EPA Secretary Scott Pruitt recently announced a withdrawal of the Clean Power Plan regulations intended to reduce electric utilities’ greenhouse gas emissions. Critics accused the Obama Administration of waging a “War on Coal,” while President Trump seeks to revive the industry. Mr. Trump faces a challenge due to the complicated impact of government policy on business investment and economic growth.
America’s coal industry has suffered a remarkable and rapid collapse from record profits and stock prices in 2011. Three of the four largest coal companies were bankrupt by the end of 2015, wiping out $30 billion in stock value and 60,000 jobs. Although Kentucky and West Virginia have suffered the most, Alabama has 37 coal mines and ranks 15th in production.
Economic factors have also hurt coal. New technology – most prominently, hydraulic fracturing – has reduced natural gas prices, inducing utilities to switch to gas when possible. Coal’s share of electricity generation fell from 50 percent in 2008 to 31 percent, and over 250 coal-fired plants have closed. Slower economic growth in China and increased energy efficiency in the U.S. have reduced demand for coal as well.
Apportioning blame for the decline among the different factors is a challenge. A recent study from Columbia University’s Center for Global Energy Policy attributes half of the decline to natural gas prices. Whatever the exact figure, the implication is clear: withdrawing the Clean Power Plan will not make the industry whole again.
Numerous other government policies have also hurt coal, as a new Heartland Institute study details. Culprits include the EPA’s Cross-State Pollution regulation and state renewable fuel electricity production mandates. Additionally, some state attorneys general have sued over global warming.
The wisdom of saving the coal industry has been questioned. Although coal powered the Industrial Revolution, we now know that coal is dirtier than other energy sources. Technology can control emissions of traditional air pollutants but makes coal more expensive relative to cleaner fuels, and rightly so because pollution’s harms should factor into electricity generation decisions.
We should not continue using coal just because we have for decades. People burned wood or animal dung indoors for cooking and warmth for centuries. We now know that this produces indoor air pollution, which even today results in an estimated 4 million deaths annually in developing countries.
The case for abandoning coal turns on the potential extent and effects of human-caused global warming. The global warming debate is not my topic today. Unless climate change poses an existential threat, we can probably safely use coal with prudent pollution controls.
President Trump still faces an enormous challenge even if coal’s recovery is desirable. Investments in coal mines and power plants last a long time. For instance, the world’s largest coal mine, North Antelope Rochelle in Wyoming, began operations in 1983. The average coal-fired power plant in the U.S. is 38 years old.
Consequently, government policies enacted long after Mr. Trump leaves office will affect the profitability of mines and plants built today. Future prices of coal, electricity, and other fuels along with regulatory policy will affect profitability calculations. And despite the efforts of Mr. Trump and Mr. Pruitt, the long-term regulatory outlook for coal appears bleak. The prospect of a future renewal of the “War on Coal” could easily deter needed investment.
Uncertainty over government policy can reduce investment. Even policies which never get enacted can deter investment, as economist Robert Higgs has shown. Nations with the least economic freedom illustrate this problem. No business will invest when governments can tax or seize whatever wealth they can find.
Investing in a market economy is always risky. A leading coal executive prophesized in 2011 that “the next decade … is going to be one of the best decades we’ve ever had.” Government policy has helped put coal in a deep slump. President Trump is declaring a cease-fire in the “War on Coal” but cannot enforce a lasting peace. A potential future resumption of hostilities can prevent a revival.
Daniel Sutter is Affiliated Senior Scholar at the Mercatus Center and Professor of Economics at the Manuel H. Johnson Center for Political Economy at Troy University.
