Economics, not environmental regs, are battering coal power

  • Coal production in Western Colorado is going strong, despite the drop in prices.

    Ben Blankenburg, istock
 

This fall, as temperatures cooled down and politics heated up, red, white and blue signs sprouted in Delta County in western Colorado, just down from the North Fork Valley's three huge underground coal mines. "Stop the war on coal. Fire Obama," they say. By the time you read this, the world will know who won this particular battle. But the "war" will continue regardless.

That's because Obama's not behind it. Coal is in trouble thanks to the market's vagaries and the abundance of cheap natural gas from the drilling boom that began a decade ago. If the coal industry wants to tackle the real culprit, it should attack a slogan from a few years back: "Drill, Baby, Drill."

Coal has long been America's favorite energy source: It drove the East's industrialization, powered our Allies during World War II, and has kept the Sunbelt's air conditioners purring cheaply ever since.

It's also a dirty source of electricity, which is why greens have battled coal's impacts for decades, starting with the Nixon-signed Clean Air Act of 1970. It forced utilities to put scrubbers in their stacks to reduce the nastiest emissions, but didn't slow the coal binge. In 1990, the first President Bush amended the law to address acid rain. That encouraged Eastern coal plants to start using low-sulfur coal -- opening a huge market for coal from the West, which is rife with the stuff. That revived the North Fork Valley's mines and eventually made Wyoming's Powder River Basin the world's biggest coal-producing region. In 1973, the U.S. burned 563 million tons of domestic coal in one year. By 2007, we'd doubled that amount.

The anti-coal landmines were planted during Bush II's administration. In the 1990s, natural gas combined cycle turbines -- where combustion spins a jet engine-like turbine, and its waste heat creates steam to spin a conventional turbine -- were improved. Cheaper and more efficient than coal generators, they took off; natural gas-generating capacity grew 96 percent from 2000 to 2010. Beginning in 2005, advances in horizontal drilling and hydraulic fracturing opened up vast reserves in shale formations across the country, dropping prices from a high of nearly $8 per thousand cubic feet in 2008, to around $3 today. That makes natural gas competitive with coal on a per-megawatt-hour basis –– something to be used all the time, not just during times of peak power demand.

By last April, coal provided just 32 percent of the nation's electricity, down from the 1990-2010 average of 50 percent. Domestic coal mines are on track to produce at least 10 percent less this year than in 2006. (They've cushioned themselves by exporting 100 million tons or so per year to Europe and Asia.) Things will only get worse -- or better, depending on your outlook: In October, the Brattle Group forecast that between 59 and 77 gigawatts, about one-fifth of total U.S. coal power capacity, will go offline by 2016. Whether federal regulations are strict or lenient will make little difference. The primary reason for the retirements, they say, is cheap natural gas.

"I'm happy to take the blame (for the coal industry's decline)," says Jeremy Nichols of WildEarth Guardians, a group often praised (or denounced) as the cavalry in the war on coal. "But I don't think it's justified. Green groups like ours understand that these issues are purely about economics, and if we don't strategize around economics, we're going to lose."

That's not to say that other factors aren't involved. Pressure from the Environmental Protection Agency and environmentalists contributed to the planned shutdown of two units at the San Juan Generating Station and three more at the Four Corners Power Plant in northern New Mexico, two of the biggest in the West. This year, the EPA's mercury emissions limits were finally put in place after languishing for a decade, and a proposed carbon dioxide emissions cap would make it virtually impossible to build a new coal plant without carbon capture technology.

But even the libertarian Cato Institute acknowledges that this doesn't amount to war. In a Forbes op-ed this August, Cato's Jerry Taylor and Peter Van Doren chided their conservative peers for over-reacting to the greenhouse gas rule. "One might think that conservatives would be positively euphoric about these regs ... and environmentalists, likewise, spitting mad," they wrote, because the administration could have enacted much stricter regulations –– ones that would have targeted existing coal plants rather than just new ones –– but did not.

Coal is fighting back, nevertheless. As soon as Obama took office, coal money poured into politics like never before. Since 2008, Peabody Energy and Arch Coal, the two big operators in the Powder River Basin, have spent about $36 million on lobbying. They've also upped campaign contributions, mostly to Republicans. Oxbow Corp., which owns one of the North Fork Valley mines and belongs to Bill "the other brother" Koch, has donated $3.75 million this year to the Restore Our Future super PAC, a major source of funding for Mitt Romney's campaign, according to the Center for Responsive Politics.

But Obama's never been all that tough on coal. His Interior Department opened land to leasing in the Powder River Basin, despite protests and lawsuits from WildEarth Guardians and others. It also approved Oxbow's exploratory work for a major expansion in Colorado and exempted some mines from that state's version of the Clinton Roadless Rule. Obama delayed his own EPA's smog rule, which would have dealt another blow to coal, and the EPA continues to stall on coal ash disposal regulations that have been on the table since Clinton was in office. With enemies like these, who needs friends?

Then again, it's hard to see how any administration could end the so-called war on coal. It could block carbon rules and continue to delay coal ash rules, or interfere with the markets à la the 1978 federal law that banned the construction of new gas power plants until its repeal in 1987. Maybe it could increase natural gas prices by upping demand, perhaps pushing methane-powered vehicles or subsidizing exports.

Despite the challenge from natural gas, Western coal is holding its own. The Powder River Basin's two biggest mines have 400 more employees than they did in 2007. In the North Fork Valley, there are more miners entering mines and more coal coming out than five years ago. Meanwhile, the Western natural gas industry is struggling, thanks to all that cheap gas from the East. Oil and gas drilling starts in Colorado are lower than they've been in a decade.

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