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Can Coal Make a Comeback?

By Trevor Houser, Jason Bordoff, and Peter Marsters - Columbia Center on Global Energy Policy, School of International and Public Affairs, and the Rhodium Group, April 2017

From the introduction: Six years ago, the US coal industry was thriving, with demand recovering from the Great Recession, and global coal prices at record highs along with the stock prices of US coal companies. By the end of 2015, however, the industry had collapsed, with three of the four largest US miners filing for bankruptcy along with many other smaller companies. While coal mining employment has been on the decline for decades – from a peak of more than 800,000 in the 1920s to 130,000 in 2011 – the pace of job loss over the past six years has been particularly dramatic. After campaigning on a promise to end what he called his predecessor’s “War on Coal,” President Donald Trump signed an Executive Order in March 2017 ordering agencies to review or rescind a raft of Obama-era environmental regulations, telling coal miners they would be “going back to work.”

This paper offers an empirical diagnosis of what caused the coal collapse, and then examines the prospects for a recovery of US coal production and employment by modeling the impact of President Trump’s executive order and assessing the global coal market outlook. In short, the paper finds:

  • US 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 US natural gas production due to the shale revolution has driven down prices and made coal increasingly uncompetitive in US 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 US 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 US 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 US 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 US exports. More than half of the decline in US 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 US 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, US 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 US 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 US 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 US 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 US experienced before 2015.

These findings indicate that President Trump’s efforts to roll back environmental regulations will not materially improve economic conditions in America’s coal communities. As such, 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. Attracting new sources of economic activity and job creation will not be easy, and even at its most successful will not return coal country to peak levels of past prosperity.

But responsible policymakers should be honest about what’s going on in the US coal sector—including the causes of coal’s decline and unlikeliness of its resurgence—rather than offer false hope that the glory days can be revived. And then support those in America’s coal communities working hard to build a new economic future.

Read the text (PDF).

How the Energy Boys F#@*%d Over California

By David Macaray - CounterPunch, March 8, 2017

In 2000 and 2001, one of the biggest, filthiest, most audacious and wide-scale con jobs ever perpetrated on a state population occurred in California. And even though many citizens chose, reflexively, to blame the “government,” the entire fiasco (other than the state assembly stupidly laying the groundwork for it) was invented and put into play by the private sector.

And once the smoke cleared, and people realized what just happened, California had lost roughly $40-$45 billion, its first governor in history had been recalled, the state’s second-largest energy company PG&E (Pacific Gas & Electric) had gone bankrupt, and Austrian steroid hound Arnold Schwarzenegger was now governor.

It all began in 1996, with Republican Governor Pete Wilson. He and the state assembly, seeking to stimulate competition, pushed through a law (AB 1890) calling for the “partial deregulation” of the energy market. Not to point fingers, but if there were any justice in the world, Wilson would’ve been taken out and shot with a rusty bullet.

Basically, what happened in the wake of AB 1890, was that the energy companies, seeing the opportunity for astronomical profits, began manipulating the market in ways that no one had ever witnessed or even imagined. They did it by creating shortages where none existed. Before this began, California had a generating capacity of 45 gigawatts (GW). Demand was still only 28GW. Things were good. There hadn’t been “blackouts” for 40 years.

But energy suppliers (notably Enron, a Texas company) had devised a plan. With deregulation of wholesale pricing now in effect, the hoary, time-honored “supply and demand” formula raised its ugly head. Inevitably, the energy suppliers began taking steps to diminish supply and increase demand, albeit artificially.

In order to depress supply and raise the price, they began messing with the grid. They illegally shut down pipelines and intentionally took power plants off-line during periods of peak demand by pretending that these facilities needed “maintenance.” Of course, it was all a lie. Anything to create a shortage.

They exploited loopholes. Because California law allowed energy companies to charge higher fees when the energy they sold was produced out-of-state, they engaged in a form of “megawatt laundering” (analogous to “money laundering”), where they disguised the source—disguised it to make California-produced energy appear to have been produced out-of-state.

They also ran “overscheduling” scams. Essentially, this consisted of purposely overscheduling the transportation of electricity along power lines in order to get the state to pay them a lucrative “congestion fee” for willingly alleviating the congestion (even when they had no intention of using them). The state had no choice. People need electricity. You do everything you can to provide it.

