What’s Driving the Decline of Coal in the United States
Behind the Bankruptcies
The U.S. coal industry is declining in the face of lower-cost natural gas, renewable energy and regulations designed to protect public health. Decades of mechanization have also reduced employment. This has spurred a wave of coal companies to declare bankruptcy, with Peabody being a recent example.
The industry’s woes are directly related to a drop in demand for its product. The Energy Information Administration estimates that coal production in 2016 declined by 158 million short tons from the previous year, an 18 percent drop from the year before, the lowest level of coal production since 1978. The coal production decline last year is the largest annual decline in terms of both tons and percentage since 1949. Below is a map of coal plant retirements in the U.S. from 2012 to 2016:
(EIA via SourceWatch)
Since its 2008 peak, coal production has been in steady decline, with total production in all major coal regions falling by at least 15 percent last year, as shown in the graphs below:
The drop in coal use is due largely to the natural gas boom, the falling cost of wind and solar energy, and environmental regulations. The abundance of relatively cheap natural gas has been the primary cause of displacing coal from the market. Since the 1990s, natural gas consumption has grown year over year, while coal consumption has shrunk.
The price of solar energy systems hit an all-time low in August 2015, declining 5 percent year-over-year for residential systems and 12 percent for utility-scale systems. The cost of wind power dropped significantly in 2016, with the cost of turbines falling 20 to 40 percent from 2008. These cost declines have enabled some renewable technologies to be cost competitive with fossil fuel technologies.
As a result of the drop in coal use and increasing automation in the coal mining industry over the past few decades, jobs in the coal industry declined while jobs in the renewable energy industry grew. In 2016, the U.S. solar industry employed 374,000 individuals, a 25 percent jump from the previous year, and the wind industry employed 102,000 people, a 32 percent increase from 2015, according to the Energy Department’s 2017 U.S. Energy and Employment Report. Coal-generated electricity employed over 86,000 people in 2016, and coal mining and support employment declined 39 percent from March 2009 to March 2016.
The below graph shows the decline of coal mining jobs in Appalachia from 1983 to 2012:
(Mine Safety and Health Administration via Washington Post)
During periods of low consumption at home, domestic coal producers used to rely on exports to international markets, especially China. However, China’s coal use declined in 2014 and 2015, marking the first time that coal consumption dropped for two consecutive years in the country since 1982. The Chinese government also published data showing that coal consumption fell by 3.7 percent in 2015, following a drop of 2.7 percent in 2014. The current decline in coal use is part of China’s national plan to ramp down its greenhouse gas emissions. China has pledged to stop the growth of its emissions by 2030, and some climate experts predict that peak could come as early as 2025. The 2016 IEA World Energy Outlook found that China’s coal use peaked in 2013, however other experts are uncertain about when exactly China’s coal use will peak. In January of 2017, China announced plans to cancel construction of 103 coal-fired power plants. India, the world’s third-largest coal consumer after China and the United States, is implementing policies to increase its domestic coal production while keeping constant or reducing coal imports. India has continued with these policies through 2016.
The decline of the coal industry has coincided with investors souring on the sector. Central bank leaders like Mark Carney of the Bank of England have warned investors to beware of “stranded assets” created by high-risk investments in coal and oil reserves, which may never be recoverable. In 2015 Norway announced that its $890 billion sovereign wealth fund, the world’s largest, will sell off many of its coal investments, joining a growing list of organizations -- including big universities, pension funds, and the Church of England -- that are divesting from coal. Many economists cite the risk of stranded coal assets as the primary reason to divest, rather than a moral or environmental reason.
A 2016 report from the Task Force on Climate-Related Financial Disclosures found that climate change could bring "significant near-term implications" for the fossil fuel industry. The report expanded that finding to show that coal, oil and gas companies are not alone in bearing climate-related risk but in fact most economic sectors and industries will be affected.
The decline in coal use and loss of investor interest is partly responsible for broader losses in the mining sector.
In March 2016, the U.S. Department of Commerce released data showing that large mining companies collectively lost $227 billion in 2015. This is more than they gained in the previous eight years combined, completely wiping out profits the industry made since 2007, as shown by the Wall Street Journal graph below:
High Executive Compensation
While coal company stock is plunging, coal company executives have been criticized for lavish payouts. In January 2016, U.S. officials presiding over the Alpha bankruptcy filed an objection to the company’s desire to secretly pay 15 of its top executives bonuses totalling $11.9 million, while at the same time seeking to end medical and life insurance benefits for its workers.
“If Alpha desires to pay secret bonuses to a confidential group of its top executives, it can certainly do so – just not while enjoying the protection and benefits of the Bankruptcy Code," the trustees wrote. (Links to court documents via Casper Star Tribune. Original court document, #1280, here -- Pacer account required.)
The Star Tribune, in an investigation, noted examples of high executive compensation amid falling profits at Peabody and Arch as well.
While the decline in coal poses a particular risk to investors and coal communities, it is important to note that there are significant health impacts associated with coal, which affect more than just miners. Of all the major sources of energy, coal is the most harmful to human health. Coal combustion contributes to four of the top five leading causes of death in the U.S.—heart disease, cancer, stroke, and chronic lower respiratory diseases—according to Physicians for Social Responsibility.
The group notes that each year, between 317,000 and 631,000 children are born in the United States with blood mercury levels high enough to impair performance on neurodevelopmental tests and cause lifelong loss of intelligence. Coal-fired power plants are responsible for approximately one-third of all mercury emissions attributable to human activity.
Fine particulate matter from U.S. power plants kills 7,500 people each year, according to the public health advocacy group Clean Air Task Force.
A National Academy of Sciences study of the health costs of coal-derived electricity in the U.S. put the tab at $62 billion annually, while a study from Harvard estimated the cost to be $523 billion. That’s 3.2 cents to 28.9 cents per kWh—which, at the upper end, is several times the current cost of electricity in the U.S.
While coal miners are at great risk—suffering higher rates of mortality due to pneumoconiosis (black lung disease) and lung cancer—so too are those exposed to air pollution from coal plants. Certain groups of people are especially vulnerable to air pollution, including children, the elderly, pregnant women, and people with lung conditions like asthma and chronic obstructive pulmonary disease. The decline of coal will lessen serious health impacts and save insurance companies, taxpayers and individuals money.
As coal use fades, President Trump aims to revive the industry by untapping “hundreds of years of clean coal reserves.” The administration’s “America First Energy Plan” seeks to use more domestic fossil fuel resources and claims that by lifting climate-related regulations the U.S. could increase fossil fuel worker wages by $30 billion over the next seven years.
In Congress, the Miners’ Protection Act, introduced by Sen. Joe Manchin (D-WV) is currently being funded under a continuing resolution until April. The act proposes to shore up the federal benefits and pension fund for coal miners that are being drained by coal company bankruptcies like Peabody’s.
Success stories of coal communities working to diversify their economies are beginning to emerge. For example, BitSource, a software and development company in Kentucky, trains and employs former coal miners.
It will be challenging for coal communities to transition away from the industry that has sustained them for decades. And yet, the move away from coal presents an opportunity for the United States to reduce premature mortality and overall healthcare costs, generate economic development in regions that sorely need it, and meet the greenhouse gas reduction goals laid out in the Paris Agreement.
Last Updated: January 25, 2017
Gerhard Roux via Wikipedia