Ultimate Resource On Coal-Mine Closures (#GotBitcoin)
Sudden shutdown of two mines leaves many wondering what’s next; ‘Reality has come crashing through the door’. Ultimate Resource On Coal-Mine Closures (#GotBitcoin)
For generations, coal has been good to this bustling town of 32,000, where local mines have long offered well-paying jobs and filled government coffers.
Last week (9-21-2020) Bloomberg Philanthropies joined the Sierra Club to announce that the Beyond Coal campaign has successfully retired 60% of U.S. coal-fired power plants — 318 out of 530 plants.
In addition to the climate benefits, closing coal plants is an important part of the fight for environmental justice. In America, nearly seven in 10 Black Americans live within 30 miles of a coal-fired power plant — creating disproportionate health impacts.
Even as the industry collapsed in Appalachia over the past several years, Wyoming’s Powder River Basin, a resource-rich stretch of plains that produces about 40% of the nation’s coal, seemed destined for a softer landing. Locals in this northeastern corner of the state maintained that the lower cost of operating the region’s surface mines compared with mines elsewhere, and the quality of the coal here, would cushion them from the impact of the nation’s shift toward cheaper and cleaner natural gas—as well as tougher environmental standards.
But on July 1, two of the area’s 12 coal mines abruptly closed, leaving nearly 600 workers without jobs and sending shock waves through Gillette, which proudly dubs itself the “Energy Capital of the Nation.”
“It has been difficult to talk about the decline of coal in Wyoming,” said Robert Godby, director of the University of Wyoming’s Center for Energy Economics & Public Policy. “But…reality has come crashing through the door.”
Wyoming coal mines last year employed just over 5,500 people, about 1% of the state’s population, according to the Wyoming Mining Association. But coal’s economic footprint has been much larger. Revenue from coal, oil and gas has historically accounted for between 50% and 70% of Wyoming’s general fund, according to Mr. Godby.
That footprint has been shrinking, though. Wyoming’s coal production in the Powder River Basin declined 19% from 2015 through 2018, Mr. Godby said, and state figures show severance taxes paid by coal companies fell 26% over the past four fiscal years.
Gov. Mark Gordon, a Republican, said he sounded the alarm on the need to shift away from coal in his previous post as treasurer, and the two closures make the problem more urgent.
“Is it a wake-up call? No doubt,” he said in an interview.
Mr. Gordon said his administration wants a shipping terminal in Washington state so Wyoming can export its coal to Asian markets. West Coast communities have resisted, concerned about the environmental impact.
State-funded research to find more uses for coal is also under way in the Powder River Basin.
Mark Christensen, a commissioner in Campbell County, which includes Gillette, said economic diversification has been difficult to sell in a region where coal has made life comfortable. The county’s estimated median household income in 2017 was the second-highest in the state, at $78,240, U.S. census data shows.
Work in the vast coal pits surrounded by rolling prairie outside Gillette can pay as much as $100,000 a year. Each day, coal trains rumble by the town’s Americana-styled Main Street, and local bars and restaurants are crowded day and night with miners just off their shifts. Tax revenue from coal has helped pay for a $55 million recreation complex.
Anticipating coal’s troubles, Mr. Christensen, a Republican, in 2017 backed a quarter-cent countywide sales tax to raise revenue. The proposal was rejected by voters.
“The writing has been on the wall, but it has been really hard to get people to acknowledge it,” he said.
The two shuttered mines are owned by West Virginia-based Blackjewel LLC, which filed for chapter 11 bankruptcy and closed down operations on July 1. It cited tens of millions of dollars in debt, including taxes and federal mining royalties. The company’s former president and chief executive, Jeff Hoops Sr., who resigned following the bankruptcy, couldn’t be reached for comment. Lawyers representing the company in bankruptcy declined to comment.
“When we actually heard they were shuttering the doors and idling the mines, that just blew us away,” said Rory Wallett, who had worked as a pit hand at both mines for 11 years before they closed.
While Gillette was shaken like this once before, when several companies laid off about 500 workers in 2016, Mayor Louise Carter-King said the actual shutdown of two mines was different.
“We’ve never seen anything like that before,” she said.
About 1,100 workers in West Virginia, Virginia and Kentucky also lost jobs when Blackjewel filed for bankruptcy.
