Clinton makes an economic point about the decline of coal country

Some coal country voters see Hillary Clinton as a threat, someone who would install regulations that would hurt rather than help the struggling coal industry.

Clinton, the Democratic frontrunner, told CNN’s Anderson Cooper that she thinks it’s necessary to move away from fossil fuels to clean, renewable energy, and she wants to do what she can to help current coal mine workers make that transition.

“But the market is making this decision,” she said May 4. “The market has driven down the cost of coal, so you have companies going bankrupt. So what I’m offering is a $30 billion plan to really revitalize coal country, to provide support for coal miners and their families, and I think that is the least the country owes these brave people.”

Coal has historically been the country’s primary electricity generator. But several major coal companies have gone bankrupt in recent years, including Arch Coal, Alpha Natural Resources and Peabody Energy.

We talked to coal industry experts who told us that the primary forces working against coal are market-based, notably the growth of natural gas as a cleaner, cheaper alternative. But now that coal is vulnerable, environmental regulations may seal coal’s demise.

“Coal has always been able to absorb new regulations,” said Robert Godby, a professor and expert in energy economics at the University of Wyoming. “But the impact natural gas has had since the fracking boom has been amazing to watch.”

He added: “This would all still be happening regardless of regulations.”

Natural gas is eating coal’s lunch, and the coal companies made a bad bet on Chinese demand.

Coal used to generate about 50 percent of electricity in the United States, but now it’s down to about 30 percent.

A recent boom in hydraulic fracturing (fracking) in the United States has dramatically increased the availability of natural gas. Natural gas prices are low, and it produces about half as much carbon.

A growing demand and diminishing costs for renewable energy, like wind and solar power, also takes away from coal demand, said West Virginia University law professor Patrick McGinley.

This is all a huge problem for coal, because electricity is about 90 percent of the coal market, said Andy Roberts, research director for global thermal coal markets at the consulting firm Wood Mackenzie. He said the trend is unlikely to reverse.

But it was a big, failed bet on the international coal market that ultimately pushed companies to a point where they couldn’t pay off their debts.

About five years ago, the big coal companies took out massive loans to invest in metallurgical coal, a type found in the Appalachia region.

But China’s growth slowed, and the demand never materialized.

This is the best way to think about how environmental regulations affect coal: If you’re an electricity company considering building a new coal-powered plant or rehabilitating an outdated one, you’re already on the fence about whether that’s a good investment, because of the threat of natural gas. But then you remember you might have to face strict carbon emission limitations down the line, which convinces you to go with a natural gas plant instead of a coal plant.

Take President Barack Obama’s Clean Power Plan, a major initiative that would affect coal-powered plants by reducing carbon emissions. It isn’t in effect yet, and it faces court hurdles. Even so, the uncertainty of what kinds of carbon limitations coal plants will face, and the possibility that they could be significant, has already reduced coal plant investment, Roberts said.

Similarly, the 2015 Mercury and Air Toxics Standards is a federal regulation that has had a significant impact on the coal industry and contributed to coal-powered plant closures.

But it’s impossible to tell how much of the changes in the coal market can be attributed solely to the regulations, rather than the regulations plus the market forces.

Multiple experts we asked said that so far, it’s primarily been the market putting pressure on coal. But looking toward the future, as coal becomes more vulnerable and environmental rules get bigger, regulations may play a larger role.

In October, Appalachian Power President Charles Patton said coal power won’t be able to rebound “with or without the Clean Power Plan” — the economics just don’t make sense.

Our ruling

Clinton said, “The market is making this decision. The market has driven down the cost of coal, so you have companies going bankrupt.”

Economic forces on both the national and international markets are the main reason coal’s prominence in the American energy sector is now vulnerable, forcing coal-burning plant closures and several high-profile bankruptcies.

For a long time, coal has been impervious to government regulation. But more recently, regulations — a non-economic force — might be the straw that breaks the camel’s back, especially going forward now that coal is on shaky ground.

Clinton’s claim is missing this important context.

We rate Clinton’s statement Mostly True.

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