REPORT

Can Coal Make a Comeback?

Trevor Houser, Jason Bordoff and Peter Marsters | April 26, 2017

Trevor Houser, Jason Bordoff and Peter Marsters offer an empirical diagnosis of the causes of the U.S. coal industry collapse over the last six years, which has been characterized by bankruptcy filings from three of the four largest U.S. miners and plummeting employment in the sector. The authors assess the global coal market outlook and examine the prospects for a recovery in coal production by modeling the impact of President Trump’s executive order to review or rescind Obama-era environment regulations. The paper concludes with recommendations for steps that the federal government can take to safeguard the pension and health security of current and retired miners and dependents and support economic diversification.

Key findings from the report include:

  • U.S. electricity demand contracted in the wake of the Great Recession, and has yet to recover due to energy efficiency improvements in buildings, lighting and appliances. A surge in U.S. natural gas production due to the shale revolution has driven down prices and made coal increasingly uncompetitive in U.S. electricity markets. Coal has also faced growing competition from renewable energy, with solar costs falling 85 percent between 2008 and 2016 and wind costs falling 36 percent.
  • Increased competition from cheap natural gas is responsible for 49 percent of the decline in domestic U.S. coal consumption. Lower-than-expected demand is responsible for 26 percent, and the growth in renewable energy is responsible for 18 percent. Environmental regulations have played a role in the switch from coal to natural gas and renewables in U.S. electricity supply by accelerating coal plant retirements, but were a significantly smaller factor than recent natural gas and renewable energy cost reductions.
  • Changes in the global coal market have played a far greater role in the collapse of the U.S. coal industry than is generally understood. A slow-down in Chinese coal demand, especially for metallurgical coal, depressed coal prices around the world and reduced the market for U.S. exports. More than half of the decline in U.S. coal company revenue between 2011 and 2015 was due to international factors.
  • Implementing all the actions in President Trump’s executive order to roll back Obama-era environmental regulations could stem the recent decline in U.S. coal consumption, but only if natural gas prices increase going forward. If natural gas prices remain at or near current levels or renewable costs fall more quickly than expected, U.S. coal consumption will continue its decline despite Trump’s aggressive rollback of Obama-era regulations.
  • While global coal markets have recovered slightly over the past few months due to supply restrictions in China and flooding in Australia, we expect this rally to be short-lived. Slower economic growth and structural adjustment in China will continue to put downward pressure on global coal prices and limit the market opportunities for U.S. exports. Indian coal demand will likely grow in the years ahead, but not enough to make up for the slow-down in China. The same is true for other emerging economies, many of whom are negatively impacted by decelerating Chinese commodities demand themselves.
  • Under the best-case scenario for U.S. coal producers, our modeling projects a modest recovery to 2013 levels of just under 1 billion tons a year. Under the worst-case scenario, output falls to 600 million tons a year. A plausible range of U.S. coal mining employment in these scenarios ranges from 70,000 to 90,000 in 2020, and 64,000 to 94,000 in 2025 and 2030 — lower than anything the U.S. experienced before 2015.