Promises that Can’t be Kept: Trump and Coal
"As you have seen, I have kept that promise as President. We are putting our coal miners back to work. We have ended the war on beautiful, clean coal. We have stopped the EPA intrusion. American coal exports are already up." Donald J. Trump, Huntington West Virginia, August 3, 2017
President Donald Trump kicked off a campaign rally in the coal-dependent state of West Virginia on August 3, with this assertion that he is reviving the moribund coal industry and putting miners back to work. How does this claim hold up? Are there signs of a long-term rebound that would rebut the skepticism from most industry observers?
To be fair, compared to Trump’s usual standard for veracity, this claim has some truthiness, at least in the short term and at least for West Virginia. According to top coal reporter Taylor Kuykendall, national coal employment trended up by 0.5% in the most recent quarter—258 total new jobs added—while total production declined slightly. West Virginia, on the other hand, has seen industry jobs tick up significantly—18.3% year over year in the second quarter. Global demand for metallurgical coal, caused in part by significant mine closures, has driven most of this rebound.
Nevertheless, there are many signs that this spike is a short-term phenomenon and doesn’t signal a longer term coal renaissance. Listen, for example, to the view from CSX, the nation’s third largest railroad, which derived more than 30% of its revenues from coal transport at the beginning of this decade:
"Coal has no future," CEO Hunter Harrison said, explaining to an audience of industry analysts why they were not making any investments in new lines, locomotives, or infrastructure to haul the black rock. “Fossil fuels are dead,” he continued. “That’s a long-term view. It’s not going to happen overnight… But it’s going away, in my view.”
Institutional investors echo this assessment: “Coal is dead,” pronounced Jim Barry, the head of infrastructure investment for BlackRock, the largest investment group in the world with $5 trillion under management.
The coal industry faces two fundamental problems. First, the stock of coal-fired power plants is declining, as old plants close and fewer new ones are built. In the United States alone, 40 gigatons of coal fired power has been retired since 2000 and nearly one-half of the nation’s coal plants are scheduled for closure, reflecting tremendous advocacy work from the Sierra Club’s Beyond Coal campaign with allies around the country.
Further, the industry isn’t building new plants, despite the Trump Administration’s urgings. As Karen Obenshain, an executive with the Edison Electric Institute (the utility industry’s think tank) explained, “[O]ur industry builds assets that last for decades; a new administration in the White House can last four or eight years. So, our members are thinking they don't see any prospect for coal at this time.
Obenshain’s comments also highlight the industry’s second key problem: coal’s fundamental economics minimize any interest in long-term investments. As Michael Liebriech and Angus McCrone of Bloomberg New Energy Finance (BNEF) put it, “Whatever President Trump may say, U.S. coal’s main problem has been cheap natural gas and renewable power, not a politically driven ‘war on coal’, and it will continue being pushed out of the generating mix.”
A June 2017 BNEF report highlights the plummeting costs for solar and other renewables as key factors dooming coal’s long-term role in the energy mix: “Solar power, once so costly it only made economic sense in spaceships, is becoming cheap enough that it will push coal and even natural-gas plants out of business faster than previously forecast.”
This report concludes that solar is already cost-competitive in much of the US and Germany and will become cheaper than coal as soon as 2021 in the fast-growing economies of China and India.
Coal’s economic challenges and growing concerns over air pollution and global warming impacts also help explain why exports are not going to bail out the industry. Despite a short term spike in coal exports from the US during the first half of this year, volumes are still far below their peak in 2012. Further, in the same week that President Trump was touting coal’s comeback to supporters in West Virginia, China, the world’s largest coal user and importer, announced major new cutbacks for the industry.
The Chinese National Energy Administration stated that it planned to halt construction of 150 gigawatts of new coal production, while retiring 20 gigawatts of existing capacity—a startling change for the world’s second largest economy, which used coal to power its initial round of development. China is rapidly putting the brakes on coal as it races to confront its crippling problem of air pollution in its urban centers. Coal consumption has also slowed significantly In India, often viewed as the next bull market for coal producers, as that country moves away from coal towards renewables.
These recent developments in China and India are good for the climate and bad for global coal producers and power plant developers. However, no one can expect these companies to go away quietly. As reported in July in The New York Times, Chinese companies whose coal projects are being scrubbed at home are working on over 1,600 new projects in developing countries around the world. If all were constructed, these projects would lock in enough carbon dioxide emissions to doom global efforts to achieve the Paris climate targets.
These planned projects, however, will face the same economic and political headwinds that are curbing goal development in China and elsewhere. Bloomberg’s June 2017 New Energy Outlook predicts that only 18% of the planned coal-fired power plants around the world will be built. The report Boom and Bust 2017: Tracking the Global Coal Plant Pipeline, found dramatic declines in coal plant activity in 2016—“a 48% drop in pre-construction activity, a 62% drop in construction starts, and a 19% drop in ongoing construction.”
Finally, even if global coal development outpaces these forecasts and recent experience, it is likely to provide only temporary and sporadic relief for workers and producers in the US. As an executive for Peabody, the country’s largest coal producer, acknowledged, domestic mines are swing suppliers for global markets, driving exports during times when supply/demand imbalances lead to price spikes. Most exports are likely to continue to come from Australia and Indonesia with lower production and shipping costs, well developed export infrastructure, and a need to replace their former markets in China.
So, can President Trump keep his promises to put struggling American coal miners back to work? Not according to outspoken coal executive (and ardent Trump backer), Bob Murray: “He can’t bring [those coal jobs] back.”