EC HH Complacency Over Coal's Collapse: Factors To Consider

American coal companies' stock prices have crashed in recent years, in response to the triple-whammy punch that is the US fracking boom, the environmentalist movement, and the slowdown in the Chinese industrial economy. As recently as January of 2016, the Dow Jones US Coal Index had lost around 92 percent of its market value since mid-2014, more than 97 percent of its value since 2011, and more than 98 percent of its value since its all-time peak in 2008.

Coal stock index 10 Year

2008 highs over 700, 2011 highs at 500, 2014 highs around 150, 2016 lows at 12, today at 33.87

Now, it may be that coal really is finished as a major industry in the US, but there is no reason to be certain about this. The market's plunge is arguably more a sign of investor panic than of rational valuation: coal still accounts for around a third of US electricity generation and close to 40 percent of electricity generation worldwide. The economic  outlook for the coal industry does not seem to have collapsed to the extent the Dow Jones US Coal index might suggest.

US_electricity_generation_by_source.png

world electricity production

Just to make something clear before we go on, so that I don't get blamed for being a shill for the coal industry or something. I am a Green Party supporter, and in favour of putting very high taxes on carbon dioxide emissions and other pollutants (though ideally I would want these taxes to be "revenue neutral", i.e. for other types of taxes, such as sales taxes, to be reduced by an equivalent amount). I am not, admittedly, in favour of subsidizing alternative energy sources. But I am certainly not biased in any way in favour of coal. Got it? Okay good, let's begin:

1. Climate Change 

Burning coal is generally considered to be around twice as carb0n-intensive as burning natural gas. Carbon dioxide, however, is hardly the only culprit where climate change is concerned. Methane emissions are also a crucial component to climate change, for example, and the gas industry (and other industries, like meat production) can be more methane-intensive than coal.

112815_cowchart_rev

US Methane Emissions By Source

Thus far the natural gas industry, food industry, and many in the US government have neatly sidestepped the methane issue, refocusing American public attention toward carbon dioxide. They have done this by using the "we need to protect the planet for the sake of our grandchildren and future generations" approach. Methane emissions, after all,  only contribute directly to global warming for a few years or decades at a time, whereas carbon dioxide can remain in the atmosphere for many centuries.

The truth, though, is probably that this is deliberately misleading. Future generations could be perfectly capable of handling whatever climate change comes their way, or of removing carbon dioxide from the atmosphere. The really dicey climate change period is more likely to occur within the coming years or decades, when the world is not yet technologically advanced enough to protect vulnerable human (and animal) populations. Within such a time frame, emissions of gasses like methane can be even more impactful than carbon dioxide.

Today US methane emissions, measured in kilotons of CO2 equivalent, are around ten percent as high as carbon dioxide emissions. Since the impact of each kt equivalent of methane upon global warming can be up to 80-90 times higher than carbon over the course of a twenty-year period, however, the overall effect of methane emissions can be worse. Indeed, while the direct impact of methane fades over time, the indirect impact could remain if it helps to trigger a global warming feedback loop; for example, if it helps to cause sun-reflecting polar ice to melt.

methane emissions

Carbon Emissions.png

Carbon dioxide emissions by country, in 2013. Admittedly, given the speed of America's shale energy boom in recent years, it is possible that these numbers from two and a half years ago are already outdated to some extent

Thus, methane emissions arguably deserve more public attention and regulation. And if they are regulated, it may weaken the natural gas industry relative to the coal industry, as the gas industry in the US accounts for almost triple the methane emissions that coal does. Just this month, the US federal government has launched its first ever package of methane emission regulations for the oil and gas sector.

nitrous oxide emissions.png

Another greenhouse gas to consider in nitrous oxide. Nitrous oxide emissions in the US are roughly 5% of carbon dioxide emissions, measured in kilotons. They only last in the atmosphere for 114 years on average. According to the EPA, though, "The impact of 1 pound of N2O on warming the atmosphere is almost 300 times that of 1 pound of carbon dioxide." As with methane, it is agriculture, not coal, that is the main culprit of nitrous oxide emissions. Even most of the nitrous oxide emissions that come from the "Energy" sector labelled on this graph come from cars and trucks, rather than from coal-fired power plants.

