Dive Brief:

• A new take on power markets, policy and the future of coal by The Brattle Group finds that President Trump's actions to support fossil fuels are likely to disadvantage coal in the aggregate, as they will not curtail the competitiveness of natural gas.
• A set of policies that specifically benefited the coal sector could lead to an increase in coal production, but if the actions also benefit natural gas then coal production would likely decline by about 220 million tons in 2020.
• The analysis also looked at a proposal from U.S. Secretary of Energy Rick Perry to offer financial support to coal and nuclear plants to avoid premature retirements. Brattle concluded that that even with billions in extra payments, actual coal generation might not increase.​

Dive Insight:

The coal industry is facing a long-term decline, and nothing short of a very targeted set of policies is likely to stem the tide, according to Brattle Principal Marc Chupka.

In a presentation titled “When Coal is the Goal: Environmental Policy and Energy Markets,” given yesterday at an Energy Bar Association event in Washington, D.C., Chupka compared three different scenarios and found only one where coal comes out ahead.

The "base case" was developed pre-election and includes the Clean Power Plan, which President Trump has moved to rescind. In that case, the decline of coal production and employment is self evident.

In a pro-coal scenario where the Clean Power Plan is repealed along with and the rollback of proposed environmental rules on coal mining operations, production by about 50 million tons per year in 2020 and by 150 million tons in 2030, compared to the baseline, Chupka said.

In a statement, the firm explained that "importantly, these changes to CPP and environmental rules do not take place in isolation."

When the pro-coal policies are considered alongside moves also advantageous to natural gas, the situation changes. "Simultaneously expanding coal and natural gas supply would also reduce the price of natural gas and continue to favor natural gas as a generation fuel," the firm said.

The likely outcome would be to reduce coal production by about 220 million tons in 2020 and by 210 million tons in 2030 — along with the loss of between 13,000 and 16,000 jobs in the coal sector.

“Policies that reduce production costs for all fossil fuels will not necessarily increase the consumption of all fuels,” Chupka said. “The competition between natural gas and coal for generation fuel continues to favor natural gas.”

Chupka also looked at DOE's recent notice of proposed rulemaking, to support coal and nuclear plants for their resilience based on their on-site fuel. But the new analysis indicates that depending on how the financial support is structured, coal plants could receive billions of dollars annually "without increasing the plants’ overall output."

Even though coal plants would be assured of recovering fixed costs, it will not not make the plants more economical to dispatch. 

"Thus, while the proposal may help owners of coal and nuclear plants, it might not affect coal production and mining employment," the firm said. On the other hand, if subsidy is based on generation output then coal consumption would increase.

"Relief for coal producers may be difficult with expanded gas production because resulting low gas prices hurt coal even with pro coal policy," the presentation concludes.

Trade policy is one area where coal could be helped, even if indirectly: expanded LNG exports could help maintain higher gas prices, while tariffs on imported solar panels would depress employment in that industry. The opportunity for expanded coal exports is uncertain, Brattle finds, noting "limited markets without clear policy options for expansion."