Contura Energy, formerly Alpha Natural Resources , which once owned the Wyoming mines, is trying to reacquire them—which could put miners back to work. But the deal may not go through, and even if it does, Contura’s chief financial officer said on a recent earnings call that the company isn’t interested in operating in the Powder River Basin long-term. A spokesman declined to comment further.
Melissa Peterson-Worden, a 44 year-old mother of three who has worked in the local mining industry for about 20 years, got a job at a Blackjewel warehouse in April. It lasted just a few months.
“For the entire time I lived here, they said this was the one thing that wouldn’t happen,” she said.
Coal Baron Robert Murray’s Companies Edge Closer To The Brink
CEO’s close ties to the Trump administration haven’t brought about coal’s revival.
Robert Murray, the coal executive known for his outspoken advocacy of the industry and close ties to President Trump, could be on the brink of losing his companies as the power industry shifts away from coal to cheaper fuel sources.
Mr. Murray through a combination of bold strategy and deal-making has kept his Murray Energy Corp. from following a dozen other U.S. coal companies into bankruptcy over the past decade.
Murray Energy, which expanded even as other producers collapsed into chapter 11, last week entered a forbearance agreement with it lenders after skipping an interest payment on $1.7 billion in debt. This buys the coal-mining company more time to negotiate a restructuring deal possibly before a potential filing for bankruptcy.
This comes as Foresight Energy LP, a coal company in which Murray Energy owns a majority stake, also missed an interest payment last week. Both companies are working with a 30-day grace period to hold separate restructuring talks with their creditors. Both sets of discussions could lead to bankruptcy filings by the two companies, according to people familiar with the matter.
A surge in natural gas production and renewable projects is roiling U.S. electricity markets, while green-energy mandates work against coal as a source of fuel in key markets. The share of U.S. electricity generated from coal fell to 28% from 48% between 2008 and 2018, according to the Energy Information Administration, which expects a further drop to 25% this year and 22% in 2020.
In response to cratering demand, Murray Energy pulled back its coal production by 16% between 2014 and 2018 to 52.6 million tons from 62.8 million tons, according to private company reports reviewed by The Wall Street Journal. A recent crash in the price of export coal also has snuffed out what had been a brisk international business and one of the company’s few bright spots.
A Murray Energy spokesman declined to comment for this article.
Murray’s predicament “sharpens the focus on rapidly declining domestic demand and gives a glimpse of what the future will hold,” said Mark Nelson, coal analyst for Moody’s.
Until recently, Murray Energy was one of the few big coal miners to buck the broader industry downturn through a creative combination of deal-making and financial engineering and thanks to better prices for both domestic and export coal.
The company has been able to juggle a heavy load of more than $2.5 billion in debt for years, even as it has barely generated any cash in the past four years after paying interest to financial creditors and health benefits for retirees, according to people familiar with the matter.
Despite Murray’s troubled financial situation, it persuaded most of its bond and loan holders to extend debt maturities last year. But the company now finds itself too tight on cash to meet more than $200 million in obligations coming due in the next 12 months, these people said.
The company is expected to generate no more than $100 million in cash over the next year. As of June 30, the company had about $73 million in cash and revolver loan availability, they said.
At the same time, financial markets and debt investors have become increasingly convinced that the long-predicted demise of coal is finally at hand. For instance, in September, Peabody Energy Corp. was forced to cancel a $1 billion debt offering due to poor market conditions.
Investors have fled Murray Energy’s debt, sending prices on its $500 million in notes due in 2024 dwindling to just over 1 cent on the dollar, according to MarketAxess.
“They don’t have a lot of cushion in a downturn,“ said Vania Dimova, analyst at S&P Global Ratings. ”Even though they’re generating a lot of cash, debt service eats up a lot of it.”
Murray Energy also has blamed its business struggles on “well-funded nongovernmental organizations” dedicated to minimizing or eliminating coal as a power source. It has singled out the Sierra Club’s Beyond Coal campaign as a business risk and cited the financial backing the environmental organization received from billionaire Michael Bloomberg, the former New York City mayor.
“The net effect of these developments is to make it more costly and difficult to maintain our business and to continue to depress the market for our coal,” Mr. Murray said in the company’s 2018 annual report released to holders of bond and loans.
Mr. Murray and his company have been generous donors to Mr. Trump’s political groups, Federal Election Commission records show. Mr. Murray has worked hard to tip the political and regulatory scales in favor of coal amid pressure on utilities to switch out of fossil fuel.
