Header Menu

Energy markets will make Trump’s promise a challenge

“If I win we’re going to bring those miners back,” President-elect Trump said in May while campaigning in West Virginia.

But with coal production down, renewable energy rising and power plants across the country switching to natural gas, keeping that promise could take some doing. Given his location at the time, Trump may have been speaking more to Appalachian coal miners, but his promise certainly resonated with miners in the Powder River Basin.

For those in the Wyoming coal industry, the emotions range from soaring hopes to tempered analysis of what a president can actually do in today’s energy markets.

Two coal industry watchers have offered their opinions. One was University of Wyoming economist Robert Godby, who researches natural resource economies and policy.

The second was Richard Reavey, vice-president of external affairs for Cloud Peak Energy. Cloud Peak has a large office in Gillette and owns two mines in the area. They own a third Powder River Basin coal mine in Montana.

The best clues of the Trump administration’s energy plans may come from a memo that was obtained by the left-leaning Center for Media and Democracy, which reported it came from Thomas Pyle, president of the American Energy Alliance and the Institute for Energy Research. The memo reportedly was written on Nov. 15, and a few days later Pyle was named as head of the President-elect’s transition team for the Department of Energy. Pyle is a former lobbyist for the Koch brothers, and both institutes he leads have received funding from the fossil fuel industry, according to the Los Angeles Times.

Read how Trump has brought hope to people in Gillette

Pyle’s memo lists a series of policy mandates that would benefit that industry — including withdrawing from the Paris Climate agreement and increasing federal oil and gas leasing both offshore and on western federal lands. Reavey, with Cloud Peak Energy, pointed to two points in the memo that he said would most benefit Western coal.

The points Reavey cited are “hitting reset” on the Environmental Protection Agency’s Clean Power Plan and lifting a three-year moratorium on the leasing of federal lands to coal companies.

The moratorium was paired with a review of the federal coal leasing program, consisting of a Programmatic Environmental Impact Statement to reassess the leasing fees charged to companies. The goal of the assessment is to ensure that coal leases provide a reasonable rate of return to the owner of federal lands — the American taxpayer. In many cases on Western lands, according to UW economist Godby, leases for coal only receive one bidder when they go to auction — unlike oil and gas leases where multiple companies bid and drive the price up.

Between the Clean Power Plan and the moratorium, the new administration will find lifting the moratorium easiest, Reavey said. Since the original moratorium was issued as a secretarial order by Interior Secretary Sally Jewell, the new incoming secretary can simply issue a conflicting order.

In a Dec. 15 joint press release, President-elect Trump announced that he had offered the Interior Secretary position to Montana Congressman Ryan Zinke, and he accepted. Zinke’s appointment will require confirmation from the U.S. Senate. Zinke has frequently spoken in favor of Montana’s coal industry, and derided the programmatic review of federal coal leasing. He introduced a bill in the U.S. House to put a limit on the moratorium.

While the three-year moratorium didn’t have a direct effect on Cloud Peak’s Powder River mines, Reavey said if the moratorium had lasted longer it would have. And either way, he believes the review was designed to eventually make coal mining on federal lands so expensive as to be unfeasible for companies like Cloud Peak.

How the industry thinks about carbon impacts

Reavey believes the price coal companies pay in leasing fees, mineral revenue and taxes amounted to a fair return to taxpayers, he said. But in the Obama administration, “there was an active effort to find ways to shut down coal mining on federal lands.” He’s looking forward to seeing the environmental review ended and the moratorium repealed.

What Cloud Peak Energy wants from a Trump administration and a Republican-held Washington D.C. is not a free-for-all for coal, he said.

“While this [impending] short-term regulatory relief is great… to really secure a future for the coal industry, the coal consumer needs regulatory predictability,” Reavey said.“They didn’t have that under the Obama administration, and if they don’t get it under a Trump administration then no one will be building new coal plants.”

