Environmental Policies Weigh on Coal – 1/17/16

Environmental policies will weigh heavily on the prospects of coal in the coming years. Increased regulatory burdens related to emissions combined with increasingly cost-competitive alternatives are threatening to bring an early demise to the coal-fired power plants currently powering our nation.

In his last year of office, President Barack Obama continues to push pro-renewable, environmental policies that increase operating costs of traditional fossil fuels. A halt in leasing federal land for coal mining, announced last Friday, will put a pause on many projects as the Interior Department is given the chance to assess climate change risk as well as the apparent undervaluation of US-owned coal and royalty rates paid by energy companies. The environmental study is indicative of increased political pressure on fossil fuels and other contributors to climate change.

There is evidence that Obama’s campaign promise to promote clean energy sources at the expense of coal has been fulfilled.  Both supply and demand of coal set to fall to levels not seen since 1983 while bankruptcies among coal companies are becoming much more common with at least five publicly traded coal companies seeking bankruptcy protection since 2008. The second-biggest US coal company, Arch Coal Inc., is the most recent to exit under tighter regulations and increased competition from cheaper, cleaner-burning natural gas.

No other resource is seeing as low long-term prospects as coal. Environmental policies weigh especially heavy on the resource because its emissions include several toxins whose removal requires expensive filtering systems. In the last decade, coal’s share of total electricity production fell from 50% to 34% as natural gas, wind, and solar production made large gains thanks to technological advances and political conditions favorable to the cleaner energy sources.

Natural gas seems the heir apparent for coal, for the next decade or two at least. The fossil fuel is cheaper than coal, burns with half as much CO2 emissions, and is plentiful in the US thanks to the shale-oil boom as oil and natural gas being commonly found together. Even as renewable energy becomes more cost-competitive, natural gas is likely to remain in use as a way to smooth production from more irregular sources and meet demand for times and places unsuitable for solar or wind.

The replacement of coal with natural gas is essential for those seeking reduced carbon emissions from the electric vehicles set to enter the market in force in the next few years since most electricity is still produced using coal- or gas-fired power plants. California, long a leader in environmental policies, has already began installing charging stations connected to the power grid as companies such as Chevrolet are introducing models closer in cost and range to gasoline-powered cars.

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