Regulation and the decline of coal power

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Coal is fading as the power generation fuel of choice in the U.S., but it's not just because of the EPA.

Coal-burning utilities and their industry partners have mightily protested new EPA regulations, due to go into effect last weekend, that would curb emissions of mercury, sulfur dioxides, nitrogen oxides, and other metallic toxics such as arsenic from power plants. A federal appeals court delayed enforcement of the regulations on December 30 after hearing a challenge brought by power-plant operators and utilities, six states, the National Mining Association and the IBEW electrical union. Their arguments hardly need recitation: The regulations are expensive and "draconian." They're job-killing. They'll raise the price of grid power. The EPA is overstepping its authority. Yadda yadda yadda.

Having had a long look at the data, however, I think the industry doth protest too much.

Price

There is no doubt that several decades ago, clean air regulations caused power generation to begin shifting away from coal and toward natural gas. But in recent years, the most significant pressure by far is price.

The chief reason for this was the explosion of shale gas production, which created a gas glut and drove the price of gas to under $3 per million BTU — an insanely low price, as my friend Gregor Macdonald showed this week. Natural gas now sells for 83 percent less than oil for the same amount of energy, an historically unheard-of discount. Even more remarkably, it's now actually cheaper than low-sulfur bituminous coal from Central Appalachia. Only coal from the low-sulfur Powder River Basin of Wyoming is cheaper, at $0.71 per million BTU. Its price advantage has gradually pushed coals from the East Coast out of the market.

A detailed 2010 report on Central Applachian coal by researchers Rory McIlmoil and Evan Hansen showed that PRB coal began offsetting high-sulfur coals in the 1980s as clean air regulations favored lower sulfur dioxide emissions, but then began to offset low-sulfur coal from Central Appalachia as well by virtue of price:

Source: "The Decline of Central Appalachian Coal and the Need for Economic Diversification," McIlmoil, Hansen, 2010

Central Appalachian coal has ceased to be competitive on price largely because those mining operations are much older. As with oil, we burned the best, cheapest, and most abundant coal deposits first, and the Appalachian mountains have simply become mined-out. The best coal reserves are depleted, and producers now must move on to thinner, less productive, more geologically challenging deposits with lower energy content. Overall, domestic U.S. coal now has 20 percent less energy per kilogram than it did in 1949, and the quality is still declining.

http://www.smartplan...-coal-power/275