That’s why he hopes Trump will work with Congress to replace the Clean Power Plan with legislation that would regulate carbon dioxide emissions.

He said he hopes Congress can use the legislative process to create emissions laws that “coal producers, utilities and mainstream environmental groups can live with.”

A coal train moves in front of the Black Thunder mine outside Wright in October. Activity picked up at the mines over the third quarter and into the fourth quarter of 2016. The upswing in mining increased coal train traffic. It has also led to some hirings at the mines, after 500 layoffs in the spring and more over the summer. (Andrew Graham/WyoFile)

A coal train moves in front of the Black Thunder mine outside Wright in October. Activity picked up at the mines over the third quarter and into the fourth quarter of 2016. The upswing in mining increased coal train traffic. It has also led to some hirings at the mines, after 500 layoffs in the spring and more over the summer. (Andrew Graham/WyoFile)

Such legislation would include, he hopes, financial incentives for utilities to address emissions concerns, perhaps through carbon capture and sequestration but also through investments in efficiency technologies for power plants and energy infrastructure. Climate change, Reavey said, is a “socio-political reality” that’s not going away. After Trump, the next administration could try to bring President Obama’s climate change policies back to life. Hence the importance of legislation.

“If this is just a four- or an eight-year ‘hall pass,’ it doesn’t do what the president-elect has said he wants to do,” Reavey said. “I think he’s genuinely concerned about mining communities and miners.”

Reavey rejects the argument that market forces driven by low natural gas prices were what hurt coal. He blames regulation. A set of EPA rules called the Mercury and Air Toxics Standards, along with regional haze regulations designed to improve air quality in national parks and wilderness areas, closed coal-fired plants and knocked off mine customers, he said.

In fact, he said the natural gas argument was a construct propagated by the Obama administration to justify policies aiding wind and solar. Reavey also said the Clean Power Plan “looked a lot like a mechanism to funnel money to Obama campaign donors” in the renewable energy industry.

“I think this administration has told this lie again and again and again,” he said of natural gas.

Lies or facts about the natural gas advantage

In October, researchers at Case Western Reserve University released a study stating that the boom in natural gas, particularly production from shale via hydraulic fracturing, and not regulations, had driven the decline in coal-generated electricity. Natural gas surpassed coal on the nation’s electric grid in 2015, according to the International Energy Agency.

Meanwhile, the Clean Power Plan is tied up in courts, and the Bureau of Land Management is not scheduled to release the draft of its coal study until the end of this year, according to an agency press release.

UW economist Godby said the problem for coal is bigger than the Clean Power Plan or coal leasing issues.

“The biggest challenge in the long run that the coal industry faces is that the generation fleet is for the most part older,” Godby said, and “nobody is building new coal-fired power plants.”

Part of the reluctance to build comes from regulatory uncertainty. Even before the Clean Power Plan, companies knew some sort of carbon regulation was coming. That uncertainty, Godby said, was more potent than the regulation itself.

Godby also said that the mercury rule led to power plant closures. A number of coal plants were decommissioned in April of 2015, right after the rule was enacted, he said. But they were plants that were “old, small-scale or inefficient,” he said, making the technologies needed to bring them into compliance with new rules not worth the cost and effort.

Unlike Reavey, Godby doesn’t think the competitive role of natural gas is a political lie. “Most analysts would argue, unless they’re incredibly partisan, that clearly the biggest impact on coal has been the boom of natural gas,” he said.

On average, Godby said a natural gas plant can be built for half the price of a coal plant of similar capacity. A gas plant is also less vulnerable to regulation, since Godby estimated its greenhouse gas output to also be about half that of an equivalent coal plant.

Trump might be able to level off the industry’s slide during his time in office, but he probably can’t bring coal back to pre-2008 levels, Godby said. First, older coal plants are reaching the end of their lifespan, and there is little incentive for companies and financiers to invest in new ones.

