FEATURE: Wyoming’s Coal Conundrum

By on May 2, 2017

Despite President Trump’s executive order, the market is retreating from the Cowboy State’s cash cow.

JACKSON HOLE, WY – On March 28, the coal mecca of Gillette, Wyoming, rejoiced as President Trump declared an end to the purported “war on coal” led by his predecessor. Across the state in Jackson Hole, where hundreds marched for science on April 22, many citizens instead viewed the president’s “Energy Independence” executive order as an affront to the fight against climate change.

Trump’s executive order will set in place a review and re-writing of the Obama administration’s Clean Power Plan, which aimed to reduce carbon dioxide (CO2) emissions from fossil-fuel-fired power plants and boost the use of renewable energy.

For Wyoming, the Clean Power Plan dictated a 44 percent reduction from the state’s 2012 level of CO2 emissions by 2030. This target represented Wyoming doing its part, based on its share of emissions, to lower the United States’ total power plant emissions by 32 percent from 2005 levels by 2030.

The Clean Power Plan was designed to meet America’s commitment to the Paris Agreement on climate change, which seeks to prevent the average global temperature from warming by 3.6 degrees Fahrenheit above pre-industrial temperatures. There is scientific consensus that conditions at that temperature would likely bring more droughts and heat waves, as well as rising ocean levels. Scientists have predicted consequences ranging from bad to catastrophic.

“We have a moral obligation to our children to protect them—that means preparing for and tackling climate change now,” said Craig Benjamin, executive director of the Jackson Hole Conservation Alliance, in response to Trump’s executive order. “This means breaking our addiction to fossil fuels.”

But for the Wyoming coal industry and its supporters in federal and state government, the Clean Power Plan was blasted as a job-killer and an unfair, unrealistic regulatory burden.

“The Obama administration’s punishing regulations have done far more harm to our economy than good for the environment,” said U.S. Sen. John Barrasso, R-Wyo., chairman of the Senate Committee on Environment and Public Works. “I applaud President Trump for taking action on behalf of America’s families and energy workers. Federal agencies will now have the opportunity to identify ways to improve the environment without hurting job growth.”

In Wyoming, Trump’s executive order accentuates the divide between tree-huggers and coal-diggers. But ultimately, his moves may be powerless against a more potent war on coal coming from the free market. At the same time, even Jackson Hole’s most staunch environmentalists must grapple with the fact that Teton County’s public education—including science—is largely funded by coal, and that revenue source is dwindling.

A dubious order

In the near term, President Trump’s action on the Clean Power Plan will not change policy. The plan was tangled up in the Supreme Court and the compliance periods for emissions were not scheduled to begin until 2022.

Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming, argued that the plan was also shaky from an economic standpoint.

“The Clean Power Plan was not the first, best way of dealing with carbon,” Godby said. “It was a very high cost way of getting there, and the only reason that the Obama administration pursued it was because they couldn’t do more cost effective ways, because they would have to go through Congress.”

David Wendt, president of the Jackson Hole Center for Global Affairs, also conceded that the Clean Power Plan had its flaws, but he noted that its absence will be felt on the energy market.

“You lose that kind of policy forcing mechanism, which can be an incredibly important reinforcement to market forces,” Wendt said. “Secondly, you lose the central mechanism from the U.S.’s standpoint of its commitments at the Paris climate change convention.”

Trump’s executive order also lifted the Obama administration’s moratorium on coal leases on Bureau of Land Management (BLM) land, including Wyoming’s Powder River Basin, which supplies about 40 percent of the country’s coal. The 14-month moratorium was intended to be a review of the lengthy leasing process, which hadn’t seen drastic changes since the 1980s, to determine whether BLM was securing fair market value for land owned by the American people.

While praising Trump’s executive order, U.S. Rep. Liz Cheney, R-Wyo., singled out the moratorium, condemning it as “nothing short of a war on coal miners and their families.”

But existing coal lease applications were still moving forward during the moratorium, and the demand for new leases has been slow to emerge following the widely anticipated lifting of the pause by the Trump administration.

A Wyoming BLM spokesperson told Planet Jackson Hole that the agency was processing 12 coal lease applications as of April 24, but only one—a small lease for the Jim Bridger Mine near Rock Springs—had been submitted since the moratorium was lifted. Of the remaining 11 applications, just one was received during the past 10 years, a lease accepted in 2016 for Cloud Peak Energy’s West Antelope III mining area in the Powder River Basin.

While State Sen. Michael Von Flatern, R-Gillette, thinks that Trump’s executive order gives the coal industry some breathing room for more production and jobs in the short term, he added that, “There’s nobody beating down the doors to lease coal.”

Godby explained that the lifting of the moratorium was largely symbolic.

