American coal is under siege; that much is clear. It accounted for 62 percent of the country's electricity in 2006, according to the Energy Information Administration, the statistical arm of the Energy Department; today, it's down to just 32 percent. Between now and 2035, up to 22 percent of coal-fired electricity will go off-line. Who is responsible for the implosion of this central part of the American energy sector? Depends on who you ask.
Predictably, both parties have a politically expedient answer. Congressional Republicans blame the Environmental Protection Agency's suite of clean-air regulations, including its rules on mercury, toxic pollutants, and greenhouse gases. "This administration is continuing its war on coal," said Rep. Ed Whitfield, R-Ky., last June after American Electric Power decided not upgrade a coal plant in Kentucky"”a sign that the utility will likely close it altogether. Top EPA and administration officials, meanwhile, blame economics: The agency just happens to be devising court-mandated rules at a time when low natural-gas prices are pushing out coal-generated electricity. "Many [plant] retirements are expected just simply as a result of inexpensive natural gas," EPA Assistant Administrator for Air and Radiation Gina McCarthy told a Senate hearing last month.
In truth, both Republicans and EPA are (somewhat) right. Thanks to cheap reserves opened by new extraction techniques, natural gas accounts for 32 percent of the nation's electricity, up from 16 percent in 2006; it tied with coal's market share for the first time since the government began collecting data in 1973. For now, utilities pay $3.32 per million British thermal units of natural gas, still 91 cents more than coal. (That differential shrank 83 percent since 2006.) But gas power plants produce electricity so much more efficiently that providers get far more bang for their buck.
At the same time, EPA's rules are accelerating coal's decline by making utilities think twice about investing in such a deeply regulated energy source. A rule to limit mercury emissions could cost the industry $10 billion in annual compliance, for example, and the draft greenhouse rules require new coal plants to have carbon-capture technology that is so costly it will make building them prohibitively expensive. "Due to low natural-gas prices, utilities are dispatching gas rather than coal plants. And as utilities ask whether they should retrofit coal plants to meet new EPA regulations, low natural-gas prices make that investment harder to justify," says Richard Newell, who resigned last year as EIA administrator. "The net result is that the combined impact of low gas prices and EPA regulation on coal power is larger than each factor individually." None
It's good politics for Republicans to blame government overreach and for administration officials to cite all the reserves of shale natural gas recently found in many parts of the country. (Can't argue with market forces!) It's harder to admit"”and harder to explain"”that the real reason for coal's decline is a complex web of fluctuating fuel prices, a still-weak economy, environmental regulations, and local factors such as grid reliability.
If Republicans really wanted to protect coal, they wouldn't just flay EPA; they'd would also clamp down on natural-gas drilling. But the point is more to vilify the "job-killing" agency than to pick fossil-fuel winners. EPA has been more forthright, but just barely. At a hearing of the Energy and Power Subcommittee of the House Energy Committee last month, McCarthy kept insisting that low gas prices were pushing coal plants out of business. Finally, after a brusque exchange with Whitfield, the chair, she admitted that clean-air rules also affect utilities' decisions. "No one has ever denied that our regulations [are] a factor," she said.
"That's what I wanted to hear," Whitfield said, cutting her off.
It's a good thing the administration has shale gas to fall back on, says Kevin Book, managing director of ClearView Energy Partners, a Washington-based consulting firm. Thanks to cheap gas and a weak economy, the impact of EPA rules on Americans' electricity prices has been negligible. "The people who would ordinarily complain aren't feeling it"”the end users," Book says. "Gas is a palliative. We might not feel the pain until the economy expands."
Meanwhile, EPA's greenhouse-gas regs are ensuring that utilities won't switch from natural gas back to coal, so those end users may feel more pain down the road, when energy demand could rise faster than supply. The newly nominated EIA administrator cautiously conceded this point at an energy symposium last week: "Longer term, my guess is that just the age of coal plants and the need for emissions reductions will tend to move, you know, put pressure on coal," said Adam Sieminski, the former chief energy economist at Deustche Bank.
What EIA doesn't forecast is political factors. Natural gas is poised to win out over coal economically, but it faces rising opposition from environmental groups focused on global warming. Even though natural gas burns 50 percent fewer carbon emissions than coal, that's still not enough to cut U.S. greenhouse-gas emissions 80 percent by 2050, the goal set by influential environmental voices. The Sierra Club, the country's largest environmental group, is already starting to step up its opposition to natural gas.
But that's a battle for another day. Today's war is about coal. And between the Republican explanation (regulation) and the Democratic one (competition), King Coal is fighting a war on two fronts.