united States Office of Water EPA 440/2 - 80 - 085
Environmental Protection Regulations and Standards December 1980
Agency Washington, D.C. 20460
Water
Economic Impact Analysis of
Proposed Effluent Limitations
Guidelines, New Source Performance
Standards, and Pretreatment
Standards for the Coal Mining
Point Source Category
Volume I- Economic Impact Analysis
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ECONOMIC IMPACT ANALYSIS
OF PROPOSED EFFLUENT LIMITATIONS GUIDELINES,
NEW SOURCE PERFORMANCE STANDARDS,
AND PRETREATMENT STANDARDS
FOR THE COAL MINING POINT SOURCE CATEGORY
VOLUME I ECONOMIC IMPACT ANALYSIS
prepared for
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF WATER REGULATIONS AND STANDARDS
WASHINGTON, D.C. 20460
by
CONTRACT NO. 68-01-4466
DECEMBER 1980
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This document is available through the U.S. Environmental Protection
Agency, Economic Analysis Staff WH-586, 401 M Street, S.W. ,
Washington, B.C. 20460, 202-755-2484.
This report has been reviewed by the Office of Water Planning and
Standards, EPA, and approved for publication. Approval does not
signify that the contents necessarily reflect the views and policies
of the Environmental Protection Agency, nor does mention of trade
names or commercial products constitute endorsement or recommendations
for use.
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PREFACE
This document is a contractor's study prepared for the Office of
Water Planning and Standards of the Environmental Protection Agency
(EPA). The purpose of the study is to analyze the economic impact
which could result from the application of effluent standards and
limitations issued under sections 301, 304, 306 and 307 of the Clean
Water Act to the Coal Mining industry.
The study supplements the technical study (EPA Development Document)
supporting the issuance of these regulations. The Development Docu-
ment surveys existing and potential waste treatment control methods
and technology within particular industrial source categories, and
supports certain standards and limitations based upon an analysis
of the feasibility of these standards in accordance with the
requirements of the Clean Water Act. Presented in the Development
Document are the investment and operating costs associated with
various control and treatment technologies. The attached document
supplements this analysis by estimating the broader economic effects
which might result from the application of various control methods
and technologies. This study investigates the effect in terms of
product price increases, effects upon employment and the continued
viability of affected plants, effects upon foreign trade and other
competitive effects.
The study has been prepared with the supervision and review of the
Office of Water Planning and Standards of EPA. This report was
submitted in fulfillment of Contract No. 68-01-4466 by Arthur D. Little,
Inc., and was completed in July, 1980. The work was performed from
June, 1977, through July, 1980; the data sources referred to in the
report were current at the time the work was performed.
This report is being released and circulated at approximately the
same time as publication in the Federal Register of a notice of
proposed rule making. The study is not an official EPA publication.
It will be considered along with the information contained in the
Development Document and any comments received by EPA on either
document before or during final rule-making proceedings necessary
to establish final regulations. Prior to final promulgation of
regulations, the accompanying study shall have standing in any EPA
proceeding or court proceeding only to the extent that it represents
the views of the contractor who studies the subject industry. It
cannot be cited, referenced, or represented in any respect in any
such proceeding as a statement of EPA's views regarding the Coal
Mining industry.
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TABLE OF CONTENTS
Page No.
I. EXECUTIVE SUMMARY I- 1
II. INTRODUCTION II- 1
III. PROPOSED EFFLUENT LIMITATIONS III- 1
IV. METHODOLOGY IV- 1
A. PRODUCTION COSTS IV- 1
B. TRANSPORT COSTS IV-5
C. UTILIZATION COSTS IV-10
D. DEMAND IV-10
V. ECONOMIC IMPACTS V-l
A. PRICE EFFECTS V-l
B. PRODUCTION EFFECTS V-8
C. EMPLOYMENT EFFECTS V-16
1. Direct Regional Effects V-16
2. Indirect Regional Effects V-20
D. FINANCIAL EFFECTS V-26
E. INDUSTRY GROWTH V-29
F. BALANCE OF PAYMENTS EFFECTS V-32
G. COMMUNITY EFFECTS V-34
H. IMPACT ON ENERGY PRICES TO USERS V-36
VI. COAL PREPARATION PLANTS VI-1
VII. LIMITS OF THE ANALYSIS VII-1
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LIST OF TABLES
TABLE 1-1:
TABLE III-l:
TABLE III-2:
TAPTJ7 IV-1-
PRIMARY IMPACT SUMMARY BY REGION. CONTROL
LEVEL: BAT-4, SPOT AND CONTRACT MINES
REGIONAL CAPITAL COST MULTIPLIERS
PROPORTION OF ACID MINES BY REGION
STTPPLY REGIONS
Page No.
I- 3
III- 4
III- 5
IV- 2
TABLE V-l:
TABLE V-2:
TABLE V-3:
TABLE V-4:
TABLE V-5:
TABLE V-6:
TABLE V-7:
TABLE V-8:
TABLE V-9:
TABLE V-10:
TABLE V-ll:
TABLE V-l2:
TABLE V-13:
1984 PRIMARY IMPACT SUMMARY, MARGINAL COAL
COSTS, CONTRACT MARKET MINES V- 2
1984 PRIMARY IMPACT SUMMARY, MARGINAL COAL
COSTS, SPOT MARKET MINES V- 3
1984 PRIMARY IMPACT SUMMARY, MARGINAL COAL
COSTS, METALLURGICAL COAL MINES V- 4
1984 PRIMARY IMPACT SUMMARY, EQUILIBRIUM
COAL MINING COST SHIFT, CONTRACT MARKET MINES V-6
1984 PRIMARY IMPACT SUMMARY, EQUILIBRIUM
COAL MINING COST SHIFT, SPOT MARKET MINES V-7
1984 PRIMARY IMPACT SUMMARY, COAL PRODUCTION
BY REGION, CONTRACT MARKET MINES V-9
1984 PRIMARY IMPACT SUMMARY, COAL PRODUCTION
BY REGION, SPOT MARKET MINES V-10
1984 PRIMARY IMPACT SUMMARY, PRODUCTION CHANGES
FROM BPT, SPOT AND CONTRACT MARKET MINES V-ll
1984 PRIMARY IMPACT SUMMARY, NUMBER OF CONTRACT
MARKET COAL MINES V-13
1984 PRIMARY IMPACT SUMMARY, NUMBER OF SPOT
MARKET COAL MINES V-14
1984 PRIMARY IMPACT SUMMARY, CHANGES IN NUMBER
OF MINES FROM BPT, SPOT AND CONTRACT MARKET COAL
MINES V-15
1984 PRIMARY IMPACT SUMMARY, EMPLOYMENT LEVELS,
CONTRACT MARKET COAL MINES V-l7
1984 PRIMARY IMPACT SUMMARY, EMPLOYMENT LEVELS,
SPOT MARKET COAL MINES V-l8
ii
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LIST OF TABLES (Cont.)
Page No.
TABLE V-14: 1984 PRIMARY IMPACT SUMMARY, CHANGES IN
EMPLOYMENT FROM BPT SPOT AND CONTRACT MARKET
COAL MINES V-19
TABLE V-15: 1984 PRIMARY IMPACT SUMMARY, CHANGES IN WAGES
FROM BPT, SPOT AND CONTRACT MARKET COAL MINES V-21
TABLE V-16: IMPORTANCE OF COAL MINING FOR SELECTED STATES V-22
TABLE V-17: ESTIMATED TOTAL IMPACT FROM EFFLUENT CONTROL
GUIDELINES V-24
TABLE V-18: IMPACT PERSPECTIVE V-25
TABLE V-19: IMPACT SUMMARY, CONTRACT MARKET MINES, INVESTMENT
REQUIREMENTS COMPARED WITH CASHFLOW, BPT .OR
BAT-2 V-27
TABLE V-20: IMPACT SUMMARY, CONTRACT MARKET MINES, INVESTMENT
REQUIREMENTS COMPARED WITH CASHFLOW, BAT-4 V-28
TABLE V-21: PRIMARY IMPACT SUMMARY - SPOT MARKET MINES,
INVESTMENT REQUIREMENTS COMPARED WITH CASHFLOW,
BPT OR BAT-2 V-30
TABLE V-22: PRIMARY IMPACT SUMMARY - SPOT MARKET MINES,
INVESTMENT REQUIREMENTS COMPARED WITH CASHFLOW,
BAT-4 V-31
TABLE V-23: COAL RESERVE BASE BY STATE V-33
TABLE V-24: COAL MINING'S SHARE OF TOTAL EMPLOYMENT FOR
SELECTED COUNTIES - 1976 V-35
TABLE V-25: ENERGY COST IMPACT FOR THE NATION V-38
TABLE V-26: REGIONAL ELECTRICAL ENERGY COST IMPACT V-39
ill
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LIST OF FIGURES
FIGURE III-l:
FIGURE III-2:
FIGURE IV-1:
FIGURE IV-2:
FIGURE IV-3:
FIGURE IV-4
FIGURE IV-5:
Page No.
CAPITAL COSTS OF BAT-2 AND BAT-4 CONTROL,
ACID MINES III-2
ANNUAL COSTS OF BAT-2 AND BAT-4 CONTROL,
ACID MINES III-3
CUMULATIVE DISTRIBUTIONS OF MINE LABOR
PRODUCTIVITIES FOR UNDERGROUND AND SURFACE
MINES IN NORTHERN APPALACHIA IV-4
COAL MINE WATER FLOWS - APPALACHIA IV-6
COAL MINE WATER FLOWS - MIDWEST AND CENTRAL
WEST IV-7
COAL MINE WATER FLOWS - GREAT PLAINS AND WEST IV-8
1984 REGIONAL COAL SUPPLY CURVE - PENNSYLVANIA IV-9
iv
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I. EXECUTIVE SUMMARY
In connection with our work as Economic Contractor under EPA Contract
No. 68-01-4466, we have prepared this Economic Impact Analysis on the
Effect of BAT Effluent Limitations on the Coal Mining Industry, as well
as two Appendices in separate volumes. The first, Appendix A, provides
an industry characterization, and the second, Appendix B, details the
methodology we employed in our work. The industry characterization was
done in 1978, and is current as of that time. The other work was
completed in mid-1980.
We prepared a supply-demand model for the coal mining industry and fed
it with published economic (market) data and with BAT and BPT control
cost data supplied through EPA's Effluent Guideline Division by a
separate Technical Contractor. Since the Technical Contractor developed
costs only on a per-gallon basis, we took oh the additional task of
relating the number of gallons of effluent per ton of coal to the
significant parameters (size and location); as might be expected, the
available data were relatively scarce and highly variable. We attacked
the problem of mine wetness on a stochastic basis and showed that while
the results for any particular mine could not be specified with precision,
the results (and thus control costs) for each region as a whole were
quite reproducible. The effects within a region could be specified for
the large (contract market) mines and for the small (spot market) mines.
The industry impact estimated for the BAT-2 control option (flocculant
addition) results in no discernable shift of production or employment
since the costs associated with BAT-2 are very small. The costs estima-
ted for the BAT-2 control option are so small that no impact is expected
in terms of mine closures, lost production, lost employment, or lost
wages and salaries.
The direct effects of the BAT-4 control option (filtration) on the
industry are summarized in Table 1-1. The analysis is based on the
assumption that in 1984, the year of the impact, BPT control will already
be in place in all cases; accordingly the table shows the changes rela-
tive to the BPT control basis. The negative impact of the BAT-4 control
option is concentrated in Northern Appalachia. Under this option the
region's production declines by 3%, employment by over 1600 or 4%.
Production would be expected to increase in Central Appalachia and Great
Plains regions. Mine closures in Northern Appalachia are estimated at
just over 50 or almost 6% of the mines expected to be operating in 1984.
Nationally, production and employment change little as coal production
is shifted to Central Appalachia and Great Plains regions. However,
the additional production in these regions would come from larger mines;
the net result is a small reduction in the number of total operating
mines for the nation.
1-1
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The ultimate increase in the annual cost of energy to the United States
consumer is about $64 MM for BAT-2 and about $332 MM for BAT-A (1978
dollars). The effect on total coal supply and on coal reserves is
negligibly small.
Our analysis also examined the potential impact of the BAT control
options on metallurgical coal (both for domestic consumption and
export); we found that no significant impacts in terms of production
shifts are to be expected. Prices of metallurgical coal would be
increased by at most 5% to 7% by the BAT regulations.
1-2
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Region
Northern Appalachia
BPT
Change
% Change
Central Appalachia
BPT
Change
% Change
Southern Appalachia
BPT
Change
% Change
Great Plains
BPT
Change
% Change
National Total
BPT
Change
% Change
TABLE 1-1
PRIMARY IMPACT SUMMARY BY REGION
CONTROL
SPOT AND
Number of
Mines
Opened
(Closed)
955
(54)
(5.7)
1416
29
2.0
97
1
1.0
54
0
0
2904
(24)
(0.8)
LEVEL: BAT- 4
CONTRACT MINES
Annual
Production
Gained
(Lost)
(MM Tons)
111.23
(3.31)
(3.0)
99.09
0.93
0.9
22.69
0
0
304.83
3.18
1.0
836.41
0.68
0.1
Employment
Gained
(Lost)
39670
(1610)
(4.1)
35550
400
1.2
8410
70
0.8
32090
360
1.1
175140
(780)
(0.4)
Annual
Wages and
Salaries
Gained
(Lost)
($MM)
712.70
(21.66)
(3.0)
598.90
4.80
0.8
159.60
1.34
(0.8)
609.90
6.81
1.1
3200.00
(8.71)
0.3
Unimpacted regions are not shown.
1-3
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II. INTRODUCTION
In connection with our work as Economic Contractor under EPA Contract
No. 68-01-4466, we were to prepare an economic impact analysis of the
effects of proposed BAT regulations on Coal Mining Industry effluents.
Estimates of BAT control costs were to be provided to us, through EPA,
by a separate Technical Contractor. We were to build an economic model
of the industry such that, using the Technical Contractor's cost estimates,
we in turn could estimate the economic impact of various BAT control
options.
This report is our determination of the economic impact on the Coal
Mining Industry of two BAT control options currently under consideration
flocculant addition at the 1 ppm level ("BAT-2") and filtration ("BAT-4").
