Is the Marketplace What's Really Killing Coal?
In 2016, Coal Country propelled Donald Trump to the White House. On the campaign trail, Trump repeatedly slammed the Obama administration for its environmental policies targeting the coal industry, while regularly promising to bring back jobs to the sector. This was something West Virginia and Wyoming coal miners wanted to hear, not Hillary Clinton pledging “to put a lot of coal miners and coal companies out of business.”
So, with Trump’s first year in the Oval Office in the history books, has the coal industry been saved?
Last year, output was up, and exports increased. However, coal-fired power plants are still shutting down, employment remains low, and the president’s proposal to subsidize coal plants was rejected by federal regulators.
Trump’s critics will inevitably pounce on the White House’s inability to rescue the industry, which will indeed be a talking point for Democrats seeking to regain the support of middle America. But the industry’s decline, particularly when it comes to jobs, has been in the making for many years.
Coal Country usually blames the Obama-era Clean Power Plan and the Stream Protection Rule. But the future has been bleak for a long time, and there’s a myriad of reasons why coal is dead and never coming back. Free market, government policy, machinery, green energy. Take your pick.
Coal Employment Peaked in 1923
In 1890, there were 300,000 coal workers. For three decades, coal employment kept going up, eventually employing nearly one million workers. But that trend ended abruptly in the 1920s.
With the prevalence of machinery and businesses replacing most manual workers in the sector, coal employment peaked in 1923 with about 900,000 miners.
Yes, even with the creation of the Environmental Protection Agency (EPA), thanks to President Richard Nixon, there was an uptick in the 1970s. But it wasn’t because of sound economic policies. In 1973, the Department of Labor proceeded to count white-collar staffers as coal workers.
Once again, there was a steady decline in employment figures beginning in the 1980s.
Today, there are roughly 50,000 American coal workers. Who knows where these statistics will be 10 or 20 years from now?
The Rise of Natural Gas
A decade ago, coal accounted for about half of the fuel used to generate U.S. electric power, but it tumbled to 30% in 2016. What contributed to the steep drop? Natural gas.
In 2007, natural gas provided just 20% of the nation’s electricity needs. Today, that number has spiked to 34%, surpassing coal’s share for the first time in history.
Thanks to the shale revolution, the country’s natural gas production has spiked over the last decade, helping the U.S. become the world’s biggest producer. With enormous supplies of cheap natural gas and a resource that is slashing the nation’s emissions, utilities are witnessing two significant opportunities: reduce electricity rates and accomplish their clean energy objective.
According to the Energy Information Administration (EIA), it is projected that more than 36 gigawatts of new natural gas capacity will come online this year, the largest increase in more than a decade.
And this is only the beginning for natural gas’s meteoric surge.
Since natural gas prices have crashed to around $3 per million British thermal units (Btu), analysts expect greater demand from manufacturers, exporters, and the energy industry in the coming years.
In the end, it will primarily be natural gas that accelerates coal’s destruction.
Washington Still Complicit
For the most part, the free market killed coal, but Washington also had a hand in its death. The instruments of regulations and bureaucratic red tape were used to bring the former energy giant to its knees.
Here are just some of the regulations coal firms contend with: Cooling Water Intake Structures, Stream Buffer Zone Rule, Examinations of Work Areas in Underground Coal Mines for Violations of Mandatory Health or Safety Standards, Greenhouse Gas New Source Performance Standard, and the list goes on.
Coal-fired power facilities were developed at a time when there was very little bureaucracy. They burned coal; they were not designed to cater to bureaucrats from federal environmental agencies. When companies sought to modernize their plants, the regulators made it way too expensive, producing a generation of so-called zombie power plants.
Want to create a new plant? The standard permitting process is just too long. From the time the providers of capital agree to finance the project to seeing the blueprints come to fruition typically takes several years due to the various required permits, regulators needing to determine if their requirements are met, and many other factors.
Very few wealthy investors would want to park their money in such a high-risk endeavor.
Coal technology has evolved in recent years. In October 2015, a Saskatchewan-based power plant launched, promising to generate electricity for 100,000 homes, while also being eco-friendly. Will it work? Others are following suit in the U.S., and some are even posting a profit in a natural gas world.
President Trump has scaled back some of the Obama-era regulations, attempting to offer the battered industry some reprieve. Though coal leaders are grateful for the deregulation, they understand the economics of the situation.
Matt Preston, research director for North American coal markets at Wood Mackenzie, told CNBC:
“All of those hurdles would have been overcome if natural gas was really expensive … but with gas cheap, you just don’t go over those hurdles. It’s a help, there’s no doubt about it. But they’re not going to improve the economics of today.”
No business or sector should ever receive government subsidies. But perhaps coal’s lifespan would expand if it were given preferential treatment in terms of taxpayer dollars like green energy has for years.
A Long-Term Trend Reversing?
Despite the slight upticks in coal mining employment over the years, there is no reason to suggest that the long-term trend is on the cusp of reversing. But these are just the market forces at play. Right now, natural gas dominates the energy sector amid the fracking boom, and it is playing an impressive role in the geopolitical world.
The U.S. is an energy behemoth, Organization of the Petroleum Exporting Countries (OPEC) is irrelevant, and the nation’s CO2 emissions are plummeting. All of this can be attributed to the natural gas boom.
Unfortunately, the natural gas boom is also the culprit for coal’s annihilation.