No Future For Coal in the US?
“There is no future for coal in the United States.”
So said Jim Rogers, former CEO of Duke Power, the largest electric utility in the US, at a program held at Columbia University in New York yesterday.
The occasion was a discussion of new report just released from the university’s Center on Global Energy Policy. In it, authors Trevor Houser, Jason Bordoff, and Peter Marsters offer a diagnosis of the causes of the US coal industry collapse over the last six years, characterized by the bankruptcy of three of the four largest US coal mining companies.
The authors assessed the global coal market outlook and examine the prospects for a recovery in coal production by modeling the impact of President Trump’s executive order to review or rescind Obama-era environment regulations.
The report found that US electricity demand, which contracted in the wake of the Great Recession, has yet to recover due to energy efficiency improvements in buildings, lighting, and appliances. Last year, electricity demand in the US fell by 1.2 percent while the economy grew by 1.8 percent.
A surge in US natural gas production has driven down prices and made coal increasingly uncompetitive in US electricity markets. Coal has also faced growing competition from renewable energy, with solar costs falling 85 percent between 2008 and 2016 and wind costs falling 36 percent. Natural gas currently generates 34 percent of US electricity, while coal accounts for 30 percent.
Increased competition from cheap natural gas is responsible for 49 percent of the decline in domestic U.S. coal consumption, according to the report. Lower-than-expected demand is responsible for 26 percent, and the growth in renewable energy is responsible for 18 percent. Environmental regulations have played a role in the switch from coal to natural gas and renewables in US electricity supply by accelerating coal plant retirements, accounting for 3.5 percent to four percent in the reduction in coal demand for electricity generation.
Changes in the global coal market have played a large role in the collapse of the US coal industry. Coal demand in China peaked in 2011 and 2012, and the slowdown that followed depressed coal prices around the world and reduced the market for US exports. US coal companies bet on the Chinese market by developing resources overseas and investing in export facilities at home. The Chinese market bust contributed to bankrupting three of the leading US companies.
“More than half of the decline in US coal company revenue between 2011 and 2015 was due to international factors,” the report concluded.
Contrary to Jim Rogers’ opinion, the Columbia report posits that implementing Trump’s roll back of Obama-era environmental regulations could stem the recent decline in US coal consumption, if natural gas prices increase. (The World Bank has projected gas prices will increase by 15 percent in the US and 26 percent worldwide through next year.) If natural gas prices remain at or near current levels or renewable costs fall more quickly than expected, US coal consumption will continue its decline despite Trump’s policies. The latter scenario is consistent with Rogers’ view, who sees an inevitable and continued decline in coal consumption in the US.
Global coal markets are unlikely to make up for the US shortfall. Only one percent of Chinese economic growth can now be attributable to industry as the People’s Republic moves to a more services-oriented economy. “Indian coal demand will likely grow in the years ahead, but not enough to make up for the slowdown in China,” the report concluded.
According to Rogers, US electric utilities will continue to move away from coal as they have been doing for some time, not only thanks to low natural gas prices but also by the determination to reduce the industry’s carbon footprint.
“One-hundred percent of wind generation in the US and 60 percent of solar is owned or bought by utilities,” said Rogers. “Two-thirds of all new power capacity is now wind or solar and one-third of electricity generation is now carbon free. No matter what the current political barometer, we need to continue to tack in that direction.”
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