Coal’s preferred policy; no policy

When Wyoming coal operators tally their final figures for 2012 production they’re likely to see about a 9 percent decline from 2011 production, and the lowest annual production level in seven years.

The U.S. Energy Information Administration (EIA) doesn’t anticipate much change in national coal production for 2013.

The wave of new domestic natural gas has provided an obviously cheaper and more environmentally compliant alternative for utilities — for now. And with the re-election of President Barack Obama, the coal industry fully expects that the steady drip of tougher federal regulations, from shovel to smokestack, will continue to put the squeeze on the domestic coal market.

The toughest of the rules, the New Source Performance Standard for greenhouse gas emissions from power plants, if implemented as written, essentially guarantees there will be no new coal plants built in the U.S. for many years.

Yet Powder River Basin (PRB) coal producers don’t seem to be in a panic. They’re not rushing to the negotiating table with their adversaries, crafting details of a new carbon tax or cap-and-trade bill, or even attempting a major overall of the Clean Air Act to provide long-term certainty for their core operations in America.

“To my knowledge, no coal companies, and certainly the National Mining Association, is not engaged with anyone with discussing a carbon tax or cap-and-trade proposal,” Carol Raulston, senior vice president of communications for the National Mining Association, told WyoFile in a recent phone interview.

For that matter, neither is President Obama or most members of Congress, according to reports. Let’s face it; it takes little political courage to set forth a policy through federal regulation. To be fair, though, what choice does Obama have? There’s so much political dereliction in Washington D.C. that our leaders can’t even take care of the most basic day-to-day needs of the country, let alone come together on something so complex and polarizing as climate and energy.

The reason PRB coal producers are not in a panic is because of the potential for a growing seaborne market. Only a fraction of Wyoming coal currently makes its way overseas to Asia and Europe — on the order of 4.4 million tons. But those markets fetch higher prices, and if PRB coal producers can increase exports to 90 million tons per year, or 120 million tons, it will go a long way in taking the sting out of declining sales here at home.

“Obviously the big boy on the block is Asia. … Then there’s Europe,” said Greg Schaefer, vice president of external affairs for Arch Coal.

So for now, PRB coal producers seem somewhat accepting of — sometimes even defending — America’s de facto energy and climate policy hobbled together in the maw of litigation and the free market. For the foreseeable future, Schaefer and others close to the coal industry say Congress should stay well out of the way.

“I think we need carbon policy, but I think we should let the market decide how it falls out,” said Howard Herzog, senior research engineer at Massachusetts Institute of Technology (MIT), who specializes in greenhouse gas mitigation technologies.

In the meantime, the market has almost no carbon constraints or regulatory sideboards to take climate change into account. So it’s a lot like saying; The human, environmental and economic toll of climate change? I’m concerned about it, but I think we should let Mother Nature decide how it falls out.

In December the University of Wyoming organized a roundtable discussion in Gillette titled, “Powder River Basin Coal: Domestic Challenges and International Opportunities.” Essentially, the goal was to brainstorm strategies to secure demand for Powder River Basin coal in the face of changing markets and regulation. University of Wyoming School of Energy Resources (SER) professor of economics, Timothy Considine, helped moderate the discussion and said he intends to produce a white paper describing potential strategies to pursue at the state and federal levels to promote the use of PRB coal.

But don’t expect any grand new ideas or concessions.

“I saw a common ground for the need for market-based policies, but no clear path forward for that,” Considine said at the conclusion of the Gillette roundtable discussion, echoing Herzog’s sentiment.

I asked Mr. Considine for a follow up interview regarding the white paper strategy, and he responded, “I got your messages. We are working on the white paper and you will get a copy with others when it becomes available.”

One glance at the list of speakers and many onlookers might be tempted to describe the roundtable as a discussion that took place inside a bubble.

Speakers included executives from Arch Coal, Cloud Peak Energy, Peabody Energy and Basin Electric Power Cooperative. For a reporter, having the industry’s perspectives is invaluable. I learned that PRB coal producers certainly are not giving up on their U.S. market, and that they view research and development on advanced coal technologies as mostly the job of the government. We’re coal miners, that’s what we do. I learned that a lot of what the coal companies do these days is litigate against tougher environmental standards and promote rail and port facilities for future exports.

And it seems as though this was the pre-conceived goal of the UW roundtable discussion; ensure the continued use of PRB coal — in the U.S. and abroad — despite some efforts to address climate change. So it does matter, then, who is drafting this white paper for Wyoming’s strategy for PRB coal.

Considine has found himself in the national spotlight, more than once in recent years, facing criticism of being overly pro-industry in his analysis of shale gas (read this Energywire article). Explaining why his 2010 report “Powder River Basin Coal: Powering America” (commissioned by the Wyoming Mining Association) failed to mention — once — the economic implications of coal emissions (including greenhouse gases), he said, “I didn’t want to open up that can of worms, because the estimates of those costs vary greatly.”

The time to take into account the climate impacts of PRB coal has come and gone. The can of worms is open. Is it even necessary to mention intensified hurricanes and the worst drought the U.S. has experienced in decades?

As for the political outlook for climate legislation?

“We’re in for a wild ride,” Holland & Hart attorney James H. Holtkamp, who represents big energy clients on climate matters, told WyoFile. “I’m an optimist, and I do think that we are going to see some fairly significant changes, but its going to take two or three more decades.”

Did you catch that Mother Nature? Did you hear that, coastal populations? American politics, domestic and international markets will get back to you circa 2038. Because the status quo — America’s de facto energy and climate policy of no policy — includes the potential for a lucrative export market for PRB coal. And pure logistics prevents any American leader (pro- or anti-coal) from simply shutting the lights off by outlawing our existing coal fleet (which is mostly fed by PRB coal).

I offered a premise to Holtkamp, which he said he could not disagree with; So long as there exists the potential for a largely expanded international market for PRB coal, with no climate mitigation sideboards, does that provide an incentive to continue to ignore the need for an energy and climate policy here at home?

Remember; Holtkamp, for more than a decade, has represented the biggest coal companies headquartered in the U.S.

He said yes. PRB coal exports may very well be ground zero in this battle, and if coastal communities succeed in blocking large scale PRB coal exports, it may put the pressure on coal interests to come to the negotiating table sooner rather than later, Holtkamp agreed.

“The reason everybody loves Teddy Roosevelt … he was a great trust-buster. He brought some order into the chaos and started to address unbridled free-market with no regard for the common good,” said Holtkamp. “I worry. … We shouldn’t go back to the way it was before TR. Government has a role in channeling and mitigating adverse impacts, and this is one area where they could step up and see some policy guidance.”

No, I haven’t forgotten that Wyoming has funneled tens of millions of dollars to the University of Wyoming for advanced coal research. I also remember the sentiment that SER director Mark Northam has tried to convey to Wyoming and congressional leaders; What good is this advanced coal research investment if there are no policy incentives to use them?

— Dustin Bleizeffer is WyoFile editor-in-chief. Reach him at 307-577-6069 or dustin@wyofile.com. Follow Dustin on Twitter @DBleizeffer.

If you enjoyed this column and would like to see more quality Wyoming journalism, please consider supporting WyoFile: a non-partisan, non-profit news organization dedicated to in-depth reporting on Wyoming’s people, places and policy.

REPUBLISH THIS COLUMN: For details on how you can republish this column or other WyoFile content for free, click here.