Coal as an industry in the U.S. has seen its glory days. Bond and stock prices of coal companies are reflecting this reality. You should support legislation to increase environmental controls on coal-fired power generation (CFPG). It is unlikely a position can be reached that placates both the coal industry and its opponents. Several factors are converging that are together forcing CFPG out of business – cheap, plentiful natural gas, an aging fleet, growing awareness of the consequences of climate change, and the Environmental Protection Agency’s Clean Power Act regulations. A sizeable portion of the collective CFPG fleet will disappear in the coming years. This is reflected in the dismal earnings of coal utility bond prices. This will not happen immediately. Peak coal usage is predicted to occur in 2025 (Russian Alexey Kontorovic predicts 2030-2040) after which coal will be phased out in the coming decades due to the factors listed above..
The coal industry landscape is changing in four main ways. First, the composition of the U.S. Grid is changing. Many of the CFPG plants are at the end of their lifespan (about 30-50 years) and will be retired or converted to natural gas. Burning natural gas to produce electricity emits about half of the carbon dioxide emissions from burning coal, an enormous benefit in a carbon constrained world.
Second, China, as the world’s largest consumer of coal, is nearing peak coal. Air pollution in China is severe, especially in urban areas. For the Summer Olympics in 2008, many industrial facilities were prohibited from operating for weeks prior to the beginning of the games to reduce air pollution. Even as China’s economic machine hums along, many realize being fueled by coal is a very dirty and unhealthy matter. Many in the Chinese government would like to see a move away from heavy industry and a move toward cleaner air. Jim Fallows (2013) reports the Chinese are committed to weaning off coal.
Third, coal companies self-bond which means they avoid costly insurance premiums by putting capital aside for cleanup costs or an environmental disaster. The coal industry as a whole is receiving increased scrutiny to determine if this practice should continue, adding more financial stress to the already beleaguered sector.
Lastly, the coal landscape is being nudged out by cleaner forms of energy – renewables – solar and wind. Two-thirds of new electricity generating capacity in the future will be renewables. The focus of energy finance is shifting from coal to renewables which are becoming increasingly competitive pricewise.
This doesn’t give the whole global picture, however. Outside of the U.S. coal consumption has been increasing. Coal is the energy of choice in many poorer and developing countries. Not only in China, but in Southeast Asia and India, for example, they are burning more coal, sometimes importing it. It is often the cheapest fuel. This has negative repercussions on global warming. The only viable solution is to find cheap fuel for these countries. Developing countries will need international aid to reduce demand and find low-carbon alternatives to coal. We can transfer air pollution control equipment to them This brings us to carbon capture and storage which still appears not ready for the markets yet.
Edward Rubin (2013) identifies the major problem with coal as a fuel of choice is its contribution to global warming. The future of coal, Rubin (2013) writes depends on climate change mitigation schedules and the development of technology to minimize carbon dioxide emissions. He points to the successful development of technology – electrostatic precipitators and scrubbers – in response to the 1990 amendments to the Clean Air Act to address acid rain. Tales of economic devastation simply were not realized as technology became available at much less cost than had been feared. Sulfur dioxide, nitrous oxides and particles are emitted today at a fraction of the amounts emitted historically. Could carbon capture and storage technology (CCS) be developed similar to this?
It is clear that, in the U.S. at least, CFPG units do not have much of a future, largely because of environmental regulations, both currently on the books and to be passed at a later date for climate change. The environmental constraints are absolutely necessary to mitigate the extreme consequences of burning coal. CCS involves the capture of carbon dioxide from the waste air stream and store it usually underground. CCS is not sufficiently developed to rely on for emissions reduction. It is necessary to develop CCS because the planet has enormous reserves of coal. The commercialization of CCS is necessary to address climate change. Some have argued that for CCS to be effective, a price on each ton of carbon dioxide needs to be determined. While it is beyond the scope of this paper, a carbon tax could be used with international treaties, CCS and domestic activities. A full toolbox is needed to address climate change.
One Strategy worth pursuing is to, in concert with the environmental group and investors, establish a schedule for phasing out CFPG units. Some will be reconfigured to use natural gas, some will be retired and there may be plans to build new power plants.. This is an extremely difficult task, however. The two sides first need to develop a trust among them. Politicians can play a role in bringing the two sides together to negotiate and listening to their concerns.
In conclusion, coal is an environmental nightmare and threatens opportunities to reduce climate change. There should be a stepped up effort to develop CCS by both the government and the private sector.
- Rubin, Edward. (2013) “Climate Change, Technology Innovation and the Future of Coal.” (2013): 37-43.
- Fallows, James. Dirty Coal, Clean Future. Atlantic. Dec2010, 306 (5):64-78.
- Kontorovic, Alexey. The Mad, Mad, Mad, Mad world: The future of Global Energy. Science First Hand, 37(1):30-49.
