Please help me out with this Case Application: Is Coal the Heir to the Energy Th
ID: 1169401 • Letter: P
Question
Please help me out with this
Case Application: Is Coal the Heir to the Energy Throne? Coal, the presumptive heir to the energy throne as petroleum supplies give out in the future and nuclear power becomes more costly and dangerous, doesn't look the part right now. The industry's profits are rather small, often as low as 5 cents a ton after taxes. And despite the fact that coal costs only about one-fourth as much as petroleum per unit of energy produced, utility companies have been slow to embrace coal as a substitute for oil in generating electricity. The air pollution and acid rainwater from burning coal violate environmental standards and are expensive to clean up. However, coal is regaining some of the respect it had. Long-closed mines are being reopened and new mines are being dug. A lot of the new activity is in underground mines rather than on the surface strip mines. The underground mines of Appalachia produce a higher quality of coal, lower in sulphur content, than the coal from the strip mines of the western states. And the Appalachian coal is closer to eastern industrial centers and to seaports for shipment to European customers. We should be able to supply European coal needs as well as our own for some time to come. It is estimated that the United States has a 200-year supply of coal reserves. The obstacles to coal regaining its throne as the king of energy are the costs of extracting it and the environmental costs of burning it. Economic Reasonin;g 1. The decision whether to produce coal by underground tunneling or surface strip mining illustrates which type of basic economic decision? 2. What considerations enter into the "what" decision regarding the production of coal? 3. Should coal be substituted for nuclear power in the production of electricity, even if it results in an increase in air and water pollution? Why or why not?Explanation / Answer
1. The economic decision making in this situation basically is a trade-off between quality of coal and price to dig. Underground tunnelling provides a higher quality coal, lower in sulphur content than the coal from strip mines. However it is very expensive to extract the coal from underground tunnels.
2. We can broadly define following as part of this decision making –
To address the first point – compare to alternate source of energy like oil it is one forth time cheaper to product coal to produce one unit of energy. On the cost account one should definitely move to coal production and companies are actually moving towards opening old mines and digging new one. Also one can get high quality coal from underground tunnelling compare to surface striping. Given this any company would replace oil production with coal production. However over usage of coal can impact environment badly. Also to save on cost company might choose to produce low quality coal which is lower to product compare to underground tunnel high quality coal but it would be extremely harm full to environment.
3. From cost perspective companies are moving to coal production. However in long run this impacts our environment negatively. Hence we should not move to coal based energy