Enron Played Central Role in California Energy Crisis

Greg Palast and Robert Bryce interviewed by Amy Goodman - Democracy Now, May 16, 2006

[in 2001] California was plunged into an unprecedented energy crisis. Rolling blackouts shut down parts of the state. Power bills soared. It turned out that at the center of the crisis was Enron — although the company’s role wasn’t fully understood at the time. We play excerpts of audiotapes that proved Enron asked power companies to take plants offline at the height of the California energy crisis–in order to make more money.

AMY GOODMAN: In California, the state’s former governor Gray Davis praised the jury for convicting Ken Lay and Jeffrey Skilling. David said, quote, "Given the way Enron ripped off California, I think the jury did an excellent job. I take some solace in the fact that Lay and Skilling be will send some time in prison," he said. Six years ago, California was plunged into an unprecedented energy crisis, rolling blackouts shut down parts of the state, power bills soared. It turned out that at the center of the crisis was Enron, although the company’s role wasn’t fully understood at the time. Two years ago, lawyers involved in a lawsuit in Washington state obtained audio tapes that proved Enron asked power companies to take plants offline at the height of the California energy crisis, in order to make more money. In one taped phone call, an Enron employee celebrated the fact that a massive forest fire had shut down a transmission line carrying energy into California, causing the price of energy to rise.

California's Energy Crisis: Structural adjustment - American style

California's Energy Crisis: Power to the People?

By Jessie Muldoon and Todd Chretien - International Socialist Review, February-March 2001

THE LIGHTS are out in California. Rolling blackouts have cut electricity to millions. Only this time, it's not the San Andreas Fault that's to blame. It's the free market.

A year ago, electricity cost roughly 3.5 cents per kilowatt-hour on the wholesale market. Today, that same amount costs upward of 40 cents. Why? Back in 1996, energy companies and big businesses showered millions of dollars on California politicians, convincing them to vote unanimously to "deregulate" the publicly owned and managed state electrical utility system. The state would no longer set prices and supervise the industry. In exchange, the energy companies promised Californians lower prices and cleaner power brought on by free-market competition.

Instead, a handful of energy profiteers have made a killing, while millions of Californians suffer higher rates and the harmful effects of power outages. The results of the power crunch have been devastating to ordinary people. Nathaniel Goodwin, who is 73, has emphysema and needs an electrical oxygen concentrator to breathe. As rolling blackouts spread across California, he stocked up on crackers and peanut butter, arranged for a battery-powered backup, and hoped for the best. "I live by myself and I've got to have my oxygen," he told a reporter.1

"We've got elderly folks with arthritis who have to have heat. Many of them have medical devices they need to live and no one knows what will happen when the electricity is turned off," said Marie Harrison, a community leader in the Bay View Hunters Point district of San Francisco, which is predominantly Black.2

The utility companies claim that hospitals and fire stations will not be affected by the blackouts, but two hospitals--Valley Convalescent Hospital in Watsonville and Community Medical Centers in Fresno--suffered outages. Across the state, workers are paying the price for deregulation. California Steel Industries of Fontana, the largest steel plant on the West Coast, sent 400 workers home without pay because of skyrocketing electrical costs. The Miller Brewing Company plant in Irwindale laid off its whole workforce for a week without pay.3

Schools have lost power or have been forced to cut back on heat, leaving tens of thousands of children shivering in the dark. Contrary to popular belief, temperatures during California winters often hover between 40 and 50 degrees, and few buildings have proper insulation. Meanwhile, the crisis shut down some of California's biggest oil refineries, which could quickly lead to a substantial hike in prices at the pumps. A dairy farmer put it this way: "This problem has the potential to be substantially more devastating than any earthquake we've seen."4

One economist estimated that the state lost $1.7 billion in wages, sales, and productivity in just one week of blackouts.5 And there is no end in sight. The Independent System Operator (ISO), the state-appointed agency that controls the California power grid, warned that Californians should get used to rolling blackouts for at least the next two years.6

This article explores how deregulation and the free market are behind the crisis, and why we should fight for public power as a solution.

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