Coal Industry Hyperbole: Wars, Train Wrecks, and Electric Disruption

Although our national and state legislatures once were able to pass laws to protect our air and water in a bipartisan way, with some of our most important environmental legislation being proposed and passed under Republican administrations, those days now seem to be at best a nostalgic memory and possibly an imagined time when politics, at least sometimes, focused on our shared public interests.

Now every proposal to remove the poisons from our air that are causing serious illness and premature deaths is described as “job killing” rather than “life saving” and as “impoverishing” rather than “health-giving.” We are told that the Environmental Protection Agency, EPA, is engaged in a “war on coal” that will lead to a “train wreck” for the electric power industry on which our safety and prosperity depend.

While it is true that EPA is currently formulating a variety of air and water quality rules that will affect a significant number of the nation’s oldest, least efficient, and dirtiest coal-fired electric plants, this is largely the result of legislation, like the Clean Air Act, passed decades ago, regulations first proposed by the previous Bush administration, or court decisions mandating that EPA act to enforce the law of the land.

But most of the shift from heavy reliance on coal as a fuel to produce electricity is tied to basic energy economics. This is evident in the voluntary retirement of many small coal plants across the nation over the last half-dozen years. It is even more dramatically evident in the decisions that the electric industry has been making about how to fuel new electric generating facilities.

Beginning in the early 1990s, the number new coal-fired generators being built shrank significantly as natural gas became the fuel of choice for new electric generation. Between 2000 and 2005, there was a boom in the construction of electric generators, but they were almost exclusively fueled by natural gas. Going forward, very few electric utilities have coal-fired generators in their future construction plans. It is that stagnant or declining future coal market in the United States that has pushed the American coal industry to focus increasingly on exporting coal to developing countries like China and India.

Although it is regularly said that coal is the cheapest fuel for electric generation, that does not mean that it is the lowest cost way to produce electricity. Electricity is not produced by simply burning some fuel in the open. It takes major capital investments in the equipment that contains the combustion, captures the heat, and converts it into electricity in an efficient way. If only fuel costs mattered, no one would burn natural gas to create electricity, given that, until recently, natural gas cost three to four times as much on a per unit of energy basis. But natural gas has several important economic advantages that overcome that fuel cost disadvantage. One is that contemporary natural gas-fired generators are more efficient at converting fuel to electricity. More important, it is much less costly to build an efficient gas-fired generator. As a result, the life-cycle costs of generating electricity with natural gas can be 30 percent lower even when natural gas costs two or three times as much as coal for the equivalent energy.

When the much heavier environmental costs associated with burning coal compared to natural gas are taken into account, and the fact that natural gas-fired generators can be built more quickly and in smaller modules, allowing them to be brought on line in a way that more closely follows the growth in the demand for electricity, the cost and risk advantages of using natural gas rather than coal to generate electricity are even clearer.

It is that basic energy economics that explains most of the decisions to retire older coal-fired generators and serve future electric loads by burning natural gas. Natural gas prices have also declined significantly from their peaks of a half-decade ago, and the consensus projections are that they will stay relatively low.

Despite the hysterical comments from some electric utilities about a “war on coal” or a “train wreck” in the electric industry, the shifts in the electric industry are being caused by energy markets themselves. As the Congressional Research Service recently put it, “the train wreck facing the coal-fired electric generating industry, to the extent that it exists, is being caused by cheap, abundant natural gas as much as by EPA regulations.” The CEO of one of the nation’s largest electric and natural gas companies, Exelon, has said the same thing: “These [EPA] regulations will not kill coal…In fact, the modeling done on the impacts of these [EPA] rules show that up to 50 percent of retirements are due to the current economics of the plant due to natural gas and coal prices.”

It is somewhat perverse to hear politicians in Montana and Wyoming complaining about EPA‟s regulation of the pollution associated coal-fired electric generators. After all, it was the Clean Air Act and EPA‟s regulations implementing it that created the nationwide market for the low sulfur coal found in the Powder River Basin of Montana and Wyoming. That converted barely used and isolated coal deposits into the source of half of coal consumed in the United States and created Wyoming’s and Montana’s coal industries. EPA’s current tightening of the sulfur emissions allowed from coal-fired generators around the nation is likely to create even more of a market for that low sulfur Powder River Basin coal.

As both Montana and Wyoming should have learned by now, pollution control not only protects lives, health, and natural environments, it also creates substantial economic opportunity for those with the technologies, services, and products that can help protect the environment.