Economic Impacts of Carbon Taxes and Biomass Feedstock Usage in Southeastern United States Coal Utilities

By English, Burton C.; Jensen, Kim et al. | Journal of Agricultural and Applied Economics, April 2007 | Go to article overview

Economic Impacts of Carbon Taxes and Biomass Feedstock Usage in Southeastern United States Coal Utilities


English, Burton C., Jensen, Kim, Menard, Jamey, Walsh, Marie E., et al., Journal of Agricultural and Applied Economics


The Southeastern United States depends on coal to supply 60% of its electricity needs. The region leads in CO2 emissions and ranks second in emissions of SO^sub 2^ and NO^sub 2^. Compared with coal, biomass feedstocks have lower emission levels of sulfur or sulfur compounds and can potentially reduce nitrogen oxide emissions. This study examines the economic impacts of cofiring biomass feedstocks with coal in coal-fired plants under three emission credit and two cofiring level scenarios. Economic impacts are estimated for producing, collecting, and transporting feedstock; retrofitting coal-fired utilities for burning feedstock; operating cofired utilities; and coal displaced from burning the feedstock.

Key Words: biomass, coal, cofiring, economic impacts, electricity, input-output model

JEL Classifications: Q42, R15

Electricity from coal utilities provides over 50% of the electricity generated in the United States. In 2005, 29% of the electricity in the Southeast Energy Reliability Council region, excluding Florida's panhandle, was produced from nuclear, 50% from coal, over 3% from hydroelectric, and 1.6% from wood, primarily black liquor (U.S. Department of Energy 2005).1 Although coal-fired plants are important sources of electricity in the United States, negative environmental impacts are associated with this type of electricity generation. About two-thirds of sulfur dioxide (SO^sub 2^), one-third of carbon dioxide (CO2), and one-fourth of nitrogen oxide (NO^sub x^) emissions are produced by burning coal. Particulate matter is also emitted when coal is converted to electricity. The Southeastern Region of the United States leads in CO2 emissions and ranks second in emissions of SO^sub 2^ and NO^sub 2^ (U.S. Department of Energy 1999).

When compared with coal, biomass feedstocks (agriculture residues, dedicated energy crops, forest residues, urban wood waste, and wood mill wastes) have lower emission levels of sulfur or sulfur compounds and can potentially reduce nitrogen oxide emissions. In a system where biomass crops are raised for the purposes of energy production, the system is considered carbon neutral since crops absorb carbon during their growth process. Thus, the net emissions of the CO2 are much lower compared with coal firing (Haq).

The credits to electricity providers for offsetting sulfur emissions, priced at about $100 per ton of sulfur at the time of this research, provide an incentive for cofiring biomass with coal (Comer, Gray, and Packney). Costs of conversion of power plants for cofiring are relatively modest at low percentage levels of biomass. Power companies also have the potential in the future to obtain marketable value through offsetting CO2 and NO^sub x^ for greenhouse gas mitigation. Replacing coal with biomass offers a means for achieving CO2 reductions while maintaining operational coal generating capacity (Comer, Gray, and Packney).2 Cofiring when compared with 100% biomass use is not as reliant on a continuous supply of biomass because of a ready supply of coal (Demirbas).

The purpose of this study is to estimate the economic impacts of cofiring biomass feedstocks (forest residues, primary mill waste, agricultural residues, dedicated energy crops, switchgrass, and urban wood wastes) with coal in coal-fired plants in the Southeastern United States (Alabama, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia). The impacts of using each type of feedstock are evaluated for three emission credit and two cofiring level scenarios. The potential economic impacts (total industry output, employment, value added) for producing/collecting/transporting the feedstock, retrofitting the coal-fired utilities for burning the feedstock, operating cofired utilities, and the coal displaced from burning the feedstock are estimated.

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In 2002, the Bush Administration announced legislation to implement the Clear Skies Initiative. …

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