In it we discuss first the data on the proposed regulations provided by
the Technical Contractor, and then the method by which we set up an
industry economic model. With this preparation, we then provide our
impact analysis and our estimate of the limitations to the analysis.
Two backup appendices are al-so provided, in separate volumes, one a
characterization of the Coal Mining Industry, and the other a detailed
description of the industry economic model developed for this assignment.
All financial figures in this report are in 1978 dollars, except where
otherwise noted.
II-l
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III. PROPOSED EFFLUENT LIMITATIONS
The Technical Contractor.has provided cost information for two levels
of effluent treatment , shown in Figures III-l and -2, relative to
"BPT" Lime Treatment, Aeration, and Settling:
Level 2 "BAT-2". BPT plus Flocculant (Acid Mines).
Level 4 "BAT-4". Upgraded BPT plus Filtration (Acid Mines).
We make the assumption that in 1984 all mines will be equipped with
the BPT system. At EPA's request, we have evaluated the
economic impact of regulations which would impose additional control of
acid mines to Level 2 or to Level 4 (respectively called BAT-2 and BAT-4
in this report) .
1. BAT-2 Control (Flocculant) Costs
As reported by the Technical Contractor^ , the incremental capital
cost for a flocculant addition facility is $30,000 to $40,000. The con-
tinuing cost of flocculant, at $2/lb, depends on the effluent flow and
the dosage of flocculant (ppm added). We were advised by the Technical
Contractor to assume a dosage rate of 1 ppm; in this event the cited
report (1) shows the costs given in Figures III-l and -2 for BAT-2.
2. BAT-4 Control (Filtration) Costs
The Technical Contractor's costs ' ' for adding deep-bed filtration
facilities to the system are also shown in Figures III-l and 2.
The capital cost component of these figures must be adjusted for regional
differences by using the factors also supplied by the Technical Contractor
(shown in Table III-l).
These BAT costs apply only to acid mines.. Table III-2 shows the fraction
of mines which are acid in each region.
Mine Drainage Treatment and Costing Study, Coal Mining Industry,
Hydrotechnic Corporation, U.S. EPA Contracts 68-02-2608, (Task 67)
and 68-01-5163 (Task 03-03), Revision of October, 1979.
III-l
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10 c:
1.0 r
ts
S
5
0.1
0.01
0.01
0.1 1.0
Design Flow, MGD
10
Source: "Mine Drainage Treatment and Costing Study, Coal Mining Industry,"
Hydrotechnic Corporation, USEPA Contracts 68-02-2608 (Task 67)
and 68-01-5163 (Task 03-03), Revision of October, 1979.
FIGURE 111-1 CAPITAL COSTS OF BAT-2 AND BAT-4 CONTROL, ACID MINES
(RELATIVE TO BPT, 1979 DOLLARS)
III-2
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10
1.0
5
I
I
o.i
0.01
0.01
I I I I I
I I I I
BAT-4
0.1
1.0
Design Flow, MGD
10.
Source: "Mine Drainage Treatment and Costing Study, Coal Mining Industry,
Hydrotechnic Corporation, USEPA Contracts 68-02-2608 (Task 67)
and 68-01-5163 (Task 03-03), Revision of October, 1979.
FIGURE 111-2 ANNUAL COSTS OF BAT-2 AND BAT-4 CONTROL, ACID MINES
(RELATIVE TO BPT, 1979 DOLLARS)
III-3
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TABLE III-l
REGIONAL CAPITAL COST MULTIPLIERS
Region Overall Capital Cost Multipliers
Northern Appalachia 1.32
Central Appalachia 1.32
Southern Appalachia 1.28
Midwest 1.12
Central West 1.08
Gulf 1.00
Northern Great Plains 1.00
Rockies 1,36
Southwest 1.26
Source: Mine Drainage Treatment and Costing Study, Coal Mining
Industry. Hydrotechnic Corporation, USEPA Contracts
68-02-2608. (Task 67) and 68-01-5163 (Task 03-03),
Revision of October, 1979.
III-A
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TABLE III-2
PROPORTION OF ACID MINES BY REGION
Region
Surface Underground
Northern Appalachia
21%
49%
Central Appalachia
17
17
Southern Appalachia
17
17
Midwest
25
18
Central West
16
Gulf
16
Great Plains
Rockies
Southwest
Source: Mine Drainage Treatment and Costing Study, Coal Mining Industry,
Hydrotechnic Corporation, USEPA Contracts68-02-2608, (Task 67)
and 68-01-5163 (Task 03-03). Revision of October, 1979.
III-5
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IV. METHODOLOGY
The economic impact of BAT regulations will depend on the magnitude of
the cost increases, the proportion of coal supplies facing cost increases,
the location of those coal supplies relative to other potential substitute
supplies, and the quality of those potential substitute supplies. If no
substitutes are available, the economic impact would be increased costs
to users. If substitutes are available, the economic impact would be
losses in production, jobs, wages and profits in areas of relatively
higher costs, and gains in areas of lower costs, and possible substitution
of coal by non-coal resources. The analysis of the economic impact of the
effluent guidelines involved four distinct components:
The availability and the mining costs of coal in the coal-
supplying regions of the country.
The cost of transporting coal from the supply regions to the
demand regions.
The costs of utilizing coals with different chemical and
physical properties.
The levels of demand for coal and the sensitivity of this demand
to changes in price.
The coal mining industry was analyzed in terms of these four components
and an analytical model of the industry was constructed in order to
assess the levels of production, employment, wages, investment requirements,
and costs of coal use in 1984 with BPT in place and with the proposed
more stringent BAT effluent control options. The differences between
the BPT and BAT conditions constitute the estimated impact of the BAT
options.
A. Production Costs
Central to the analysis was the development of costs of production in
27 coal producing regions of the country. These regions are shown in
Table IV-1.
The costs of coal mining depend on the type of mine, strip or deep; mine
size: seam thickness; overburden depth; mine wetness; and others. The
wide variations in the relative magnitude of these factors cause substan-
tial variation in mining costs within regions. The fact that coal is a
highly variable natural resource is reflected in a wide range of mine
productivities as shown by an analysis of mine data made available by
the Mine Employment and Safety Administration (MESA).*
Engineering estimates were made for technical costs of "typical" mines
in each region in different size classes and for strip and deep mines.
These engineering cost estimates were based on component costs which were
projected to 1984 allowing for the expected changes in the costs of
equipment, labor and energy as well as the changes in the average labor
* MESA's name has become the Mine Safety and Health Administration.
IV-1
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TABLE IV-1
COAL MODEL SUPPLY REGIONS
Model Region
1 Pennsylvania
2 Ohio
3 Maryland
4 West Virginia, North
5 West Virginia, South
6 Virginia
7 Kentucky, East
8 Tennessee
9 Alabama
10 Illinois
11 Indiana
12 Kentucky, West
13 Iowa
14 Missouri
15 Kansas
16 Arkansas
17 Oklahoma
18 Texas
19 North Dakota
20 Montana
21 Wyoming, Powder River
22 Colorado
23 Wyoming, Other
24 Utah
25 Arizona
26 New Mexico
27 Washington
IV-2
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productivity. These production costs were calculated for a wide range of
mine labor productivities to allow for the possible variations in mining
conditions discussed above. Minimum required prices providing a minimum
return on capital employed in the mining operation was calculated from
these production costs.
The relationship between mine labor productivity and minimum required
price, which thus had been established, provided estimates for minemouth
prices for the mines which were projected to be producing in 1984. (Our
projection of the future mine population used the MESA mine file as a
starting point, retiring old mines and opening new mines thus simulating
expected changes in regional coal mining capacity.)
The productivities for new mines were obtained through sampling of existing
productivity distributions derived from the MESA mine file. Figure IV-1
shows examples of these distributions for underground and surface mines
in Northern Appalachia.
The.approach ensured the closest possible matching of available information
on the existing mine population (from the MESA file), on expected changes
in that mine population and on projected production costs obtained by
engineering cost analysis.
The estimated minimum required price for each mine in the statistically
generated 1984 mining population within each region formed the basis of
the minimum required price for increments of coal from that region.
With the estimated mine population for each region described in terms of
the tonnage capacity and the minimum required price for each mine, a
regional supply curve could be constructed by arraying potential regional
coal production in order of ascending minimum required price. This supply
curve provided an estimate of the amount of coal to be produced in a
given region at any particular price.
The BAT effluent limitations will shift the costs of production, the
capital required, and thus the minimum required price for each acid mine
depending on the volumes of waste water to be treated and the treatment
technology to be used. The costs and capital required per unit of water
flow were developed by the Technical Contractor for the Effluent Guidelines
Division of the EPA.
The amount of water to be treated at an individual mine is the result
of complex natural conditions and is not related to any particular set of
mine descriptors. The Economic Analysis Division of EPA collected data
from discharge permits and monitoring reports to provide a usable sample
of water flows at 178 mines. Putting all these 178 data points on one
plot against mine size was not particularly enlightening, as the spread
was very large; there were mines reporting 1000 times as much average
flow as others of the same mine size. Trends became a little clearer
when one divided the 178 data points into the 111 for Appalachia, the 58
for the somewhat drier mines of the Midwest and Central West, and the 9
IV-3
-------
FIGURE IV-1
CUMULATIVE DISTRIBUTIONS OF MINE LABOR PRODUCTIVITIES
FOR UNDERGROUND AND SURFACE MINES IN NORTHERN APPALACHIA
100
01
00
c
0)
o
M
0)
0)
1
u
80
60
AO
20 -
0
Underground Mines
Productivity (Tons Per Miner Shift)
-------
for the much drier mines of the Great Plains and West (a more detailed
subdivision would have produced too few points per category to be mean-
ingful) .
The data for each of these three subgroups are shown in Figures IV-2, -3,
and -4, respectively. The scatter is still severe, but the least-squares
correlation line is shown in each case, together with a pair of parallel
"spread" lines which include 90% of the points. Smaller mines on the
average have more gallons per ton than do larger mines of the same type
in the same region.
Since, even for a given mine size, the plots show that any single mine
could have a flow very different from the average, it was essential to
take the large variability of water flows into account. Water flow for
any individual mine in the population of mines from which the supply curves
were developed was estimated by statistically sampling the distribution
of flows for the appropriate mine size. As discussed in Section VI,
"Limits of the Analysis", the use of sampled values for flows resulted in
a more accurate estimate of the supply curves than would have been possible
with the use of an average, high or low value for flows. Given the flow
for each mine in the population, the BAT control cost could be allowed
for in the calculation of the minimum required price, and in the deviation
of regional supply curves under BAT options. These supply curves were
converted to a series of steps for subsequent use; a set of supply curves
for Pennsylvania is shown as an example in Figure IV-5. These supply
curves were used to determine the equilibrium between regional demand
and supplies with the coal market simulation models.
B. Transport Costs
Users will substitute the coal from one region for that of another if
the total cost to the user is lower. Transportation costs can be a
substantial portion of the total cost.
The impact analysis developed coal transportation costs from the 27 supply
regions to the 35 demand regions. These transport costs were based on a
sample of actual freight rates for coal from specific points in the
mining regions to specific points in the demand regions. An empirical
model was constructed with the transport cost per ton as a function of
distance and line changes for trainload/unit train shipments and single-/
multi-car shipments. These functions were used to estimate the cost
of moving coal from a supply region to a demand region based on the average
distance between the supply and demand region.
It is possible to move coal between a number of supply and demand regions
over water; this is often a less expensive alternative. Over those
supply-demand region links the cost of waterborne transport was used.
The unit cost of transport over any particular link is not affected by
the effluent control costs, so that the same unit transport costs were
used for the determination of BPT and BAT supply-demand equilibrium.
IV-5
-------
o
15
a
li-
fe
i
I
Mine Production, Tons/Year
FIGURE IV-2 COAL MINE WATER FLOWS - APPALACHIA
IV-6
-------
10=
10H 1=
c
o
I
0)
2
s
10
10"
10-
10C
10'
Mine Production, Tons/Year
FIGURE IV-3 COAL MINE WATER FLOWS - MIDWEST AND CENTRAL WEST
IV-7
-------
10'
10
c
o
o
a
S,
a
10=
10C
10'
Mine Production, Tons/Year
FIGURE IV-4 COAL MINE WATER FLOWS - GREAT PLAINS AND WEST
IV-8
-------
Contract Market
I
v£>
2.UU
1 7K
Icn
.OU
.25
Control Cost
$/Ton
IfVl
.uu
.75
Kf\
r\
Control Levels
& BAT-4
-O- BPT and BAT-2
A
i i i i i i i i
r
A A
1 1 1 1 1 1 1 1
£
1
1
d
r
0= : &
c^i &-
t^
i i i i i i 1 1
AA
I 1
H^
-6
_i
10 100 1.000
Cumulative Production (Trillions of Btu)
10,000
FIGURE IV-5 1984 REGIONAL COAL SUPPLY CURVE
PENNSYLVANIA
(1978 Dollars)
-------
C. Utilization Costs
Coal varies by Btu content per ton, the quantity and chemical composition
of ash, the moisture content and the amount of sulfur. Each of these
characteristics iapacts the cost of utilization of coal, either as a
source of energy or as a feedstock for the basic iron and steel industry.
Feedstock or metallurgical coal must have quite specific physical and
chemical properties; energy coals do not constitute a substitute for
metallurgical coals. The impact analysis of metallurgical coal mining
was based on a supply-demand equilibrium determination separate from
the supply-demand determination for energy coals.
The costs of utilization for energy coals constitute a continuous function
of characteristics such as ash, moisture and sulfur content.
Estimates were made of the cost of generating electricity from the coals
produced in each supply region. The major source of variation in these
costs is due to the sulfur content of the coal, subject to the air emission
standards which vary according to the region and whether the plant comes
under State Implementation Plan Standards or Federal New Source Pollution
Standards.
These various factors were taken into account in estimating the costs
of utilization for the demand regions (Table IV-1). The substitution of the
coal from one supply region for that of another was constrained by the
relative costs of utilization of the coals.
The unit costs of utilization of a particular coal are not affected by
the effluent control costs so the unit utilization costs within each
demand region for a given coal were the same under BPT or BAT conditions.