“Did it make a big difference? Not really,” he said. “The big downturn in coal wasn’t due to a lack of coal to mine. It was due to a lack of customers.”

An aging coal fleet

On April 18, the Trump administration’s Environmental Protection Agency (EPA) asked a federal court to delay consideration of the 2012 Mercury and Air Toxics Standards (MATS). Already in effect, the rule requires power plants to reduce their emissions of airborne toxic substances like mercury and arsenic. Older coal-fired plants are the biggest culprits.

“[MATS] resulted in about 5 percent of the coal fleet being shut down in the past few years, but, that fleet was producing far less than 5 percent of the total coal electricity,” Godby said. “These were typically old plants. They were smaller. They were less efficient. They weren’t being used as often as other plants that were retrofitted, and a lot of plants were [retrofitted] with these new controls.”

By now, most utilities in the U.S. already comply with MATS. The Energy Information Administration (EIA) reports that only a few of the country’s coal plants had filed an extension through April 2017 to meet compliance versus having already made necessary changes, switching to natural gas or shuttering completely.

According to EIA, most active coal plants—88 percent of all coal-fired electricity capacity—were built before 1990. With these plants having an average capacity-weighted lifespan of 39 years, many are scheduled to close in the not-too-distant future, regardless of the MATS requirements.

A market in retreat

Following Trump’s executive order, Stacey Moeller, a shovel operator at Peabody Energy’s Caballo Mine in Gillette, told the Associated Press that she thought the action would remove unwarranted limitations on coal compared to other energy sources.

“That’s all I ever thought was fair, was that we would be allowed to compete in the market,” Moeller said. “And that’s what I felt was being taken away from us.”

State Rep. Marti Halverson, R-Etna, agreed that federal policy has been an inhibitor for coal, but she noted the market is also a problem.

“The coal industry has suffered recently for two reasons: markets and politics,” she said. “President Trump and Secretary [of the Interior] Zinke seem to be working on the politics of fossil fuels. The domestic market for coal still exists, although it’s pretty anemic at this time.”

On the other hand, State Rep. Andy Schwartz, D-Jackson, pointed out that Wyoming coal has also benefited from the political climate and resulting federal regulations over the years.

“My personal perspective is it’s as much about a global market as it is about EPA regulations,” he said. “If you go back historically, part of the reason Wyoming coal became so popular was because of EPA regulations that required cleaner air, and Wyoming coal burns cleaner than Appalachian coal.”

Coal has also received substantial financial support at the state level. Benjamin of the Conservation Alliance pointed to the $1 billion in bonding authority that the Wyoming Infrastructure Authority received from the state legislature in 2015 to pursue coal ports in the Northwest.

“That’s specifically to build coal export facilities in other states—where they’re not even wanted—that the private sector itself won’t fund because they’re way too risky,” Benjamin said.

Right now, coal’s biggest nemesis is another fossil fuel: natural gas. It has boomed for more than a decade without an influx of subsidies from the federal government, even enduring its own regulatory hurdles.

Not without its own environmental controversies that include contaminating drinking water, hydraulic fracturing (fracking) has produced a surplus of natural gas that has led to significantly lower prices for fuel. Natural gas also has the added benefit of emitting much lower levels of CO2 than coal when burned. Wyoming may be the No. 1 producer of coal, but it was also the No. 4 producer of natural gas as of 2015.

“We understand that we still have a market-driven commodity, and if natural gas [pricing] stays … wherever it is today, people prefer to burn natural gas versus coal,” said Von Flatern.

In 2016, natural gas surpassed coal for the first time ever in share of U.S. electricity generation, rising to 34 percent compared to coal’s 30 percent. Before the rise of natural gas this century, coal had hovered at around a 50 percent share of electricity generation since the 1950s.

These market conditions were evident after Black Hills Corporation, one of three major utilities that operate coal-fired power plants in Wyoming, retired two of those plants in recent years. The company opted to replace that coal-generated electricity with a new natural-gas-fired plant in Cheyenne in 2014.

Despite the increasing demand for natural gas, its prices have remained below or competitive to those of coal during the past year.

“When just the fuel cost is that low—natural gas already has advantages in terms of lower emissions costs, the plants are cheaper to build, they’re cheaper to maintain and run—it made no sense to generate electricity with coal in a lot of places if you had natural gas assets to generate electricity,” Godby said.

Clean energy comes of age

Even without factoring in the federal subsidies pushed by the Obama administration, during the past seven years the utility-scale prices of solar and wind have dropped by 85 and 66 percent respectively. Those “unsubsidized” figures come from a December 2016 report from the financial advisory firm Lazard, which also found that facilities for both wind and solar are now cheaper to build, operate and maintain than coal plants on average.

