Coal States Uncertain of Industry's Future

This is an unsettling time for states whose economies revolve around coal. But the future may not be as bleak as doomsayers predict, reports

By Jim Malewitz, Stateline Staff Writer

Last month, when the Obama administration moved for stricter regulation of greenhouse gas emissions from power plants, West Virginia Governor Earl Ray Tomblin accused the administration of “trying to end the use of coal as we know it.”

He was echoing sentiments in other coal-producing states and those of the coal industry itself. Hal Quinn, president of the National Mining Association, called the proposal "the latest convoy in EPA’s regulatory train wreck that is rolling across America, crushing jobs and arresting our economic recovery at every stop.”

The greenhouse gas crackdown followed another EPA rule, announced in December, limiting the amount of mercury and other toxics that power plants can spew into the air, requiring coal-fired units to employ new pollutant-capturing technology.

While officials in coal-producing states were condemning these decisions, environmentalists were generally cheering for them. They believed that the new rules would not only clean up existing coal plants, but increase production costs of coal-fired electricity, perhaps accelerating the country’s shift away from coal, with some environmentalists predicting the coal industry’s demise.

But the current consensus of experts is that coal may not be in quite as much trouble as its supporters sometimes claim — or as its enemies might wish.

It’s true that coal’s share of the U.S. energy market is shrinking, a trend that’s expected to continue over the coming decades, challenging states such as Wyoming and West Virginia, which produce and consume large amounts of the product.

But the industry won’t be dying any time soon, experts say, as existing coal-fired power plants continue to operate and U.S. coal-producing states look to expand their markets overseas.

“We’re not talking about a coal-less future,” says John Hanger, former director of the Pennsylvania Department of Environmental Protection.

Changing economics

Some of the oldest coal-fired power units are shutting down across the country, and few new coal plants are likely to be built in the future. But that trend was well underway before the EPA rolled out its new regulations. The reason is that the abundance of cheap natural gas is pricing coal out of the market.

“It has nothing to do with the EPA regulations,” Hanger says. “It has everything to do with the shale-gas revolution.”

Several forces have combined to slash natural gas prices to record lows. New discoveries of shale deposits, along with the advent of horizontal drilling and hydraulic fracturing, have unlocked vast reserves of natural gas, enough of the resource, many researchers say, to meet U.S. energy demands for the next century.

This phenomenon, coupled with the fact that natural gas-powered plants are relatively cheap to build, has spurred many utilities to look to natural gas instead of coal to generate new power. Coal has been losing market share since 2008, and the U.S. Energy Information Agency predicts U.S. consumption of coal will fall about 10 percent in 2012, while electricity generation from natural gas increases by about 17 percent.


But none of that suggests an industry on the verge of extinction. “No one believes that coal will disappear in the next 10 or 20 years,” says Mark Snead, an economist and executive at the Federal Reserve Bank of Kansas City.

In the short run, natural gas prices may level off, as some producers discouraged by low prices pause in their drilling. A leveling off of natural gas prices would slow the shift from coal. In fact, the EIA projects that electricity generated by coal will increase by about 7 percent in 2013 as natural gas prices slowly inch up.

Coal also has time on its side, because utility companies can’t instantaneously overhaul their fleets to natural gas. Most coal plants already meet or can afford to meet federal air toxics regulations and, grandfathered past EPA’s new carbon rules, may well burn coal for decades more.

Though utilities now have reason to replace some aging coal plants with natural gas, they are unlikely to replace most plants that are still functioning. “Utilities are sort of like a battleship,” says Tim Considine, a professor of economics at the University of Wyoming’s School of Energy Resources. “It’s hard to quickly turn them around.”

In West Virginia, for instance, where almost all energy consumed comes from coal, one of the state’s leading utilities says it can’t afford to drop coal as an energy source. “We’re going to be using coal for the foreseeable future,” says Jeri Matheney, a spokesperson for Appalachian Power, a unit of the utility American Power.

The utility recently announced that three plants in West Virginia and two in Virginia will close by 2014, citing the cost of the new air toxics regulations. Without the regulations, says Matheney, the company would have staggered closures of each plant over the next ten years.

Appalachian Power recently opened one natural gas plant and has converted two of three coal-powered units at another plant to natural gas. But the bottom line is that by 2015, the company still plans to be producing 71 percent of its energy from coal.

Looking to exports

The pace of the shift from coal to natural gas may give coal producers time to grow markets outside of the country.

While coal use dwindles domestically, coal producers are enjoying a surge in exports, particularly to rapidly developing Asia, more than doubling those exports since 2006 and increasing them by more than 20 percent between 2010 and 2011.

Current export terminals aren’t large enough to meet global demands for U.S. coal, but new terminals proposed along the coasts of Washington State and Oregon would boost capacity for the coal industry in Wyoming, producer of 40 percent of American coal, and in Montana, the nation’s fifth-leading coal producer. Along with that, companies are courting investors for port expansion in Texas.

Though environmentalists are lining up to oppose the projects, Considine expects most of the expansions to progress. With that added capacity, he says, exports could become a major component of the coal industry.

For Wyoming and other states whose economies boom and bust on energy revenues, expanded export markets would help to avoid “serious economic shock,” economist Snead says. “Nobody has a larger interest in this than Wyoming,” he says. “They are the classic test case.”

Caroline Cournoyer is GOVERNING's senior web editor.