D. Demand
In order to determine a supply-demand equilibrium, demand must also be
estimated. The EPA Office of Air Quality Standards has recently carried
out a projection of the demand for coal as part of an analysis of the
impact of air quality standards. After evaluation, it was decided that
the projections of coal demand made for that study were as thorough and
as good as any which could be made within the scope of this study. Thus
the demand for coal within the 35 demand regions was taken directly from
the EPA air quality study. By using these demand projections, the coal
demand used in the analysis of the water effluent control options is
consistent with the demand for coal under the EPA air quality guidelines.
We thus made the initial assumption that the water effluent control
options analyzed in this study would not significantly alter the total
demand for coal. If the costs of control were sufficiently large to
make such substitution of other energy supplies appropriate, then new
demand projections would have had to be made; fortunately this was not
necessary.
IV-10
-------
The supply-demand equilibrium was determined by a linear program which
minimizes the total cost of meeting the demand for energy from coal.
The linear program estimates the total cost of providing energy from
coal in each of the demand regions. It also determines the regions from
which that coal will be supplied based on the FOB coal price, the costs
of transportation, and costs of utilizing the coals of different supply
regions in each demand region.
The supply-demand equilibrium was determined for the BPT and BAT supply-
demand scenarios. The difference between the BPT and BAT solutions
constituted the estimated economic impact of the BAT effluent limitations,
These impacts were estimated in terms of the increased costs borne by
consumers for energy or for iron and steel products. The impacts on
suppliers were estimated in terms of shifts in production, employment,
wages, and investment requirements. Some of these primary impacts were
shown to potentially result in a shift of general economic conditions in
coal producing regions; these secondary impacts were also analyzed.
IV-11
-------
V. ECONOMIC IMPACTS
The economic impacts of the BAT control options result from the establish-
ment of a new market equilibrium under the altered mining costs required
to meet the BAT effluent standards. The new equilibrium may alter the
prices at which coal will be supplied, the amounts of coal supplied from
the various production regions, the levels of regional employment (impacting,
in turn, the general regional levels of economic activity), and the amounts
of cash generation and investment required in the coal mining industry.
The alterations constituting the economic impact are from the baseline
estimates of activity which presume that coal mining in 1984 will already
have BPT control technology in place.
The analysis of economic impact separates the coal mining industry into
three components; energy coal contract market mines, energy coal spot
market mines, and metallurgical coal mines. These three components are
basically separate, although there is some interaction between contract
and spot market mines, and the market equilibria for these three components
are derived separately.
A. Price Effects
The BAT control options result in mining costs higher than those under BPT
control levels for all acid mines with significant water flows. The vari-
ability of water flow among individual mines means that some mines will face
very low or even zero control costs while others will face relatively high
control costs due to high and acidic water flows.
These control costs vary by mine and result in an upward shift in the
supply curve and a change of shape in the supply curve for various regions.
The amount of upward shift can be demonstrated by a comparison of the base and
the BAT control option minimum required prices (costs of production plus
a minimum required return 10% on capital) for the final ton of
coal supplied under the BPT case ("marginal" price). This comparison is
shown in Tables V-l through -3 for the three classes of mines. It must
be borne in mind that these are not the prices to be realized under the
BAT control option equilibria, but only a measure of the production cost
shift brought about the BAT control options. The mining costs shown for
the various control options cover production costs and the costs of control
of mining effluents.
It will be noted from Table V-l that these shifts vary by region indicating the
regional variation of water flows, water acidity, and mine sizes. The general
level of cost increase under BAT-2 is on the order of 0.1 percent in Northern
and Central Appalachia, while western regions face no control costs since
those regions have been estimated to have alkaline water flows. Costs for
BAT-4 are higher in Northern Appalachia due to the costs associated with
treating the acid mine effluent in those regions.
V-l
-------
TABLE V-l
1984 PRIMARY
IMPACT
SUMMARY
MARGINAL COAL COSTS
Area
Northern
Appalaohla
Central
Appalac.li La
Southern
Appaluchia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwi'st
Northwest
Region
1
2
3
4
5
6
7
8
9
10
U
12
13
14
15
16
17
L8
19
20
2J
22
23
24
25
26
27
28
29
I'A
Oil
Ml)
WV(N)
WV(S)
VA
KY(E)
TN
AL
II.
IN
KY(W)
LA
MO
KS
AR
OK
T\
ND
SI)
WY(l')
MT
WY(0)
c:o(N)
CO(S)
LIT
i\7.
NM
WA
CONTRACT
BPT
$/Ton
31.37
25.71
33.16
24.46
29.69
27.24
23.32
32.28
29.26
20.05
19.09
23.09
7.31
12.94
7.01
7.15
17.46
12.40
8.56
-
-
10.22
-
-
16.26
22.15
14.20
9.63
13.60
MARKET MINES
$/Ton
31.39
25.68
33.16
24.46
29.68
27.25
23.17
32.28
29.26
20.03
19.08
23.09
7.31
12.92
7.00
7.15
17.45
12.40
8.56
-
-
10.22
-
-
16.26
22.15
14.20
9.63
13.60
*?=*».
Change
0.1
-0.1
0.0
0.0
0.0
0.0
-0.6
0.0
0.0
-0.1
-0.1
0.0
0.0
-0.2
-0.1
0.0
-0.1
0.0
0.0
-
-
0.0
-
-
0.0
0.0
0.0
0.0
0.0
32.52
26.83
33.43
24.62
30.05
27.46
23.39
32.39
30.96
20.14
19.27
23.19
7.40
13.00
7.09
7.24
17.63
12.43
8.56
10.22
16.26
22.15
14.20
9.63
13.60
Change
3.7
4.4
0.8
0.7
1.2
0.8
0.3
0.3
5.8
0.4
0.9
0.4
1.2
0.5
1.1
1.3
1.0
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(1)
BAT-2 and BAT-4 affect the marginal costs for acid mines only.
V-2
-------
TABLE V-2
1984
PRIMARY
IMPACT
SUMMARY
MARGINAL COAL COSTS
SPOT MARKET MINES
BPT
Area
Northern
Appal ach in
Central
Appalach ia
Southern
Appalach ia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
Rej
1
2
3
4
5
6
7
8
9
10
1.1
.12
] 3
Ji
.1 }
16
17
]8
19
20
21
22
2 '3
24
25
2h
27
28
29
^ion
PA
OH
Ml)
U'V(N)
U'V(S)
VA
KY(Ii)
'IN
AL
IL
IN
KY(W)
LA
MO
KS
AR
OK
TX
NO
SI)
WY(l')
MT
WY(0)
CO(N)
tlO(S)
UT
AZ
NM
WA
$/Ton
28
24
16
24
38
30
24
29
11
32
18
17
-
-
28
-
-
-
*
^
-
-
22
"
-
^
.83
.35
.94
.10
.67
.45
.95
.00
.63
.29
.44
.33
.01
.37
__BA
$/Ton
28.
24.
17.
25.
38.
30.
25.
28.
11.
32.
18.
17.
-
-
28.
-
-
*
"
-
22.
-
"
46
50
13
75
53
50
22
34
68
28
57
46
22
37
T_2(D ,JA
Change
-1.
0.
1.
6.
-0.
0.
1.
-2.
0.
0.
0.
0.
~
-
0.
-
-
*
-
0
-
3
6
1
8
4
2
1
3
4
0
7
8
7
$/Ton
29
26
20
25
40
30
28
31
13
32
20
19
-
30
-
-
*
-
22
-
.82
.78
.84
.59
.48
.42
.84
.04
.31
.37
.88
.77
.86
.37
T_,(D
Change
3.4
10.0
23.0
6.2
4.7
-0.1
15.6
7.0
14.4
0.2
13.2
14.1
^
-
10.2
-
-
*
-
0
-
(1)
Spot market coal is provided by surplus contract market mine production.
BAT-2 and BAT-4 affect the marginal costs for acid mines only.
V-3
-------
TABLE V-3
1984 PRIMARY IMPACT SUMMARY
MARGINAL COAL COSTS
METALLURGICAL COAL
MINES
DAT-2 W ilAT-4 ^
Area
Northern
Appalnchi a
Central
Appalach La
Southern
Appalacliia
Midwest
Central
West
Gulf
Oreat Plains
Rockies
Southwi'st
Northwest
Kcj
.1
2
3
4
>
6
"7
8
9
10
11
12
]3
14
J5
16
17
18
19
20
21
22
23
24
23
26
27
2H
29
; Lon
PA
OH
Ml)
WV(N)
WV(S)
VA
KY(l-)
TN
AL
II,
IN1
KY(lxr)
LA
MO
KS
AR
OK
TX
Nl)
SI)
K'Y ( 1' )
MT
WY(0)
CO(N)
CO(S)
LIT
AZ
NM
WA
BPT
$/Ton
50.47
-
-
-
_
54.96
46.89
40.43
52.67
43.30
-
-
0
0
0
0
0
0
0
0
0
-
-
40.74
36.51 "
0
0
0
$/Ton
<51.97
-
-
-
_
<59.16
<49.87
<43.98
<54.28
<48.51
-
<37.52
0
0
0
0
0
0
0
0
0
-
-
<42.40
<37.69
0
0
0
%
Change
<3.0
-
-
-
<7.6
<6.4
<8.8
<3.1
<12.0
-
-
0
0
0
0
0
0
0
0
0
0
-
<4.1
<3.2
0
0
0
$/Ton
<53.44
-
-
-
<57.37
<48.76
<41.34
<54.01
<52.23
-
<35.82
0
0
0
0
0
0
0
0
0
0
-
<41.20
<36.45
0
0
0
%
Change
<5.9
-
-
-
<4.4
<4.0
<2.3
<2.5
<20.6
-
-
0
0
0
0
0
0
0
0
0
0
-
<1.1
<-0.2
0
0
0
(1)
BAT-2 and BAT-4 affect the marginal costs for acid mines only.
V-4
-------
Table V-2 shows the substantially larger cost increases for spo,t market
mines; these are small mines (less than 50,000 tons per year), and the water
flows per ton are larger than for the larger contract market mines. Metal-
lurgical coal mines (Table V-3) exhibit relatively moderate percentage cost
increases largely due to the higher base costs of metallurgical coal.
The small cost shifts under each of the control options indicate the basic
magnitude to be expected in impact parameters.
At this point, the special nature of metallurgical coal must be considered.
Metallurgical coal constitutes a resource separate from energy coals since
energy coals are not a viable substitute in making coke. However, beyond
that there are very limited possiblities of substitution between metal-
lurgical coals. Their different chemical and physical properties mean
that the metallurgical coal from one region often cannot be substituted
for coals from other regions and in many cases, the production of coke
requires a blend of metallurgical coals to provide an appropriate feedstock.
The metallurgical coal resource base is also limited; as can be seen relatively
few coal-producing regions produce metallurgical coal.
Given the above, the limited nature of the resource base, and the moderate
and relatively consistent mining cost increases expected from the two BAT
control options, no measurable shifts of production are expected. The
economic impact will be in the form of increased prices for metallurgical
coal; the demand for metallurgical coal is price inelastic due to the lack
of substitute feedstocks for basic iron and steel production. Exports also
constitute a significant source of demand and no significant alteration of
demand is expected due to the small price changes due to either of the
control options. The cost increases shown in Table V-3 overstate the impact
from BAT-2 and BAT-4 as presently structured since those costs are based
on an earlier more stringent version of those control options. Since these
higher costs vere not expected to generate any production shifts, it was
decided not to recreate the metallurgical coal supply curves under the
lower control cost options.
The shifts in the supply curves in coal-producing regions will result in a
new market equilibrium as coal users seek substitute coals. The equilibria
under the BAT control options will provide coal energy to the nation as a
whole at the minimum total cost. That total cost accounts for not only
the cost of mining the coal, but also the cost of transportation" and
utilizing coals of differing quality as discussed in Section IV above.
The shift of the amount of coal provided by a region means a movement
along the region's supply curves. Under the equilibria of the BAT control
options, prices of coal can vary not only because of increased costs of
production due to effluent control costs, but also because regions can
produce quantities of coal different from those provided under the BPT
market equilibrium. These shifts result in equilibrium coal prices
different from those shown in Tables V-l and -2. The equilibrium coal
prices based on the expected quantities supplied from each region are shown
in Tables V-4 and -5. These equilibrium prices under BAT control options
and the changes of those prices from the BPT equilibrium prices constitute
the expected price impact due to the regulations. These prices are based
on the linear approximations of the supply curves used by the market
V-5
-------
TABLE V-4
Area
Northern
A p p n 1 a c h i a
General
Appalach la
Southern
Appalacliia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
1984
PRIMARY IMPACT
SUMMARY
EQUILIBRIUM COAL MINING COST SHIFT
CONTRACT MARKET MINES
BA'I
-2 HAT- A
BPT % %
Rci
£
.1
2
3
4
^
6
7
8
9
in
n
12
13
14
15
16
17
18
19
20
21.
22
23
24
25
26
27
28
; L o n
PA
Oil
Ml)
KV(N)
KV(S)
VA
KY(I')
TN
AL
11.
I.N
KY(U')
LA
MO
KS
AR
OK
TX
M)
SI)
WY(]>)
Ml
WY(0)
CO(N)
GO(S)
UT
A 7.
NM
$/Ton
31.
27.
33.
27.
30.
32.
27.
35.
31.
23.
23.
23.
15.
16.
19.
20.
26.
12.
8.
7.
8.
13.
18.
22.
14.
13.
46
10
06
42
89
48
71
98
52
18
82
37
05
58
65
21
46
93
61
94
58
28
25
08
15
34
$/Ton
31.
27.
33.
27.
30.
32.
27.
36.
31.
23.
23.
23.
15.
16.
19.
20.
26.
12.
8.
7.
8.
13.
~
18.
22.
14.
13.
46
12
29
44
91
50
73
00
52
18
82
37
02
58
65
21
46
93
61
94
58
28
25
08
15
34
Change
0.0
0.1
0.7
0.1
0.1
0.1
0.1
0.1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
~
0
0
0
0
$/Ton
31.
27.
33.
27.
31.
