Business Ethos Blog

Should Coal Make A Comeback?

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

The Obama administration imposed a number of regulations and executive orders to essentially dismantle the coal industry in what has been dubbed the war on coal.  Hillary Clinton promised during the campaign that “We’re going to put a lot of coal miners and coal companies out of work.”  Environmentalists cheered the actions.  The Paris Climate Change Accord also targeted coal with many European countries vowing to shut down coal fired power plants. There was a dramatic impact on the electricity industry, causing the shutdown of many coal fired plants, including many in Michigan.  The economic impact was dramatic on the states producing coal, especially in West Virginia, Pennsylvania and Wyoming.  President Trump is taking action to restore the industry.  Who is winning the war on coal?  What has been the impact of the opposing actions?  Should we continue the war on coal?  What is the “Right Thing to do?”  Let’s look at some issues:
1. The Obama administration first targeted coal consumption with rules on mercury emissions and ash disposal that made it next to impossible to build a new coal fired power plant.  Next came the 2015 Clean Power Plan to was focused on forcing existing power plants to shutdown.  The plan was partially responsible for shutting plants in Michigan.

  1. The Administration then tried to shut down coal’s export potential when the Interior Department suspended new coal leases on federal land and then reassessed royalty payments thereby reducing investment and profitability.  The final step was the Interior Department stream rule which usurped state authority over permitting.
  2. President Trump called a cease fire on the war on coal.  In February he signed a resolution repealing the stream rule under the Congressional Review Act.  The Supreme Court stayed the Clean Power Plan in February 2016 and EPA Administrator Scott Pruitt is dismantling the power rule as well as the ash and mercury rules.  Interior Secretary Ryan Zinke has reopened leases and rescinded the royalty re-evaluation.
  3. The cost of natural gas has dropped significantly due to the expansion fracking causing the electric industry to convert to gas fired plants.  This action by itself has contributed to the reduction of green house gases in the US over the past few years.  In fact, the US is the only country, including those in the Paris Climate Accord, showing a reduction.
  4. Meanwhile, coal is becoming more price competitive as a fuel source relative to natural gas since March 2016 because the US has expanded the gas market.  Growing pipeline networks have boosted gas exports to Mexico and liquefied natural gas exports have increased 6 fold in the past year.  Pipeline capacity to Mexico is expected to double by 2019 and there are 5 new liquefied gas plants expected to be completed within 3 years.
  5. The Europeans have loudly criticized the US rejection of the Paris Climate Accord.  But do their actions prove louder than their words?  Exports of US coal to France have increased 214% during the first quarter of this year amid a nuclear power plant outage.  Germany and the UK are utilizing US coal to stabilize the uncertainty of renewable power sources and to make up for electric capacity lost from the shutdown of nuclear sources.  First quarter exports were up 94% to Germany and 282% to the UK.
  6. Coking coal used to make steel is also currently a hot commodity.  Metallurgical coal exports to China rose 357% during the first quarter.
  7. In June, the Energy Information Administration projected that US coal power generation will increase by 13% by 2025 as fewer coal fired generators are retired.  With the Obama Clean Power Plan, the EIA had forecast a 2% to 16% decline.
  8. There has been a positive economic impact of the coal resurgence on some states.  During the first quarter, West Virginia with 3%, ranked second in the nation in GDP growth.  New Mexico, another heavy mining state came in third at 2.8%.  The mining resurgences began in West Virginia, Kentucky and New Mexico last summer after the Clean Power Plan was stayed by the Supreme Court.  After plummeting last year, Wyoming and Montana’s mining industries grew during the first quarter.
  9. Weekly coal production has increased 14.5% nationwide over last year, with bigger increases in West Virginia at 19%, Pennsylvania 19.7% and Wyoming at 19.8%.  Exports were up 58% during the first quarter.

Two or three quarters of economic data don’t make a long term trend, but what appears to be a reversal of the war on coal has been good news for coal states that have experienced 2 years of little or negative growth and years of political assault, forcing coal company bankruptcies and the loss of thousands of jobs.  Did the Supreme Court stay on the Obama Clean Power Plan start to reverse the tide on the war on coal?  Have the Europeans that claim climate change virtue actually helped reverse the war on coal?  Is the expansion of natural gas shipments to Mexico and exports of liquefied natural gas making coal more competitive for electric power generation a positive to reverse the war on coal?  Who is winning the war on coal?  Were the actions by the Trump administration to repeal the stream rule, to reopen mining leases on federal lands, to rescind the royalty re-evaluation and dismantle the power rules for mercury and ash the “Right Things to do?”  Certainly, there are environmentalists who see the changes within the last year that claim the reversal of the war on coal as a negative.  The Europeans can claim the environmental virtue, but their actions show they too realize the importance of coal.  Reviving the coal industry is a critical piece of expanding the economy, especially for those states dependent on mining.  The Supreme Court started to reverse the tide and the Trump administration is doing the right thing to continue to make changes.  Rebuilding the coal industry will never return it to the heydey of decades ago, but for now there is a positive trend, coal is winning the war.