Coal Industry in Survival Mode as $10 Billion in Environmental Compliance Projects Planned at U.S. Power Plants

Written by Andrea Moede for Industrial Info Resources (Sugar Land, Texas)--As any market analyst will attest, the Coal Industry has seen massive upheaval and decline over the past several years. There is no doubt that part of this trend is attributed to market forces, specifically the reduced cost of natural gas, which has replaced coal in the U.S. as the cheapest source of fuel. However, much of the speculation and hesitation currently bogging down the industry is a result of the heightened regulatory environment.

Click the icon at right for a map showing U.S. Coal Fleet future closures.

This long-running saga centers on the standard for ozone set by the Clean Air Act. The national regulation is intended to reduce air pollution and includes provisions for maximum amounts of ozone emission. The standard was changed was in 2008 by the Bush administration, when it was lowered to 75 parts per billion. Incremental reductions in this standard have steadily decreased the amount of smog in the U.S. over the last 40 years, but that has come at a high price to the coal industry.

Since 2008, the Environmental Protection Agency (EPA) has continued to push for more stringent standards, even wanting it to approach the level of 60 parts per billion. Every notch that it is lowered comes at a significant cost to coal companies. In order to comply, coal-fired power plants must install "scrubber" technology to reduce the emissions from the smokestacks, and these can cost tens of millions of dollars apiece.

Click the icon at right for a map showing active U.S. coal fleet environmental projects

.The year 2011 saw the Obama administration begin to head down this road with the EPA, before postponing the pursuit of these environmental measures as the presidential reelection campaign approached. The EPA resumed the drive to reduce ozone emissions in 2015. By October last year, the standard had been set at 70 parts per billion. While an expensive cut to be sure (EPA estimate of the cost to the economy is $1.4 billion), it was not nearly what the EPA and environmental activists had pushed for.

States will have from 2020 to 2037 to comply with the new standard, if it is not successfully appealed in the courts. More than 29 states and dozens of companies and interest groups are suing to prevent the regulation from going into effect. In a stunning, never-before-seen decision in January 2016, the Supreme Court granted a request to halt the regulation before it had been reviewed by a Federal Appeals Court. While the case is currently in appeals, the Supreme Court's decision does hint that the regulation may not be favorable in the eyes of the court. Eighteen states, primarily led by Democrats, oppose the appeal.

The change in the U.S. ozone standard occurred just prior to the Paris Climate Change Conference in December. Countries and environmental groups from around the world convened to work on strategies for cutting greenhouse gas emissions. Much of these discussions revolved around reducing the use of coal in favor of renewable energy sources.

Fast forward to January 2016 and the latest of the saga: this time it was not about the ozone standard. In a related move, President Barack Obama issued a moratorium on new coal bed leases on public lands. While companies may continue to mine on current leases (estimated to last about 20 years at current production levels), this shutdown of new leases has shaken the coal industry in a new way. While the tighter pollution controls at coal-firing power plants were problematic, this step affects it even more deeply as it would leave the coal unmined. The new moratorium will especially affect the coal mining of the Powder River Basin in Wyoming and North Dakota, much of which is located on federal land; this coal is particularly sought after due to its low sulfur content.

All of this is happening at a time unprecedented in the coal industry. The past year has seen more than half a dozen declared bankruptcies, including those of giants Arch Coal Incorporated (St. Louis, Missouri), Alpha Natural Resources (Bristol, Virginia) and Peabody Energy Corporation (St. Louis, Missouri). Both production and employment in the industry are nearing the lows of the 1980's. For related information, see April 14, 2016, article--Peabody Energy Bankruptcy Filing a Sign of the Times for Coal Industry.

Republicans continue to call the whole situation "the war on coal" and assert that it is a massive over-reach by the federal government, requiring states to completely restructure their energy environments. While the Obama administration wants to leave a legacy in the area of environmental reform and climate change, how will the upcoming Presidential election affect the regulatory environment of the already-struggling coal industry?

As could be expected, the presumptive Democratic nominee, Hillary Clinton, would continue to push for conversion to renewable energy resources and has been quoted as saying that she would bring renewable energy to coal country and "put a lot of coal miners and coal companies out of business." For this she has apologized and also proposed a $30 billion plan to retrain coal workers in finding new livelihoods. The success of such an ambitious transition plan would depend on the cooperation and buy-in of the local governments that would be tasked with the implementation.

In similarly predictable fashion, the presumptive Republican nominee, Donald Trump, has stated that "we're going to put the miners back to work." Initial efforts toward this end would no doubt be to reverse the climate agenda of the Obama administration, putting market forces back at the forefront of determining the future of the coal industry.

From our surveys of the U. S. coal-powered generation fleet, Industrial Info has identified 54 air quality control (compliance) projects valued at $10.8 billion that are currently active and in various stages of development. Of these, 32 projects, valued at $6.9 billion, have been funded--a sign of confidence that some utilities are in it for the long haul. However, more stringent legislation is leading to the potential loss of 174 coal units or 65 GW of generating capacity over the next several years, adding to the list of 322 units rated at 46.5 GW of capacity that have been closed since 2010. For more information on these databases visit: Power Industry Coverage

For more information, see June 14, 2016, article--U.S. Coal Industry Continues to Suffer in Current Regulatory Atmosphere.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.