32.
27.
36.
31.
23.
23.
23.
15.
16.
19.
7.
26.
12.
8.
7.
8.
13.
18.
22,
14.
13.
91
41
94
72
17
53
75
03
52
18
82
37
02
58
65
13
46
93
61
94
58
28
25
08
15
34
Change
1.
1.
2.
1.
0.
0.
0.
0.
0
0
0
0
0
0
0
-64.
0
0
0
0
0
0
0
0
0
0
4
1
7
1
9
2
1
1
7
29 WA
13.56
13.56
13.56
0
V-6
-------
TABLE V-5
Area
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
1984
PRIMARY IMPACT SUMMARY
EQUILIBRIUM COAL MINING COST SHIFT
SPOT MARKET MINES
BPT
1
2
3
4
5
6
7
8
9
in
1.1
J2
.1.3
14
15
16
17
18
19
20
21
22
23
24
23
26
27
28
; i o n
PA
Oil
MD
WV(N)
WV(S)
VA
KY(i;)
IN
AL
II,
IN
KY(U')
LA
MO
KS
AR
OK
TX
Nl)
SI)
WY(l')
Ml
WY(0)
CO(N)
c:o(s)
UT
AZ
NM
$/Ton
25
20
16
24
38
31
25
28
11
27
13
17
0
0
0
0
22
0
0
0
0
0
.08
.52
.87
.01
.76
.07
.85
.20
.65
.26
.93
.35
.33
0
0
22.87
0
0
0
$/Ton
22
20
17
24
38
31
25
28
11
27
13
17
0
0
0
0
22
0
0
0
0
0
.80
.52
.10
.50
.76
.07
.85
.20
.65
.26
.93
.35
.33
0
0
22.87
0
0
0
_2
"i
Change
-9.1
0
0
2.0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$/Ton Change
25.08
18.92
20.75
24.50
41.04
31.07
28.20
30.55
13.28
27.26
15.65
19.80
0
0
0
0
30,56
0
0
0
0
0
0
22.87
0
0
0
0
-7.8
23.0
2,0
5.9
0
9.1
8,3
14.0
0
12.3
14.1
0
0
0
0
36.9
0
0
0
0
0
0
0
0
0
0
0
Northwest
29 WA
V-7
-------
equilibrium model and are not strictly comparable with the prices in
Tables V-l and-2. These are the prices which would be received for the
next additional ton of coal produced from the region. The region does
not produce an additional unit of coal because the next unit of coal from
the region is in fact estimated to have a minimum required price greater
than the price in Tables V-4 and -5. (It will be noted that there are
some regions which exhibit "jumps" in the price. These jumps are anomalies
in regions where all the coal available is being used so that production
is limited by resources, not by the next economically available unit of
coal. In these cases, a small change in alternative supplies can lead
to large jumps in prices. It will also be noted that the regions where
these jumps occur are not significant coal-producing regions.)
The prices received by contract market mines under BAT-2 are generally
expected to increase by only about 0.1% in Northern and Central Appalachia.
Under BAT-4 prices are expected to increase by up to 2.7% in Maryland,
but generally by less than 1.5% in the remainder of Northern Appalachia,
under 1.0% in Central Appalachia and no change expected in other regions.
(The Arkansas decline is an anomaly).
The equilibrium prices also show that coal prices in various regions do
not rise as much as control costs, indicating that there will be mines
whose costs will have risen by more than the change in market price. These
mines will be no longer economically viable under the BAT-4 control option.
The equilibrium prices shown for spot market mines actually show a decline
in one region under each control option. These declines are due to the
shifts in the linear estimates of the supply curves and the accuracy with
which those estimates are made from the supply curves.
B. Production Effects
The establishment of new market equilibria under the BAT control options
results in production shifts with respect to the BPT base case. Tables
V-6 through -8 show the expected 1984 levels of production in each coal-
producing region under the BPT and BAT control option equilibria. The
tables show the impact on contract market mines, spot market mines, and
the aggregate impact. No production impacts are shown for metallurgical
coal mines because the entire economic impact of the BAT control options
is expected to be in the form of increased prices with no shifts in pro-
duction.
Table V-6 shows that for contract mines under BAT-2, there is no measurable
production shift. The cost increases estimated for BAT-2 control are very
small for all regions so that the competitive relation of coals is not
shifted.
Under BAT-4, the production shifts are expected to result in a decline
of Pennslyvania production and an increase in Wyoming Powder River pro-
duction. There are also some minor production shifts in other Appalachian
regions. The control costs faced by Pennsylvania are expected to be large
V-8
-------
Area
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
Total
TABLE V-6
1964 PRIMARY IMPACT SUMMARY
COAL
PRODUCTION BY REGION
CONTRACT MARKET MINES
Reg Ion
1 PA
2 Oil
3 Ml)
4 IvV(N)
5 WV(S)
6 VA
7 KY(E)
8 TN
9 AL
10 II.
LJ IN
12 KY(U')
13 LA
J 4 MO
.15 KS
16 AR
17 OK
18 TX
] 9 Kl)
20 SI)
21 WY(P)
22 NT
23 WY(0)
2A CO(N)
25 CO(S)
26 UT
2 7 A/,
28 NM
29 WA
(MM Tons/Year)
MMTPY 15AT-
BPT MMTPY
47.98 47.98
31.20 31.20
3.70 3.70
17.20 17.20
100.08 100.08
26.20 26.20
14.20 14.20
35.80 35.80
4.00 4.00
80.20 80.20
22.60 22.60
41.40 41.40
37.50 37.50
40.90 40.90
0.40 0.40
120.20 120.20
4.60 4.60
0.40 0.40
0.50 0.50
4.60 4.60
10.10 10.10
17.70 17.70
27.53 27.53
0.0 0.0
201.40 201.40
75.90 76.36
304.83 305.29
57.30 57.30
0.0 0.0
14.90 14.90
0.33 0.00
72.53 72.20
12.49 12.49
8.00 8.00
20.49 20.49
7.63 7.63
756.36 756.49
2
GAIN
(LOSS)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
.46
0
0
0
r.33^
(.33)
0
0
0
.13
BAT-4
MMPTY
45.10
31.60
3.70
17.20
97.60
26.40
14.50
35.80
4.00
80.70
22.70
41.40
37.50
40.90
0.40
120.20
4.60
0.40
0.50
4.60
10.10
17.70
27.53
0.0
204.15
76.36
308.04
57.30
0.0
14.90
0.0
72.20
12.49
«. on
20.49
7.63
757.36
GAIN
(LOSS)
(2.88)
.40
0
0
-2.48
.20
.30
0
0
.50
.10
0
0
0
Q
0
0
0
0
0
0
0
2.75
.46
3.21
0
0
0
(.W\
(.33)
0
n
0
" 1.00
(1) WY(P) is Wyoming Powder River Basin; WY(0) is Wyoming, Other Areas
V-9
-------
TABLE V-7
1984 PRIMARY IMPACT SUMMARY
COAL PRODUCTION BY REGION
SPOT MARKET MINES
(MM Tons/Year)
MMTPY
BPT
1JA1-2
UAT-4
Area
Northern
Appalachia
Central
AppalachLa
Southern
Appalachia
Midwest
Central
West
Roe ion
I
2
3
U
5
6
7
8
PA
Oil
MO
WV(N)
U-Y(S)
VA
KY(E)
TN
7.25
1.84
0.27
1.79
11.15
6.13
4.98
6.15
1.63
AL
18.89
0.09
1.0
LJ
12
13
14
15
16
17
IF.
IN
KY(W)
LA
MO
KS
AR
OK
48.43
0.16
0.52
_
49.11
-
-
-
0.33
MMTPY
7.25
1.84
0.27
1.79
11.15
6.13
4.98
6.15
1.63
18.89
0.09
48.43
0.16
0.52
49.11
0.33
GAIN
(LOSS)
0
0
0
0
0
0
0
0
0
0
0
MMPTY
6.81
1.41
0.31
1.79
19.32
0.09
48.43
0.16
0.52
49.11
0.41
GAIN
(LOSS)
(0.44)
(0.43)
0.04
0
0
0
0
0
0.08
Culf
18 TX
Great Plains
19 ND
20 SO
21 WY(P)]
22 MT
Rockies
23 WY(0)J
24 CO(N)
25 CO(S)
26 UT
0.48
0.48 0
0.48
0
Southwest
27 AZ
28 KM
Northwest
Total
29 WA
80.05
80.05 0
Y(P) is Wyoming Powder River Basin; WY(0) is Wyoming, Other Areas
Lest than 0.005
79.73 (.48)
V-10
-------
Region
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
TABLE V-8
1984 PRIMARY IMPACT SUMMARY
PRODUCTION CHANGES FROM BPT
SPOT AND CONTRACT MARKET MINES
State
1 PA
2 Oil
3 MI)
4 WV(N)
5 WV(S)
6 VA
7 KY(I-)
8 TN
9 AL
10 If.
11 IN
12 KY(W)
13 LA
14 HO
15 KS
16 AR
17 OK
18 TX
19 Nl)
20 SD
21 WY(P)
22 MT
23 WY(0)
2ft CO(N)
25 CO(S)
2ft tiT
27 AZ
28 NM
29 WA
BAT-2
GAIN
(LOSS)
(MMTONS)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.46
0.46
0
0
(.33)
(.33)
0
0
GAIN
(LOSS)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(0.6)
0.2
0
0
(100.0)
(0.5)
0
0
BAT-4
GAIN
(LOSS)
(MMTONS)
(3.32)
( .03)
.04
0
(3.31)
.20
.30
.43
0
.93
.10
0
0
0
0
0
0
0
0
.08
.08
0
0
2.75
.46
3.21
0
0
(.33)
(.33)
0
0
0
.68
GAIN
(LOSS)
(%)
(6.0)
(0.1)
(1.0)
0
(3.0)
0.6
1.6
1.0
0
0.9
0.4
0
0
0
0
0
0
0
0
1.6
0.8
0
0
1.4
0.6
1.1
0
0
(100.0)
(0.5)
0
0
0
0.1
*Less than 0.05%
V-ll
-------
enough to shift relative production costs of Pennsylvania vis-a-vis
other regions to overcome the higher transport costs of Wyoming coals.
Table V-7 presents the expected levels of production under the three
cases for spot market mines. Northern Appalachia coal production would
be expected to be reduced and production in Central Appalachia to be
increased. This shift is due to the higher cost increases faced by
Appalachian mines due to the generally larger acidic water flows requir-
ing treatment.
Table V-8 summarizes the impact for both contract and spot market mines
by showing the expected production shifts under the two BAT control options
in both tonnage and percentage terms relative to the BPT case. The per-
centage shifts show that the production impact on some regions of the control
options is expected to be moderate. The 6 percent reduction of production
in Pennslyvania under BAT-4 is the only significant shift. As the table
shows, the production lost is balanced by production gains in other regions.
In terms of production effects, no significant impact can be seen for the
nation as a whole.
The shifts in production will result in the closing of mines in some re-
gions and the opening of new mines in other regions. Tables V-9 through
-11 show the numbers of mines expected to be in operation under BPT and
the two BAT control options. The impact in terms of mine closures is
concentrated in the areas where production losses were concentrated,
but mine closures in Appalachia are not balanced with an equal number of
mine openings in other areas. This lack of balance is due to the larger
mining units in the Northern Great Plains where production is expanded.
The net result is that under BAT-4, the total population of mines would
be reduced with the largest reduction in spot market mines. Spot market
mines have by far the largest closure rate due to the high proportion of
small wet mines in the population. Water treatment costs are a higher
portion of BPT mining costs for these mines because small mines must treat
higher flows per ton of coal produced, but are unable to gain any benefit
from economies of scale in water treatment facilities.
Table V-ll presents the levels of mine closures and openings under the
two BAT control options for contract and spot market mines combined. The
mine population shifts are shown as the absolute change in operating mines
and as the percentage change from the BPT base case population. The im-
pact in terms of mine closures is concentrated in Northern Appalachian
areas, where under BAT, at a maximum, 10% of the mines estimated to be
operating under BPT are closed. These closures are counterbalanced by in-
creased mining operations in Central Appalachia.
One of the impacts of the regulations is to increase the economic advantages
of large mines over smaller mines. This advantage is due to the phenomenon
of generally higher water flows per ton for smaller mines resulting in
higher per-ton control costs under either control option, and the concen-
V-12
-------
REGION
Northern
Appalachia
Centra]
Appalachia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
TOTAL
TABLE V-9
1984
PRIMARY
IMPACT SUMMARY
NUMBER OF CONTRACT MARKET
STATE
1 HA
2 Oil
j ML)
A WV(N)
5 WV(S)
6 VA
7 KY(E)
8 TN
9 AL
10 IL
11 IN
12 KY(U')
1 3 LA
] A MO
1 5 KS
16 AK
17 OK
1.8 TX
.19 ND
20 SI)
21 WY(l>)
y 9 MT
2 '3 WY(0)
24 CO(N)
25 CO(S)
26 UT
27 AZ
TU MKI
29 WA
COAL
BPT
NUMBER
MINES
HAT -2
NUMBER
OPERATING OPERATING
189
103
19
51
362
117
90
141
27
375
88
40
40
52
4
136
6
3
3
22
34
5
20
26
15
67
93
13
1
107
3
3
6
2
189
103
19
51
362
117
90
141
27
375
89
40
40
52
4
136
6
3
3
22
34
5
20
"
26
15
61
93
~
13
0
106
3
3
6
2
GAIN
(LOSS)
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
"
0
0
0
0
^
0
(1)
(1)
0
0
0
0
BAT-4
NUMBER
OPERATING
183
104
19
51
357
120
90
141
27
378
89
40
40
52
4
136
6
3
3
22
34
5
20
26
15
61
94
13
0
107
3
3
6
2
GAIN
(LOSS)
(6)
1
0
0
(5)
3
0
0
_o_
3
1
0
0
0
0
0
0
0
0
0
0
0'
0
0
0
0
1
0
(1)
0
0
0
0
0
1176
1176
0
1175
(1)
V-13
-------
TABLE-10
1984 PRIMARY
NUMBER OF
IMPACT SUMMARY
SPOT MARKET
COAL MINES
Area
Nor them
Appalach ia
Centra]
Appa 1 ach ia
Southern
Appalachia
Midwest
Centra]
West
Gulf
Great Plains
Rockies
Southwest
Northwest
Re
I
7
3
-4
1
6
1
§
9
10
1 1
12
M
JA
] 5
lh
17
18
19
20
21
22
23
74
25
26
27
28
29
<.; ion
PA
Oil
Ml)
WY(N)
V'V(S)
VA
KY(i!)
