Simulating the Economics of Coal Production

Abstract

Simple models of discounted cash flow can simulate production for coal mines with three different geometries: (1) uniform horizontal beds,

(2) horizontal beds with optional incremental seams, and (3) uniform dipping seams. The models assume that investors choose a constant rate and duration of production to maximize present worth. Examples show the effects of policy and economic changes on coal production for each model. The results show that changes which increase variable costs reduce the optimum rate and duration of production. Changes which increase fixed costs, however, do not affect the optimum rate of production but do reduce the ultimate recovery of coal.

Keywords

coal production economics energy,natural resources policy-making resource management

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