President Trump’s recent executive order reversing some of his predecessor’s environmental policies has drawn cheers from affected industries and jeers from environmentalists. I take no position on the political debate Trump’s move has set off. But it is possible to map out some of the likely impacts his executive order will have on the energy industry.
Trump the candidate derided President Obama’s regulations that would clamp down on the coal industry and promised to bring back lost coal mining jobs by undoing those regs. In late March, Trump the president signed an executive order seeking to do just that. “My administration is putting an end to the war on coal,” he declared.
So what exactly does Trump’s executive order do?
For starters, Trump ended the moratorium on approving new coal mining leases on federal lands that Obama had enacted. He instructed federal regulators to ditch the “social cost of carbon,” the dollar figure that the Obama administration used to calculate the future cost to the environment from emitting carbon dioxide. Coal releases more CO2 to generate a unit of energy than other fossil fuels do, so the SCC essentially makes any regulation that discourages coal consumption look more cost-effective. Trump also softened the requirement that regulators take climate change impacts into consideration when conducting environmental reviews of large industrial or construction projects.
Those are all relatively simple steps, because they reverse executive orders issued by Obama. Rescinding formal regulations is much more complicated. But Trump’s order begins that process for one of Obama’s landmark regulations, the Clean Power Plan.
Briefly, the CPP would have required electric utilities to reduce their CO2 emissions by shutting down coal-fired power plants, improving energy efficiency, installing more renewable power or other measures. The Supreme Court had already ordered the rule held in abeyance until legal challenges being brought by many states run their course. Now, Trump is promising to start the regulatory process for withdrawing the CPP.
Jeff Holmstead, a partner with the Bracewell law firm in Washington, D.C., and a former EPA assistant administrator under President George W. Bush, thinks that it will take six to 18 months for the Trump administration to formally repeal the CPP, depending on which legal route the White House takes. But whatever course Trump follows, legal challenges from environmental groups that want to keep the CPP in place are bound to arise. Suits brought against the Obama EPA by states opposed to the CPP were likely to reach the Supreme Court eventually. Now, Holmstead says he “wouldn’t be surprised” if Trump’s alternative ends up before the high Court instead.
The upshot: The coal industry has gotten a significant respite from regulations and policies that likely would have depressed coal usage.
But ultimately, coal’s fate will be ruled by competition from natural gas, not policy made in Washington. Andrew Moore, managing editor of Platts Coal Trader, says Trump’s moves haven’t changed the fundamentals of the coal industry, which continues to vie with natural gas as a fuel for generating power. A year ago, gas was dirt cheap and electric utilities were burning record levels of it to generate electricity. That in turn pushed coal prices down and led to the lowest coal consumption in the U.S. since the late 1970s.
Since then, gas prices have rebounded because of stronger demand, and coal prices have followed suit, Moore says. He notes that coal consumption is up about 20% so far this year compared with the same period of 2016 as a result of pricier natural gas.
How much of a comeback coal can make depends on where gas prices go. Gas demand has grown rapidly in the last five years and should continue to do so as utilities burn more gas for power and producers export more U.S. gas to Mexico and other foreign buyers. On the other hand, hydraulic fracturing has opened up vast reserves of gas that were once uneconomic to produce, and energy firms are hard at work lowering the cost of getting all that gas to market. Assuming that gas prices don’t rise much from their current level of a bit more than $3 per million British thermal units, coal demand probably won’t rise much.
And coal mining jobs are unlikely to return in large numbers, no matter what Trump does to boost the industry. Talk of bringing back work in the mines conjures images of hard-hit Appalachian towns, but the biggest single coal producing region is actually Wyoming’s Powder River Basin, where the mines are heavily mechanized. PRB coal is cheaper to produce and thus is best poised to benefit if and when natural gas prices rise and utilities start burning more coal, says Moore.