TX
AL
II.
IN
KV(W)
LA
MO
KS
AR
OK
TX
Nl)
sn
WY(l')
MT
U'V(O)
I:O(N)
co(s)
UT
AZ
NM
WA
BPT
NUMBER
OPERATING
401
89
14
89
593
339
246
366
90
1041
9
31
8
21
60
~
~
19
19
"
-
"
-
"~
6
6
^
~
BAT- 2
NUMBER
OPERATING
400
89
14
89
592
338
246
366
90
1040
9
31
8
21
"
60
"
"
19
19
"
-
^
^
-
**
6
*
6
^
GAIN
(LOSS)
(1)
0
0
0
(1)
(1)
0
0
0
(1)
0
0
0
0
"
0
~
0
0
"
-
"
-
^
0
"
0
"
"
BPT-4
NUMBER
OPERATING
373
69
15
87
544
338
246
393
90
1067
9
31
8
21
60
19
19
^
-
~"
~
-
6
mm
6
"
""
GAIN
(LOSS)
(28)
(20)
1
( 2)
(49)
( 1)
0
27
0
26
0
0
0
0
0
0
0
"
-
~
~
-
0
"
0
TOTAL US
1728
1726
(2)
1705
(23)
V-14
-------
TABLE V-ll
1984 PRIMARY IMPACT SUMMARY
CHANGES IN NUMBER OF MINES
FROM BPT
SPOT AND CONTRACT MARKET COAL MINES
BPT-2
Area
Northern
Appal nch La
Central
Appalach La
Southern
Appalach ia
Midwest
Central
West
Cult
Great Plains
Rockies
Southwest
Northwest
Re;
1
2
3
4
-,
6
'.'
8
V
10
11
12
.13
14
15
16
17
IS
19
20
2!
22
23
24
25
26
27
28
29
ti ' on
I'A
Oil
Ml)
WV(N)
KV(S)
VA
KY(L)
TN
Al.
Tl.
IN
KY(W)
LA
MO
KS
AR
OK
IX
XI)
SI)
WY(l')
MT
U'Y(O)
CO(N')
CO(S)
UT
,\7.
NM
WA
GAIN
(LOSS)
(NUMBER)
(1)
0
0
0
(1)
(1)
0
0
0
(1)
1
0
0
0
0
0
0
0
0
0
0
"
0
0
0
^
0
(1)
0
0
0
~(2T~
GAIN
(LOSS)
00
(0.2)
0
0
0
(0.1)
(0.2)
0
0
0
(0.1)
0
0
0
0
0
0
0
0
0
0
0
^
0
0
0
~
0
(100.0)
0
0
0
ToTTT
BPT-4
GAIN
(LOSS)
(NUMBER)
(34)
(19)
1
( 2)
(54)
( 1)
0
27
0
26
1
0
0
0
0
0
0
0
0
0
0
~
0
0
0
0
(1)
0
0
0
T28T
GAIN
(LOSS)
(%)
(5.8)
(9.9)
3.0
(1.4)
(517)
(0.2)
0
5.3
0
1.8
0
0
0
0
0
0
0
0
0
0
0
~
0
0
0
0
(100.0)
0
0
0
ITTo)
V-15
-------
tration of acidic water flows in those regions where smaller mines are
prevalent.
The reduction in the number of operating mines is moderate and the overall
competitive structure of the coal mining industry should not be signifi-
cantly reduced. Those areas with large numbers of mines, particularly
spot market mines, continue to have substantial numbers of mines, and the
mines of any particular region are in competition with mines in other re-
gions. The expansion of coal production in the Northern Great Plains
would serve to increase the competition among sellers in those regions,
but those regions would continue to be dominated by very large mines pro-
viding coal for customers on a long-term contract basis.
C. Employment Effects
In this section, we shall discuss the direct effects of the BAT control
options on employment and wages, as well as the indirect (secondary) re-
gional effects.
1. Direct Regional Effects
The impact of the BAT control options on employment are approximately par-
allel to the impact on production. Tables V-12 and -13 show the levels of
employment under the BPT and BAT control option cases along with the employ-
ment changes from BPT for contract and spot market mines. The overall im-
pact on contract market mines is to reduce the levels of employment because
coal production lost in Northern Appalachia is replaced by increased Northern
Great Plains coal. Those Western regions are dominated by strip mine pro-
duction with higher labor productivities. The impact on spot market mines
is limited to smaller mines, which exhibit smaller interregional labor pro-
ductivity differences. The overall employment impact on spot mines is very
small.
No significant impact is expected on employment under BAT-2. The negative
employment impact under BAT-4 is completely concentrated in Northern Appala-
chia. These impacts are consistent with the impact of the control options
on production.
The total direct employment impact for contract and spot market mines com-
bined is shown in Table V-14. Here the most significant measure is the
percentage shift of employment from the BPT case. BAT-2 is not expected
to result in any significant employment shift. The BAT-4 control option
is expected to result in a few declines of coal mining employment in some
regions. Pennsylvania is expected to have the largest proportional de-
cline, just over 7 percent, and the declines are concentrated in Northern
Appalachia. Employment gains are expected in Wyoming and Central Appalachia
Regions where production is increased. Nationally, there is a small net
loss of employment since the main production increase (Wyoming Powder River)
is in mines with very high labor productivities.
V-16
-------
TABLE V-12
Area
Northern
Appalaehiu
Central
Appalaeh in
Southern
Appalachia
Midwest
Central
West
GulC
Great Plains
Rockies
Southwest
Northwest
TOTAL US
1984 PRIMARY
IMPACT SUMMARY
EMPLOYMENT LEVELS
CONTRACT MARKET COAL MINES
BPT
EMPLOYEES
Ret; ion
1 I>A
2 Oil
3 Ml)
A KV(N)
r> KV(S)
6 VA
7 KY(I-)
8 IN
9 AL
.10 II,
U TN
12 KYOO
1 3 I A
1 4 MO
15 KS
16 AK
1 7 r\k
1.8 IX
J9 ND
20 SI)
2 1 WY ( P )
?'' MT
23 WY(0)
2 A CO(N)
25 CO(S)
26 UT
27 AZ
28 NM
29 KA
17400
10140
1530
6190
35250
10020
4880
10930
1680
27510
8400
7590
5580
8510
50
21730
770
40
50
600
1460
2980
1750
^
24190
6150
32090
5170
3130
fin
8380
2250
1370
3620
1850
BAT- 2
EMPLOYEES
17400
10140
1530
6190
35260
10020
4880
10930
1680
27510
8400
7590
5580
8510
50
21730
770
40
50
600
1460
2980
1750
^
24190
6150
32090
5170
3130
n
8300
2250
1370
3620
1850
GAIN
(LOSS)
0
0
0
o
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
ffi-
0
0
0
0
BAT-4
EMPLOYEES
16130
10300
1530
6190
35150
10180
4960
10930
1680
27750
8470
7590
5580
8510
50
21730
770
40
50
600
1460
2980
1750
24550
6150
32450
5170
3130
o
8300
2250
1370
3620
1850
GAIN
(LOSS)
(1270)
0
Q
1110
160
80
0
Q_
240
70
0
0
0
_£_
0
0
0
0
__
0
0.
0
0
0
0
143280
143200
(80)
142610
(590)
V-17
-------
TABLE V-13
Area
Northern
Appalachia
Central
Appalacliia
Southern
Appalacliia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
TOTAL US
1984 PRIMARY IMPACT SUMMARY
EMPLOYMENT LEVELS
SPOT MARKET
Re
.1
2
3
4
r>
6
7
8
9
in
11
12
13
14
15
Id
17
18
19
20
21
22
23
24
25
26
27
28
gion
I'A
Oil
MO
WV(N)
WV(S)
VA
KY(E)
TN
AL
IL
IN
KY(W)
LA
MO
KS
AR
OK
TX
NO
SI.)
WY(P)
MT
WY(0)
CO(N)
CO(S)
UT
A7.
NM
BPT
EMPLOYEES
3410
930
80
80
4500
2730
1740
2950
620
8040
10
18560
50
430
-
19040
-
-
-
160
-
-
-
*
^
-
110
-
COAL MINES
HAT- 2
EMPLOYEES
3390
930
80
80
4480
2730
1740
2950
620
8040
10
18560
50
430
-
19040
-
-
160
-
-
*
"
-
110
-
GAIN
(LOSS)
(20)
0
0
0
(20)
0
0
0
0
0
0
0
0
-
0
-
-
-
0
-
-
-
0
*
-
0
-
HAT'.
'EMPLOYEES "
3150
690
90
80
4010
2730
1740
3150
620
8240
10
18560
50
430
-
19040
-
-
-
160
-
-
-
*
^
-
110
-
29 WA
GAIN
(LOSS)
0
0
0
31860
31840
(20)
31570
(290)
V-18
-------
Area
Northern
Appalachici
Central
Appalaehiu
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
1984
CHANGES
SPOT AND
TABLE V-14
PRIMARY IMPACT
IN EMPLOYMENT
CONTRACT MARKET
BAT- 2
GAIN
(LOSS)
EMPLOYEES
SUMMARY
FROM BPT
COAL MINES
BAT-4
GAIN
(LOSS)
%
GAIN
(LOSS)
EMPLOYEES
GAIN
(LOSS)
%
Rug ion
1
2
'3
4
5
6
7
8
9
10
1J
12
13
14
15
16
17
18
19
20
21
77
£ L
23
24
25
26
27
28
29
PA
on
MO
WV(N)
WV(S)
VA
KY(E)
IN
AL
IL
IX
KY(W)
LA
MO
KS
AR
OK
TX
ND
SI)
WY(l')
MT
L J L
U'Y(O)
CO(N)
CO(S)
UT
AZ
NM
WA
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
~
0
0
0
0
(80)
(80)
o
o
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
*
0
0
0
0
(100.0)
(1.0)
o
o
0
(1530)
(90)
10
0
(1610)
160
80
200
0
440
0
0
0
0
0
0
0
0
0
0
0
^
360
0
360
0
0
(80)
(80)
0
0
0
(7.4)
(0.8)
0.6
0
(4.1)
1.3
1.2
1.4
0
1.2
0
0
0
0
0
0
0
0
0
0
0
~
1.5
0
1.1
0
0
(100.0)
(1.0)
o
0
0
Less than 0.05Z
(80)
V-19
(890)
(o.5)
-------
Wage shifts are of virtually identical pattern to employment shifts.
The only variation is due to the relative magnitude of loss or gains from
contract and spot market mines in each region because the spot market
mines on the whole have lower wage rates. The expected wage shifts are
summarized in a single table combining contract and spot market mines
(see Table V-15).
2. Indirect Regional Effects
The direct shifts of employment and wages in coal mining due to compliance
with the regulations are moderate and confined to some regions. The over-
all regional impact of those shifts will depend on the role played by coal
mining in that economy. If coal mining is a small component of the region's
economy, then even dramatic shifts in coal mining will result in a minor
overall impact. A first step in assessing the community impact of the coal
mining regulations is thus to quantify the role of coal mining in regional
economic structures.
Table V-16 presents an estimate of the percentage of total earnings accounted
for by coal mining for selected states in 1984. The states in this table
have been arranged into three groups east to west and north to south
within each group. The table shows West Virginia to be the most coal-mining-
dependent state; here coal mining accounts for over 15% of total earnings.
Wyoming and Kentucky are the only other states where coal mining is expected
to account for more than 2% of total earnings.
Table V-16 also shows the expected shifts in earnings as a percent of total
coal mining earnings and as a percent of the total earnings for the state, under BAT-A.
Pennsylvania would face reduced direct total earnings of about 0.1%, while
Ohio, West Virginia and Virginia would be expected to gain about 0.1% in
total statewide earnings.
The impact on the state or community is not limited to the jobs and wages
gained or lost from coal mining alone. A portion of the wages earned by
coal miners is spent on local goods and services. When coal mining wages
are lost, then these purchases of local goods and services are also reduced,
multiplying the impact from the loss of coal mining wages. The magnitude
of the loss multiplication depends on the proportion of local wages and
salaries that is spent on locally-produced goods and services. To the
extent a region's goods and services are purchased outside the region, the
impact of reduced wages is shifted outside the region.
A measure of how much of a region's income will be spent outside the region
is the extent to which the region produces for "export", in order to be
able to "import". This depends on the extent to which the area specializes
in specific industries. As a region becomes more specialized, it will trade
with other regions, selling the goods and services it specializes in and
importing the desired goods and serivces it demands but does not produce.
The Regional Division of the Bureau of Economic Analysis of the Department
V-20
-------
TABLE V-15
1984 PRIMARY IMPACT SUMMARY
CHANGES IN WAGES FROM
BPT
SPOT AND CONTRACT MARKET COAL MINES
BAT- 2
Area
Northern
Appa.lachia
Central
Appnlach ia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Northwest
TOTAL
Key
I
~
.)
4
T
ll
7
,S
9
10
1.1
12
1.3
14
13
16
1.7
18
1.9
20
21
22
2'J
24
25
2ft
27
28
29
US
ion
I'A
Oil
Ml)
KV(N)
WV(S)
VA
KY(I-)
TN
Al.
II.
IN
RV(U')
I. A
Mt)
KS
AR
OK
TX
XI)
S!)
U'Y(l')
MT
WY(0)
CO(N)
c:o(s.)
LIT
A/.
