Why there’s no bringing coal back [GGP]
During his campaign, President Trump promised to bring coal back. But is that even possible? In a new paper, Howard Gruenspecht, senior energy economist at the Massachusetts Institute of Technology Energy Initiative, says that the answer is almost certainly “no.”
In the United States, more than 90 percent of coal use is in power generation. However, coal is experiencing fierce competition from low-priced natural gas and ever-cheaper renewable power. Over the last decade, the United States has seen a 40 percent decline in coal-fired generation, owing to lower coal plant utilization rates and plant retirements. Flat electricity demand compounds the challenge for coal.
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A recovery in domestic coal demand is not likely. Inexpensive natural gas and renewable power are not going away. New coal-fired generation capacity is much more expensive to build and more difficult to site and permit than natural gas or renewable facilities. Uncertainty about the future of climate and environmental regulation adds to the challenge, along with the potential that older coal plants will become obsolete and the potential need for significant investments for them to remain operable.
The current administration favors coal, but that policy may not continue in future administrations. Displacing coal-fired power generation is a very cost-effective way to reduce U.S. energy-related greenhouse gas emissions, and thus could be targeted by a future administration more concerned about climate.
Despite these strong headwinds, the Trump administration is attempting a number of strategies to aid the U.S. coal industry. It is important to distinguish steps that are largely symbolic from those that could significantly affect coal use. For example, repeal of the Clean Power Plan is likely to have a minimal impact on future coal demand. Lifting a moratorium on coal leasing on federal lands, ending a review of royalty rates, and expanded tax credits for carbon capture and sequestration are also unlikely to improve coal’s competitiveness.
Other policies could have more impact. The administration has explored several strategies to encourage coal plants to keep operating. For example, in September 2017, Secretary of Energy Rick Perry proposed that the Federal Energy Regulatory Commission (FERC) adopt a Grid Resiliency Pricing Rule to guarantee that coal and nuclear plants that maintain a 90-day supply of fuel onsite could fully recover their costs along with a guaranteed return on equity. FERC unanimously rejected the rule, but the administration is reportedly considering using authority under the Defense Production Act to achieve the same end. Using the Act in this way would be a significant departure from past practice, and it is not clear how far the administration is willing to go to mandate coal generation on national security grounds.
Export markets for U.S. coal also face strong headwinds. Overseas sales by U.S. producers increased substantially in 2017, but are still below levels during 2011 through 2014. The United States is a swing producer in the global coal market, called up on during price spikes for coal produced in China, Australia, and Indonesia. Demand for steam and metallurgical coal (used in steel production) are both declining in Europe, and U.S. coal faces logistical disadvantages in supplying growing markets in Asia.
The decline of the U.S. coal industry is the result of market forces, not a policy “war on coal.” Any successful policy to revive the industry will be working against economic headwinds, and thus difficult to maintain over the long term. Although coal mining and coal-fired electricity generation are small contributors to the overall U.S. economy and employment, the decline of coal has had tragic consequences in certain communities. Working to ameliorate these impacts in affected communities is likely to be a much more effective strategy than attempting to revive the coal industry with policy.
Samantha Gross
Samantha Gross is a Fellow at the Cross-Brookings Initiative on Energy and Climate, The Brookings Institution. Read the paper, The U.S. coal sector, Recent and continuing challenges by Howard Gruenspecht HERE
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