Where Now?

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.