New Trump legislation will barely improve outlook of US coal producers

06 April 2017 Consultancy.uk

US President Donald Trump’s drive to deregulate environmental legislation will, contrary to his stated ambitions, barely improve the position of coal producers in the country, writes Joris Govers, a consultant at management consultancy JBR. 

The emphasis of president Donald Trump on the deregulation of environmental legislation ignores the main reason for the precarious situation of coal producers in the United States (US), namely market forces. As a result of the shale gas revolution, the production of natural gas in the US has increased drastically while the price of natural gas for the electric power sector has plummeted. Since most of the coal produced in the US is used for the generation of electricity, these developments have had far-reaching consequences for the demand for coal. Support for the US fossil energy sector through deregulation, however, will boost both coal and shale gas producers and will therefore not significantly alter the current playing field. Additionally, the competition of renewable energy will continue to grow, even without the implementation of the Clean Power Plan. 

Deregulation

President Donald Trump has acted upon his repeated promise during the election campaign to end the “war on coal” in the US. However, the intention to support the entire US fossil energy sector through a far-reaching deregulation of the current environmental legislation means that not only coal producers will benefit, but also shale gas producers. This is problematic because, according to the US Energy Information Administration, the current environmental legislation is not the main reason for the precarious situation of coal producers in the US. The main culprit is increased competition from widely available low-cost shale gas.

US shale gas production & natural gas electric power price

Shale gas revolution

Technological innovations such as hydraulic fracturing and horizontal drilling have led to a significant growth in the production of natural gas trapped in shale rock formations, also known as shale gas. The continuously increasing production of shale gas in the US has led to two important developments. First, the growing supply of shale gas led to a sharp drop in the price of natural gas for the electric power sector. In 2016, the average price of natural gas in the US decreased to the lowest level since 1999. Second, the US is currently in the process of transforming itself into a net exporter of gas. In November 2016, the country for the first time since 1957 exported more gas than it imported. The latter development in particular, is the reason why the large-scale production of shale gas in the US has been referred to as the shale gas revolution. 

Decommissioning of coal plants

On the back of the shale gas revolution, the increased availability of low-cost natural gas has resulted in a growing importance of natural gas in the generation of electricity in the US. Last year proved to be the tipping point; at the end of 2016, the share of gas in the electricity generation in the US superseded that of coal for the first time. This transition was accompanied by the closure of a significant number of coal-fired power plants. In total, some 6.9 GW worth of coal-fired capacity will have been shut down in 2016 alone. Since most of the coal produced in the US is used for the generation of electricity, this transition is having a profound impact on coal producers.US net generation by energy source - Percentage

Export of coal

The decrease in demand for coal in the US was initially offset by a burgeoning export to both Europe and Asia. The declining demand for coal in the US has had a dampening effect on its price. This downward price trend and the significantly higher price of natural gas in Europe made it interesting for the European electric power sector to import coal from the US on a large scale. However, increasingly stringent environmental legislation and incentives for renewable energy have decreased European demand for US coal in recent years. Exports to Asia have also declined due to the slowing of the Chinese economy and increasing competition from coal producers in Australia and Indonesia. Due to the falling exports of coal, the impact of the shale gas revolution is only now being felt. In 2016, both Peabody Energy and Arch Coal, the two largest coal producers in the US, filed for bankruptcy.

US exports of coal (steam en metallurgical)

The rise of sustainability

The declining share of coal in US electricity generation is not completely offset by natural gas, the share of renewable energy has also become more important in recent years. The increase in renewables is due to tax incentives and technological innovations that have led to a sharp reduction in costs of both solar and wind energy projects. This cost reduction is expected to continue and will result in a further increase in renewable generation capacity in the US, even if the Clean Power Plan is not implemented. 

