By ALAN J. ORTBALS
Recent Chapter 11 filings by industry behemoths Arch Coal and Peabody Energy show that coal is no longer king, but it’s nowhere near death, both industry experts and environmental activists agree. They differ, though, on whether these bankruptcy proceedings are a temporary restructuring process or part of a long-term decline.
Illinois Coal Association President Phil Gonnet lays the troubles of the industry squarely at the feet of federal regulations. He said that he’s been fighting the U.S. EPA’s MATS rule (Mercury and Air Toxic Standards) for more than two years. Multiple lawsuits were filed against the government, and the U.S. Supreme Court ultimately stayed its enforcement but not before the loss of about 20 percent of the coal generation in the country.
“The power companies need certainty on whether they should operate in the future and how they should operate and they have to make decisions,” Gonnet said. “They can’t wait for the lawsuits to play out, so the Supreme Court did a stay on the clean power plan, which was totally unprecedented, but it was necessary, I think, for the industry to survive. We’ll see where that takes us but that at least takes the clean power plan off of the stove for at least a couple more years.”
With the boom of the fracking industry, more and more energy producers have been switching to natural gas and that’s eaten into coal’s share of the business.
“I think what’s hurt us, too,” Gonnet said, “is that power plant operators try to look into the future and they’re thinking that it looks like these carbon emission standards were written so that coal couldn’t meet them but natural gas could. I think that’s what tipped their decision that way.”
But natural gas has its limits, according to Gonnet. One of the obstacles to using more natural gas is the lack of infrastructure — the pipelines to move the natural gas to the power plants. Building that infrastructure, Gonnet says, is both difficult and expensive. He also has a problem with the very concept of using natural gas to produce electricity.
“Personally, I think it’s criminal to make electricity from natural gas,” Gonnet said. “Too many people rely on natural gas to heat their homes. Although natural gas prices are low right now, if you go back three or four years ago it was $14 for a million Btu compared to about $2 today. Natural gas should be used for heating homes and not making electricity.”
Gonnet points out that the state missed out on the fracking boom and that our geology means that Illinois fracking fields, if and when they become operational, will produce more oil than natural gas. And, he adds, renewables such as wind and solar are not the answer either.
“Renewable energy is only available about a third of the time,” Gonnet said. “What is needed is base load power and base load power is available 24 hours a day, seven days a week, almost 365 days a year. That’s only available from coal, nuclear and somewhat from natural gas. It can’t come from renewables.”
While Illinois power plants don’t burn Illinois coal, Gonnet says the demise of the Illinois coal industry is greatly exaggerated. That’s because most of the state’s coal production is sent out to power plants in other states like Indiana, Kentucky, Ohio and Florida where power companies have made the investment in scrubbers.
Illinois hit its zenith of coal production in 1990 mining 62 million tons. But, that was the year the Clean Air Act Amendment was passed to reduce sulfur dioxide emissions. With that, production went from 62 million tons in 1990 to 31 million in 2003.
Employment in the industry went from 10,000 workers in 1990 to 3,500 in 2003. Production stayed at just above 30 million tons per year for several years but it ticked up to 37 million in 2011 and 45 million in 2012. The year 2013 saw a large increase to 54 million followed by 58 million in 2014. Gonnet said that it appeared production would get back to the pre-CAAA level of 62 million tons but coal companies reduced their production in the second half of 2015 to meet market conditions, so 2015 saw a decline to 56 million.
That growth in production also saw a growth in employment from 3,500 to 4,600 but layoffs followed with 732 jobs cut in 2015 and 600 more slated for this year.
Gonnet said that Illinois Basin coal is pretty easy to extract so production costs are low, and the low-cost producer is going to be the one that prevails. He predicts Arch Coal and Peabody Energy will be fine once they get through restructuring.
“We’re not going to eliminate coal,” Gonnet said. “You can’t replace coal with renewable energy. Wind power is available only a third of the time. You need base load power and that comes from coal, nuclear or natural gas. Now, obviously, it seems that the Obama administration’s preference is natural gas but there are some obstacles to getting that done. We need to make it through the last year of the Obama administration,” he added. “I hate to sound partisan but there isn’t a Democrat candidate that’s going to support coal. Our industry needs a Republican president to reverse these senseless rule makings.”
Henry Henderson, director of the National Resource Defense Council’s Midwest office, says what we’re seeing is not a temporary rough patch brought on by too much debt but a long-term transition in the energy sector away from coal.
“What we’re seeing is a shrinking of the industry —a shrinking of coal as the source of power,” he said. “I think it is a long-term restructuring of the energy economy. There has been a significant shift to natural gas and renewables like wind and solar. The assumptions that have been blindly accepted by the coal industry have caught up with them and they’re having to significantly restructure their economic expectations.
“These bankruptcies,” he added, “are an attempt to shift the economic structures of the companies in a crisis situation rather than a carefully planned response to what were trends that were discernible for a very long time.”
Henderson lays much of the coal industry’s hard times on the growing, world-wide concern with climate change. The MATS rule is a result of that concern.
“There is a growing perception among the public in the United States that climate change is a reality that is affecting people and affecting our economics, our health, our safety and our future,” Henderson said. “Look at very large sophisticated interests like the insurance industry, which is making a whole series of changes with regard to what they will underwrite in terms of the impacts of climate change. You look at the national security structure of the United States, the Armed Forces, etc., making significant changes with how to fuel their operations and how they’re looking at strategic risks internationally and locally. There is a growing institutional recognition that this is a reality that goes to the heart of our security and it goes to the heart of our economics. So there are significant structural shifts that are happening out there and driving significant investments in alternative energy.”