Tuesday, November 22, 2016

For Coal Jobs, Rhetoric Trumps Truth

Back in May, I discussed Donald Trump’s campaign dubious promises to bring back coal jobs to places like West Virginia and Kentucky.  He promised (and continues to promise) that reduced regulation and elimination of the Clean Power Plan will bring back job.  Voters in West Virginia bought the claim, and they believed it from incoming governor, Democrat Jim Justice, a billionaire coal magnate.   

Trump and Justice spoke the other day, with the Governor-Elect saying in a statement:

“It’s an exciting day for West Virginia because we now have a pathway to the White House and a president-elect who is totally committed to putting our coal miners back to work. President-elect Trump made it clear that he won’t forget about West Virginia when it comes to our nation’s energy policies. I will work closely with the President-elect and his administration on clean coal technology, rolling back the job-killing EPA regulations on coal, and growing West Virginia’s other job opportunities.”

How this will work to improve coal jobs remains an open question.  Trump has yet to announce his energy-related appointments, which will include the EPA, Department of Energy, and Department of Interior.  His energy secretary short list (and possibly Interior) still includes Harold Hamm, CEO of the oil and gas company, Continental Resources. Forrest Lucas (of Lucas Oil) remains on the list, as well.  So, how are oil and gas executives going to help coal?  Well, by “rolling back the job-killing EPA regulations on coal,” of course. (Note: that is really an EPA issue, not a Department of Energy issue.)

The problem with this for coal country, as I have noted before, is that rolling back these regulations also has the effect of rolling back regulations that impact the natural gas industry, meaning that even as coal gets cheaper, so does natural gas. 

Further, there is talk in the administration about opening up more federal lands to coal mining and oil and gas exploration.  (This would be a Department of Interior action, not Energy.)  This move, too, is curious, as it is hard to see how increased access to more supply is going to move up prices to support the struggling industries.  A greater supply of oil or gas or coal will lead to even lower prices.  Lower taxes and reduced regulations equals means a lower cost of exploration and production, which leads to more resources and lower prices.  

Absent a commitment to increasing the cost of natural gas, coal is simply not going to compete.  Natural gas burns cleaner than coal, is substantially more flexible, and despite criticisms of the process of hydraulic fracturing, it is environmentally preferable to coal mining. With oil and gas executives playing a large role in the new administration, there is no reason to expect coal will get a preference over natural gas.  Perhaps renewable energy sources will be less attractive, though the prices of those sources continues to drop, and natural gas can actually work to facilitate those such energy sources.  Recent reports suggest renewables and natural gas are the future.  This does not bode well for coal. 

Increased research on clean coal would have value. There are still millions of people around the world without access to electricity, and millions more getting power from old coal-fired plants that create health and environmental problems. But that research is not likely to change markets in the near term, and it is not likely to benefit U.S. coal miners as long as cheap natural as remains.  And it is expected to remain.   

Finally, reduced regulations may help move the energy sector forward more quickly, and it may help facilitate related businesses who use natural resources as a feedstock or energy-intensive processes.  That remains to be seen.  Any plan that does that, though, still likely leaves coal, and the people who work in the industry, behind. Just saying you will save coal jobs, doesn’t make it true.  But apparently it does make some people feel better.  I doubt that will last very long. 

https://lawprofessors.typepad.com/business_law/2016/11/for-coal-jobs-rhetoric-trumps-truth.html

Jobs, Joshua P. Fershee, Law and Economics, Legislation | Permalink

Comments

Thank you for continuing to address this issue. Discarding all partisan aspects of the issue, I note the following from CNN yesterday: "The Midland Basin of the Wolfcamp Shale area in the Permian Basin is now estimated to have 20 billion barrels of oil and 1.6 billion barrels of natural gas, according to a new assessment by the USGS.
That makes it three times larger than the assessment of the oil in the mammoth Bakken formation in North Dakota." This is apparently huge news for those in the oil and gas industry (although I have no idea what a barrel of natural gas might be). While the Permian Basin has long been thought to be rich in oil and gas, the new quantifications of the reserves by the USGS seem to confirm that dirty, difficult-to-extract coal in Appalachia will have virtually no role in meeting U. S. energy needs in the future. (Back to the partisan, but in a bi- way, Trump's promise of restoring jobs was a hollow falsehood as was Hillary's promise to provide retraining so coal miners could become derivatives traders and software engineers, or whatever she meant.) Coal in the U. S, is over. Now, clean coal technology would be hugely beneficial to Mexico (NFL game played in smog), India (where dung is used for fuel), China (smog capital of the world, now) and elsewhere.

Posted by: Craig Sparks | Nov 22, 2016 10:55:35 AM

I agree with some of this, but if coal is already doomed, why did both President Obama and Secretary Clinton claim that it was their policies were restricting it? One side is claiming that its policies are getting rid of nasty coal. The other side is saying that getting rid of those policies will bring nasty coal back. If you’re correct, they’re both lying. Which is, of course, quite possible.

