Natural Gas Dethrones King Coal with Encouraging Results

New federal data show coal power is no longer the leading source of America’s electricity generation. The decline of King Coal has occurred at a strikingly rapid pace during the past decade, and natural gas has ascended to the throne.

The U.S. Energy Information Administration (EIA) reports natural gas tied coal power last year with each powering 33 percent of the U.S. electricity mix. The decline of coal power during the past few years has been remarkable considering coal powered approximately 50 percent of America’s electricity as recently as 2008. Newly released EIA data indicate coal power is trailing natural gas by a substantial margin this year for the first time in history. So far this year, natural gas has held its 33-percent electricity share while coal power has declined to 27 percent. In less than a decade, coal power has lost nearly half its U.S. electricity market share.

This begs the question, what will the decline of coal power mean for the American economy and our quality of life? So far the answer is surprisingly positive.

Natural gas is winning market share from coal power. Photo courtesy of the U.S. Bureau of Labor Statistics.

Natural gas is winning market share from coal power. Photo courtesy of the U.S. Bureau of Labor Statistics.

Coal powered America for so many decades for one simple reason; it has historically been much more abundant and affordable than any of its competitors. Scientists have long known how to produce electricity from wind, sunlight, wood, oil, natural gas, running water, nuclear fission, shoreline waves, and many other means. Nevertheless, the energy in coal is sufficiently concentrated and economical to extract that coal power remained substantially less expensive than its competitors (with the exception of hydro power, which is regionally limited). Throughout the past century, switching from coal to any other power source would necessarily mean burdening the American economy and American households with significantly higher energy costs.

An obvious downside to coal power has been its environmental impact. People place differing subjective value on whether and to what extent energy costs or environmental impacts should be considered. Regardless of subjective values, however, coal power undeniably came at an environmental cost relative to other power sources. Coal mining decimates natural landscapes, coal miners are subjected to dangerous and unhealthy working conditions, coal power emits more pollutants than any other power source except for wood, and coal transportation presents unique environmental harms that do not apply to other power sources. American policymakers, and presumably most Americans, viewed these environmental harms as unfortunate but worth the trade-off for lower energy prices. Lower energy prices have enabled Americans to live wealthier lives and keep more income to spend on better housing, better nutrition, better education, better healthcare, and more goods and services that make life more enjoyable.

Two factors have dramatically changed the equation for coal power this past decade, leading to the ascension of natural gas: (1) greater political emphasis on environmental issues and, (2) a significant and likely permanent drop in natural gas prices brought about by the fracking revolution.

On the campaign trail in 2008, Barack Obama promised new regulatory burdens that would “bankrupt” the coal industry. Obama justified this on environmental grounds, pointing out that coal is the most environmentally damaging widely used power source. Obama acknowledged this would come at a steep economic price, conceding that “electricity rates would necessarily skyrocket”.

President Obama made good on his vow to impede coal power. New regulations make it impossible to build new coal power plants. Existing coal power plants face stricter environmental requirements that drive up operating costs and force electricity suppliers to consider switching to other power sources. Some of the nation’s largest coal companies are indeed filing for bankruptcy.

Around the time Obama promised to bankrupt the coal industry, energy producers discovered huge natural gas resources trapped in shale rock formations. Recent advances in hydraulic fracturing – the technique for recovering such trapped resources, also known as fracking – and advances in directional drilling technologies made it economically feasible to tap these newly discovered resources. Natural gas production rose dramatically and consumer costs fell precipitously, with natural gas power plants becoming capable of producing electricity for approximately the same price as coal power plants. The spot price for natural gas averaged 8.86 dollars per million Btu (British thermal units) in 2008, but is averaging only 2.18 dollars per million Btu in 2016. That’s a 75-percent decline in less than a decade.

The economic advantages of natural gas, and the growing environmental restrictions on coal power, induced power providers to switch from coal to natural gas at an unprecedented pace. Coal use declined, much of the coal industry went bankrupt, yet electricity prices did not skyrocket. According to the latest EIA data, U.S. electricity prices are nearly identical now to where they were in 2008: an average of 9.81 cents per kilowatt hour in 2008, versus 9.96 cents per kilowatt hour in 2016. In inflation adjusted dollars, electricity is less expensive today than when coal powered half our electricity.

The advances in directional drilling also made natural gas fracking more environmentally friendly, allowing producers to drill several wells in different directions from a single well pad. Natural gas drilling and production entails minimal land disruption, and significantly less land disruption than coal mining. Natural gas power also emits 20 percent or less of EPA’s designated principal pollutants compared to coal power.

The end result is natural gas has ascended to the throne long held by King Coal. The American economy is just as strong under natural gas, and our environmental quality has improved. King Coal brought us the living standards we enjoy today, for which we owe a great debt. But our future is even brighter today under natural gas. Long live the new king!

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