[Charts and links are in the on-line article. U.S. data]
Five charts that show why Trump can’t deliver on his coal promises
Tuesday, December 6, 2016
President-elect Donald Trump has pledged to revive the coal industry
and bring back coal mining jobs with fewer regulations and better trade
deals. However, Trump’s vision of a revived coal industry that offers
plentiful new jobs may remain just that: a vision.
No one can deny the problems in the coal industry that Trump claims he
will address. Coal production has plummeted to levels not seen since the
early 1980s. The average number of employees at coal mines has decreased
12 percent to 66,000 employees, the fewest since 1978. And, the industry
has been plagued by a series of bankruptcies.
However, Trump is ignoring the real reasons behind the industry’s
struggles. In doing so, he is making unrealistic promises to revive a
Since 2000, a series of market forces—the shale gas revolution, which
has eroded coal’s price advantage; cost reductions in renewable energy
technology; the overall flat demand in the power sector; shifts in
global demand for coal; and declining coal mine labor productivity—have
all contributed to coal’s decline, likely more so than government
Let’s look at each of these market forces in detail.
The decline in coal’s fortunes is largely a result of competition from
cheap and abundant natural gas, which was freed in soaring volumes
during the last decade due to technological advancements in horizontal
drilling and hydraulic fracturing. The utility industry, motivated by
profit and a desire to keep costs low, has been shifting significantly
from coal to natural gas. In 2000, coal accounted for 51.7 percent of
electricity generation, compared with just 15.8 percent for natural gas.
By 2015, coal’s share had dropped to 33.2 percent, while natural gas
rose to 32.7 percent of total generation. The Energy Information
in March that natural gas’ share of the electricity market would surpass
coal for the first time in 2016, a trend likely to pick up pace as long
as natural gas prices remain low. To keep his promises of reviving the
coal industry, Trump will have to figure out a way to increase the price
of natural gas.
While cheap natural gas has inflicted the most damage on coal, renewable
energy—including wind and solar—has also contributed to a shift away
from coal in many parts of the United States. The cost to build a
utility-scale solar photovoltaic plant has fallen by about 80 percent
since 2009, while wind project costs have dropped by 60 percent. As a
result, large solar and wind farms can compete in the power market even
with low natural gas prices. The entry of renewable energy projects into
the market is leading to a reduction in coal-fired generation in many
places, including deep red states. For instance, Iowa
and Kansas get 30 percent and 21 percent of their electricity from wind,
respectively, and Texas has added more wind-based generating capacity
than any other state. Many studies (see here
and here) have noted that renewable energy development is poised to grow
significantly, even in the event that the Clean Power Plan
is not implemented. The levelized cost of electricity (LCOE)—or how much
money it takes to produce one megawatt-hour (MWh) of electricity from a
particular source—shows that wind and solar have become increasingly
cost-competitive with coal, even on an unsubsidized basis.
Third, GDP growth and electricity consumption in the United States have
become decoupled. Total electricity sales dropped 1.1 percent in 2015,
marking the fifth decline in the previous eight years. A combination of
factors—including significant uptake in energy efficiency investments,
the growing popularity of rooftop solar, changing composition of the
economy, and a slowdown in economic growth—account for declining rates
of electricity demand growth. Given flattened demand, utility companies
are forced to seek the lowest-cost sources of electricity to remain
profitable in the face of sticky prices from unchanging demand. Because
current LCOEs for non-coal sources are generally below the LCOE for
coal, Trump would again have to increase prices for non-coal sources of
electricity to bolster the coal industry.
Recent global shifts in coal demand do not suggest that coal’s strength
lies outside U.S. borders, either. Coal exports fell for the third
consecutive year in 2015 , ending the year 23 million short tons (MMst)
lower than in 2014 and more than 50 MMst less than the record volume
exported in 2012. Some of this decrease is likely attributable to the
slowdown in Chinese economic growth. The International Energy Agency
forecasts that U.S. coal exports will continue to decline in the face of
slowing Chinese consumption and cheap foreign competition. Greater
demand from China and India, the two largest coal markets, is necessary
to increase coal exports; all indications suggest that these countries
will want to keep imports low for security and fiscal reasons. In short,
there is little opportunity to boost the U.S. coal industry through exports.
Finally, U.S. coal industry productivity—a measure of the tons of coal
that a mine produces per employee hour—has rapidly declined in the past
decade, after peaking around 2000 in most coal-producing regions.
Diminishing coal geology and a tendency to mine the cheapest and
easiest-to-reach coal first have contributed to this trend. Declining
productivity has led to increased costs and thinner profit margins for
coal companies already facing headwinds from other market forces. Years
of declining efficiency have reversed in the past three years, as miners
have stabilized or even increased productivity at both surface and
underground coal operations. However, this increase in productivity may
be temporary, as production gains have likely come from closing of
less-efficient mines, cost savings and lower capital expenditure rather
than improved mining technology.
Together, these five long-running market forces help explain why the
U.S. coal industry is in decline. Simple economics, not politics, will
continue to drive the decline of the coal industry in the coming years.
Reversing the trend will be next to impossible without pouring huge
subsidies into the industry. Unfortunately, Trump’s unrealistic promises
to save the coal industry detract from any serious conversation the
nation should be having on what to do about coal workers losing their
jobs and how to help them transition to new jobs in the advanced economy.
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