Why should American consumers and businesses be concerned about coal's low cost and continued dominance of the energy market? Because those same consumers and businesses will, sooner or later, be forced to pay the price for continued use of cheap coal. As market forces will not account for the full cost of coal, the government should step in to correct this market failure. However, in the United States, the federal government has done just the opposite; it has encouraged the use of coal through significant tax incentives. The coal industry receives preferential treatment that amounts to the transfer of billions of dollars. This article argues that choosing coal as the primary fuel to generate electricity constitutes a market failure. Tax policy can be used as a tool to correct market failure, but, in coal's case, tax policy exacerbates market failure by providing subsidies. This article will address the social and environmental costs of coal, including miners' health and safety, and pollution effects such as acid precipitation, mercury emissions, particulate emissions, and greenhouse gas emissions. Then, this article will explore the tax treatment of coal, including the theoretical basis for coal depletion, exploration and development costs, reclamation costs, and the credit for synthetic fuels. The Energy Tax Incentives Act, the tax title of the Energy Policy Act of 2005, added significant benefits for coal use and production, including the renewable electricity production credit and the credit for investment in clean-coal facilities. Finally, this article will discuss how tax policy could improve coal use, focusing on how taxes may be used to account for coal's social and environmental costs, and why a carbon tax might be better for business than either ignoring greenhouse gas emissions or implementing a tradable permit system
