Market forces have been hurting coal long before the EPA’s CO2 rules

It’s not entirely accurate to call the EPA’s CO₂ rules part of President Obama’s war on coal. There isn’t really a war on coal so much as there are structural and market forces at play that are hurting the coal industry – long before the EPA announced its CO2 rules.

The U.S. coal industry has been struggling for some time now, primarily because of abundant inexpensive natural gas (largely via hydraulic fracturing + horizontal drilling). As a result, utilities are opting to run cheaper natural gas plants instead of older, inefficient coal units.

Moreover, many of the nation’s coal plants are aging and set to retire in the next several years. Most of the nation’s coal plants were built between the 1960s and 1980s, with nearly three-quarters of the capacity over 30 years old and fast approaching the 40-year retirement mark.

The EIA expects that about 8.5 percent of the nation’s coal fleet to retire by 2017.

Last summer, the EIA released another analysis detailing how coal retirements would keep increasing to nearly 17 percent of the nation’s coal fleet by 2020, citing natural gas as the main reason:

Coal capacity retirements are sensitive to natural gas prices. Lower natural gas prices make coal-fired generation less competitive with natural gas-fired generation. Because natural gas is often the marginal fuel for power generation, lower natural gas prices also tend to reduce the overall wholesale electricity price, further reducing revenues for coal-fired generators.

And to nail home the point, a graph of fossil fuel generation by fuel type with EIA commentary afterwards:

Most recently, a number of factors have led to a continuing electric power industry trend of substituting coal-fired generation with natural gas-fired generation: During the 1990s and 2000s, the cost of natural gas generation decreased with the increased use of efficient combined cycle technology for power generation. Expansion of the natural gas pipeline network decreased uncertainties around natural gas availability. Natural gas production gains from domestic shale gas formations began to rapidly increase starting in 2005. Rising shale natural gas production outpaced natural gas demand growth and contributed to falling natural gas prices, while coal prices rose. Starting in 2009, these trends began to alter the relative economics affecting the dispatch of generators relying on Appalachian coal and natural gas, in the eastern half of the country.

The structural issues stem with where coal is produced. Coal from Wyoming’s Powder River Basin has been displacing higher sulfur content Appalachian coal. Here is a snapshot of coal production in the last year. Western states (Wyoming) are producing roughly twice as much coal as Appalachian states (West Virginia).

All of this is to say that the EPA has essentially performed some policy tai chi by taking advantage of where the market is already heading and formalizing it with environmental rules.

War on coal? Not really. Clever, opportunistic policy-making? For sure.