He lobbied the White House last year to order grid operators to favor coal-fired power plants, arguing they were critical to ensuring reliable power in crisis situations. But the plan pushed by Mr. Murray and a key Murray Energy customer, FirstEnergy Solutions Corp., never materialized.
“Despite several attempts, the Trump administration has not stemmed the decline of U.S. coal consumption caused by the sustained drop in natural gas prices and the massive expansion in the U.S. wind fleet,” said Barry Kupferberg, a distressed debt investor who has been involved in the coal and power generation sectors.
Even after FirstEnergy filed for bankruptcy in April 2018, Mr. Murray was optimistic, enumerating how surging demand in Asia and his company’s growing exports to that region revived his business.
“I’ve got the best coal company in the world,” he said at that time to the Journal.
Between 2015 and 2016, when four of the biggest U.S. coal producers— Alpha Natural Resources, Peabody Energy, Arch Coal Inc. and Patriot Coal Corp.—filed for bankruptcy, Murray made acquisitions. In 2015, the company bought a majority stake in Foresight Energy, one of the largest thermal coal miners in the country, taking out over $1.5 billion more in debt financing. In 2015, Murray also acquired mines in Colombia.
For a while, those additions boosted earnings and gave the company assets to show creditors and push off debt maturities. Dividends from Foresight and cost synergies with Murray both added to the company’s bottom line. Its purchase of the Colombian mines helped as export coal prices remaining high even as domestic prices dropped.
Last year, the company was able to persuade most creditors to extend maturities on most of its debt to 2021 and beyond, according to people familiar with the matter.
It is unclear if investors would offer a similar extension of maturities and suspension of interest payments this time around, according to people familiar with the matter. Such a deal would keep Murray Energy out of bankruptcy.
Murray recently engaged restructuring lawyers at Kirkland & Ellis LLP and bankers at Evercore Inc. ahead of its decision to skip interest and amortization payments, the Journal has reported.
In Pro-Trump West Virginia Coal Country, the Jobs Keep Leaving
Voters aren’t expecting 2020 election to revive the industry; ‘it’s only going to get worse’.
George and Missy Adkins are considering leaving the state altogether — if they can sell their old coal camp house in Logan County, W. Va.
“Everywhere you looked it was coal trucks. It’s whittled down to almost nothing,” he said. “It’s only going to get worse.”
Donald Trump carried coal communities like this in 2016, with promises to boost what he calls “clean, beautiful coal.”
The president’s popularity in communities like these doesn’t seem to be waning, even as coalfields around the country are shedding jobs again after an uptick in the past two years.
Last year, Logan County, which is struggling with high rates of poverty and drug addiction, led the state in coal employment with 1,459 miners.
“I’m all Trump,” said Ashley Walls, a manager at Nu-Era Bakery. Fewer people have been buying $16 birthday cakes since the Blackhawk layoffs were announced. “People are scared.”
In 2000, Democrat Al Gore won the county with 62% of the vote. But the county like the rest of the state has shifted solidly Republican since. Mr. Trump won 80% of the county’s vote.
“We now expect the worst and hope for the best,” said Rosco Adkins, Logan County administrator. He and others said losing several hundred jobs will take a toll on communities.
County prosecuting attorney John Bennett is struggling to keep up with cases. This year’s arrests include about 400 felonies and 3,000 misdemeanors. The vast majority are drug-related.
Jack Blevins, who owns American Mine Services in nearby Man, said recent mining layoffs will be “a bump in the road” for his business.
Mr. Blevins sells fewer than half the bits used on machines that dig coal, compared with 2010.
Joe Stanley, a retired miner, believes big investments in infrastructure are needed to help the state. “Coal has had its day,” he said. “I would vote for anybody other than Donald Trump.”
“I think it will pick back up. It always does,” said Eric Hughart, 29. He started work in April, but went to a job fair this month because he worries about layoffs. He plans to vote for Mr. Trump.
Coal Bankruptcies Continue With Blackhawk Filing
The company is seeking to reduce a $1 billion debt burden resulting from acquisitions of the assets of distressed mining firms.
In the latest bankruptcy in the coal industry, Blackhawk Mining has filed Chapter 11 to reduce a $1 billion debt load resulting from acquisitions of the assets of distressed mining companies.
