The Trump administration’s shifts in energy and environmental policy likely won’t change the downward trajectory of America’s coal sector, industry experts reported at a panel in Cleveland this week.
The program at Case Western Reserve University delved into reasons why the United States’ coal industry has declined and the impacts of legal developments over the last quarter of a century.
Most of those legal developments cannot easily be reversed, panelists said. Nor is the Department of Energy’s latest move to give support to coal and nuclear plants for baseload purposes likely to become law anytime soon, they suggested.
“Coal is on its downward slope,” said Walter Culver of the Great Lakes Energy Institute at Case Western Reserve University. “There’s little you’re going to do.”
‘A serious competitor’
About 93 percent of U.S. coal production goes to produce electricity, Culver noted. As energy demands increased, so did coal production until about 2008. “And then suddenly the wheels dropped off,” he said.
By that time, natural gas production was climbing, thanks to technological advances in horizontal drilling and fracking. And coal ran into “a serious competitor with jet engines” that could burn that natural gas to make electricity, Culver said.
Ohio particularly benefits from the availability of natural gas from the Marcellus and Utica shale plays. “It’s some of the cheapest in the world and some of the most plentiful in the world,” Culver said. Productivity is now three-and-a-half times better than it was just five years ago, he added. And wells can now start producing in just about four weeks.
In contrast, Appalachian coal costs more to mine than western plays, which have a lower sulfur content. That’s largely because of economies of scale, explained Alexander Schoch, speaking in his personal capacity rather than as general counsel for the Railroad Commission of Texas. That agency regulates the energy industry in that state.
Coal-fired generation is also generally less efficient than natural gas production, Culver noted, especially when it comes to aging coal plants. Meanwhile, renewable energy technologies are “fast challenging coal.”
For example, he explained, power purchase agreements for some wind farms offer electricity for as little as 2.5 cents per kilowatt-hour, compared to about 4 cents for coal. “That’s at the point of purchase” and doesn’t account for transmission costs, Culver noted. “But the prices are coming down so fast that no one would have predicted that five years ago.”
The war-on-coal era
Republican rhetoric during last year’s election campaign lambasted the Obama administration for a “war on coal.” And President Trump has followed up with moves to undo the Clean Power Plan and other measures. “My administration is putting an end to the war on coal,” Trump said in March.
“The war-on-coal story relies pretty heavily on the Clean Power Plan being the nail in the coffin” for the coal industry, Columbia Law School’s Justin Gundlach observed. But, he added, “I think that would be a stretch at best.”
The coal industry’s decline during the so-called “war-on-coal era” largely correlates with the Obama administration, he explained. However, “the cost of doing business for coal-fired power plants was more or less set long before 2008.”
Indeed, the roots of the regulatory programs that have been blamed for recent plant closings go back to the 1990 Clean Air Act amendments, which were signed into law by Republican President George H.W. Bush.
“A number of dominos fell slowly across the 1990s and into the 2000s,” Gundlach explained. Lengthy litigation delayed new rules to implement the 1990 amendments, so that some cases weren’t resolved until after Obama took office.
For example, the U.S. Environmental Protection Agency’s regulation on mercury and air toxics dates back to 1994. In 2012, FirstEnergy cited those regulations as its reason for closing three older coal plants on Lake Erie. The last of those plants finally closed in 2015.
However, the mercury regulation “is not going anywhere,” Gundlach said. “It has been litigated all the way up to the Supreme Court and back down. There is no way, short of revising the Clean Air Act, that you’re going to get rid of [the current standard].”
In his view, it’s also unlikely that rules on air pollution across state boundaries, ozone levels, coal ash and other matters will be reversed anytime soon. “These things have a very long provenance,” he noted. “You cannot undo them quickly.”
“Yes, you can reopen coal leasing on federal lands. You can try to kill the Clean Power Plan,” Gundlach said. In his view, though, such steps won’t matter because of market forces and other established rules.
If anything, the coal industry might get some relief if the federal government were to impose more regulations on its main competitor, the natural gas industry. “Note that coal is squarely in the hairs of the Clean Air Act,” Gundlach said. “Fracking is not in the hairs of the Safe Drinking Water Act.”
Schoch also suggested that policy makers might be wise to consider the cyclical nature of the natural gas market. “Do you bet on that horse and say the cost is always going to be low?” he asked.
Preferences for coal?
Against this backdrop, Energy Secretary Rick Perry announced on Friday that he had asked the Federal Energy Regulatory Commission (FERC) to adopt new rules to help prevent the closing of power plants with “on-site fuel supplies.”
That’s “another way of saying, ‘privilege coal and nuclear over other sources of energy,’” noted law professor and panel moderator Jonathan Adler of Case Western Reserve University. “If this were to happen, is this something that could … upset the market?” he asked. Probably not, the panelists replied.
For one thing, any change in FERC’s rules would have to go through notice-and-comment rulemaking. “They’re going to need a lot of evidence to shore up this rule,” Gundlach said. In his view, that evidence “doesn’t exist.”
Even after promulgation of a rule, litigation is likely. “There’s going to be a fight about what to do with this thing,” Gundlach said. Meanwhile, domestic and international market forces will continue to put competitive pressure on coal.
Indeed, competing generation sectors are already taking steps to have on-site reserves, especially after recent rule changes in the PJM market territory that require year-round availability for bids into the annual capacity auctions. Those changes, which were reflected in this spring’s auction results, have been criticized as giving an unfair advantage to coal and nuclear plants.
In response, however, many natural gas plants have begun storing oil on site, Culver noted. “They just simply put fuel oil into their jet engines” if natural gas supplies should become scarce due to another polar vortex or other disruptions, he said. Advances are also underway for battery storage for renewable energy facilities.
Even if FERC does adopt Perry’s proposed rule, “it may slow the death of coal in this country,” Culver said. “It’s not going to reverse it.”