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Dismantling the CPP and its True Impact on the Coal Industry’s Future

August 17, 2017
The Presidential Executive Order on Promoting Energy Independence and Economic Growth, signed on March 28, 2017 by President Trump at EPA headquarters, dramatically changes the U.S. energy sector’s regulatory landscape.

First, it requires the head of each government agency to review and ultimately revise all existing regulations, orders, guidance documents and policies that “potentially burden the development or use of domestically produced energy resources, with particular attention to oil, natural gas, coal, and nuclear energy resources.” [1] It revokes certain Presidential actions from the Obama Administration that prepared the U.S. for climate change. It lifts the moratorium on Federal land coal leasing. Most importantly, it launches the process of dismantling the Clean Power Plan.

The Clean Power Plan (CPP) was developed during the Obama Administration as a subsidiary to the Clean Air Act, a core U.S. environmental law passed in 1963. It required all U.S. power plants to comply to carbon emission standards. Before 2015, there had been no regulation at all regarding carbon emissions from power plants, which account for nearly 40% of U.S. emissions. [2] Under the CPP’s flexible framework, each state had a specific emissions reduction target and could go about meeting this target however they preferred. Options included increasing energy efficiency of existing coal plants and shifting to natural gas, renewable or nuclear power.

Image: Primary Energy Production by Source in quadrillion BTU Source: US Energy Information Administration July 2017 Monthly Energy Review.

Image: Primary Energy Production by Source in quadrillion BTU

Source: US Energy Information Administration July 2017 Monthly Energy Review.

The coal industry can be studied through several lenses, all of which reveal an industry in the midst of a historic decline. The first lens is coal production, which peaked in 2008 and has since steadily dropped. The 2017 U.S. Energy and Employment Report reveals there was a 53% decrease in net generation from coal sources between 2006 and 2016. [3] Amongst other factors, coal production is struggling to keep up with other sources of energy. Indeed, the same report finds that within that same timeframe, there was a 33% increase in natural gas electricity generation, and a staggering 5000% increase in solar electricity generation. [4] The current administration argues that these statistics were driven by regulations that unfairly targeted coal production, and that lifting these regulations – specifically the CPP – would give coal a new lease on life. Setting aside the fact that the CPP was only implemented in 2015 and thus could not have single-handedly driven these changes, it is also evident that regulation alone is not responsible. Renewables are becoming increasingly affordable, and they are an attractive option for investors because they are not threatened by potential future regulations. Coal is losing out to natural gas because gas is cheap, abundant, and marginally cleaner – it is actually cheaper for utilities to transition to natural gas plants than to retrofit their coal plants with carbon sequestration systems to decrease their emissions. [5] Furthermore, because dismantling the CPP also loosens regulations on natural gas production, natural gas’ attractiveness and affordability will increase, thus threatening the coal industry even further. [6]

The second lens through which to study the decline of the coal industry is through the decrease in the global demand for coal. The International Energy Agency’s 2015 Coal Report found that 2014 marked the first year since the 1990s during which global coal demand growth halted. [7] Furthermore, the U.S. has traditionally relied on China to purchase its coal when domestic sales were struggling, but China has been moving away from coal in favor of cleaner energies to meet greenhouse gas emissions targets. The IEA report found that Chinese coal demand declined both in 2014 and 2015. [8] This hadn’t happened in two consecutive years since 1982, and is symptomatic of a more systematic decline, especially considering that China consumed about half of the world’s coal. These changes clearly cannot be driven by stringent domestic regulation, and the dismantling of the CPP would not halt them.

Finally, the third lens is the evolution of coal jobs in the United States. Irrespective of coal production volumes and the variation in coal prices, the amount of jobs in the coal industry has been in overall decline since 1920. Nearly a century ago, the industry reached its all-time peak employment level of about 785,000 people. Since the last peak in 1980, when it employed about 242,000 people, the coal industry’s workforce has declined by a further 59%. [9] This loss of coal jobs is driven almost entirely by the increased automation of the industry. Underground mining, the mining method that requires the most labor, has been increasingly replaced by mountain top removal mining, which is more efficient, profitable and significantly less labor intensive due to its use of machinery. [10] This fact is crucial, because President Trump campaigned very strongly on increasing work opportunities for coal mining communities, and this is what he is claiming to achieve by dismantling the CPP. Thus, even if dismantling the CPP increases the profitability of the coal industry in the short-run, which is still questionable, this will not directly equate to a growth in mining jobs.

The CPP had been the U.S.’ main strategy for meeting the COP21 target to reduce CO2 emissions by 26-28% by 2025 from a 2005 baseline. [11] Thus, President Trump’s controversial June 1, 2017 announcement that the U.S. would back out of the Paris climate accord came as no surprise. While dismantling the CPP and pulling out of the Paris accord caused controversy nationally and internationally, it seems unclear that the supposed benefits to the coal industry made the damage worthwhile. The coal industry is in decline, and no loosening of regulations will hinder this in the long-run.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1] https://www.whitehouse.gov/the-press-office/2017/03/28/presidential-executive-order-promoting-energy-independence-and-economi-1

  [2] The Clean Power Plan: A Climate Game Changer. Union of Concerned Scientists: Science for a healthy planet and safe world. Retrieved from: http://www.ucsusa.org/our-work/global-warming/reduce-emissions/what-is-the-clean-power-plan#.WWn917YrLEY

  [3] U.S. Energy and Employment Report. (January 2017). United States Department of Energy. Retrieved from: https://energy.gov/sites/prod/files/2017/01/f34/2017%20US%20Energy%20and%20Jobs%20Report_0.pdf

  [4] Ibid.

  [5] A Bleak Outlook for Trump’s Promises to Coal Miners (19 November 2016). Krauss & Corkery. The New York Times. Retrieved from: https://www.nytimes.com/2016/11/20/business/energy-environment/a-bleak-outlook-for-trumps-promises-to-coal-miners.html

  [6] Ibid.

  [7] Coal Medium-Term Market Report 2015. (18 December 2015). International Energy Agency. Retrieved from: https://www.iea.org/newsroom/news/2015/december/global-coal-demand-stalls-after-more-than-a-decade-of-relentless-growth.html

  [8] Ibid.

  [9] Increased automation guarantees a bleak outlook for Trump’s promises to coal miners. (25 January 2017). The Brookings Institution. Retrieved from https://www.brookings.edu/blog/the-avenue/2017/01/25/automation-guarantees-a-bleak-outlook-for-trumps-promises-to-coal-miners/

  [10] Ibid.

  [11] USA First NDC Submission. (2015). United Nation Framework Convention on Climate Change. Retrieved from: http://www4.unfccc.int/ndcregistry/PublishedDocuments/United%20States%20of%20America%20First/U.S.A.%20First%20NDC%20Submission.pdf

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