How “Drill, Baby, Drill” Killed Old King Coal

June 4, 2014


The Environmental Protection Agency today will announce new climate-change rules clamping down on emissions from electricity plants. The usual lobbyists and politicians are already braying about Barack Obama’s “war on coal” — liberal, Harvard, lacks-chest-hair/isn’t-a-real-American stuff emanating from a Washington every bit as gaseous as the one portrayed in Steven Spielberg’s “Lincoln,” now in heavy rotation on cable.

But the war on coal already happened — coal lost. And for a reason that should make conservatives happy: They drilled, baby, and it worked, beginning years before Sarah Palin popularized “drill baby drill” in 2008. Massive new exploration of shale formations after 2002 produced a 65% drop in natural-gas prices since 2005 that, with or without Obama’s caps on utilities’ carbon emissions, is wiping out coal’s few remaining growth prospects.

To understand the economics of U.S. climate and coal policy, begin with three facts. About 85% of U.S. coal goes into electricity, according to Moody’s Investors Service. Electricity demand is expected to grow just 0.9% annually through 2040, according to the Energy Information Administration. And the falling price of gas, coupled with existing rules to limit power plants’ mercury emissions, mean coal will be more expensive than gas as well as dirtier. And that’s before new carbon limits raise coal’s effective price again.

That’s why utilities began shifting from coal by 2004, according to the EIA. In the past decade, coal’s share of electricity production fell to 40% from 50%. Natural gas gained 9 points and now commands 27% of the market, and the share of renewables like solar and wind has tripled to 6.2%.

This happened before the first broad federal limits on carbon from existing power plants — expected to be some variation of flexible cap-and-trade standards Republicans proposed in the 1980s but oppose now — are even introduced for public comment. They’ll take years to implement.

“If you have less demand and you have a cheaper fuel source, you don’t have to run the coal plants as often,” Morningstar utilities analyst Travis Miller says. A bonus: Carbon-dioxide emissions from power plants dropped 10% between 2010 and 2012, EPA says.

Markets have seen this coming like — sorry — a train full of coal. Coal prices haven’t recovered nearly all of their 2012 losses, even though gas prices have doubled from a trough that year.

Or look at bond ratings. Moody’s rates all 13 coal producers it follows as below investment grade. Of special note to Kentucky, where up-for-re-election GOP Sen. Mitch McConnell is working the “war on coal” theme hard : Moody’s has downgraded Arch Coal /quotes/zigman/184548/delayed/quotes/nls/aci ACI -6.38%  and Alpha Natural Resources /quotes/zigman/362718/delayed/quotes/nls/anr ANR-1.23% , two mining companies with Kentucky operations, three times each since early 2012, reducing their ratings by a total of seven notches, the firm says.

And Moody’s didn’t cite carbon rules: Instead, the culprit is a broad, secular decline in the price of Appalachian coal.

“A lot of older, less efficient, dirtier coal plants are going to be retired,” Moody’s Anna Zubets-Anderson said. “Coal production had a deep dip in 2012 and hasn’t recovered, and that was driven by natural gas prices.”

Coal Age:

The Kentucky Energy and Environment Cabinet has confirmed what many in the coal industry instinctively knew: the state’s coal production and related employment fell sharply in 2013, with the Central Appalachian coalfield of eastern Kentucky absorbing the biggest blow.

After the agency issued its annual report in February, the crucial question for many is whether the worst is over. They hope the slide reverses in 2014, or that production and job totals at least are stabilized, offering the possibility of a return to brighter days if the economy improves, natural gas prices continue to rise or at a minimum fail to return to historically low early 2012 levels, and the Obama administration decides not to double down on particularly onerous carbon dioxide rules.

Kentucky produced 80.7 million tons of coal last year, down 11.6% from 2012. Production at underground mines slowed to 54.6 million tons, a decrease of 6.4% from 2012. Surface mine production plunged even more, to 26.1 million tons, a staggering 20.8% decrease from 2012.

Additionally, coal mining productivity (tons per labor hour) declined 25% in less than 10 years. It dropped from 6.95 t/hr. in 2003 to 5.19 in 2012.

EIA graph:


click to enlarge



11 Responses to “How “Drill, Baby, Drill” Killed Old King Coal”

  1. skeptictmac57 Says:

    My advice is to save the coal for some far,far,far distant generations,that might need it to stave off,or mitigate the possibility of an ice age,assuming that that is even possible in the future,or that there are still humans around to make use of it.

  2. rayduray Says:

    Apparently the U.S. Commerce Dept. didn’t get the memo that coal is the bogeyman these days. Not wasting a bit of time after the major EPA announcement on Monday, yesterday Commerce announced increased tariffs on solar panels from China, making solar energy installations less competitive in the energy marketplace:

    Headline: “US to levy fresh tariffs of up to 35% on Chinese solar panels”

  3. As is typical of Obama’s style, he makes a great speech and announces what sounds like fantastic hope-and-change. But it amounts to a whole lot less once you start examining the details. You might want to have a look at this:

    • rayduray Says:

      Thanks Cy,

      I find it curious that Obama is playing the cap-and-trade racket even after it has proven to be such a useless tool in the EU. It would seem with the offsets the game is being designed for failure.

