By T.L. Headley, American Coal Council
Prior to the election of Donald Trump as president this past November, many people were busy writing the coal industry’s obituary. Contrast that with what is transpiring in 2017 – the coal industry has experienced a significant increase in year-over-year production, many laid-off coal miners are returning to work, and demand for coal has improved. Those obituaries were more than a little premature.
According to the Department of Energy’s Energy Information Administration (EIA), year-to-date 2017 coal production stands at 482 million short tons (MMst), a 14 percent increase over the same period a year ago.
The increase is linked to higher consumption in the electric power sector and a rise in coal exports. In its Short-Term Energy Outlook (STEO), EIA reported electric power sector consumption for the first half of 2017 at 316 MMst, up over 5 percent from the same 2016 period. And during the first six months of 2017, the U.S. exported 43 MMst according to EIA, which was more than 50 percent higher than coal exports over the same period last year.
EIA’s STEO forecasts total 2017 coal production to be up nearly 60 million tons to 786 MMst. EIA currently projects total 2017 electric power sector consumption at 692 million tons, up 15 MMst. And while EIA expects growth in coal exports to slow in the coming months, exports for all of 2017 are forecast at 70 MMst, 17 percent above the 2016 level.
The improved market conditions are welcome news, and the Trump administration has taken a number of steps to support coal and improve the industry’s future ability to compete in the marketplace. Among these steps were signing legislation to rescind the stream rule under the Congressional Review Act. EPA Administrator Scott Pruitt is dismantling the Obama administration’s Clean Power Plan, and postponing deadlines for the Effluent Limitations Guidelines for the power sector. Interior Secretary Ryan Zinke has lifted the federal coal-leasing moratorium and rescinded the prior administration’s royalty valuation rule. However, much of the damage of the past eight years may be permanent without other policy changes. Closure or the announced closure or conversion of 581 coal-fired power generation units, over 100,000 MW of capacity, has been tracked by the American Coalition for Clean Coal Electricity (ACCCE). As of the summer of 2017, retirements of 65,000 MW had already occurred. ACCCE’s tracking shows that EPA regulations were indicated as a factor for 80 percent of these retirements.
So where does the nation’s coal industry go from here?
An important step forward is action for retention of the nation’s remaining existing coal fleet. Appropriate valuation of coal’s attributes as a fuel source for reliable power generation and its contributions to the resiliency of the power grid would support that. Policy levers include incentives or subsidies to retain coal capacity or a temporary reprieve from coal unit closures. One need look no further than the 2014 polar vortex to understand the importance – it was coal units that facilitated uninterrupted power supply during this extreme weather event.
Both Pruitt and Secretary of Energy Rick Perry have repeatedly warned of the need to guarantee fuel diversity. Pruitt believes it is a matter of national security.
“Utility companies across this country need fuel diversity. You need solid hydrocarbons on site that you can store, so when peak demand rises, you’ve got solid hydrocarbons to draw on,” Pruitt recently said during a Fox Business interview. He asked, “What would happen if we had an attack on our infrastructure when you’ve diverted to natural gas almost exclusively and you don’t have coal there as a safeguard to preserve the grid?”
In April, Perry commissioned a study of the electric grid. “We are blessed as a nation to have an abundance of domestic energy resources, such as coal, natural gas, nuclear and hydroelectric, all of which provide affordable baseload power and contribute to a stable, reliable and resilient grid,” Perry stated in a memo to his chief of staff, requesting the study. He noted that in recent years, grid experts have “highlighted the diminishing diversity of our nation’s electric generation mix and what that could mean for baseload power and grid resilience.”
If the administration is able to secure the remainder of the nation’s existing coal fleet, that will ensure that coal remains a significant part of the energy mix and will help to provide a more sustainable market for coal.
But is that enough?
In a recent presentation to the American Coal Council’s Coal Market Strategies conference, Matt Preston of Wood Mackenzie discussed the domestic outlook for U.S. coal, including future carbon policy implications.
Preston said it is fairly clear that the EPA will withdraw the Clean Power Plan in the near future, but he added that Wood Mackenzie believes that sometime after the current administration’s first term, the U.S. will determine a need to proactively discourage CO2 emissions.
Wood Mackenzie’s modeling assumes a tax on CO2 tons emitted beginning in 2028 at $2/st. Preston explained that the choice of the date was an estimate based on political and economic trends. He indicated that the choice to model a carbon tax is a simple way to represent the policy direction. It’s not a mass cap, so it leaves the opportunity for coal to switch to gas.
Preston, M., “Domestic Outlook and Changing Power Sector Demand Characteristics,” American Coal Council Coal Market Strategies Conference, Aug. 15, 2017.
In EIA’s Annual Energy Outlook 2017, the reference case assumes the impacts of the Clean Power Plan and shows coal production declining to 619 MMst in 2040. An alternate case without the Clean Power Plan maintains coal at 861 MMst in 2040. The National Mining Association has estimated that 27,700 high-wage mining jobs and an additional 99,849 jobs throughout the supply chain will be saved without the Clean Power Plan.
Coal producers are buoyed by support from the administration and are looking to the long term. They appreciate Perry’s leadership in commissioning the electric grid study and the attention to fuel diversity and energy security issues. Investment dollars are returning to the coal sector and the producers point to advanced coal-fired generation as one of the keys to the future, whether it is in the form of new HELE (high efficiency/low emission) power plants as at Longview in West Virginia or through the development and commercialization of CCUS (carbon capture utilization and storage) as the path forward.
In his recent keynote address at the ACC Coal Market Strategies conference, Peabody President and CEO Glenn Kellow stated that more than 800 GW of HELE technology is either already online or is under construction around the world. He noted that a large HELE plant has the benefit of removing one million cars from the road compared to older plants. He discussed the progress on carbon capture, with 21 such projects in operation or under construction around the world.
Other producer views of the future emphasize solving for carbon, and the role of the federal government. “[They can] develop policies that address Americans’ legitimate concerns about climate and CO2, all while protecting coal jobs, communities and coal revenue-dependent states like Wyoming from the devastating consequences of the failed policies of the Obama era,” said Rick Curtsinger of Cloud Peak Energy, in a recent interview with the Casper Star Tribune. “They can do so while utilizing policies like carbon capture that are part of the same overwhelming scientific and economic consensus that environmental activists base their call to action on.”
In addressing CCUS prospects with other media, Curtsinger said, “We are hopeful that Congress will support the further development and commercialization of the carbon capture technology that we believe is necessary for coal to be able to play a long-term role in providing secure, reliable and affordable electricity while addressing concerns about CO2 and climate.”
In a New York Times article earlier this year, Peabody, Cloud Peak Energy and Arch Coal representatives addressed the future of coal and carbon-capture coal technology. “We need a low carbon fossil energy solution,” Arch Coal’s Deck Slone told the Times. “The political landscape is always shifting and certainly carbon concerns are not going away. We think there is a solution out there in the form of technology that is an answer to the climate challenge and, quite frankly, will be good for our business long-term.”
- Kellow, G., “Preserving the Nation’s Enormous Advantage of Baseload Generation From Coal,” American Coal Council Coal Market Strategies Conference, Aug. 15, 2017