But I believe you’re not taking some things into account. Gas and coal are not fungible. Gas requires expensive pipeline delivery systems, which in turn require a pretty sophisticated infrastructure that is not available everywhere. Coal can go anywhere a ship or train (or even truck) can go. Coal can be stored cheaply in large quantities—basically put in huge piles on vacant land, if necessary—while gas requires expensive LNG conversion and specialized transport and storage facilities. Thus, even a temporary disruption in natural gas supply means plant shutdowns, as we’re seeing in Nigeria, which is facing perhaps a 5-year energy shortage that cannot (unlike the situation with goal plants) be solved through emergency imports. That means that the worldwide demand for coal is going to continue. US coal exports lag sharply behind those of Australia, Indonesia, and Russia, and are not that far ahead of Colombia and South Africa. Regardless of the price of natural gas, lower US production costs could raise exports significantly. Some 40 percent of the world’s energy production comes from coal and until they manage to develop US-scale gas pipeline systems, that percentage will likely continue or even grow, as developing countries consume more electricity.
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Even in the US, coal-fired plants count for perhaps a third of energy production. If gas were clearly cheaper than coal (once the conversion costs are taken into account), and the current price advantage were known to be permanent, the utilities themselves would already be converting their plants voluntarily without any “national energy policy” involvement at all. Any reduction in the price of coal—and any lifting of the emissions restrictions on plants—will affect the decision to convert the plant. Given the fluctuations in commodity prices, it is quite possible that even new coal-fired plants will be economical if coal is cheaper and there is no regulatory preference for natural gas.

Posted by: Frank Snyder | Nov 23, 2016 12:41:46 PM

Frank,

Thanks for the comment. Following are my responses (with excerpts from your comment for context):

“I agree with some of this, but if coal is already doomed, why did both President Obama and Secretary Clinton claim that it was their policies were restricting it?”

Actually, for the most part, the recent policies were connected to greenhouse gas emissions and other emissions commonly found in current coal plants. The goal is to stop the emissions – “clean coal” would be allowed, it is not financially feasible.

“One side is claiming that its policies are getting rid of nasty coal. The other side is saying that getting rid of those policies will bring nasty coal back. If you’re correct, they’re both lying. Which is, of course, quite possible. But I believe you’re not taking some things into account.”

I am considering those issues, and to date the market is saying that gas is preferable to coal for new generation facilities. Coal and gas are not 100% fungible, it’s true, and coal will play a role in U.S. electricity for ten to twenty years, at least. I am not saying coal is going away completely. I am saying coal jobs are not likely to come back, even if there were an uptick in coal. As I noted earlier this year, “overall coal production increased 1.5% between 2013 and 2014, while the number of employees dropped 6.8%. Thus, even as coal production increased modestly, the number of employees holding those jobs declined significantly.” The role of U.S. gas on U.S. markets (with U.S. supply and infrastructure) is different than the role coal will likely play globally, at least in the near term, as you note.

“If gas were clearly cheaper than coal (once the conversion costs are taken into account), and the current price advantage were known to be permanent, the utilities themselves would already be converting their plants voluntarily without any “national energy policy” involvement at all. Any reduction in the price of coal—and any lifting of the emissions restrictions on plants—will affect the decision to convert the plant. Given the fluctuations in commodity prices, it is quite possible that even new coal-fired plants will be economical if coal is cheaper and there is no regulatory preference for natural gas.”

But utilities ARE changing to gas and it has little to do with the federal policies favoring gas. The question is whether you pay for conversion or just invest in a new gas generating facility. New generation with current gas prices and the flexibility that gas gives a utility make it preferable, but some utilities would rather avoid spending money at all. If not required to internalize the entire cost of coal, you are certainly correct that coal is more cost competitive. But that does not change the fact that generation is switching to gas and it does not mean coal mining jobs are coming back. Mechanization is taking mining jobs away and the U.S. gas price expectation for the next ten years suggest that utilities will still choose gas over coal, with or without the Clean Power Plan. It won’t shock me to see some modest incentives at the state or federal level put forth to get a new coal plant built, but it would almost certainly replace an old coal plant (I’d welcome that, to be honest.). But just like loan guarantees for nuclear, I expect most utilities will keep moving toward gas first and renewables second. You cannot beat the cost of fuel for either right now

Posted by: Joshua Fershee | Nov 28, 2016 1:24:42 PM

Hi, Joshua.

I don’t disagree with your points. Maybe I’m less confident in ten-year predictions than you are. I don’t recall anyone in 2006 predicting that gasoline prices in 2016 would be $1.88 a gallon, which is what they were this morning. I’m old enough to remember when gasoline prices were going to be $10 a gallon by 1990.

My chief point is that an awful lot of coal is going to be burned in the world over the next 50 years, and it’s reasonable to believe (though far from certain, of course) that reducing regulations (including environmental regulations) will mean more of it will come from the U.S. Over the long run coal jobs will probably go away (just like the jobs of most law school professors), but if you’re a 50-year-old coal miner, keeping your job for the next 15 years would still be pretty good.

Posted by: Frank Snyder | Nov 30, 2016 11:48:15 AM

That all makes sense to me. What I see is that, even if gas prices for 2015-25 went back, on average, to what was expected in 2007, a decline in coal was still expected. The trend is just happening quicker. I won't be shocked if natural gas prices go up sooner than 2025, but I don't see them more than doubling, on average, either. it really is too bad the coal industry has not focused more on research and innovation on the generation side.

Posted by: Joshua Fershee | Nov 30, 2016 11:59:52 AM

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