      Why am I not surprised? 😦

      • greenman3610 Says:

        per Union of Concerned Scientists:
        The Regional Greenhouse Gas Initiative (RGGI) is a market-based “cap and trade” program established in 2008 by ten northeast and mid-Atlantic states (Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware, and Maryland) to reduce global warming emissions from power plants. RGGI is a groundbreaking, first-in-the-nation partnership that demonstrates the effectiveness of carefully designed and implemented market-based climate programs.

        RGGI’s successful track record ranges from demonstrating the viability of a market-based policy to address power plant global warming emissions, to raising hundreds of millions of dollars for investments in energy efficiency, clean energy, and other consumer-benefit programs. RGGI’s proven successes include:

        Pollution from power plants has decreased because RGGI states are using less energy and getting more power from renewable energy and less power from oil and coal;
        By 2011, RGGI raised over $440 million for energy efficiency programs, generating $1.3 billion in savings for RGGI region consumers;
        Overall, RGGI has increased output by $1.6 billion, creating 16,000 jobs in the regional economy.
        All of the participating states have committed to spending the revenue they receive from the auctions on programs to help homeowners and businesses improve energy efficiency and increase their use of clean energy technologies like solar and wind. Investment in energy efficiency and clean energy technology reduces energy bills, creates jobs and is essential to decreasing our dependence on fossil fuels—which is at the root of global warming.

        • rayduray Says:


          While I have a lot of respect for your efforts and for the Union of Concerned Scientists, I stick by what I said about the nighmare that is the “vampire squid” solution, i.e. cap-and-trade. This scheme has always been a plaything of the financiers and not a serious tool to control CO2 emissions. Sure there was some success in the quest to control acid rain. But the system has become so rigged, so crook and so corrupt that it is no longer fit for duty.

          Here’s an assessment of the EU cap-and-trade fiasco as of 2012:

          The last time I checked, the price of an emissions credit is even lower in 2014 than it was in 2012.

          Here’s another assessment where “damned by faint praise” is the operative undercurrent:

          Click to access WP126-effectiveness-eu-emissions-trading-system.pdf

          As to the regional RGGI as described by UCS, the huge problem with this scheme is that air pollution does not respect state borders. Thus the 10 states in the RGGI can cut pollution all they want, but as long as states to their west and south (eg. Kentucky, Ohio, West Virginia) have unfettered dumping of pollution into their air, the downwind states are going to continue sucking on an exhaust pipe, so to speak.

          My preference on how to price carbon out of the market is the James Hansen’ proposal of a hard cap-and- public dividend. This cuts out the vampire squid at Goldman-Sachs from gaming the system and stealing from us, yet again. This will work. But America does not have the will to do the right thing. As Winston Churchill observed and I’m paraphrasing ‘Americans will always do the right thing, after failing at every other possible ridiculous solution’. Cap-and-trade is one of those ridiculous solutions that should be extirpated from our possible repertoire of sensible ideas. It isn’t one of them. It’s a swindle.

          • RGGI regional has been bolstered by the recent CSAPR Supreme Court decision.
            “The EPA’s 2011 Cross-State Air Pollution Rule (CSAPR) will require 28 states in the East, Midwest, and South to reduce emissions of sulfur dioxide and nitrogen oxide. The rule is aimed at implementing Section 110 of the Clean Air Act, known as the “good neighbor” provision, which tasks EPA with ensuring that air pollution from one state does not “contribute significantly” to air pollution in other states.”


            Thanks for the Churchill quote. Market based solutions are part of a smorgasbord. The market got us here, something has to change to get us somewhere else. IMO, economic health is judged by growth, the very essence of our dilemma, a fundamental conundrum. From the present economic system, adding market tweaks to lower emissions while giving FF subsidies, is like driving with feet on the gas and the brakes simultaneously.

          • rayduray:

            The actual Churchill quotation is: “You can always count on Americans to do the right thing – after they’ve tried everything else.” Not nearly so melodramatic or condescending.

            You haven’t successfully argued against RGGI specifically, since your claim is only that non-RGGI states are polluting them; that’s an argument for other states following suit. The UCS link enumerates a number of not-inconsequential, even impressive results, from this relatively recent agreement; and you haven’t contested any of them.

            Point taken, though – we need a national law. I agree with you that the most sensible plan is Dr. Hansen’s “Fee and Dividend” revenue-neutral carbon tax, and that cap and trade is too vulnerable to system-gaming.

          • skeptictmac57 Says:

            Regarding the Hansen plan,here is a recent rebroadcast of a good Planet Money podcast that has a similar take:


            Climate change seems like this complicated, intractable problem. But maybe it doesn’t have to be.

            On today’s show, we talk to a couple economists about a very simple idea that could solve the climate-change problem: tax carbon emissions.

            A carbon tax could be paired with cuts in the income tax. And it would drive down emissions without picking winners or losers, and without creating complicated regulations.

  4. MorinMoss Says:

    While it’s fun to mock Sarah Palin, it was Michael Steele who started the “drill, baby, drill” meme.
    Steele looks somewhat sane because the majority of his party has moved to the right of batshit but he’s still very much a Republican.

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