Problems Of Coal Supply Forecasting

Coal supply analysis has since about 1973 become a major activity of many scholars and consulting firms. The present paper is an effort to explain in as nontechnical fashion as possible the state of the art and what implications, if any, the research has for those actually engaged in producing coal or regulating the industry. l The discussion stresses the coal supply side of the models and makes limited comments about other elements in the analysis. To orient the appraisal, it is desirable to recall the features of coal supply that an adequate model should capture. The first considerations are the locational aspects of the industry. Transportation costs can, in some cases, exceed the production costs of coal, and thus any adequate model must incorporate a treatment of the economics of transporting coal from one location to another. A second major issue is that of the heterogeneity of coal; models should treat as well as possible such key differences among coals as their Btu and sulfur content. Third, we recognize that, with given technology and labor, capital, and supply costs, an expansion of the supply of a given type of coal in a specific region will occur only if prices rise. This is the familiar proposition of textbook economics that supply is an increasing function of price. Finally, over time, changes in technology, input cost, and depletion interact to cause changes in the price of given amounts of coal. Economics represents the net effect of this process by a shift over time in the supply curve. During the 1950s and 1960s, the trend was to reduce the production costs of a given output; subsequently costs rose sharply.