Blackhawk operates 25 active mines at ten different mining complexes in Kentucky, West Virginia, and Indiana that produce metallurgical and thermal coal.
The company said it had reached an agreement with more than 90% of its lenders on a financial restructuring that will be implemented through the Chapter 11 process. The plan would convert more than 60% of its debt to equity and provide $150 million of incremental liquidity, with lenders emerging as the owners of the reorganized company.
“The plan provides the debtors with a deleveraged capital structure that will allow the debtors to implement a go-forward business strategy without the overhang of their historical leverage profile and sizeable annual debt service requirements,” Blackhawk CFO Jesse Parrish said in a court declaration.
Blackhawk is the eighth major U.S. coal producer to file bankruptcy since November 2017 and the fifth so far this year.
The coal industry as a whole has been hit by competition from natural gas, which in 2016 overtook coal as the largest source of electricity generation in the U.S., and weak growth in demand for electricity.
Parrish said Blackhawk’s fundamentals are strong. “Through a series of acquisitions from distressed coal operators, Blackhawk now controls one of the largest amounts of proven and probable reserves of metallurgical coal in the United States,” he noted, with annual production approaching 6.9 million tons
However, Parrish said, “the pricing environment for metallurgical coal did not improve until late 2016, and the debt attendant to Blackhawk’s acquisition strategy in 2015 placed a strain on Blackhawk’s ability to maintain its then-existing production profile while continuing to reinvest in the business.”
Once the coal markets began to improve, moreover, Blackhawk was forced to make elevated capital expenditures and bear unanticipated increases in costs — labor costs rose approximately 25% between 2016 and 2018 — to remain competitive.
“The confluence of these factors eventually made Blackhawk’s financial position untenable,” Parrish explained.
As Westmoreland Bankruptcy Concludes, Signs of More Trouble for Coal Industry
The recent bankruptcy of Colorado-based Westmoreland Coal Company offers powerful insight into the bleak future for thermal coal mining in the United States, particularly in the Powder River Basin of Wyoming and Montana.
To begin with, Westmoreland’s business relied exclusively on thermal coal production, particularly at mines that sell to a single power plant. The ongoing decline of the thermal coal industry left the company with few options. Westmoreland didn’t go down without swinging, leaving the brunt of its assaults directed at Westmoreland’s hardworking employees. But even as the company aggressively stripped health care and retirement benefits from its miners, it offered bonuses to a group of its executives. Finally, Westmoreland’s efforts to off-load one of its troubled operations – the Kemmerer Mine in Wyoming – hit a major snag when the proposed buyer was unable to reach terms with any reclamation surety bond provider, which suggests that the surety industry is finally recognizing it’s dealing with a doomed industry.
Westmoreland’s failure shows that thermal coal mining is no longer an economically viable industry and makes clear the importance of preparing for a future without it.
The most significant factor setting Westmoreland apart from the many major coal companies that preceded it into bankruptcy was its exclusive focus on producing thermal coal (used to generate electricity) as opposed to metallurgical coal (used in steel making). Westmoreland was so focused on thermal coal production, in fact, that many of its mines, including its largest operations, operated on the “mine-mouth” model, meaning that each mine was co-located with a power plant that served as its sole customer. Westmoreland’s fate as a company was therefore inextricably tied to the demand for coal-fired energy. Westmoreland acknowledged this outdated reliance on coal-burning power plants in its initial bankruptcy filings, citing competition from “nuclear energy, gas-fired generation, hydropower, petroleum, solar, and wind” as a major driver of its financial difficulties.
Ultimately, an ad-hoc group of Westmoreland’s secured lenders used the bankruptcy process to cherry-pick the handful of mines with the smallest liabilities while passing off additional deadweight operations to other companies. These lenders knew that they would never see a positive return on their investments in Westmoreland, and were just trying to minimize their losses. The lender groups identified a small group of “core assets” to acquire in exchange for releasing the company from its debt obligations: the Rosebud mine in Montana, San Juan mine in New Mexico, Haystack mine in Wyoming, and Absaloka mine in Montana. The fact that these are the company’s “crown jewels” is in itself a damning statement on the grim future facing coal-burning power plants and the thermal coal mines that supply them. Of these mines, only three produce coal, and each of those serves a single power plant that is winding down operations and is slated to close within the next few years.
