Several weeks into the new administration, Trump’s energy policies, including those expressed in the “An America First Energy Plan,” are showing favor to the use of fossil fuels, indicating the potential for a rebound in coal use within the energy sector. While many in the coal industry have expressed a promising future, analysts have questioned whether the changes in direction from the Obama administration, including the repeal of the Clean Power Plan and other regulations, will result in any sustainable gains for coal.

Although the “An America First Energy Plan” does not provide implementation details, general ideas of stimulating the American economy, ensuring American security, and protecting American health are included and listed below:

• Eliminating “harmful and unnecessary policies such as the Climate Action Plan” and other regulations resulting in increased wages for American workers
• Developing domestic energy reserves by taking advantage of the “estimated $50 trillion in untapped shale, oil, and natural gas reserves,” and using the revenues from energy production to “rebuild our roads, schools, bridges, and public infrastructure”
• Having a commitment to clean coal technology
• Protecting America’s national security interests by eliminating U.S. dependence on “the OPEC cartel and any nations hostile to our interests”
• Protecting our environment

Current Coal Environment Snap Shot

Less than a decade ago, the United States produced half of its energy from coal, but this level has declined nationally from about 44% of electric power generation in 2009 to 31% today.

In 2015, U.S. coal production dropped 10.3% year-over-year to below 900 million short tons (MMst), the lowest annual production level since 1986.

Production in the Western Region, representing 56.6% of total U.S. coal production in 2015, totaled 507.4 MMst, 6.5% lower than 2014.

Also in 2015, the productivity capacity of U.S. coal mines decreased for the fourth year in a row to 1,165 MMst, a decline of 6.3% from the 2014 levels.

In 2015, the average number of employees at U.S. coal mines decreased 12.0% to 65,971 employees, the lowest on record since EIA began collecting data in 1978.

U.S. coal consumption of 798 MMst in 2015 was 13.1% lower from the 2014 levels. The electric power sector consumed about 92.5% of the total U.S. coal consumption in 2014 and 2016.

Average sales price of coal from U.S. mines was $31.83 per short ton in 2015, 8.6% lower than the prior year.

Key Details

As listed above, several of the principal components of the “An America First Energy Plan” are focused on the easing of regulatory and access conditions for fossil fuels and, as such, they primarily address the market supply of fossil fuels and not demand.

Easing of regulatory requirements are bound to provoke some increased domestic production, but analysts argue that any expansion in U.S. fossil fuel production as the direct, discreet result of such policies is likely to be only modest. This is because, in the current environment, fossil fuel production is relatively inelastic to supply-side measures.

Although coal is somewhat elastic with respect to regulatory and access conditions (particularly to the Clean Power Plan and the moratorium of coal leasing in federal lands), it is far more sensitive to the evolution of the price of both natural gas and renewable energy.

In addition to price sensitivity, current trends in the market may interfere with the attempt to revive coal via changes in regulatory policy, including:

• Closing of coal-fired generation units and current gas-fired plant construction
• High cost of carbon-capture and sequestration technology
• Renewable energy, both industry and social trends

Closing of coal-fired generation and current gas-fired plant construction

• In 2016, natural gas-fired generation exceeded coal’s share of the U.S. electricity mix on an annual basis for the first time
• Regardless of any potential increases in natural gas prices due to its high demand, new natural gas power plants are currently being built, and by 2018 the availability of these units will lead to increases in natural gas-fired generation

High cost of carbon-capture and sequestration technology

• A Trump administration could choose to advance technology that offers the promise of “clean” coal, with little or no CO2 emissions, and the potential to revive the coal-based power generation industry
• However, the operating costs for a coal-fired generating plant coupled with carbon-capture technology are 30% to 35% higher than the operating costs for a coal-fired plant alone

Renewable energy, both industry and social trends

• Reports show that renewable energy costs fell by more than 50% over the past decade and are projected to experience another similar dramatic decline, halving again by 2025
• The cost of wind turbines has fallen by a third since 2009, while the cost of solar PV panels has dropped by 80% – the “levelised cost of energy” from wind and solar power fell by 61% and 82% respectively during the same period
• Renewable energy (mainly wind and solar) now account for three-fifths of all new additions of electrical-installed capacity each year globally (the percentages are similar in the United States)
• Such developments have led many in the United States to project that the “tipping point”—when wind and solar power will provide the cheapest available new kilowatt-hours (without subsidies)—will arrive sometime over the next five years

Implications

Many coal producers have expressed optimism thanks to recent greater demand, a better pricing environment for coal with a forecast of higher natural gas prices, and a congressional unwinding of rules cumbersome to the U.S. mining industry.

Projections show a slight growth in domestic production of coal, but the impact of policy changes from the Trump administration are unclear as the coal market is tied to numerous factors outside of regulatory policy, including weather and competition from natural gas and other power generating sources.

Electric-sector demand is currently projected to grow from 653 million tons in 2016 to 688 million tons in 2017, before moderating after 2018. Lower natural gas prices combined with additional coal generation unit retirements will tend to keep coal generation demand levels at or below 640 million tons per year through 2023. Accounting for the expected recovery in production and restoration of normal inventories in 2017, the overall coal market (domestic demand and exports) is projected to be essentially flat, at 19 million tons higher in 2023 than in 2016.

Global momentum is picking up for the low-carbon transition, as the economics of renewable energy begin to pull policy with it. The increasingly favorable attitude toward renewable energies across many states will likely temper any inclination for excessive favoritism at the Department of Energy toward fossil fuels, or for an early end to the renewable energy tax credits.

In summary, renewables, backed by newer competing technologies, and the low price of natural gas-based power generation in the United States, will be a significant challenge to coal-powered generation and any changes in policy geared to favor the use of the fossil fuel.

More Information

SNL: Coal Production Opens 2017 on Firmer Footing, but Natural Gas Competition Awaits

U.S. Energy Information Administration: Annual Coal Report

Eurasia Review: Trump’s Supply-Side Energy Policy and The Low-Carbon Transition – Analysis

This report is part of the Fossil Minute series. To view all featured Fossil Minutes, please click here.

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