The Trump Administration is Trying to Rejuvenate the Coal Industry – but Can It?

The Trump Administration has recently taken steps to bolster the coal industry. The highest profile action was the Environment Protection Agency’s proposal to eliminate the Clean Power Plan (CPP), an Obama-era regulation that limits carbon emissions from power plants. In addition, the Department of Energy proposed a new plan aiming to increase grid reliability in a way that favors coal and nuclear power.

Will these policies be finalized and if so, what would the impact be?

The proposed repeal of the Clean Power Plan has been long anticipated and fulfills one of President Trump’s major campaign promises. The underlying rule has been controversial from the start and its repeal will be too. There is little doubt that the Administration will push the repeal through the regulatory process. Then the EPA will face lengthy legal challenges as supporters of CPP will fight to reinstate the rule.

But, even if the elimination of the CPP stands, the impact on the coal sector would be limited.

The decline of the use of coal by utilities has been driven more by market forces than regulatory requirements. The sustained low price of natural gas and the increasingly competitive prices of renewables have made coal less attractive. Given the current natural gas prices, the CPP repeal may slow the downward trend of coal use by utilities, but it won’t cause the “coal renaissance” that the Administration has promised.

The second new proposal which would require subsidies for coal and nuclear power, ostensibly to increase grid reliability, would realign the market regarding feed stocks for utilities. This policy, if implemented, would have a tangible beneficial effect on coal. As coal continues to lose ground because of strong market forces, this policy would alter those forces by distorting price signals and making coal relatively more attractive.

However, the grid plan is unlikely to be finalized in its current form. This proposal would have to be approved by the Federal Energy Regulatory Commission (FERC). FERC Commissioners have already expressed skepticism about the proposal and efforts to interfere with competitive markets are problematic for regulators across the political spectrum. Furthermore, those who would be disadvantaged by the policy – including the natural gas industry – are powerful voices arguing against this new approach.

Final Thoughts

While the President appears committed to trying to revive the coal industry, it’s less clear how successful he will be. The CPP will most likely be eliminated, but this change will not rejuvenate the coal industry. The Department of Energy’s grid reliability plan has more potential to help coal’s fortunes, but in its current form is unlikely to be implemented.

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