The future of coal in the U.S. is facing more uncertainty than ever. Coal production numbers over the last month have been indicative of a declining and struggling market. The day after the presidential election, stocks in some of the nation’s biggest coal mining companies fell by 10 percent, including Alpha Natural Resources, Arch Coal, Peabody Energy and Walter Energy. Most dramatically, James River Coal’s stock fell by 30 percent the day after the election.
While some politically-charged pundits may try to blame the potential extinction of coal-fired power on who’s in leadership, the equation isn’t that simple to decode. Regulations from the Environmental Protection Agency (EPA) and low natural gas prices are certain to play an even bigger role in determining the future of coal. “The extent to which coal can maintain its position is not reliant so much on politics as it is on the economic realities associated with an aging fleet, tough air quality rules,” said Randy Rawson, president and CEO of the American Boiler Manufacturers Association.
The future of coal-fired generation in the U.S. largely depends on three regulations currently on EPA’s docket. The Mercury and Air Toxics Standard (MATS) will limit the amount of mercury and non-mercury toxics that coal and oil-fired units with a capacity greater than 25 MW can emit each year. In July, EPA announced that it was reconsidering the regulation, and in November, EPA proposed an emissions limit update to MATS for new generating units. The final regulation has yet to be released, but it is expected in early 2013.
The second rule of concern is the Carbon Pollution Standard for new power plants. This regulation, which was proposed in March, will limit greenhouse gases from new fossil-fired electric generating units with a capacity greater than 25 MW. This proposed rule has largely been interpreted by the coal power community as a means for the EPA to end new coal generation, since it would be almost impossible for coal units to comply without installing carbon capture and sequestration (CCS) technology. The rule is currently in the public hearing phase, and a final rule is expected by the end of 2013.
The third rule was actually a bit of a sigh of relief for coal generators this year: the Cross-State Air Pollution Rule, which was stayed by a federal court in August. The U.S. Court of Appeals for the D.C. Circuit ruled that the regulation exceeded the EPA’s mandate to regulate emissions and need to be revised. While EPA filed a petition for the court to reconsider its decision to overturn CSAPR in October, it’s likely that EPA will have to go back to the drawing board and make some serious revisions to the rule, which could take years.
The three aforementioned regulations will largely determine what happens to coal power in 2013 and beyond. However, natural gas also plays a substantial role. Metin Celebi, co-author of The Brattle Group’s report, “Potential Coal Plant Retirements 2012 Update,” said he expects more retirements to occur between now and 2016 than what was projected in a 2010 study. In 2010, The Brattle Group estimated that anywhere from 34 to 52 GW of coal-fired capacity would be retired by 2016. However, the group has increased its estimations by about 25 GW to 59 to 77 GW, mainly due to lower-than-expected gas prices.
Some skeptics of President Obama have argued that his second term could mean the end of new coal in the U.S. But his stance towards coal may have become more accepting over the last few years. In the second presidential debate, Obama mentioned “coal” eight times, stressing the importance of the development of clean coal technology. “We made the largest investment in clean coal technology, to make sure that even as we're producing more coal, we're producing it cleaner and smarter.”
Will coal continue to be a main source of power generation for decades to come? All of the studies point to yes. A recent report by the U.S. Government Accountability Office (GAO) predicts that coal will decline from about 42 percent in 2011 to 38 percent in 2035. These numbers line up with projections from the U.S. Energy Information Administration and others as well. Coal may become more expensive to operate over time, but it will still be an important part of U.S. power generation.