Raucous West Virginia rallies notwithstanding, President Trump has thus far failed to deliver on his campaign promise to resuscitate the coal industry. This is mainly for lack of political will in his administration to address the climate-change elephant in the room. While Mr. Trump has rolled back key components of the Obama anticoal agenda such as the Paris Agreement and the Clean Power Plan, these moves were part of a broader deregulatory push, with no discussion of whether addressing climate change is a worthy policy goal overall.
But actions that at first might have seemed like careful first steps of rolling back the Obama climate agenda have proved to be mere half-measures. The Affordable Clean Energy rule, proposed last month by the Environmental Protection Agency, made clear that the Trump administration has officially conceded the argument over man-made global warming and the need to reduce carbon-dioxide emissions. This capitulation will seal the fate of the domestic coal industry over the coming years and have broad negative implications for U.S. energy policy over the longer term.
Under the Affordable Clean Energy rule, the EPA will allow states to set their own emissions standards for coal-fired power plants, in line with federal guidance toward heat-rate efficiency improvements and based on a range of alternative technologies. Such a state-based approach would be positive for the coal industry if the Clean Power Plan and similar regulations had merely been anomalous examples of federal overreach. They weren’t. Rather, President Obama’s war on coal was the extension of an equally aggressive climate-change-driven regulatory campaign at the state level.
In the early 2000s, there was a concerted push by states to replace fossil fuels by adopting Renewable Portfolio Standards, which require utilities to generate or sell a specified percentage of their overall energy mix from wind and solar. As of this year, 29 states have adopted Renewable Portfolio Standards or a similar renewable-energy mandate. Most renewable-power targets far outpace market demand and are set up to increase over time, with some state goals bordering on delusional. New York, for example, wants to generate 50% of its power from renewable sources by 2030, even though such a goal would require covering nearly 1,000 square miles of the Empire State with wind turbines and solar panels. California recently passed legislation mandating completely carbon-free electricity by 2045.
Driven by these goals—and fueled by various government tax subsidies—total wind and solar power nameplate capacity grew sixfold between 2007 and 2016, the latest year for which Energy Department data is available. Given flat U.S. electricity demand since the 2008 recession, such excess renewable capacity has served to depress wholesale power prices and crowd out sources such as coal that provide continuous power not dependent on weather.
State utility commissions also serve as gatekeepers for the construction of all electricity generation facilities. Because most states’ goals are set in percentage terms, they can achieve their goals both by adding wind and solar to the numerator and keeping coal out of the denominator.
A decade ago, coal-fired power plants supplied almost 50% of U.S. electricity. Today, the figure stands between 25% and 30% and continues to drop. In turn, domestic coal production has declined more than one-third since 2008, to a level not seen since the 1970s.
It has been five years since the last new coal-fired power plant was brought online in the U.S. Any utility executive proposing to build another one in the current political and regulatory environment would be taking on significant risk for his company and his career. Utility management teams have so far responded tepidly to the Trump administration’s rule turning regulation over to the states.
While states may be the laboratories of democracy, the low-carbon regulatory experiment will stress the reliability and stability of the national electricity grid. An additional 25% of coal-fired generating capacity is slated for retirement over the next seven years, while a vast amount of new intermittent wind and solar power is projected to come online. The Affordable Clean Energy rule may slow this shuttering process, but it will not change the trajectory of the coal industry.
The Trump administration’s new rule explicitly recognizes the goal of reducing carbon dioxide and other so-called greenhouse-gas emissions, tacitly affirming the Obama EPA’s 2009 Endangerment Finding. And by punting policy to the states, the administration has legitimized an array of energy infrastructure assets—including refineries, processing plants, terminals and pipelines—as potential stationary targets for overzealous regulators at the state level.
The first comprehensive Clean Air Act, the foundation of America’s modern environmental policy, was passed in 1970 with bipartisan support—and no mention of carbon dioxide as a pollutant. In the less than 50 years since, judicial and state activism have subjected the U.S. economy to innumerable carbon-dioxide restrictions, with Congress having had no say over the matter. This wave of regulation has progressed unchecked despite the strategic economic importance of the energy sector and Congress’s constitutional authority to regulate commerce.
Along the way, this backdoor process has been abetted by Republican complacency, with the Affordable Clean Energy rule being just the latest example. Absent stronger federal leadership, U.S. energy policy will soon become a hodgepodge of state climate-change initiatives, subject to fluctuation with every local election and administrative ruling, with the economic impact felt by the entire country.
Mr. Tice works in investment management and is an adjunct professor of finance at New York University’s Stern School of Business.