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Surprise: It’s the market, not regulation, that’s dethroning King Coal in the U.S.

By Richard Garrett, Jr.
Your voice for conservation at the Wyoming State Legislature

Abundant natural gas is a game-changer for coal

The 20th century industrial might of the United States was fired with coal.

Its abundance, affordability, distribution, and BTU content made it an unrivaled resource to power the nation’s ambitions in every industrial sector.

Still today, coal fills furnaces and power plants and propels state economies. It’s no wonder that coal has admirers and promoters in every corner of Wyoming and in the corridors of elected power in Washington, D.C.

For more than a century, it’s been a king with no rivals.

But because of the amount of CO2 pollution it generates (barring major technological breakthroughs)—along with powerful new competitors, and the potential for energy efficiency—coal’s dominance is on the decline.

Coal is being challenged in the United States as never before, both in the marketplace and through regulation.

That combination should be a victory for those who truly favor an “all of the above” (diversified) approach to energy creation and use.

Regulating CO2

One challenge among many that the coal industry faces are recently proposed EPA regulations that would regulate CO2 emissions in new power plants.

The EPA’s proposed rules are a direct consequence of a Bush-era Supreme Court ruling that said the carbon emitted from burning coal must be regulated by the EPA as a greenhouse gas unless the agency can prove, scientifically, that CO2 does not contribute to climate change.

The EPA, with the mission of protecting human health and the environment, has determined that there is ample evidence proving that CO2 is in fact a greenhouse gas and that CO2 production as a result of burning coal for power is directly affecting climate change.

The agency says it will effectively prohibit the new construction of any coal-fired power plants in the United States unless those plants severely restrict CO2 emissions.

While it is technically possible to do so, the costs involved, according to many analysts, will price coal out of contention as a fuel for new power generation.

Depending on one’s point of view, the EPA is either a champion in the fight to clean up our environment or a political pawn being used to dethrone a powerful king.

Some who deny climate change argue that the EPA’s proposed regulatory regime will take the country back to the early 20th century, both in terms of lifestyle and culture.

Meanwhile, others believe that the EPA is not doing enough about greenhouse gases, quickly enough. Dethroning a king is never easy. But is it really the EPA that is doing the deed?

Perhaps, but from my vantage point, there are other potent factors that seem to be even more influential in this battle. The first among them is abundant natural gas and its potential to transform the U.S. energy marketplace.

Natural gas: A challenger like no other

Compare these round figures. It takes about a pound of coal to illuminate a 60-watt light bulb for a little more than 16 hours. The same bulb can glow for the same amount of time from electricity generated by 1,000 cubic feet of natural gas. At wholesale, the cost of the coal is about twice that of natural gas for the equivalent amount of electricity that can be produced (.0043 cents to .0022 cents).

To put it simply then, if you are an investor in a large investor-owned utility and this cost comparison is predicted to be relatively stable for the foreseeble future, which fuel are you going to demand that a CEO use when constructing new power generation?

It’s an easy answer for every power utility in the country and it has nothing to do with the EPA, climate change, or political influence. It is simply a matter of dollars and sense.

Need proof? Here is what one official with Duke Energy (which ranks 5th in the Fortune 500 list in its utilities sector) told Greenbiz.com about coal versus natural gas:

“This (the EPA) proposal means nothing to us,” said Tom Williams, director of external relations for Duke Energy. “Our carbon profile is going down. We’re shutting down 3,800 megawatts of coal and [the new plants] we’re bringing on will replace that with lower carbon emissions.”

Closer to home, it has been reported that Rocky Mountain Power will convert part of its Naughton Power Plant coal-fired generation to natural gas. In an interview with WyoFile, company spokesman, Dave Eskelsen, said:

“The cost differential between emission controls (for coal) and converting (to natural gas) is significant. It’s a better deal for customers.”

The trend to use natural gas is clear and can only gain in momentum as energy generators make decisions about how they will continue to meet their over-arching regulatory and shareholder obligations to deliver electricity to their customers safely, reliably, and at a competitive cost with a maximum return on equity to their investors.

