Bankrupting America’s Top Energy Source

It’s no secret that King Coal is no longer the giant it once was. Recently, Peabody Energy, the nation’s largest coal provider, filed for Chapter 11 bankruptcy after its shares hit rock bottom a few weeks ago. Just three months prior to Peabody’s collapse, the nation’s second largest coal producer, Arch Coal, announced that they too were filing for bankruptcy. A changing energy market, signaled by the demise of these energy giants, comes as no surprise as the slumping coal industry continues to face challenges. Coal power has long met our requirement for cheap, reliable energy, but recent policies threaten coal’s place in the US energy portfolio.

The clean coal movement, pushed by Jimmy Carter in the 1970’s, emphasized coal as a source of reliable and efficient power. Carter’s policies sought to end US reliance on foreign oil. By 1980, coal had secured its position as an energy staple, providing 50% of the nation’s electricity. In 2015, however, coal-fired power plants produce only 33% of the nation’s power.

Increasingly stringent regulation spurred by environmental concerns about emissions have been a key reason for coal power’s decline in the US. Groups such as the Sierra Club use concerns about the health and environmental effects of airborne pollutants to lobby for stricter regulation of coal-fired power plants. In response to the concerns of many environmental groups as well as the scientific community, the EPA has been enacting increasingly stringent health and environmental regulations.

Regulations like the Clean Air Act (CAA) and the Clean Power Plan (CPP), which is currently on hold via the Supreme Court, allow the EPA to regulate the emissions of coal plants. These regulations have led to the implementation of various technologies to reduce the environmental impact of coal plant emissions. Many methods of meeting these goals exist but the industry-preferred technique is carbon capture. Carbon capture technology, when implemented correctly, can seize up to 90% of carbon from fossil-fuel burning plants and store it instead of releasing it into the atmosphere. Though effective at reducing emissions, technologies such as carbon capture are expensive to install and maintain.

The Energy Information Agency estimates that the implementation of carbon capture methods will increase the levelized cost of conventional coal production by $41.00 per megawatt-hour. The EIA also estimates that carbon capture may lead to an increase of $28.70 per megawatt-hour on average for integrated gasification combined cycle (IGCC) coal production — a more advanced coal burning process. Estimates from the EPA are consistent, suggesting carbon capture technologies lead to an 80% overall increase in the cost of conventional coal electricity production.

These regulations are economically prohibitive when compared to other options for electricity production. Production companies are responding to these costs by shutting down coal plants or switching to natural gas. The removal of so many coal plants has a substantial impact on the electricity market. Between 2012 and 2015, 16,000 megawatts (MW) of total power generation were removed from the electrical grid — enough to provide energy for about 16 million homes. A Politico analysis based on EIA data estimates that another 28,000 MW will be taken off the grid within the next 8 years. These losses in electricity generation will have to be compensated by other energy sources to avoid costly blackouts.

Government regulation has increased the cost of coal-generated electricity. As a result, many coal plants are shutting down, unable to make a profit in the face of increasing compliance costs. Alternatively, many production companies are opting for natural gas, which may provide a clean, reliable, and cheap alternative, so long as it is not subject to the over-regulation that is strangling coal.

In adopting regulations like the CPP, policymakers are often focused only on the environmental consequences, without considering unintended economic results that have real impacts on the lives of Americans. If policymakers were to consider the unintended costs and consequences of these regulations, American taxpayers and electricity consumers alike would benefit.

Morning Consult