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
31FALL 2011
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