The Trump administration this week confirmed it has rejected a coal industry request seeking an emergency order for a two-year moratorium on coal-plant closures. This avoids what would have been an unprecedented and economically damaging intervention in electricity markets, without even the benefit of greater reliability. The move marks a sharp break from the all-tools-considered approach to reinvigorating coal, as the president reportedly had previously committed to the measure in private conversations with industry executives.
The Federal Power Act grants the U.S. Energy Department emergency authority to order continued operations of power facilities. In April, Energy Secretary Rick Perry announced the possibility of federal intervention to protect coal and nuclear plants in the name of national security, which would pre-empt state policies. The announcement coincided with the launch of an Energy Department study on so-called “baseload” power-plant retirements.
A massive moratorium on power-plant closures, especially those brought about by market forces, would heavily distort electricity markets and deter, if not outright freeze, new capital investment. Fatally undermining an investment climate could paradoxically worsen energy reliability by undermining the price signals that competitive electricity markets use to meet reliability requirements. Furthermore, using a national security mechanism when there is no national security concern would be an abuse of the emergency authority. Doing so while overriding the states would also leave a deep federalist scar.
This may even beat coal-production subsidies as the worst energy policy idea. Fortunately, many productive energy-policy corrections are on the table for the administration.
A reset on coal policy should be consistent with market principles, not a form of reverse-industrial policy to counter the prior administration’s favoritism to renewables. Thoughtful deregulation is an appropriate approach. So is lifting restrictions on coal exports or international financing for coal development. But subsidies and knee-jerk responses—a protectionist emergency order being the worst among them—would be deeply damaging and harm the economy.
One hopes this is a sign the president and his senior energy advisors recognize that economic transitions are necessary and healthy when they are supported by market forces. Coal’s biggest foe is shifting market fundamentals – namely inexpensive natural gas and declining demand. Subsidies for coal’s competitors is a lesser factor and the administration should deal with those in a manner that predictably and sustainably reduces the subsidy regime, not further entrenches it.
The surge in coal-plant retirements this decade was due mostly to a combination of environmental rules and market forces, with the latter being the main driver going forward. The mid-Atlantic region experienced more than 20 gigawatts of coal retirements already (equivalent to about three-quarters of New England’s peak demand). Markets facilitated new resources to take coal’s place. As leading industry economists note, the emergence of these alternative resources has been surprisingly robust and posed no clear reliability concern. Overall, most electric reliability metric trends are stable or improving.
Clearly, the doomsday reliability claims (e.g., coal retention as a national security issue) of some uncompetitive industries have gone unfounded. Still, achieving continued reliability requires market rules and monopoly-utility-planning processes to evolve, as unconventional resources become more economical. The administration can aid this by listening to industry experts, not the desperate claims of rent-seeking industry members.
The dismissal of a blatantly anti-market idea could, one hopes, point the way toward a more refined approach for this administration’s energy policy. The forthcoming U.S. Energy Department study has much potential to assess the regulatory and market environment fairly and to suggest market-enhancing improvements. Further work to improve the alignment of wholesale electricity market rules with electric reliability requirements is one such path to let markets, not government, decide the fate of the coal industry and all other power sources.
Image by Rudmer Zwerver