Coal Industry Profits

Jul 27, 2012 | 4 min read | Print Article

For centuries the federal government has been in the business of providing billions in subsidies to coal companies in order to ensure company profits. Modern day subsidies to the coal industry began in 1932, when the federal government allowed companies to deduct a portion of their income to help recover initial capital investments. While many coal companies continue to reap higher profits than before, thanks to increasing coal prices, taxpayers still continue to shell out billions of dollars in federal subsidies to these successful companies.

High Prices, High Profits

Coal prices have steadily increased since 2002. Moreover, prices of coal bought by electric utilities rose nearly 38.6% from 2004 to 2009. Although coal prices and production dipped in 2009, they rebounded in 2010, and in 2011 prices increased another 5.7%.
Top producers have reaped increasing profits. In 2011, CONSOL Energy Inc. earned $632.5 million and Arch Coal Inc. earned $205.2 million. Furthermore, Peabody Energy Corp., another top coal supplier, has increased its net income 113% since 2009.
Alliance Resource Partners, L.P., one of the largest coal suppliers in the country, even managed to increase its net annual income more than 290% from 2008 to 2011.

Table 1: Net Profits for Top Coal Companies
Company	5 Year Profits (millions)
Peabody Energy Corporation	$3,396
CONSOL Energy Inc.	$2,229
Alliance Resource Partners, L.P.	$1,207
Arch Coal Inc.	$871
Cloud Peak Energy	$704
TOTAL	$8,407

Top Executives Make Top $

Today, top executives at top coal companies are also sharing in the industry’s successes. CONSOL Energy’s CEO took home $17.2 million in 2011, over $5 million more than in 2008.
Peabody Energy’s Chairman and CEO received over $10.2 million in compensation in 2011.
The President and CEO of Cloud Peak Energy Inc., owns more than 220,000 shares of stock equaling more than $3.5 million in value in addition to his annual salary of nearly $1 million.

Stop Subsidies for a Mature Industry

In addition to company profits, the driver of the industrial revolution and the most mature energy source around still gets special taxpayer-funded subsidies (See Table 2). Whether the government is subsidizing the domestic manufacturing activities or allowing coal companies to treat royalties as capital gains (meaning they benefit from paying a lower tax rate), this hugely profitable industry costs taxpayers billions.
Not only do these handouts increase federal deficits but they are also market distorting and often counter-productive, carrying many unintended consequences.
Congress should end coal subsidies now for an energy source that’s had literally hundreds of years to develop.

Section 45Y: Clean Electricity Production Tax Credit

Table 2: Federal Subsidies Available to U.S. Coal Industry
Federal Subsidy	Ten Year Cost* (millions)
Fossil Energy Loan Guarantee Authority	$8,000
Fossil Energy Research and Development	$5,340
Election to Expense 50 Percent of Qualified Property Used to Refine Liquid Fuels	$5,333
Domestic Manufacturing Deduction for Coal and Other Hard Mineral Fossil Fuels	$2,412
Credit for Investment in Clean Coal Facilities	$2,000
Expansion of Amortization for Certain Pollution Control Facilities	$1,680
IIndustrial CO2 Capture and Sequestration Tax Credit	$1,510
Percentage Depletion Allowance for Coal and Other Hard Mineral Fossil Fuels	$1,310
FutureGen 2.0	$1,300
Capital Gains Treatment for Royalties on Coal	$610
Credit for Alternative Fuel Mixtures	$551
Expensing of Exploration and Development Costs	$279
Indian Coal Production Credit	$200
Refined Coal Production Credit	$200
Certain Income and Gains Relating to Industrial Source Carbon Dioxide Treated as Qualifying Income for Publicly Traded Partnerships	$67
TOTAL	$30,792
* Green Scissors Report 2012; www.greenscissors.com