NM
WA
GAIN
(LOSS)
($MM/YR)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-
0
0
0
"
0
wuwatw
0
0
0
0
GAIN
(LOSS)
(%)
(0)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-
0
0
0
^
0
0
0
0
0
BAT- 4
GAIN
(LOSS)
($MM/YR)
(24.36)
2.70
0
0
(21.66)
3.03
1.58
0.19
0
4.80
1.34
0
0
0
0
0
0
0
0
0
0
-
6.81
0
6.81
0
^
0
0
0
0
(8.71)
GAIN
(LOSS)
(%)
(7.3)
1.4
0
0
(3.0)
1.6
1.7
0.1
0
0.8
0.8
0
0
0
0
0
0
0
0
0
0
-
1.5
0
0
^
0
tfwyvYtfi
nUWlAArx
0
0
0
(0.3)
* Less than 0.05
V-21
-------
TABLE V-16
IMPORTANCE OF COAL MINING FOR
SELECTED STATES
State
Coal Mining's Expected
Share of Total Earnings
in 19841
Economic Impact
Pennsylvania
Ohio
Maryland
West Virginia
Virginia
Kentucky
Tennessee
Alabama
Illinois
Indiana
Iowa
Missouri
Kansas
Arkansas
Oklahoma
Texas
North Dakota
Wyoming
Montana
Colorado
Utah
New Mexico
Washington
1.54
0.62
0.09
15.53
1.65
5:77
0.43
1 . 28
0.44
0.31
0.04
0.16
0.08
0.08
0.12
0.01
0.42
8.12
1.54
0.37
1.09
0.78
0.06
Shift
Coal Mining
(Z)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
BAT-2
in Direct Shift in
Earnings Total State Earnings
(%)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Shift
Coal Mining
(%)
-7.3
1.4
0
0.9
1.7
*
0
0
0
0
0
0
0
0
0
0
0
1.5
0
0
0
0
0
BAT-4
in Direct Shift in
Earnings Total State Earnings
(Z)
-0.11
0.109
0
0.14
0.03
*
0
0
0
0
0
0
0
0
0
0
0
0.12
0
0
0
0
0
U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic
Analysis Division; Population, Personal Income, and Earnings by State: Projections
to 2000 for Office of Water Program Operations, EPA, October 1977.
Arthur D. Little, Inc. estimates.
* +
Less than -.01%.
-------
*
or Commerce has constructed an index, the specialization ratio , indicating
the extent to which state economies are specialized in specific activities.
The higher the value of this specialization ratio, the greater the pro-
pensity of the state to import and export. The specialization ratios for
the selected coal mining states are shown in Table V-17. The specializa-
tion ratio provides an estimate of the proportion of earnings derived from
export activities, and this, together with the marginal propensity to con-
sume, gives the multiplier ** which should be applied to the direct loss
(or gain) of earnings from coal mining to estimate the total earnings loss
(or gain) in the state. These multipliers are also presented in Table
V-17 along with the estimated total earnings loss (or gain) as a percent
of total state earnings under BAT-2 and BAT-4 control options. These
estimates must be considered rather coarse. The estimates rest on certain
major assumptions of consumption and savings patterns of states. For in-
stance, a marginal propensity of consumption of 0.9 is assumed for all states,
but the detailed information about individual states' comsumption and savings
patterns required to adjust these assumptions is not readily available.
The earnings shifts expected under option BAT-2 show the concentration of
negative impacts in Pennsylvania, Kentucky, West Virginia, and Virginia.
Under option BAT-4 the adverse impact is shifted most heavily to Pennsyl-
vania, less to Kentucky and Ohio, with some gains in earnings resulting in
Virginia and West Virginia.
The BAT-4 control option would shift coal production to and expand earnings in
the Northern Plains and Central Appalachia. These shifts in state earnings
can be put into some perspective by comparing the expected earnings shift
with the expected rate of growth for the state. It is also instructive to
note whether the impacted states have income levels above or below the
national average. The negative impacts of water effluent regulations
would be more serious if they fall on areas which are expected to be slow-
growing and/or are already relatively depressed. Table V-18 shows the
annual rate of earnings growth from 1976 to 1984 and the level of per cap-
ita personal income, relative to the national average, for the selected
coal-producing states.
The total earnings shifts expected from the control options are less than
an expected year's growth for all states. The largest negative impact falls
in Pennsylvania, a state expected to be at just about the national average
in per capita personal imcome. Under BAT-4, West Virginia, Virginia, and
Kentucky would gain earnings, and these are at or below the national average
per capita income.
*The specialization ratio is defined as the sum across all industries in
a region of the difference between the ratio of each industry's share
of total earnings and that ratio for the nation, where that difference is
positive.
**
Regional multiplier = 1/[1 - .9 x (1 - Specialization Ratio)]
V-23
-------
TABLE V-17
ESTIMATED TOTAL IMPACT FROM
Stat.e
Pennsylvania
Ohio
Maryland
West Virginia
Virginia
Kentucky
Tennessee
Alabama
Illinois
Indiana
Iowa
Missouri
"ansas
Arkansas
Oklahoma
Texas
North Dakota
Wyoming
Montana
Colorado
Utah
New Mexico
Washington
EFFLUENT
Specialization
Ratio-1
.122
.152
.150
,261
.142
.146
.122
.144
.093
.178
.207
.090
.152
.174
.127
.105
.272
.333
.234
.104
.143
.226
.156
CONTROL GUID1
Estimated .
Mul ti^lior'
4.8
4.2
4.3
3.0
4.4
4.3
4.8
4.4
5.4
3.8
3.5
5.5
4.2
3.9
4.7
5.1
2.9
2.5
3.2
5.2
4.4
3.3
4.2
Direct ind Indirect
Earnings Shift3
(Percent)
BAT-2" ~~
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
BAT-4
-0.5
0.3
0
0.4
*
0
0
0
0
0
0
0
0
0
0
0
0
0.3
0
0
0
0
0
U.S. Department of Commerce, Bureau of Economic Analysis,
Regional Economic Analysis Division; Population, Personal
Income, and Earnings by Statet Projections to 2QOO for
Office of Water Program Operations, EPA, October 1977.
Arthur D. Little, Inc. estimates.
+
Less than 10.1%.
V-24
-------
TABLE V-18
IMPACT PERSPECTIVE
Annual Rate Personal Per Capita Income
State of Earnings Growth Relative to Nation
(Percent per annum) (Nation - 100.0)
Pennsylvania 3.5 101.
Ohio 4.2 101.
Maryland 4.3 109.
West Virginia 3.5 84.
Virginia 4.5 101.
Kentucky 4.8 88.
Tennessee 5.3 91.
Alabama 4.0 83.
Illinois 3.6 115.
Indiana 3.8 98.
Iowa 2.9 99.
Missouri 3.8 95.
Kansas 3.2 99.
Arkansas 4.6 83.
Oklahoma 3.7 89.
Texas 3.9 95.
North Dakota 1.9 84.
Wyoming 4.2 97.
Montana 2.8 88.
Colorado 4.2 100.
Utah 4.0 84.
New Mexico 2.8 78.
Washington 2.8 101.
Total U.S. 3.9 100.
Source: U.S. Department of Commerce, Bureau of Economic Analysis,
Regional Economic Analysis Division; Population, Personal
Income, and Earnings by State; Projections to 2000 for
Office of Water Program Operations, EPA, October 1977.
V-25
-------
D. Financial Effects
The BAT control options require additional investment in pollution control
equipment. This investment must be funded from internally-generated cash
and/or externally-raised funds. The required investment may significantly
increase the cash required for total investment by the coal mining
industry.
Cash flow has been estimated for individual model mines from after-tax
earnings, depreciation, and depletion. Total investment has also been
estimated from required replacement and expansion of mining operations plus
the investment required for pollution control equipment. A measure of
the sufficiency of cash flow to meet the total investment required is
the proportion of that investment which could be funded from cash flow.
The investment requirements for pollution control equipment are very
different under BAT-2 and BAT-4, with the latter requiring significantly
greater investments. The time required to put the equipment in place for
BAT-rA control means that the investment would be spread over two years.
It has been assumed for this analysis that 60 percent of the control
equipment investment would fall in one year of the construction program.
Thus, the maximum annual cash required to fund the pollution control
investment under BAT-4 would be 60 percent of the total investment
expenditure. The investment requirements for BAT-2 are small and are
assumed to take place in one year.
Tables V-19 and -20 show, for contract market mines, the expected
cash flow generated, annual investment required in mining equipment and
construction, the maximum annual investment required for pollution control
equipment and the proportion of the total required annual investment
which would be provided by the annual cash flow (Cash Flow Coverage) .
For contract market mines, investment expenditures required under the
BFT base case could be funded from cash flow in most regions (see Table
V-19). The cash generated from Northern and Central Appalachian mines
would cover the total required investment from 1.6 to 1.8 times, i.e.,
cash flow is 60 to 80 percent greater than the cash required for investment.
In only a few regions is cash generated insufficient to fund the required
investment. In the Midwest, cash flow is generally sufficient to fund
the required investment, but only with a 20 percent margin, but in Indiana
internally generated cash would not cover the maximum required annual in-
vestment.
The capital requirements and the ability of cash flow to cover those require-
ments are the same under BPT and BAT-2. These are shown in Table V-19.
A comparison of Table V-19 and -20 shows minor reductions in the proportion
o£ investment covered by cash flow under BAT-4. The investment required could still
be covered by cash flow in most regions, but cash flow would be generally in-
sufficient in the Central West. All regions would have to either increase
V-26
-------
TABU: v-19
I NVi;S'['MHNT
WITH
REGION
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central West
Gulf
Great
Plains
Rockies
Southwest
Northwest
Control Level: BPT OR BAT-2
ANNUAL
INVESTMENT IN
MINING EQUIP.
STATK
1 PA
2 OH
3 MD
4 WV (N)
5 WV (S)
6 VA
7 KY (E)
8 TN
9 AL
ANNUAL,
CASHFLOW
($MM)~~
240.95
132.94
20.26
96.37
490.52
151.84
78.68
171.64
21.89
424.05
106.81
10 IL
11 IN
12 KY (W)
13 IA
14 MO
15 KS
16 AR
17 OK
18 TX
124.93
101.85
153.32
1.45
381.55
12.66
1.30
1.63
13.97
29.56
39.95
19 ND
20 SD
21 WY(P)-
22 MT
23 WY(0)'
24 CO(N)
25 CO(S)
26 UT
27 AZ
28 NM
29 WA
38.53
297.69
113.29
449.51
82.29
48.39
0
130.68
28.55
15.84
44.39
25.59
2122.59
132.8
71.2
13.3
47.6
264.9
75.6
49.4
95.4
8.4
228.8
52.6
104.0
106.1
108.9
2.0
321.0
11.7
1.8
2.3
17.4
33.2
21.3
25.1
226.9
83.9
335.9
60.3
38.8
0
99.1
13.5
4.6
18.1
16.3
1391.2
MAXIMUM ANNUAL
REQUIRED INVEST.
T.N_ CONTROL EQUIP,
7.01
3.60
.46
2.05
13.12
4.79
3.52
5.66
1.14
15.11
3.14
1.31
1.16
1.70
0.08
4.25
0.16
0.11
0.08
0.68
1.03
0.18
0.68
1.93
0.52
3.13
0.45
0.52
_0
.97
0.09
Q.1Q
.19
0.08
41.20
CASH
FLOW
COVEKAi:!'
1.72
1.78
1.47
1.94
1.76
1.89
1.49
1.70
2.29
1.74
1.92
1.19
.95
1.33
.70
1.17
1.07
.68
.68
.77
.86
1.86
1.47
1.30
1.34
1.33
1.35
1.23
1.31
2.10
T.T7
2.43
1.56
1.48
WY(P) is Wyoming, Powder River Basin; WY(0) is Wyoming, Other Areas.
V-27
-------
TAHLF, V-20
IMPACT SUMflAKV, CONJJMCT _MARKET MINES
INVESTMENT KEOU 1REMENTS COMPARED WITH CASHFLOW
BAT-4
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central West
Gulf
Great
Plains
Rockies
Southwest
Northwest
IATK
1 PA
2 OH
3 MD
4 WV(N)
5 WV(S)
6 VA
7 KY(E)
8 TN
9 AL
10 IL
11 IN
12 KY(W)
13 IA
14 MO
15 KS
16 AR
17 OK
18 TX
19 ND
20 SD
21 WY(P)'
22 MT
23 WY(O)'
24 CO(N)
25 CO(S)
26 UT
27 AZ
28 NM
29 WA
ANNUM,
CASHFLOW
ANNUAL
INVF.ST.MtNT IN
MINING EQUIP.
228.80
140.57
20.26
96.37
486.00
155.99
81.88
171.64
22.38
431.89
110.53
126.84
103.96
155.03
1.46
387.29
12.87
1.32
1.65
14.17
30.01
40.19
38.53
301.72
112.53
452.78
82.29
48.39
0
130.68
28.55
15.84
44.39
25.59
2119.35
122.90
72.00
13.30
47.60
255.80
76.30
50.50
95.40
11.30
233.50
66.40
104.00
106.10
108.90
2.00
321.00
11.70
1.80
2.30
17.40
33.20
21.30
25.10
229.97
83.30
313.27
60.30
38.80
0
99.10
13.50
4.60
18.10
16.30
1377.97
MAXIMUM ANNUAL
REQUIRED INVEST.
1N_ CONTROL EQUIP
" ~~($MM)
26.84
13.50
1.87
6.95
49.16
18.16
13.09
22.31
3.82
57.38
13.81
5.34
4.31
6.14
0.17
15.96
0.41
0.35
0.21
2.99
3.96
0.58
0.68
1.95
0.52
3.15
0.45
0.52
_0
.97
0.09
0.10
.19
0.08
CASH
FLOW
COVERAi
1.53
1.64
1.34
1.77
1.
1,
1.
1,
59
65
29
46
1.48
1.48
1.38
1.16
.94
1.35
0.67
1.15
1.06
0.61
0.66
0.70
0.81
1.84
1.49
1.30
1.34
1.43
1.35
1.23
_0
1.31
2.10
3.37
2.43
1.56
WY(P) is Wyoming, Powder River Basin; WY(0) is Wyoming, Other Areas.
V-28
-------
borrowing or reduce payments to owners in the year requiring the maximum
pollution control investment. The investment requirements of the BAT-4
control option are estimated to result in a minor financial impact on the
contract coal mining industry.
