Thinking through the economic factors shaping the future of public lands coal

On September 8th, a conference in New York City was held to learn from Wall Street investors about US Coal in the 21st Century.

The workshop, organized by Columbia University, brought together industry analysts, bankers, traders, and credit raters—with a dose of government and academic experts. These experts provided a snapshot of current and projected demand for coal and what it might mean for future coal mining on public lands. This exercise is crucial to help determine what a future federal coal program may look like and how the government can help shape it.

It will help look at how to reduce climate emissions, help taxpayers get fair value for use of their resources, and how to help communities that have been reliant on coal gradually shift to a more sustainable economic structure. The clear takeaway was that the coal market faces some significant challenges, primarily from the low costs of natural gas and renewable energy. These adverse market conditions are not likely to change anytime soon and certainly not enough to cause an upturn in coal’s long-term prospects.

Howard Gruenspecht of the U.S. Energy Information Administration (EIA) noted a big falloff in coal production in the West’s Powder River Basin, where more than 85 percent of federal coal comes from, under the Clean Power Plan (CPP), the Obama administration’s effort to reduce carbon emissions from the nation’s energy sector. But even without CPP, Powder River Basin coal production is projected to stay relatively flat.  

EIA does not anticipate that future international demand will offset the large declines expected in domestic coal markets, meaning that even without government intervention, the coal markets are changing and the future is looking very different. This will have a dramatic effect on a future federal coal program, and it is something that the administration needs to take into account during its comprehensive review of the program

You can watch the whole discussion at:  

Now this week, Resources for the Future issued a new paper urging BLM to look at a range of future scenarios for coal as the agency tackles reforming the federal coal program. The key finding of the paper is that there are many additional scenarios that will result in reduced usage of coal, mainly due to the focus on reducing greenhouse gas emissions to combat climate change. As the paper notes, “Most significantly, if the United States is to achieve its climate commitments, increased policy pressure will likely fall on the electricity sector, thereby reducing coal generation.” 

The paper also questions whether the current model used for projecting energy market trends, which is crucial in determining the possible future scenarios for coal use in the energy sector, is the right place to start for federal coal. The report points to the dramatic change in coal electricity generation projections between EIA’s 2010 and 2016 Annual Energy Outlooks (AEO). 

The authors note that the initial downward trend is attributable to the abundance of low-price natural gas that appeared on the market in the early part of the period, but the large downward jump in AEO 2016 is largely due to the effect of the Clean Power Plan (CPP) (though note that the “no-CPP” projection is much lower in 2016 than in previous years as well). These declines in coal electricity generation will lead to declines in coal production, especially, as Gruenspecht noted, in the Powder River Basin.

What does this all mean? It means that there is a new normal for coal production on public land which is whole lot lower than the last decade. When we think about a future federal coal program, it is important to remember that past is not prologue.That should be the starting point for rethinking the federal coal program.