The market for thermal coal is in structural decline in the United States, according to a new report by the Carbon Tracker Initiative.
The US Coal Crash – Evidence for Structural Change (PDF) finds that, in the last few years, US coal markets have been pounded by a combination of cheaper renewables, energy efficiency measures, increasing construction costs and a rash of legal challenges, as well as the rise of shale gas.
In the past five years the US coal industry lost 76 percent of its value, and at least 264 mines were closed between 2011 and 2013. The world’s largest private coal company, Peabody Energy, lost 80 percent of its share price.
These declines came in spite of the Dow Jones industrial average increasing by 69 percent during the same period.
While historically economic growth in the US has consistently driven increased coal use, there is now clear evidence of a decoupling of the two. Despite GDP continuing to rise, domestic coal use peaked in 2007 and has been on a declining trend since.
Cheap shale gas has flooded the market in the US, causing the price of natural gas to fall by 80 percent since 2008, while renewable energy costs have also continued to fall. The report says these two drivers served to reduce coal’s share of electricity supply by approximately 10 percent over the same period.
At the same time the US Environmental Protection Agency (EPA) has issued seven environmental, air pollution and climate regulations that have been significant in continuing to reduce US demand for coal even when the US natural gas price has risen.
These drivers helped strand over 14GW of coal-fired power plants between 2010 and 2012 — US thermal coal prices have fallen drastically as a result. The report claims the evolution of the US energy sector is far from over, however, as retirements are forecast to rise to 60GW by 2020 and 92GW by 2030, which is equal to 27 percent of the total US coal generation fleet in 2012.
All of this has occurred without a global climate deal or US federal measures labeled “carbon” or “climate”, the report points out. However, it says global climate negotiations remain important, and a global deal towards a good climate outcome has never been more desirable, but the changing costs of technologies, and domestic measures on air quality show the building and varied negative pressures on fossil fuel industries.
Coal’s problems appear to be structural rather than cyclical, the report concludes. Rather than betting on a cyclical upturn, investors should resist the urge to get back into the US coal sector. The report’s authors say they doubt that “business as usual” will ever return, so investors should seek capital discipline from management and challenge capital expenditure on high-cost projects.
Hower, an increase in coal use for power generation caused U.S. greenhouse gas emissions from large industrial facilities to be 0.6 percent, or 20 million metric tons, higher in 2013 than the previous year, according to data released late last year by the EPA.
In 2014, the EPA released the Clean Power Plan proposal, which for the first time cut carbon pollution from existing coal-fired power plants. The proposal is designed to protect public health, move the United States toward a cleaner environment and fight climate change while supplying Americans with reliable and affordable power.