Tables V-21 and -22 show, in the same way, the financial impact of
the three control cases on spot market mines. Cash flow coverage of
investment requirements for spot market mines is less generous than for
contract market mines; cash flow exceeds investment requirements by only
5 percent to 20 percent in most regions. The investment requirements of
BAT-2 result in no significant shift of cash flow coverage of investment
requirements. Spot market mines would not be required to either increase
borrowing or reduce payments to owners in order to fund the small in-
vestment requirements of BAT-2.
Spot market mines are heavily impacted in financial terms under BAT-4.
Table V-22 shows that in every region but one, cash flow would be insuffi-
cient to cover the maximum annual investment required. This means that
these mines would be forced to raise substantial additional external
funds either through borrowing or additional owner equity to meet the
BAT-4 standards. These Tiines might well face difficulty in raising
substantial additional funds because of the limited sources of financing
for many small mines.
The study has not made a detailed analysis of the sources of funds available
to small mines and thus cannot determine the extent that capital constraints
might lead to additional closures of spot market mines. However, the
magnitude of the financial effects of BAT-4 on these small mines makes
additional closures a distinct possibility due to financing constraints.
E. Industry Growth
The potential impact of the BAT control options on future industry growth
could result from two factors: a reduction in the growth of demand for
coal and/or a reduction in the potential growth of coal supplies.
The increase in coal prices resulting from either control option has been
determined not to alter the demand for coal in the years when the
regulations come into effect. The major increases in coal utilization are
expected to be in the Western states where the control options would
result in relatively low coal price increases. Even including the cost
increases due to the regulations, coal remains the least expensive source
of energy for large energy installations in those areas which account
for the major share of total coal demand growth. Many factors may limit
long-term growth in coal demand, but the costs resulting from the BAT
control options are not among them.
V-29
-------
TABLE V-21
PRIMARY IMPACT SUMMARY - SPOT
MARKET MINES INVESTMENT
REQUIREMENTS COMPARED WITH CASH FLOW
Area
Northern
Appalacliia
Central
Appalach ia
S o u t h e r n
Appalachi a
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Nor thwes t
TOTAL US
Reg
1
2
3
^
')
6
7
8
9
10
Jl
.12
13
14
15
Lh
17
1.8
19
20
2J
22
23
24
25
26
2?
28
29
CONTROL LEVEL: BPT
i on
PA
OH
MD
WV(N)
WV(S)
VA
KY(K)
TN
AL
IL
IN
KY (W)
LA
MO
KS
AR
OK
TX
NO
SD
WYU')
MT
WY(0)
CO(N)
CO(S)
UT
AZ
KM
WA
Cash Flow
($MM)
46.32
10.48
2.27
11.55
70.62
35.85
26.74
37.12
8.58
108.29
1.08
348.14
1.47
3.96
353.57
-
-
1.53
-
-
*
-
1.23
~
-
536.32
OR BAT-2
Annual
Required
Investment
In Mining
Equipment
($MM)
25.75
5.99
1.45
6..08
39.27
11.37
10.18
17.91
3.61
43.07
0.81
214.67
0.85
2.82
218.34
-
-
0.71
-
-
A
^
-
0.66
^
-
302.86
Maximum
Annual
Required
Investment
In Control
Equipment
($??0
11.35
2.08
0.45
2.62
16.50
12.56
8.23
11.24
2.70
34.73
0.31
1.23
0.24
0.52
1.99
-
0.49
-
-
*
"
-
0.08
~
-
!
54.10
Cash
Flow
Coverage
1.25
1.30
1.20
1.33
1.27
1.50
1.45
1.27
1.36
1.39
0.96
1.61
1.35
1.18
1.60
1.28
1.66
1.50
1WY(0) is Wyoming, other areas, WY(P) is Wyoming, Powder River Basin.
2For the estimated remaining life of all mines (5 year average).
*Spot market coal supplied by surplus contract mine production.
V-30
-------
TABLE V-22
PRIMARY IMPACT SUMMARY - SPOT MARKET MINES INVESTMENT
REQUIREMENTS COMPARED WITH CASH FLOW
CONTROL LEVEL: BAT -4
Area
Northern
Appalachia
Central
Appalachia
Southern
Appalachia
Midwest
Central
West
Gulf
Great Plains
Rockies
Southwest
Reg
1
2
3
4
5
6
7
8
9
10
1J
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
ion
PA
on
MD
WV(N)
WV(S)
VA
KV(F.)
IN
AL
IL
IN
KY(W)
LA
MO
KS
AK
OK
TX
ND
SD
WY(P)-1-
MT
WY(O)1
CO(N)
CO(S)
UT
AZ
NM
Annual
Cash Flow
($ MM)
46.69
9.36
2.81
12.74
71.60
37.52
28.70
42.78
9.69
118.69
1.17
348.14
1.47
3.96
353.57
-
1.76
-
-
*
-
1.23
-
Annual
Required
Investment
In Mining
Equipment^
($ MM)
24.99
5.14
1.56
6.08
37.77
11.37
10.18
18.46
3.61
43.62
0.81
214.67
0.85
2.83
218.35
-
0.71
-
-
*
~
-
0.66
-
-
Maximum
Annual
Required
Investment
In Control
Equipment
($ MM)
30.57
4.68
1.33
7.96
44.54
37.07
22.83
35.26
7.07
102.23
0.88
4.31
0.68
2.18
7.17
-
1.36
-
-
*
~
-
0.08
-
-
Northwest 29
TOTAL US
WA
548.02
301.92
155.38
Cash
Flow
Coverage
0.84
0.95
0.97
0.91
0.87
0.77
0.87
0.80
0.95
0.81
0.69
1.59
0.96
0.79
1.57
0.85,
1.66
1.20
is Wyoming, Powder River Basin; WY(0) is Wyoming, other areas.
n
For the estimated remaining life of all mines (approximately 5 years average)
3
Spot market coal supplied by surplus contract mine production.
V-31
-------
The BAT control options have been shown to result in minor declines in
production in Northern Appalachia. These production declines result
from shifts in the relative costs of production between regions. Those
areas where production is expected to be lost in 1984 can be expected
to experience slower rates of production growth in the future.
In like manner, those areas gaining production under the control options
in 1984 would be expected to see an acceleration in their rates of growth.
To demonstrate the adequacy of coal reserves in those areas which would be
expected to grow more rapidly. Table V-23 shows the reserves of coal
available by state as tabulated by the Bureau of Mines in 1975. The regions
in the Northern Great Plains expected to experience higher rates of growth
are areas which have a major share of total national reserves. The largest
regional production increase under the control options is expeced in Wyoming
where reserves would be expected to last over 200 years at the 1984 pro-
duction rate under BAT-4.
The United States has vast coal reserves and though the control options
alter the reserves expected to be used, those reserves provide no constraint
on supplies over the next.several generations.
F. Balance of Payments Effects
Exports are an important component of demand for coal, but the coal
exported is predominantly metallurgical coal. The demand for metallurgical
coal is price-inelastic and demand is not expected to be significantly
changed by the anticipated mining cost increases resulting from the
regulations. Alterations are expected in worldwide trading patterns of
coal but these will be the result of investment in new coal resources
such as in Australia. These developments are not expected to be accelerated
by the relatively small increases (6-8%) expected in metallurgical coal
costs due to the regulations.
The United States does export both energy coal and metallurgical coal to
Canada. The eastern coal fields of the United States constitute the
closest coal resource to eastern Canada and the cost changes expected from
compliance with the regulations (1-2%) would not make any other coal or
energy resource economically viable.
Since the guidelines are not expected to result in any significant altera-
tion of U.S. coal export volumes, the small price increases expected would
simply increase coal export earnings slightly (6-8%)-
The amount of coal imported to the United States is very small and represents
a small number of special circumstances. The price increases resulting
from the guidelines are not expected to affect these imports.
V-32
-------
TABLE V-23
COAL RESERVE BASE BY STATE
Area
Total Coal
Percent
Northern
Appalach La
Central
Appalachin
Southern
Appalacliia
Midwest
Centra]
West
Gulf
Great Plains
Rockies
Southwos t
Northwest
TOTAL
N/A - Wyoming
Source: U.S.
U.g. Coals bv
2, The Western
I I'A
2 Oil
3 Ml)
A WV(N) j
}
5 WV(S) J
6 VA
7 KY(l-)
8 TN
9 AL
10 II,
1.1 TN
12 KY(K')
] 3 LA
14 MO
1 5 KS
16 AR
17 OK
1 8 TX
19 NU
20 SD
21 WY(P)
22 MT
23 WY(0)
2-'i CO(N) )
23 CO(S) |
26 UT
27 A7.
28 NM
29 WA
-^W^..!. V ^. A^«_»l^1_
(MMTONS)
23,800
21,077
1,048
39,590
3,650
12,917
987
2,982
65,665
10,623
12,624
2,885
9,487
1,388
569
1,294
4,042
16,003
-
53,336
108,396
N/A
14,850
4,042
350
4,393
1.954
418,034
vJ. J. *_/ U d. J. l\COd-VCO
5.7
5.0
0.3
9.5
0.9
3.1
0.2
0.7
15.7
2.5
3.0
0.7
2.3
0.3
0.1
0.3
1.0
3.8
-
12.8
25.8
_
3.6
1.0
0.1
1.1
0.5
100.0
Other, not available only whole state.
Department of Interior Bureau of Mines,
Sulfur Content: 1.
States Information
The Eastern States.
The Reserve Base of
Information Circul
Circular 8693. Washington, D.C. 1975.
V-33
-------
The effluent regulations studied are not expected to alter prices suffi-
ciently to make the replacement of coal by oil an economic alternative.
Coal remains the significantly cheaper alternative in the uses expected of
it. Since the regulations are not expected to result in increased oil
use, they would have no impact on the balance of payments through increased
oil imports.
The net effect of the regulations is expected to be a slight (negligible)
increase in the value of U.S. exports.
G. Community Effects
The secondary impacts of the effluent limitations have been described and
quantified above for states. The closure of a mine will concentrate the
economic impact in the specific community where that mine is located.
The importance of coal mining in smaller areas can be seen from the
percentage of total employment accounted for by coal mining in selected
counties which account for a substantial share of selected states' totals
(see Table V-24). There is considerable variation in the importance of
coal mining within counties. Coal is a minor activity in some areas
where the resource is located within major metropolitan areas such as
Allegheny County (Pittsburgh) Pennsylvania, but coal mining accounts for
50 percent or more of total employment in several counties, where the
effects of mine closings could be more substantial.
'The mine-by-mine analysis needed for a community-scale analysis was
rendered impossible by the lack of water-flow data except for a small
sample of mines. We could overcome this lack on a regional level by using
the statistical approach outlined in Section IV, but it is not possible
to do so where only a few mines are concerned.
The estimates of impacts made by this study cannot differentiate between
counties, but it must be recognized that the community impacts of mine
closures would be much larger than for a state as a whole.
The direct impact of a mine closure would be accentuated in those counties
where coal mining constitutes the major economic activity. However, the
greater the concentration of total county economic activity in coal mining,
the*smaller the secondary impact multiplier will be. The concentration in
coal means that the county is highly specialized and must import a large
share of consumption goods and services. This high proportion of imports
reduces the secondary impact in the county where jobs and earnings are
lost. The secondary impacts are in effect "exported" to the areas from
which the community purchased goods and services.
V-34
-------
TABLE V-24
COAL MINING'S SHARE OF TOTAL EMPLOYMENT
FOR SELECTED COUNTIES
1976
Pennsylvania
Maryland
West Virginia
Virginia
County
Allegheny
Armstrong
Cambria
Clearfield
Greene
Indiana
Share
0.4%
12.0
7.7
9.2
50.3
24.0
County
Allegany
Garrett
Share
1.2%
8.0
County
Boone
Harrison
Kanawha
Logan
McDowell
Monongalia
Raleigh
Wyoming
Share
73.5%
7.7
7.7
47.1
26.2
21.8
28.9
71.6
County
Buchanan
Dickenson
Lee
Wise
Share
67.0%
59.3
38.3
24.6
u>
Ln
Ohio
County Share
Belraont 23.6%
Harison 50.0
Jefferson 6.5
Perry 19.7
Kentucky
County Share
Harlan
Letcher
Muhlenberg
Hopkins
Union
Bell
Clay
Martin
Pike
Alabama
County Share
Jefferson
Walker
1.9%
24.2
Source: Derived from U.S. Department of Commerce, Bureau of Census,
County Business Patterns, 1976.
-------
The current analysis cannot quantitatively assess these impacts because
it is unable to deal with individual specific mines. However, it is
appropriate to recognize that the adverse impacts of the regulations are
concentrated in the specific areas where closures occur and that the
quantitative assessment of the adverse impacts must underestimate those
impacts.
H. Impact on Energy Prices to Users
Coal production cost changes caused by compliance with the effluent
control regulations translate into altered prices paid for coal by users.
These altered prices are the result of three factors: 1) the altered
costs of producing coal, 2) changes in transportation costs because coal
may be supplied from more distant regions, and 3) changes in the costs of
coal utilization because coals of "lower" quality may be used. These
three factors have been taken into account by the analysis of the price
and production effects on coal mining regions. The impacts of the changed
costs on coal prices in the demand regions are now analyzed.
Analysis of the price shifts predicted by the impact model must be made
with explicit recognition of the potential error of those price estimates
inherent in the model. The linear program uses supply curves which are
linear approximations of the mine-by-mine supply curves. The accuracy
with which the linear segment supply curves are constructed is subject
to the condition that the cost for an individual mine be no more than 10%
different from the linear approximation of that mine's cost. This error
is not significant for the overall solution of the linear program since
that solution is based on the total cost of coal supplied, but it does
become significant in the determination of the cost at which an individual
unit of coal is supplied or in the determination of the marginal cost of
coal supplied.
The cost of electrical energy derived from coal as delivered to users is
made up of not only the cost of mining coal, but also the costs of trans-
porting the coal and converting the coal to electricity. These costs
vary by region and type of coal utilized, but conversion costs are on the
order of one-half the total cost of electricity and transport costs
range from about 5 to 30 percent of total electricity cost. Thus in terms
of the total cost of electricity, the potential maximum error introduced
by the errors involved in the linearization of the supply curves is
reduced to 5 percent or less. The analysis of marginal costs must keep
this range in mind.
