U.S. federal review of coal leases unlikely to impact renewable energy deployment

Today the U.S. Department of the Interior announced that it will review its policies for coal mining leases on federal lands and halt new leases while this process is underway, less than a week after the second-largest U.S. coal miner declared bankruptcy.

The move was foreshadowed in U.S. President Obama’s final State of the Union address, and was widely applauded by the environmental community. “We can proudly say that big coal’s destructive reach over our public lands is coming to an end,” declared Sierra Club President Michael Brune.??

However, according to a prominent energy writer who has studied coal markets extensively, this will have little impact on U.S. coal consumption, or on renewable energy deployment.

“This will have no effect whatsoever except a symbolic effect,” states Independent Journalist Gregor MacDonald, who edits energy journal TerraJoule.

MacDonald says that the leasing program, which has not seen a comprehensive review in 30 years, is definitely a benefit to the U.S. coal industry. “There is no question that the existing coal leases are an ongoing subsidy scheme, in which a coal company is able to extract coal at prices that are not far above zero,” he notes.

However, MacDonald points to dynamics within the highly globalized coal market. “The new rule on future leases would affect the future coal supply, if the global coal market had growth and was looking at future growth,” explains MacDonald.

Global coal demand has flat-lined, which MacDonald says is having severe impacts on prices. “This policy comes in the aftermath of a global coal industry that is experiencing severe pain, following China’s ability to halt new coal growth,” he notes.

“This is a trend-following policy change, rather than a trend-altering policy change.”

Both coal-fired electric generation capacity and output are declining in the United States, from around 2,000 terawatt-hours (TWh) in 2005 to below 1,500 TWh in 2015, and MacDonald says the he expects this to fall to below 1,000 TWh by 2020. He cites a number of factors.

“It is policy, which has provided some pressure on coal-fired power generation and the EPA rules,” notes MacDonald. “It is the age of the coal plants, and how old and inefficient some have become, and it is the price of natural gas, which is a pretty significant culprit, and it is finally the extra supply from wind and solar.”

MacDonald declined to say exactly what impacts wind and solar are having on wholesale electricity prices in the United States, noting that disaggregating this data is complicated. However, the phenomenon of wind and solar driving down prices can clearly be seen in nations with broader deployment of renewables, such as Germany.

As such, as long as solar continues its path of strong growth, it is only a matter of time before solar begins driving other forms of generation off the grid as well. A 2015 study by Massachusetts Institute of Technology says that coal plants are likely the first forms of generation to be affected by high penetrations of solar.

However, this is not what is driving the current collapse in the U.S. coal industry.

“The U.S. coal industry died when China’s growth rate fell to zero,” notes MacDonald. And while changing rules for new leases may please environmentalists, he says that in many ways the move reflects bigger changes. “It is the punctuation point on a bunch of big trends that are already underway and unstoppable.”