Is the Obama administration wholly responsible for the high number of employee layoffs and other problems now confronting the U.S. coal industry? Washington Post energy reporter Brad Plumer writes that while some of the environmental restrictions favored by the administration will make coal more expensive to burn, coal’s biggest problem now is the influx of cheap natural gas — gas like that now being produced in Letcher County and elsewhere in Appalachia.
Two things about coal are true right now. First, the U.S. coal industry really is in decline — the nation is burning far less coal to generate electricity than it did five years ago. Second, the Environmental Protection Agency under President Obama really has enacted a bunch of new rules that will require coal-fired power plants to curb their pollution. Those rules will cost money, and some utilities are now retiring their aging coal plants rather than installing expensive new scrubbers.
But it’s not true that the Obama administration is wholly responsible for coal’s current decline. That’s the argument that Mitt Romney and other Republicans have made lately, accusing Obama of waging a “war on coal.” And the charge misses an important point. The U.S. coal industry would be struggling even without Obama’s pollution rules. Coal’s biggest problem at the moment is the recent influx of cheap natural gas in the United States. And that’s a situation that even Mitt Romney would have a hard time reversing.
One way to see this is by checking out the latest report from the Brattle Group consulting firm. There’s some grim news in the report for the coal industry. Between 59 and 77 gigawatts worth of coal capacity is set to retire by 2016 — between one-fifth and one-quarter of the country’s coalfi red plants. That’s even larger than earlier forecasts. But, the Brattle report notes, the recent uptick in retirements has largely been driven by market forces:
“This 2012 reassessment indicates that somewhat more retirements are likely (about 25 GW) than we foresaw in late 2010. However, that change is primarily due to changing market conditions, not environmental rule revisions, which have trended towards more lenient requirements and schedules.?
Over the past few years, natural gas has become extraordinarily cheap, thanks to refined drilling techniques that allow companies to extract more gas from shale rock. And, to a lesser extent, wind turbines have been sprouting up around the country. The result? Electricity generation from coal is way down. And power plant operators have said they were facing pressure to close their oldest, most inefficient plants even before the recent wave of EPA rules.
In certain states like West Virginia, meanwhile, the coal-mining industry faces a structural decline that goes beyond federal regulations. Mining jobs have been slowly dwindling for 40 years, thanks to competition from Wyoming’s vast Powder River Basin as well as the advent of mountaintopremoval mining (which requires fewer miners to go underground). What’s more, as Charleston Gazette coal writer Ken Ward Jr. recently reported, the coal in some Appalachian seams is gradually running out:
“Across West Virginia’s southern coal counties, such talk suggests that coal’s best days might be just around the corner, if regulators can be made to back off or new technology can capture dangerous emissions,” Ward wrote.
“There’s just one problem: Analysts agree that much of the best coal in southern West Virginia has already been mined. Thinner and lower-quality seams are left, meaning production and productivity are dropping. Tough competition from inexpensive natural gas and other coal basins makes matters worse. New environmental restrictions only add to coal’s problems, and production is headed down regardless of air or water pollution restrictions.”
Now, none of this is to suggest that the Obama coal regulations are insignificant or meaningless. Far from it. Those air-pollution rules will certainly impose additional costs on the power sector and the coal industry — utilities will have to spend about $9.6 billion per year by 2016 just to mop up their mercury emissions. (Granted, the EPA also expects the rule to produce health benefits of between $37 billion to $90 billion per year.) That makes burning coal more expensive and even more vulnerable to competition from natural gas.
Indeed, even the Brattle Group analysts agree that government regulations on air and water pollution will affect the pace of retirements. The report has a whole host of different forecasts for future coal-plant retirements, depending on how gas prices evolve and on whether the EPA’s regulations are “lenient” or “strict.”
If natural gas prices evolve as expected (i.e., rising slowly over time) and EPA regulations remain “lenient,” then utilities are expected to retire 59 gigawatts of coal capacity by 2016 — about one-fifth of the coal fleet. By contrast, if those EPA regulations get cranked up to “strict,” then about 77 gigawatts of coal capacity gets retired. Regulations do make a difference, not least by making coal more uneconomical in a world where natural gas is cheap. But natural gas is a huge factor here.
Now, if Congress or the Obama administration wanted to declare an all-out “war on coal,” that would certainly be possible. If Congress levied a carbon tax worth $30 per ton by 2020, then U.S. utilities would likely retire about half of the coal fleet by 2016. Alternatively, the EPA could come out with rules for regulating carbon-dioxide from existing power plants, a decision that has been postponed until after the election. Coal is the most carbonintensive power source around, so any climate-change regulations would likely hurt conventional coal plants most.
But so far, the Brattle Group report notes, the Obama administration has avoided that sort of overly aggressive approach. Two of the EPA’s recent regulations — the mercury rule and the cross-state air pollution rule — were finalized “with less restrictive requirements on the compliance deadlines and equipment than previously predicted.” (The cross-state rule was later struck down by the U.S. Court of Appeals.)
In short: The U.S. coal industry is definitely hurting. But cheap natural gas is inflicting much of the pain. And, yes, it’s possible that the Obama administration could do even more to phase out coal use down the road — either by restricting U.S. carbon-dioxide emissions more tightly or by further cracking down on things like coal ash. But that hasn’t happened yet.
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