On top of those cost considerations, utility companies have had to adjust their sources of electricity to satisfy renewable energy portfolios in 29 states, not to mention the 65 percent of Americans who now prefer an expansion of clean energy over fossil fuels, according to Pew Research.

Rocky Mountain Power, among the big three utilities with Wyoming coal plants, announced on April 4 that it is investing nearly $3 billion to upgrade its existing wind turbines, create up to 1,100 megawatts worth of new turbines, and develop a transmission line in the southwest part of the state.

While its investment is partially motivated by the looming expiration of the federal renewable electricity production tax credit for wind facilities in 2020, Rocky Mountain Power will also eventually need to replace the electricity generation from its coal-fired Jim Bridger Plant, which was built in 1974.

Wyoming does not have a renewable energy portfolio, and, in fact, the state has placed a $1-per-megawatt-hour tax on wind power production in the state since 2012. Nonetheless, wind power grew to cover roughly 8 percent of Wyoming’s electricity production by 2015, up from practically zero a decade earlier.

Coal and carbon capture

The third major utility with coal plants in Wyoming, Basin Electric Power Cooperative, has made a longer-term investment into coal. In 2011, the company teamed with the Wyoming Municipal Power Agency to open the $1.35 billion Dry Fork Station coal-fired plant just north of Gillette.

Though it incorporates other environmental and cost-saving measures, the Dry Fork Station currently emits roughly 2,100 pounds of CO2 per megawatt hour, placing it only slightly below the average coal-fired plant’s output of 2,200 to 2,500 pounds. By comparison, modern natural-gas-fired facilities release CO2 at a rate of approximately 1,000 to 1,200 pounds per megawatt hour.

Still, the Dry Fork Station may have an ace up its sleeve when construction of the Wyoming Integrated Test Center is completed on-site this summer. Funded by $15 million approved by the Wyoming Legislature and another $6 million in private investment from the energy industry, the Integrated Test Center will host research of carbon capture, utilization and sequestration (CCUS) technology.

Successful implementations of CCUS could significantly reduce a coal plant’s CO2 emissions while identifying new uses for the captured carbon. Researchers will be able to open a steel duct connected to the Integrated Testing Center from the Dry Fork Station plant, accessing flue gas from which CO2 molecules can be captured and utilized. While CCUS works in theory, the costs of implementing and operating these projects continue to be a major barrier.

“Like any relatively new technology, not that it’s rocket science, but these technologies haven’t been deployed on a massive scale, and so the first couple projects have had very serious cost overruns,” explained Wendt of the Jackson Hole Center for Global Affairs. “It is a question of getting the bugs out—getting the technologies out there—getting the costs down.”

In a recent op-ed for The Washington Post, Maria T. Zuber, the vice president for research at MIT and chair of the National Science Board, suggested that Trump is uniquely suited to push for support for CCUS.

“Helping coal country is an issue with bipartisan support,” wrote Zuber, whose coal-mining grandfather died of black lung. “Still, to succeed, strategies such as these may require a champion who, like President Trump, has widespread support in coal country and can address skepticism from coal communities.”

Von Flatern concurred that CCUS likely needs help from Washington. “I think the federal government needs to be involved at some point as far as maybe some seed money,” he said. “Right now, because coal has gotten a dirty name like its black color, there’s no financing available.”

The Jackson Hole Center for Global Affairs explored the viability of CCUS for more than 10 years, organizing delegations between industry leaders and legislators in Wyoming and China’s largest coal-producing province, Shanxi. It has determined, in Wyoming at least, that the path of least resistance for reducing emissions and creating jobs points in a different direction.

“We’re turning our attention to other opportunities in wind power and economic diversification, which we feel are more cost effective at this time,” Wendt said.

Climate consequences

As market forces play out, Wyoming still has plenty of coal reserves for the coming years, and with Trump’s orders, a few of the country’s older coal plants may be able to stay open a little longer to help burn them. While employment at Wyoming mines is still down almost 700 workers, the state’s coal production increased by about 23 percent in the first quarter of 2017, compared to a dismal first quarter last year.

Of course, in Wyoming, the environmental impact of this reprieve for coal production varies from person to person depending on their  political and socioeconomic lenses.

“Just cutting off cold turkey right now and saying we’re not going to use coal anymore would be very expensive, and to be honest with you, it wouldn’t gain anything because climate change is a creeping problem, not an immediate catastrophe,” said Godby, as an energy economist.

Wendt conveyed a greater sense of urgency with climate change. “The depressing reality is that the curve [of carbon emissions] is not bending down—the curve is continuing to go up,” he said. “The real concern is the tipping point when that warming process begins to trigger other non-carbon-dioxide emissions, such as methane emissions from the permafrost, which is already happening.”