Second, natural gas is a significant competitor. Here, Godby noted, Trump’s rhetoric appears to hold some inconsistencies. If his administration deregulates oil and gas, and particularly hydraulic fracturing, as Trump also promised, there will be more natural gas on the market, thus lower prices and thus less coal. In fact, Godby said, natural gas might hurt coal more under a Trump administration than it would have under a Clinton or even a Sanders administration, both of whom had pledged to regulate fracking.

Finally, electricity demand is not growing. New sources — renewable energy, along with gas  —  are getting more market share and pushing coal out.

Another piece of Trump’s rhetoric that could actually hurt coal, according to Godby, is any kind of trade war, or tariff on trade with China. “There goes any chance of exporting any coal,” he said.

Bigwig calls for realism from Trump

In one sign that a new reality for coal may be permeating high levels of the industry comes from Robert Murray, the CEO of Murray Energy Corp. The company is mostly focused on underground mining in the East. He asked the president-elect to be more realistic with coal country. He was a supporter of Trump’s campaign.

“I’ve asked President-elect Trump to temper his comments about bringing coal miners back and bringing coal back,” Murray told Powder Magazine. “It will not happen. The destruction that has happened is permanent.”

What Trump can do, Murray said, is stop the bleeding and level off the destruction.

To help coal, Godby sees a few options for the new administration. If Trump can create the economic growth he’s talked about, that could increase electricity demand. But Godby warned that electricity demand generally follows economic growth at a slower pace. The other option is for Trump to simply pick coal as a favorite fuel.

“If you’re not going to regulate natural gas, you have to subsidize coal,” Godby said.

On the campaign trail, Trump, like many politicians appealing to coal country, talked about clean coal. But thus far, those technologies are not commercially viable without a major subsidy. That makes natural gas plants seem even cheaper by comparison, and both solar technology and wind are also getting rapidly cheaper, Godby said.

The Trump administration could try to slow the growth of renewables, and perhaps as an indicator of this, the leaked memo mentioned increased scrutiny of the impacts of wind turbines on bird populations. But while wind energy development is currently subsidized, Godby said it is commercially viable even without aid.

All of this leads to the conclusion that an effort to subsidize coal through carbon capture and sequestration projects would be steeped in politics, not economics. “You could try to capture carbon,” Godby said, “but what the markets are saying is let’s just use as little carbon as possible.”

Reavey thinks the industry could be incentivized to reduce carbon emissions at coal fired plants, whether through carbon capture or greater efficiency, without a direct subsidy. That could possibly be through fast-tracking of permitting for plants with those technologies. However, wind and solar have been subsidized at high levels for years, so why not direct some of that toward incentivizing carbon capture, he said.

Reavey described his outlook on the next four years as “cautiously optimistic,” calling for regulatory certainty while adding that no matter what, “it’s great to have a fossil-fuel friendly administration.”

Stay connected — sign up for WyoFile’s free weekly newsletter

Trump resonated with struggling coal miners but in actuality his deregulation platform could put more of them out of work, Godby said . “Natural gas has all the advantages,” he said.

Despite differing views on how coal has come to where it is today, Reavey and Godby agreed on one point: it’s very difficult to say for certain what energy markets will do. The forces that govern them are an immensely complex web of technology, policy, supply and demand.

If this pundit-shocking election proved anything, it proved that anything can happen, Reavey said. “Let’s not act as though we know the future, because very clearly, people don’t,” he said.

Did You Like This Story?

About the Author

[email protected]

Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at [email protected], follow him @AndrewGraham88

Please read WyoFile's commenting policy

One Response to Energy markets will make Trump’s promise a challenge

  1. Susan Lasher and Chris Pfister December 20, 2016 at 10:04 am #

    We found this very interesting piece to be the definition of balanced, in-depth reporting on concept issues, proving that reporting the truth is always the way to provide fair and balanced journalism. Thank you, once again, Mr. Graham and WyoFile.
    Susan Lasher and Chris Pfister
    Cody, WY

    Cody, Wyoming

Leave a Reply