Planned utility-scale generating capacity changes in the US

Conclusion

The main reason for the current position of coal producers in the US is a combination of low natural gas prices, the closure of coal-fired power plants, and the declining export of coal. Deregulation of environmental legislation will not significantly alter these dynamics. In addition to natural gas-fired power plants, renewable energy will start to increasingly compete with coal. The growth of renewable energy is still partly dependent on tax incentives but will become more and more market driven due to further cost reductions. Restoring the dominance of coal therefore seems unrealistic without active market-distorting government support. In a Congress dominated by Republicans, this would seem highly unlikely due to ideological convictions. The importance of such convictions were once again illustrated recently when the American Health Care Act was withdrawn due to a lack of support from conservative Republicans.

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WEF finds no progress made on greening economy

01 April 2019 Consultancy.uk

The reports of two influential bodies, in the space of a day, have warned that no progress is being made to prevent major climate change. The World Economic Forum has warned that greening of the global energy transition has stagnated over last five years, while the International Energy Agency has confirmed coal use rose again last year.

The position of the Academies of Science from 80 countries, plus a majority of scientific organisations that study climate science, is that humans are causing rapid climate change – often referred to as global warming. Roughly 95% of active climate researchers publishing climate papers endorse the consensus position that since the industrial revolution, the boom in carbon emissions from fossil fuel powered human activity has heavily impacted the planet, with rising levels of CO2 and other greenhouse gases trapping heat from the sun causing global temperatures to rise – something which will have catastrophic results in the near future.

Despite the steadfast consensus among the scientific community on the matter, however, there has been little to no meaningful action to avert disaster. In fact, while the signing of the Paris Accord was met with great excitement, since it came into force, global carbon dioxide emissions have continued to rise. Today, they sit at their highest levels yet, after a strong economy and extreme weather stoked a surge in energy demand last year.WEF finds no progress made on greening economyAccording to the world’s energy watchdog, the Paris-based International Energy Agency (IEA), energy spiked by 2.3% in 2018 – the biggest leap since 2010 – with that demand largely being met with fossil fuels. As a result, global emissions of carbon dioxide hit the record high of 33 billion tonnes in 2018, a rise of 1.7% on 2017’s figures. Commenting on the findings, IEA chief Fatih Birol said the rise in energy demand was “exceptional” and a “surprise for many.”

Birol added, “We have seen an extraordinary increase in global energy demand in 2018, growing at its fastest pace this decade. Looking at the global economy in 2019, it will be rather a surprise to see the same level of growth as 2018.”

The suggestion from Birol that 2018 is likely to be an anomaly which will not be seen again is strange, considering the added strain which the boom in emissions will place on the environment. To suggest that heightened energy demand was driven by extreme weather – which is increasingly difficult to claim is unrelated to man-made climate change – and then to suggest that such a thing is unlikely to occur any time soon in spite of emissions having increased seems contradictory.

Regardless of this, the bad news was further compounded within hours of the IEA’s release. A report from the World Economic Forum released on the same day concluded that the world's energy systems have not become any greener in the last five years. Despite the agreement of global climate targets, falling green power costs, and mounting public and business concern over the catastrophic impacts runaway climate change could wreak, the WEF’s damning assessment warned that little to no progress has been made on making energy systems more environmentally sustainable since 2014.

Coal is the largest hindrance of change on this front, according to the report. Recent years have seen improvements in energy access and security, but far too many nations remain dependent on coal power for the new energy systems to have made any environmental gains. At the same time, major economies have failed to decrease or even slow the amount of energy they use per unit of GDP, leaving smaller actors who have made changes micturating into a gale. Change on the part of the world’s largest economies is therefore crucial to driving the development of a greener, more efficient global economy, the WEF concluded.

Commenting on the findings, Roberto Bocca, leader of the WEF's future of energy and materials division, said urgent action is now needed to move toward decarbonisation. He added, "We need a future where energy is affordable, sustainable and accessible to all. Solid progress in bringing energy within the reach of more and more people is not enough to mask wider failures, which are already having an impact on our climate and on our societies."

The news comes even as sustainability continues to be talked about as a ‘top agenda item’ at the majority of the world’s largest corporations. While 85% say that it will be more important still in another five years, it is clear that the majority of the world’s most powerful businesses are failing to walk the talk on the matter, regardless of what governments do.