U.S. coal production hinges on technology, not just policy choices

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No new coal-fired generating capacity is added to the U.S. power mix in all cases set out in the EIA’s Annual Energy Outlook 2017 (AEO2017). Analysts stressed, however, that actual production levels of hard coal and lignite depend on resource availability on technological advancement – not just on policy choices around the much-debated effects of the Clean Power Plan (CPP).

Put in place by the Administration of former US President Obama, the CPP sets out more stringent emission limits which compel operators of coal-fired generating capacity to either retrofit their plants or close them down eventually. President Trump has vowed to abandon his predecessor’s emission-reduction agenda, which is already weakened by the coal industry through litigation at state level. The Supreme in February issued a stay on the CPP, acknowledging the legislative battle is highly politically charged.

The AEO2017 includes cases with alternative assumptions about U.S. environmental policy, coal/gas switch based on relative fuel economics and technological advancement. There is also a version of the Reference case without the effects of the Clean Power Plan (No CPP case) – which was later split into an additional case without the CPP under High Oil and Gas Resource and Technology assumptions.

In the Reference case, about 96 gigawatts (GW) of the existing fleet of 265 GW of coal-fired electric generating capacity in 2016 is projected to retire or convert to natural gas by 2040, very close to the 93 GW of coal-fired capacity projected to retire or convert under high resources and technology assumptions without the CPP. Projected retirements or conversions of coal-fired capacity are higher, about 124 GW, in the High Oil and Gas Resource and Technology case that includes the CPP, and lowest in the No CPP case, where most occur prior to 2025.

As for coal production, the Reference case, which is designed to apply all current laws and regulations (including the CPP), forecasts U.S. coal production declining from 740 million short tons (MMst) in 2016 to 620 MMst in 2040.

Adding the High Oil and Gas Resource and Technology assumptions to the No CPP case, reflect a more optimistic outlook for natural gas supply. Hereby the EIA forecasts that coal production declines to 500 MMst in 2040 as natural gas-fired generation outcompetes coal-fired generation in all years.

In the Low Oil and Gas Resource case, shown in the middle panel of the generation graphic, oil and natural gas development is projected to be slower as higher development costs result in higher natural gas prices to the power sector. Natural gas generation is displaced by a combination of increased zero-emission generation from renewables and nuclear as well as coal-fired electricity generation, which remains near or slightly higher than its 2016 level. In this case, coal production remains near 800 MMst from 2025 through 2040.

“As shown by the smaller difference between the solid and dotted lines in the right-hand panel of the generation graphic than in the left-hand panel, the CPP is projected to have a smaller effect on coal-fired generation under high resource and technology assumptions than under Reference case resource and technology assumptions, ” analysts explain. “Under the high resource assumptions, gas prices are considerably lower, making gas more likely to displace coal regardless of whether or not the CPP takes effect.” 

The EIA assesses separate impacts of lower gas prices and the implementation of the CPP on coal-fired generation. Projected coal-fired generation under Reference Case resource assumptions with the CPP (solid line in left-hand panel) is quite close to its level under High Resource and Technology assumptions without the CPP (dotted line in right-hand panel). According to analyst “[this is] indicating that lower gas prices could result in a similar reduction in coal use as the reduction due to the emission constraints of the CPP.”

Few coal-fired power plants have been added in recent years, and in all of the AEO2017 cases, no new coal-fired generating capacity is added. In all cases, annual coal production remains below the 1,000 MMst level last seen in 2014. Detailed coal production data by year, region, and coal type are available through the Annual Energy Outlook 2017 Interactive Table Viewer.

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