Clean Power Plan withdrawal won’t halt U.S. coal industry decline

By Kelly Gerry
Managing Director

It’s too late to stop the decline of the U.S. coal industry, and EPA Administrator Scott Pruitt’s recent withdrawal from the Obama-era Clean Power Plan (CPP), which limited carbon emissions, won’t bring coal back. The systemic decline of thermal coal has too many drivers. 

Let’s frame this correctly. Remember, coal is all about power. More than 90% of it goes to generate electricity. Metallurgical coal is a much smaller piece of the coal industry, which I will not comment upon here. Let’s look at two things that are taking it down:

1. Economics. Natural gas is taking away coal’s market dominance. It is abundant, less expensive, easier to distribute, and conveniently better for the environment. The idea that coal is being threatened by renewable power — solar and wind — is secondary to the fact that it can’t compete in its own playground. 

2. Public will. While economics is the major factor, the negative perception surrounding coal makes any policy moves an immediate target by a majority of the public and the very active environmental lobby. So, the very thing that helped renewables gain the critical mass required to be a serious contender in this industry has the opposite impact for coal. Nobody said life was going to be fair.

Considering these negative forces, how could anyone seriously expect coal to maintain its dominance in the power market? No one does. 

The U.S. power utilities’ march toward natural gas and renewable sources of power – principally wind and solar — has been underway for many years now and shows no signs of abating. In comparison, coal power is in a free fall. With several years of no new coal-fired utility scale generation and massive retirements planned, this is a simple matter of attrition. 

Economics and technology advancements, not politics, are driving this change.

A withdrawal of the CPP isn’t going to change much. Sure, there will be coal-producing states whose progress toward carbon emission reduction is slowed with CPP’s withdrawal and who will see an economic boost without the CPP. But the train is moving down the track — away from the coal mines.

What could slow the current adoption of renewables and expansion of natural gas power plants would more likely be economic in nature: A sharp rise in the cost of extracting and transporting natural gas or much higher costs to produce renewable energy. That’s not likely.

Ian Mead, assistant administrator of the Energy Information Administration Office of Energy Analysis, notes in a Sept. 14, 2017, speech before the Center for Strategic & International Studies, that international energy consumption will rise 28% between 2015 and 2040, with India and China accounting for much of the demand. So there will be plenty of demand to generate power. But Mead notes that renewables will lead all sources of power in that growth.

“We see renewable energy being the world’s fastest-growing energy source, increasing an average of 2.8% a year over the projection period,” he said. "Fossil fuels, with natural gas growing the fastest, will continue to supply about three-quarters of the world’s energy needs over the projection period.”

Yes, I know President Trump promised that coal will make a comeback, but it won’t. Its days as a dominant power-generation fuel in the U.S. are numbered. And even if the withdrawal of the CPP gives the industry a short-term boost, it will be just that -- a short-term boost.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including energy.

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