While long-term pricing estimates are varied (but not remarkably volatile), the U.S. Energy Information Administration predicts relatively stable natural gas prices through 2013.

The EIA also “expects that large gains in electric power use will offset declines in residential and commercial use.” Coupled with “the relatively low capital requirements for building natural gas-fired combined cycle generation plants, as well as the reduction of emissions that can be earned from using natural gas as opposed to other fossil fuels, the EIA expects 60 percent of new electric generation capacity built by 2035 will be natural gas combined-cycle or combustion turbine generation.”

All of this reinforces the decisions that the large electrical energy production companies, including Duke and PacifiCorp are making.

Another challenger: Renewables

Of course there are other rivals to coal, too. Widespread deployment of renewables has reduced our tolerance of the carbon footprint of coal-fired electricity generation.

The parent company of Rocky Mountain Power, PacifiCorp, is Wyoming’s largest renewable energy generator; PacifiCorp is  investing heavily in renewable projects in Oregon and the desert Southwest in order to meet its customers’ demand for clean, reliable, and affordable energy.

The company has also tried to find ways to mitigate its carbon emissions that contribute to climate change by helping to preserve 1.5 million acres of rain forest in Bolivia and Belize.

Even locally, individual energy users are selecting their own alternatives to coal by installing rooftop solar panels and backyard wind turbines. Wyoming companies that specialize in such installations are struggling to keep up with demand even as they expand into neighboring states.

What about conservation?

Conservation (and its partner, efficiency) are challengers to coal’s dominion, too. Take this report from just three years ago by McKinsey & Company which says the country can save $1.2 trillion dollars in wasted energy costs and reduce consumption by 23 percent by 2020 with an investment of only $520 billion (that sounds like a rate of return any investor should welcome).

As an added bonus, McKinsey predicts an annual abatement of 1.1 gigatons of greenhouse gases—or roughly one-third of the annual anthropogenic CO2 production in the United States.

Why King Coal is really on the ropes

At least in this country and absent any major technical achievement, the beginning of the end for coal is here.

To summarize:

  • Natural gas is cheap, abundant, and  in comparison to coal, has a smaller carbon footprint.
  • According to the U.S. Energy Information Administration, renewables are earning an increasing share of the nation’s energy production portfolio. In 2000, renewables met about 8.5 percent of the country’s energy needs. Last year renewables accounted for close to 12 percent of our energy requirement; most of this came at the expense of coal.
  • Conservation and energy efficiency are strong and with the right kind of leadership (from both directions—top down and bottom up) might help dethrone King Coal, too.

Say what you will about the EPA and regulation but it’s really the market and competition that is deciding the fate of King Coal in this country.

Absent any technological breakthroughs that reduce coal’s carbon emissions and make it cost competitive, its dominance is ending.

For those who really believe in an “all of the above” and diversified approach to energy creation and use, that has to be a good thing. And although there is still a lot of work to be done to really put a dent in climate change, a diminished appetite for coal is not bad for the environment either.

Richard Garrett can be reached at richard@wyomingoutdoorcouncil.org or 307-332-7031

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7 Responses to “Surprise: It’s the market, not regulation, that’s dethroning King Coal in the U.S.”

  1. • “Natural gas is cheap, abundant, and  in comparison to coal, has a smaller carbon footprint.”

    While the above quote may be true, much of our natural gas production now comes from tracking, and the amount of water used to frack a single well is staggering. We speak of a smaller “carbon footprints” but perhaps we need a new lexicon that focuses on the “water footprint.”

    From Earthworks:

    “In the Barnett Shale, estimated frack water usage ranges between 2.5 to 9 million gallons per frack. The Eagle Ford Shale average, according to the Texas Water Development Board, is 7.5 million gallons per frack. We don t know exactly how much water they use because most of the estimates come from industry. We do have the little dab of information from the Upper Trinity Groundwater Conservation District that revealed industry used 1,146,598,272.73 gallons of groundwater in 2009. But that only considers the metered sources. There were many cases where industry took water from unmetered sources with no enforcement action or fines.