One of the quantities calculated by the impact model is the total national
cost of generating energy from coal. The model determines the production
requirements of each producing region so as to minimize the total national
cost. The total cost of generating the total national coal energy
requirements for each of the two control levels can be compared. The
cost of coal utilization is expressed in terms of cents per KWH equivalent
of energy used. This total cost is an average cost over all units of
coal utilized and is thus not subject to the "linearization error" dis-
cussed above since the linearization procedure balances overestimates
with underestimates.
V-36
-------
Table V-25 presents a comparison of the total national cost for BAT-2 and
BAT-4 relative to BPT (the reference case). The national cost of generating
electricity would not be expected to increase under BAT-2 control technology
and by only 0.7% under BAT-4. These price increases are for power at
the generating plant; the costs of distribution to ultimate customers
would reduce the percentage increase by about 30% since about 30% of the
total delivered cost of electricity is accounted for by distribution and
other non-generating costs(1).
Thus, consumers would face electricity price increases on the order of only
0.05% for BAT-4. In terms of aggregate consumer prices, the price increase
would be further attenuated since data analysis of the Bureau of Labor
Statistics (2) indicates that only 2% of consumer expenditures are for
electricity. Thus, the overall impact of BAT-4 on overall consumer prices
would be less than 0.01%.
The impact in specific regions is, however, somewhat more significant. Coal
is not traded in a single national market, but rather moves from specific
supplying regions to specific demand regions. The costs of transportation
mean that location of supplies relative to demand is an important factor
in determining costs.
Since each demand region may purchase coal from a number of supply regions,
the impact on the price paid for electricity generated from coal in the
demand regions is not as diverse as the coal production cost impacts in the
supplying regions.
Table V-26 shows the expected 1984 costs of electricity generated from coal
by Census Regions. These costs are based on the marginal cost of coal
supplied. That marginal cost is not comparable to the average total cost
presented in Table V-25, because the marginal costs are subject to the error
considerations discussed above.
Table V-26 shows some regional variation in impact on cost of electricity
under each of the two effluent control levels. The important implication
of these figures is that no dramatic regional energy price shifts would
result from the effluent regulations. The rank ordering of regions by energy
cost remains the same under each case. The difference between the lowest-and
highest-cost regions also shifts only slightly. Under BPT, the New England
electric energy costs from coal are 32.2% more expensive than in the Moun-
tain States; and under BAT-4, 32.0% more expensive. These relative shifts
would not be expected to be significant, or to result in any discernable
shift in energy use patterns.
Federal Power Commission, Typical Electric Bills 1977, Report FPC-R90,
Washington, D.C.
u.S. Department of Labor Bureau of Labor Statistics, Consumer Expenditures
Survey Series; Interview Survey 1972-73, Average Annual Income and
Expenditures for Commodity and Service Groups Classified by Family
Characteristics, Report 455-4, Washington, D.C., 1977.
V-37
-------
TABLE V-25
ENERGY COST IMPACT FOR THE NATION
BPT
Contract Market Coal
Spot Market Coal
Total Energy Coal
2.95
3.37
3.03
Difference
From BPT,
C/KWH
Difference
From BPT,
$MM/Year
Contract Market Coal
Spot Market Coal
Total Energy Coal
2.95
3.39
3.03
0.00
0.02
0.00
0.0
64.0
64.0
BAT-4
Contract Market Coal
Spot Market Coal
Total Energy Coal
2.96
3.43
3.05
0.01
0.06
0.02
142.0
190.0
332.0
V-38
-------
TABLE V-26
REGIONAL ELECTRICAL ENERGY COST INPACT
(Electricity from Coal)
New England
Mid-Atlantic
East North Central
West North Central
South Atlantic
Eafet South Central
West South Central
Mountain
Pacific
BPT
(C/KWH)
3.74
3.55
3.45
3.08
3.51
3.41
3.22
2.83
3.12
Difference from BPT
BAT-2 BAT-4
C/KWH C/KWH
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.5
0.1
0.1
0.0
0.0
0.0
0.0
0.0
Source: Arthur D. Little, Inc. estimates from Impact Model.
V-39
-------
VI. COAL PREPARATION PLANTS
The standards for coal preparation plants and cost data were made avail-
able after the coal impact model runs had been made so that the control
costs associated with coal preparation plants are not included in the
model. However, preparation plant costs were small and a brief analysis
of the potential impact is presented below.
A substantial portion of the nation's coal is not shipped "as mined", but
is put through a beneficiation process known as coal preparation. The
basic function of coal preparation is to remove non-coal rock (ash)
resulting in a coal with higher BTU's per pound and lower sulfur levels.
Different coals are put through different coal preparation processes and
metallurgical coals are generally the most intensively prepared.
Table VI-1 shows the tons of coal produced and prepared in various states
in 1977- The table shows that generally the high-sulfur midwestern coals
are most likely to be prepared, followed closely by eastern underground
coals. Western surface-mined coals are used virtually as mined.
A zero-discharge effluent limitation on coal preparation plants will
increase the cost of operation of those plants. The compliance costs
for preparation plants have been estimated in a previous study for the
EPA. These costs, for a model plant of 3 million tons per year capacity,
are shown in Table VI-2. The EPA has also made some compliance cost
estimates for several sizes of plants based on the current Development
Document; these are also shown in Table VI-2.
The EPA cost estimates include only capital costs. These capital costs
have been translated into annual operating costs using the same ratios of
annual amortization and operating and maintenance costs as used in the
earlier EPA study. These estimates are shown in Table VI-2.
The net result is a cost to meet the zero discharge limitation of between
4.2 and 16.0 cents per annual ton. These estimates are most likely an
upper limit on the cost since they are based on the cost to retrofit an
existing plant to meet zero discharge, while the standard would apply only
to new plants.
The potential impact of these costs can be put into perspective by comparing
the cost increases estimated for preparation plants with those expected
for mining under the BAT-2 and BAT-A alternatives. The large preparation
plant cost increases can be compared with the impacts for contract market
mines and the small preparation plants can be compared with the impacts for
spot market mines. The impact to be expected from the preparation plant
cost increases should be similar to that of a mining cost increase of the
same magnitude as shown by the coal mining model. The mining impact model
has based its impact on the new supply-demand equilibrium based on increased
control costs. The same model runs can be used to assess the reallocation
''U.S. EPA Economic Impact of Effluent Guidelines: Coal Mining, February, 1977
EPA 230/2-75-0586 prepared by Arthur D. Little, Inc.
VI-1
-------
TABLE VI-1
<
M
Alabama
Kentucky
Maryland
Ohio
Pennsylvania
Tennessee
Virginia
West Virginia
TOTAL EASTERN
Arkansas
Illinois
Indiana
Iowa
Kansas
Missouri
Total
Production
6,596
61,672
264
14,176
38,373
3,858
23,057
73,509
221,505
20
29,411
503
253
TOTAL MIDWEST 30,187
Colorado 4,285
New Mexico 741
Oklahoma
Texas
Utah 8,581
Washington
Montana, N. Dakota
& Wyoming
TOTAL WEST 13,607
COAL PREPARATION AND
PRODUCTION
UNDERGROUND MINES
Prepared
6,392
30,221
119
10,528
30,419
909
10,104
49,295
138,073
20
20,823
409
0
21,252
2,738
738
2,839
Percent
Prepared
96.9
49.0
45.0
74.2
79.2
23.5
43.8
67.0
62.3
100.0
70.8
81.3
0.0
70.4
63.8
99.5
33.0
Total
Production
14,949
84,590
2,772
33,742
46,266
5,575
14,567
21,924
224,385
542
24,082
27,294
260
897
6,366
59,441
7,704
10,343
5,978
15,865
5,057
95,917
6,315
46.4
140,864
Surface
Prepared
2,545
16.005
0
4,642
9,403
0
1,983
3,590
38,168
152
20,892
19,954
31
601
1,410
43,040
0
70
565
1,324
5,057
0
7,016
Percent
Prepared
17.0
18.9
0.0
13.7
20.3
0.0
13.6
16.3
17.0
28.0
86.7
73.1
11.9
67.0
22.1
72.4
0.0
0.6
9.4
8.3
100.0
0.0
5.0
Source: U.S. Department of Energy: Bituminous Coal and Lignite Production & Mine Operations - 1977 DOE/ETA-0118 (77)
Table 22, page 49
-------
TABLE VI-2
COMPLIANCE
Preparation Plant
Capacity (ton/hr)
Annual Capacity (ton/year) 3,
Hours per day
Days per year
Effluent Flow Rate (GPM)
Percent Solids in Effluents
Capital Investment
$ 1,
($ /Annual Ton)
Amortization ($)
Operating and Maintenance ($)
Annual Operating Costs
$
($/Ton Coal Cleaned)
(% of Preparation Charge)
COSTS ASSOCIATED WITH WATER CIRCUIT CLOSURE
FOR COAL
1)
Model C
1000
000,000
14.5
230
1500
15
617,000
0.54
189,215
100,703
289,918
0.097
3.7
PREPARATION PLANTS
(1978 Dollars)
"Model T"2) "Model S"2)
1000 200
3,000,000 600,000
14.5 14.5
230 230
60QO 1200
15 15
700,000 538,000
0.23 0.96
81,900 62,946
45,588 33,221
125,488 96,167
0.042 0.160
1.6 6.2
Includes costs for closure of water circuit for preparation plant
and vater treatment with storage of refuse and coal storage.
Source; 1) U.S. EPA Economic Impact of Effluent Guidelines: Coal Mining, Feb 1977
EPA 230/2-75-0536, Table 66, 1974 dollars adjusted to 1978 dollars.
2) U.S. EPA Effluent Guidelines Division, Memorandum from Dennis Ruddy
to Harold W. Lester, May 18, 1980, Table (unnumbered) "Coal Prepara-
tion Plant Facility Costs to Achieve Zero Discharge."
VI-3
-------
of coal supply due to a similar cost increase due to preparation plant
effluent limitations.
The cost increases for coal mining to achieve BAT-4 for contract mines are
on the order of $0.20 to $1.00 per ton in eastern areas for contract mines
(Table V-l). The cost increases for preparation plants are on the order
of $0.10 per ton (Table VI-2). The expected increases for large coal
preparation plants are smaller than the costs associated with BAT-4 controls
on the mining industry. The impact of the BAT-4 controls on production,
prices, employment, etc. was found to be very slight. The impact of the
effluent limitation on large preparation plants should be less.
The costs faced by small preparation plants are considerably larger, but
the costs to meet BAT effluent limitations for spot market mines are also
substantially higher than for contract mines. The cost increases for spot
market mines associated with BAT-2 range from $0.05 to $0.65 per ton for
eastern mines (Table V-2). The preparation plant cost increases are within
that range. No discernible impact was found for BAT-2 control in terms
of production or employment, thus no impact is expected from the effluent
limitation on small preparation plants. The effluent limitations are not
expected to have any measurable impact on the expansion of preparation
plant activity.
VI-4
-------
VII. LIMITS OF THE ANALYSIS
A. Summary
The impact, as measured by the decrease in the consumption of coal from
an impacted supply region, will have been underestimated or overestimated
if the "demand elasticity" of coal from the impacted supply region(s)
was respectively under- or overestimated relative to the "demand elasticity"
of coal from the other regions.
The "demand elasticity" specifies the decrease in demand for coal from a
supply region in response to an increase in the cost to the user of an
incremental unit of coal from that supply region. This "demand elasticity"
is increased by the incremental compliance cost estimated to result from
regulations.2 The increase in the total user cost of coal will cause a
large decrease in the use of that coal if the "demand elasticity" is high
and it will cause a small decrease if the elasticity is relatively low.
The total user cost of an incremental unit of coal from a supply region
will consist of the sum of:
Production costs;
Compliance costs;
Transportation costs; and
Utilization costs (handling, burning and clean-up costs).
An pnder- or overestimation of the "demand elasticity" can occur because
of a systematic under- or overestimation in any of these four different
costs. This systematic error in the different types of costs can be
caused by aggregation errors in the (non-sampled) data used in the analysis.
1,. A (Demand) A(Cost per Ton)
"Demand Elasticity - Demand Cost per Ton
The lowest end of the coal supply curve of an impacted supply region is
made up by mines with low production costs and negligible mine flows
and, therefore, negligible compliance costs (see Figure IV-5). As a result
the lowest part of the supply curve of a given supply region will not
change when compliance costs resulting from stricter standards in mine
water treatment are added. However, the higher end of the supply curve
is shifted upward when compliance costs are added, resulting in a higher
cost per incremental unit of supply; this will cause a relatively larger de-
crease in the demand of that coal per unit increase in the cost of that
coal: the "demand elasticity" of demand for that coal has increased.
VII-1
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The use of sampled data for labor productivities of new mines, mine water
flows and mine water acidity establish a range within which the impact
estimate cannot be determined: the impact estimate is statistically in-
significant within this range. The "demand elasticity" is indeterminate
within that range because the underlying sampled data for mine water
acidity, mine water flows and new mine productivities are indeterminate
within a corresponding range.
The impact estimates for BAT-4 are generally significant in a statistical
sense: the estimated impact exceeded the range within which impact
estimates are indeterminate because of the use of sampled data.
The extent of systematic errors possibly existing in the data cannot be
estimated. Sensitivity tests demonstrate that the supply impact estimate
is relatively insensitive to systematic errors in the user cost of the
coals from the different supply regions. However, the impact estimate
for the impacted supply regions - regions where supply decreases because
of relatively high compliance costs - is highly sensitive to an underestimate
of the compliance costs (but relatively insensitive to an overestimate of
the compliance costs).
Because data on mine water flows are only available for highly aggregated
supply regions - the Appalachians, the Midwest plus Central West, and the
rest of the U.S. - the water treatment cost estimates are the limiting
factor in the impact analysis.
The use of average cost data for mine production costs, transportation costs,
and utilization costs in the impact analysis has most likely resulted in
an overestimate of the decrease in the use of coal from regions impacted
by increased compliance costs.
Including replacement mines
*U S GOVERNMENT PRINTING OFFICE! 1981 341-085/4640
VII-2
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