Methane, which is the main component of natural gas, can also be captured and then destroyed or used to produce energy. Capturing methane from the natural gas industry, however, is extremely difficult to do, because the oil and gas sector is diffuse, consisting of hundreds of thousands of wells spread across dozens of states (as well as offshore production in the Gulf of Mexico). Capturing and making use of methane that is released from coal mines could perhaps be easier to do, since coal production is more concentrated. There are only about 1000 or so coal mines in the country, and they are located mostly in Wyoming or the Midwest.

toptwo

Another thing to note is that while burning natural gas is only a bit more than half as carbon-intensive as coal, much of the natural gas production in the United States comes  as a byproduct of drillers trying to produce oil. This means that US gas is actually more carbon-intensive than it seems, since it would not be produced as much if the US was not also producing so much oil, and oil (or gasoline) is more than three-quarters as carbon-intensive as coal is.

gas as byproduct of oil

Source.

eia co2

Most coal in the US is bituminous or sub-bituminous

This also raises the question: will the price of oil in the US remain low? If it does, it is likely to result not only in a reduction in oil production, but also in natural gas production (again, because natural gas is frequently a byproduct of oil), which in turn could cause coal to become more competitive relative to natural gas.

Oil in the US is used mainly for transportation, so it is possible that the revolutions now taking place in the transportation sector - for example, Uber (and companies like Uber), UberPool, Zipcar, electric vehicles, hybrids,  e-commuting and e-commerce, using smartphone apps to make express busses finally become feasible, being able to watch a movie or do work on your smartphone or tablet while you are taking public transit or being carpooled,  and the development of self-driving vehicles  - could lead to such a reduction in oil use.

In the case of electric or hybrid vehicles, this could also lead to a major increase in electricity usage, potentially helping the coal industry at the expense of the oil and gas industry. And while electric cars may not soon be appearing in every driveway, it may not be too long before a widespread network of electric or hybrid Uber-esque vehicles and Zipcar-esque vehicles come into place.

If, moreover, self-driving vehicles do become a reality as well at some point, it could make vehicle-sharing services like Uber and Zipcar even more competitive, and could allow electric Uber vehicles and Zipcars to drive themselves to (and wait in line at) the nearest battery-charging station. This is an important factor, given that fully charging an electric vehicle often takes several hours.

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Of course, many people think that coal is likely to lose out not only to natural gas, but also to alternatives like solar energy, which emits relatively little carbon dioxide, methane, or any other type of greenhouse gas. However, it is still not clear when or if industries like solar will be able to compete on a large scale with coal in developed economies like the United States.

Much has been made about the falling cost of solar panels, which are often said to have fallen as a result of technological improvement that is expected to continue going forward. In fact there is an alternative plausible explanation about what has driven the falling cost of solar panels: government support in East Asia (especially China), Europe, and to a lesser extent North America. The solar industry mat have benefited from attempts by governments in these regions to boost their economies while simultaneously reducing their dependence on foreign energy imports and cleaning up local pollution.

solar panel

solar.png

If this explanation is true, then it is possible that the cost of solar panels going forward will not continue to fall as much as people now expect them to. Indeed, if China's economy has the "hard landing" some fear it will, panel prices could even rise a lot as solar panel manufacturing output collapses.

Ultimately, though, climate change threats will continue to hamper the coal industry, unless at least one of two things happen. The first is large-scale carbon capture and storage. Though carbon capture and storage has been over-hyped in recent years , it cannot be ruled out entirely either. We will discuss this further below.

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Oil Baron 10 months ago Member's comment

Great read.

Dhaval Shanischara 10 months ago Member's comment

Does it actually surprise anyone that coal is crashing? With the advent of renewable resources, and climate change, coal inevitably was going to crash

Plunger 10 months ago Contributor's comment

Tons of data here, enjoyed the article, I wish there was a more conclusive strategy presented going forward.

As for myself, if we increase the tax on coal we must certainly penalize the more damaging methane by installing the "Fart Tax"

Dhaval Shanischara 10 months ago Member's comment

The "conclusive strategy" you discuss is the hardest thing to implement and formulate when considering climate change. The data and observable effects are there but since so much money is tied to converting to renewable resources, it may be very difficult, no matter how much coal crashes