Coal Mining, Economics, and Regulation

While I've been on vacation (stay classy, San Diego!) environmental law in Indiana has been making major news and raising interesting issues.  This story and this editorial from recent editions of the Indianapolis Star discuss the Bear Run Coal Mine in Sullivan County.  As production there ramps up, the mine is expected to become the largest coal mine in the eastern U.S.  The Indiana Department of Environmental Management (IDEM) is nonetheless regulating Bear Run under a general permit.  The federal EPA has urged IDEM to regulate Bear Run under a more restrictive individual permit, but IDEM has declined to do so. 

This cases raises several fascinating issues, including the environmental price of economic development, the dangers and benefits posed specifically by coal mining, and a host of others.  I want to focus on the one I found most interesting.

While IDEM claims it is following a less-stringent course at Bear Run for regulatory reasons (it doesn't consider Bear Run unique enough to require an individual permit), Bruce Jaffee, a professor of business economics at IU's Kelley School, points to other factors.  Specifically, he notes that the price of natural gas has plummetted lately.  This is due in large part to hydraulic fracturing, or "fracking," that makes getting at certain forms of natural gas much easier and cheaper than it used to be.  Unfortunately for Indiana, we have bet our energy future in significant part on the new coal gasification plant in Edwardsport.  So instead of making power from cheap natural gas, we're going to buy more expensive coal and create gas out of it for our power.  Jaffee thinks the less-expensive regulation at Bear Run is a way to try to keep utility costs in line by keeping down the price of coal that goes to Edwardsport.  (In a related note, from perhaps an opposite angle, see this NPR story on how the falling price of natural gas has made investments in solar power less attractive.)

Power plants take a long time to build.  What might look like a smart move at one point (betting on coal) may look less attractive when a new technocology, here fracking, comes along to upend the status quo.  But maybe things will change again as fracking comes under greater scrutiny (h/t Jeff Lorenzo at the Indiana Environmental Law Blog). 

I should add that I have no reason to disbelieve IDEM's claims that it is choosing a general permit at Bear Run over an individual permit for regulatory, not economic, reasons.  I just find the economic analysis interesting, and it gives me a reason to discuss energy prices and the different aspects of the market.  Betting on coal may prove to be more costly than it looked when the decision was made, and that cost could not necessarily have been predicted due to the emergence of new technologies.  I think that's fascinating.