    “Another estimate on frack water usage comes from the Environmental Protection Agency (EPA). Mywesttexas.com recently reported in their article, Gas fracturing trades one scarce resource for another, that EPA estimates water use for fracking nationwide was 70 billion to 140 billion gallons in 2010.” http://www.earthworksaction.org/earthblog/detail/water_fracking_sucks_more_than_you_think

    How much water are we willing to lose in order to secure a so-called “cheap, abundant” natural gas supplied energy future? This is a particularly acute concern in this era of global warming in which water is becoming increasingly scarce, certain states have faced drought issues not faced since the Dust Bowl, and a few municipalities in Texas are facing the prospect of running out of water altogether. Climate change data is suggesting these are issues that, if current trends continue, are bound to get worse, if not far worse.

    Dennis McDaniel
    Laramie

  2. • “Natural gas is cheap, abundant, and  in comparison to coal, has a smaller carbon footprint.”

    While the above quote may be true, much of our natural gas production now comes from fracking, and the amount of water used to frack a single well is staggering. We speak of a smaller “carbon footprints” but perhaps we need a new lexicon that focuses on the “water footprint.”

    From Earthworks:

    “In the Barnett Shale, estimated frack water usage ranges between 2.5 to 9 million gallons per frack. The Eagle Ford Shale average, according to the Texas Water Development Board, is 7.5 million gallons per frack. We don t know exactly how much water they use because most of the estimates come from industry. We do have the little dab of information from the Upper Trinity Groundwater Conservation District that revealed industry used 1,146,598,272.73 gallons of groundwater in 2009. But that only considers the metered sources. There were many cases where industry took water from unmetered sources with no enforcement action or fines.

    “Another estimate on frack water usage comes from the Environmental Protection Agency (EPA). Mywesttexas.com recently reported in their article, Gas fracturing trades one scarce resource for another, that EPA estimates water use for fracking nationwide was 70 billion to 140 billion gallons in 2010.” http://www.earthworksaction.org/earthblog/detail/water_fracking_sucks_more_than_you_think

    How much water are we willing to lose in order to secure a so-called “cheap, abundant” natural gas supplied energy future? This is a particularly acute concern in this era of global warming in which water is becoming increasingly scarce, certain states have faced drought issues not faced since the Dust Bowl, and a few municipalities in Texas are facing the prospect of running out of water altogether. Climate change data is suggesting these are issues that, if current trends continue, are bound to get worse, if not far worse.

    Dennis McDaniel
    Laramie

  3. Heavy regulation of coal plants by the government has made them more expensive. You don’t even mention this. The government did the right thing by making it costly. They performed triage of a sorts.

  4. We should not lose sight of the following in all our cheerleading for the market.
    1) The externalities associated with gas production are huge —-the market brings us that too.
    2) Natural gas is not carbon neutral.
    3) That market forces bring us natural gas that’s sinfully cheap right now is not a reason to rejoice in the wisdom of the market.
    4) I believe carbon emissions have increased in the US by 24% since l990 and that’s just in the US.
    5) It isn’t good to delude ourselves into thinking that the shift to natural gas somehow puts us on track to solve our carbon emissions problems, it doesn’t. For that we’d actually have to have a real conversation about the problem of energy, carbon emissions and an economy that continues to grow.

  5. You fail to mention that the coal that we won’t be using in the US will continue to be mined here (especially in Wyoming) and will be shipped by rail to new West Coast ports where it will travel by sea to China, where it will be burned in Chinese power plants which emit more CO2 than US coal-fired plants. That combined with the water usage/pollution footprint of natural gas production makes me wonder if we should stick with coal as we transition (kicking and screaming but inevitably) towards renewables.
    Kinda reminds me of DDT, which was banned in the US but is still made by US chemical companies, sold overseas, applied to fruits and vegetables which we Americans happily buy at the grocery store and feed to our children.
    The world is ROUND and FINITE, not flat and infinite. We still don’t get that basic concept.

