 Still, perhaps the most pressing

concern is its effect on climate change.27 A recent study of

Harvard’s Center for Health and the Global Environment found

that the total external cost—the negative effect of an economic

activity on a third party—of United States’ coal-use28 could

amount to $523 billion annually.29 The National Resource

Council found the external costs to be $120 billion even without

generally taking coal’s effect on climate change into account.30

In light of these long-term realities, the United Sates

should oppose coal subsidies domestically by terminating the

tax credit for production of nonconventional fuels and inter-

nationally by pressuring the IBRD to refrain from giving any

further loans to coal projects. By subsidizing coal now and

leaving the greater cost of externalities for the future, the United

States is supporting an economically and socially irresponsible

position. Ending the existing tax credit and pressuring the IBRD

would help mitigate coal’s effect on climate change, catapult the

United States as a credible leader on the climate change debate,

and protect the United States from the predicted economic losses

that far outweigh its current problems.

*Josh Fieldstone is a J.D. candidate, May 2013, at American University Wash-

ington College of Law.

Endnotes: A Case for the United States’ Opposition of International

and Domestic Coal Subsidies on page 61