Fraight trains full of coal.

Is Coal Failing Fast or Slow?

The Waning Role of Coal in the US Electricity System

Even before the COVID-19 pandemic idled coal plants across the country, evidence has been building for at least a decade that coal-fired electricity is on its way out in the United States. But how quickly? The answer is critical to our ability to stay within a 1.5°C warming trajectory.

Only recently has consensus built that coal will, inevitably, decline to zero. It wasn’t that long ago that the coal industry was crowing about a “global coal super-cycle” and making plans to build up to 200 new coal plants in the United States alone. But since then, nearly every publicly traded US coal company has been through at least one bankruptcy (some more than one), and coal mining executives now freely acknowledge to investors the reality of “secular decline” of the industry.

In fact, the United States used less coal in 2020 than at any point since before 1905. Therefore, it seems fair now to ask: will the use of coal-fired power in the United States end suddenly if these steep declines continue and even accelerate? Or will it fade away slowly, gradually sloping toward zero over the next decade or more?

Exhibit 1: US coal consumption, 1850–2020


The Case for Coal Fading Slowly

Coal plants still provide a lot of electricity in the United States (though currently less than 25 percent). And simple supply and demand suggests that for every coal plant that retires, the relative value of energy and capacity from other coal plants will increase, absent an equivalent decline in demand. These higher energy and capacity values may help keep remaining coal plants online—at least temporarily.

President Biden has pledged to commit the United States to zero-carbon electricity by 2035—a trajectory that almost certainly would phase out coal by 2030. However, some utilities aren’t convinced. A recent Morgan Stanley report made headlines for projecting that the United States will stop burning coal by 2033 and that renewables will supply 55 percent of US electricity by 2035. Climate advocates celebrated the analysis, but the idea that it will take 12 more years to completely phase out coal is the very definition of “fading slowly.”

What’s more, the economic reality of coal’s decline exists in parallel to an important political backdrop: some state policymakers have proved willing to force taxpayers and ratepayers to prop up failing coal plants. This allows them to operate longer than is economically rational. In 2019, Ohio required its ratepayers to buy power from the failing 1950s-era Clifty Creek and Kyger Creek coal plants through at least 2030. That same year, West Virginia gave FirstEnergy Solutions a $12 million tax break in an explicit (and so far successful) attempt to persuade the Pleasants coal plant to stay open. And the North Dakota legislature is currently considering a similar tax break policy.


The Case for a Sudden Collapse

Even allowing for the impact of supply-demand dynamics, utility industry resistance, and political meddling in competitive power markets, there are at least five reasons to believe that coal use in the United States will end not with a whimper but with a bang.

First, a large fraction of remaining US coal consumption is likely to be directly offset in the next few years by the hundreds of gigawatts of clean energy already in interconnection queues across the country. And in addition to directly replacing electricity from coal plants, clean energy has a price-suppressive effect thanks to its low variable cost of operation. This indirect effect, in turn, will leave remaining coal plants exposed to an increasing level of price competition from gas and renewables, with no end in sight.

Second, the economics of coal plants are increasingly acknowledged as grim at best, and catastrophic at worst. Jim Robo, the CEO of the major utility holding company NextEra Energy, summed up the economic case perhaps better than anyone during the company’s Q4 2020 earnings call. “There is not a regulated coal plant in the country that is economic today, full period and stop,” he stated. In Robo’s view, state regulators’ willingness to force captive customers to cover the operating losses of utilities’ coal plants is the main reason more coal plants aren’t already closing. But this can’t last forever; regulated utilities themselves are now citing billions of dollars in customer savings as justification for recent coal retirement announcements.

Third, there are systemic challenges with operating the coal supply chain at ever-declining throughput. The coal supply chain relies on economies of scale: large mines are more efficient than small mines, railroads and barges are cheaper per ton than trucks. As coal volumes decrease, can that supply chain remain economically viable and intact? Already there are signs that it can’t: CSX is cutting its active locomotive fleet because its coal transport volume is down 55 percent since 2010.

A port in Superior, WI, has historically been the transfer point for millions of tons of coal. The coal is offloaded from rail cars loaded in Wyoming (where mines are rapidly closing) en route to power plants in Wisconsin, Ontario, and Michigan (many of which have already been retired or will be retired over the next few years). And it’s unclear whether DTE Energy—Michigan’s largest utility—will continue to operate an entire subsidiary dedicated to Great Lakes coal shipping once it’s down to just one coal plant in 2030.

Fourth, the industry is finally coming to grips with the inconvenient truth that coal plants, often touted as highly reliable “baseload” generators, are in fact increasingly vulnerable to outages exactly when their capacity is needed most. During the blackouts in Texas in February 2021, up to 38 percent of the state’s coal fleet tripped offline due to cold temperatures. Utilities and policymakers increasingly realize that coal plants can’t provide any reliability value when their fuel turns into “chunks of ice” during extreme weather.

And finally, what policies might we see under the Biden administration, beyond its narrative-shaping goal of zero-carbon by 2035? In addition to widely expected carbon regulations—set up by the DC Circuit’s decisive vacatur of the Trump administration’s carbon rules—the US coal fleet is also vulnerable to traditional air regulations. And significant fractions of the fleet lack the technology to control particulate and nitrogen oxide pollution. New Environmental Protection Agency (EPA) regulations requiring air pollution and/or carbon reductions could drive more coal retirements in a shorter timeframe than current plans suggest.


What to Watch for?

Some of the most impactful decisions from the Biden administration are likely to come from the EPA and the Federal Energy Regulatory Commission (FERC). Already, the Department of Justice is asking courts all over the country to hit “pause” on litigation over Trump-era EPA rules, acknowledging that the new administration is likely to revisit and strengthen them. New FERC chair Richard Glick, long an opponent of power market rules that tilt the playing field against clean energy, could anchor a majority on the commission in support of states’ authority to clean up the power grid.

As coal-fired power rapidly declines, communities that have historically relied on jobs and tax revenue from these plants—as well as the coal mines that fuel them—are looking for policy support. Several organizations leading the fight for a just transition have called on the new administration to use existing appropriations to focus federal resources on hard-hit communities, and to create a new White House Office of Coal Community Economic Transition. Several states, including Colorado, have undertaken similar efforts to support coal communities as the industry declines.

The consensus view is now that coal will indeed end, and sooner than most industry observers expected even a few years ago. And whether coal ends fast or slow, we must enact policy that enables least-cost retirement and clean energy replacement while easing the transition for affected workers and communities. In this way we can ensure that this coming end is a benefit for the climate, human health, and both local and national economies.