  6. I truly appreciate all of the comments that I have received in response to this blog post, each of which raise some interesting challenges and help to round out the picture.

    One post reminds me that we must account for the water used in hydraulic fracturing – the process that has perhaps more than any other altered the market forces on coal. Estimates of water consumed per ‘frack’ job vary widely but there is no doubt that hydraulic fracturing consumes large quantities of water. But so does cooling of coal-fired electrical generation (as does natural gas-fired generation). According to researchers at the Virginia Water Resources Research Center, in Blacksburg, Va., fossil-fuel-fired thermoelectric power plants (the U.S. has about 550 coal plants) consume more than 500 billion liters of fresh water per day in the United States alone. A coal-fired power plant requires more water to cool than does its natural gas fired counterpart.

    Another post points out that “heavy regulation” of coal-fired power plants has “made them more expensive” (saying that regulation plus renewables and the market has created a “triage of sorts” against coal). Very true. Regulation (of mercury, nitrogen oxide, sulfur dioxide, particulates, etc) has increased costs for generators (and consumers); it is because of these costs that Rocky Mountain Power is actively considering a conversion of some of its generating resource at the Naughton power plant to natural gas. Remember, too, that the Wyoming Outdoor Council successfully sued the parent of Rocky Mountain Power winning a record judgement against the company for violations of the Clean Air Act.

    As for shipping coal to China, there is no doubt a lot of enthusiasm for that in this state. By the end of June, both Governor Freudenthal and Governor Mead will have traveled to China and met with industrial users as a way to better understand the potential for that market. The challenge for coal exports, however, is not origination and destination but instead how to connect those two dots. A great deal of infrastructure will have to be conceptualized, argued about, approved, and built in this country to accommodate the appetite of the Chinese market (Some quick calculations are in order – one coal fired power plant on average consumes about 15,000 tons of coal daily; it has been widely reported that China builds an average of one coal-fired power plant per week and that the country now has over 2,000 plants. I don’t have a figure for ocean-going tanker/barges, but the kind of barge that operates on major rivers in the U.S. has a capacity of about 1500 tons of coal and measures 200′ x 35′. While taking into account China’s domestic coal production, if an ocean-going barge had ten times that capacity, it could mean that there might be as many as 1,000+ barges docking and off-loading everyday at ports in China. This kind of infrastructure is a major challenge to the viability of an export market to China for Powder River Basin coal.)

    I really appreciate, too, the reminder of externalities. Energy production and use from the well (or mine) to wheels (or electrical outlet) has profound implications for the reasons stated (the consequences of carbon emissions to the climate) and implied (health risks, worker safety, environmental degradation). The externalities are seldom understood by the casual consumer and that plays easily into the profitable hand of energy producers. I am reminded of a 2008 study by the Harvard Medical School on the consequences of mining and burning coal in Appalachia. The study found that the public health burden in that region alone is $74.6 billion annually. If the public better understood some of these costs and risks perhaps our decisions about energy generation and usage would better, or at least more mindful.

    Finally, I am not sanguine about the market, but for now I am not optimistic about regulation, either. Until our political system is better able to meet the challenge of global climate change the market, renewables, and (potentially) energy efficiency can combine to force a change that seems, incrementally, to be for the better (and one about which we must be mindful).

  7. This is a great discussion and an important trend to watch. It has been interesting to see the increased focus on exporting coal to foreign markets that are still willing to buy the stuff. It seems rather like “Mom said she won’t buy me ice cream so I am going to ask Dad”. Though China’s dependence on coal is currently high, they are also rapidly developing their own solar and wind infrastructure and may be only slightly behind the US in terms of their evolution toward a low carbon economy. Since most of the rest of the developed world is farther along in this evolution than we are, there may be only a dwindling window where coal can be sold at its customarily massive scale anywhere in the world. We should not permit the escapist view that ‘if we don’t burn the coal, someone else will”.

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