Whose War on Coal?

Republicans blame the Environmental Protection Agency for coal’s sinking fortunes. EPA blames cheap natural gas. Who’s right?

**FILE** In this Nov. 21, 2004, file photo a coal train winds its way into the mountains near the New River at Cotton Hill in Fayette County, W.Va. While President Bush has been a friend of coal, no one overlooks the next president's role in shaping the nation's energy policy. President-elect Barack Obama has stressed that he advocates finding environmentally friendly uses of coal, a source of carbon dioxide, a greenhouse gas attributed to climate change. (AP Photo/Jeff Gentner)
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Amy Harder
July 12, 2012, 1 p.m.

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.” 

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. 

Contributions by Olga Belogolova