As a pilot who has watched from the sky as Wyoming’s glaciers have melted over the years, Von Flatern firmly believes in climate change and man’s role in exacerbating it. But he doubts that coal is a main contributor, or that environmentalists would even be satisfied if coal were emissions-free.

“If we had 100 percent clean emissions, where it was just pure steam coming out that stack, you’d still have people opposed to coal because they want to leave it in the ground,” he said.

Even the head of Gillette-based Cloud Peak Energy, one of the largest coal companies in the country, acknowledged the existence of climate change when he recently encouraged Trump to keep the U.S. in the Paris Agreement. However, his intent appears to renegotiate the country’s terms for CO2 emissions.

“As a coal producer, we do not want to ignore the two-thirds of Americans who believe climate change is happening and that [CO2] emissions play a role,” wrote Cloud Peak Energy CEO Colin Marshall in an April 6 letter to the president. “By remaining in the Paris Agreement, albeit with a much different pledge on emissions, you can help shape a more rational international approach to climate policy.”

Coal hits the classroom

While there is still some uncertainty surrounding the timeline and extent of climate change, there is no doubting Wyoming’s funding shortfall for K-12 education, which could soon rise to $400 million per year.

The majority of Wyoming’s education funding comes from federal mineral royalties and state taxes related to coal, oil and natural gas. As demand for coal has declined and natural gas prices have dropped, so too has the associated revenue for education. The Wyoming Legislature recently approved $34.5 million in cuts to education for the 2017- 2018 school year, with Teton County slated to bear about $1.4 million of those reductions.

“I don’t think people understand how important coal, oil—and gas as well—have been to Teton County,” Schwartz said. “All the schools we build come from coal money—a lot of the education resources come from coal money. People here kind of tend to see coal as a negative and yet are more than happy to take the benefits.”

In addition to the operating funds coming from mineral royalties and taxes, Wyoming has long used bonuses collected from coal leases to fund the construction and maintenance of school buildings. With little to no demand for new coal leases, the bonuses have essentially dried up, but not before Teton County School District No. 1 secured $29 million to start building the new Munger Mountain Elementary School south of Jackson.

“Munger Mountain got funded, the question is going to be what the next school’s source of funding is going to be, because the coal mining won’t be there,” said Teton County School Board Chair Kate Mead. “Right now, there’s been no revenue stream identified to pay for new construction or maintenance.”

Because Wyoming does not collect corporate or personal income tax, the emergence of new industries and the jobs they bring do not directly produce new revenue for education.

“Our tax structure is such that we can create new jobs, but it doesn’t solve the state’s revenue problem,” Schwartz explained. “To be honest, we need to be looking at what’s our future after coal, because one way or another, whether it is now or in 50 years, Wyoming needs to be looking at it.”

Mead agreed that the state legislature will have to start moving beyond coal to fund education. “I think they suffer from having had a lot of money for a lot of years, and not much creativity down there, so we’ll see what happens,” she said.

Halverson noted the legislature may need to come up with a new funding source to replace coal lease bonuses, but she is more bullish on the existing tax structure.

“For all the talk about ‘diversifying our economy,’ we must remember that nothing can equal the revenue Wyoming derives from that which we take out of the ground,” Halverson said. “New companies may come in, but at some point the new workers become a net cost to the state and the community without the cushion of mineral taxes and royalties.”

In Gillette, Von Flatern cited Atlas Carbon, which uses coal to manufacture activated carbon for filtration systems, as an example of a forward-thinking company that creates new jobs, but actually ends up costing the state more under the existing tax structure. He suggested a potential gross receipts tax on businesses that would exempt mineral companies that are already paying a severance tax.

“I think it’s a combination of cuts and additional funds,” Von Flatern said. “The funding source that we have today is dried up, and it’s going to be very limited.”

Speaking at the University of Wyoming’s Energy Innovation Center on April 21, another energy economist, Trevor Houser of the Rhodium Group, predicted that the Wyoming coal industry will not recover to previous levels.

“It’s time for folks to have a serious conversation about economic diversification and what comes next, and what can create sustainable sources of job creation—pathways for kids growing up in Wyoming that will keep them in state,” Houser said.

He estimates that, at most, only about 4 percent of coal’s recent 30 percent production decline can be pinned on federal regulations.

Whether that regulatory weight was real, perceived or politicized, Trump has lifted it with his executive order and other related actions. Now, he must decide—along with the coal industry, the Wyoming Legislature, and yes, even Teton County residents—how coal’s biggest challenges can be addressed in a free market that favors lower emissions.  PJH

A lover of sad songs in our happy valley, Patrick Chadwick is a singer-songwriter, guitarist and a content writer for local businesses.

About Patrick Chadwick

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