The Rosebud mine serves the four-unit Colstrip power plant, which is scheduled to close two units in 2022, and the remaining two units in 2027. A recent effort to prop up the Colstrip plant through a bailout failed in the Montana legislature. The San Juan mine serves the San Juan power plant, which has already closed two units and is expected to shutter the remaining two units in 2022. The smaller Absaloka mine serves the Sherco plant in Minnesota, which is retiring two of its three units in 2022. The Haystack mine has not produced any coal for several years. These mines lack ready access to the broader coal market, and do not appear to be cost-competitive. They are unlikely, therefore, to continue operations after they lose their customers.
Whereas the previous three major mine operator bankruptcies – of Alpha Natural Resources, Arch Coal, and Peabody Energy – resulted largely from the failure of those companies to service the debt they had acquired in purchasing additional metallurgical coal mines, Westmoreland’s was a much more straightforward case of falling revenues and increasing costs. This also meant that Westmoreland faced a more difficult task in bankruptcy.
Rather than use Chapter 11 to shed unsecured debt or convert debt into equity, Westmoreland had to cut expenses and trim operations.
Westmoreland’s choice to place the burden on its workers and retirees is the sort of short-sighted decision typical of declining industries.
Westmoreland’s choice to persist in a shrinking and outmoded industry meant that to survive – even in a diminished form – it had to slash costs. Unfortunately, rather than ask its investors or its executives to make these sacrifices, Westmoreland chose to shift the burden to those least-responsible for the company’s problems: its workers.
Whereas the mine operators in the previous bankruptcies were generally able to honor their commitments to workers and to retirees, Westmoreland made clear early on that its bankruptcy plan rested on reneging on its longstanding obligations to its workers and retirees. Although dozens of retired miners sent impassioned letters to the bankruptcy judge pleading for the pension and health benefits they worked for, the court ultimately signed off on Westmoreland’s plan to default on its obligations for $334.5 million in retiree medical benefits and $21.8 million in black lung benefits.
The court also allowed Westmoreland to freeze its pension plan, though the obligations to current participants will be assumed by the ad-hoc group of the company’s senior secured lenders who will operate certain of Westmoreland’s mines going forward. Those lenders also offered the fig leaf of a $6 million commitment for retiree benefits. Representatives of the miners’ unions estimate that the fund will be exhausted within a year.
At the same time, Westmoreland secured permission from the bankruptcy court to pay $1.5 million worth of quarterly “retention bonuses” to a set of non-union executive employees. Those bonuses failed even to serve their intended purpose, however, as Westmoreland’s CFO still fled the company in the middle of the bankruptcy.
Surety bond companies have seen the industry’s downward trajectory, and are demanding additional protections that mine operators can’t afford.
One of the most significant obstacles to Westmoreland’s emergence from bankruptcy was the company’s difficulty in offloading its additional high-liability mines. In particular, Westmoreland sought buyers for two coal mine complexes in Ohio, and for the Kemmerer Mine in Wyoming.
The Ohio mines sell coal to a single customer, AEP, but the current coal supply contract only runs through 2019 and Westmoreland acknowledged that it does not expect the contract to be renewed. In fact, Westmoreland revealed in bankruptcy filings that its Ohio mines were only expected to generate revenue in 2019. Many of the Ohio mines are already in reclamation, and some have water pollution problems that will require long-term treatment. For these reasons, the initial sole bidder for those mines proposed a deal under which Westmoreland would pay him $20 million to take the mines and assume the reclamation liabilities. The bidder, Charles Ungurean,originally opened the mines before selling them to Westmoreland for $64 million in 2015. Eventually, a competing bid was submitted for the mines and Ungurean ultimately emerged as the successful bidder with an offer to pay about $2.5 million. In just four years, therefore, the mines have declined in value by between $60 million and $80 million.
The bidder who inserted himself into the Ohio mine sale was initially selected as the winning bidder for the Kemmerer Mine in Wyoming, though that sale also fell through in the end. Tom Clarke, a former healthcare executive from Virginia who began purchasing distressed coal properties out of bankruptcy in 2015, offered a total of $7.5 million in cash for Kemmerer, with a promise to pay more than $200 million in the future. Clarke’s bid was complicated by existing outstanding violations at his West Virginia coal mines, and his difficulty finding a surety bond company willing to provide the reclamation bonds required by law. That last obstacle proved impossible to overcome. After multiple rounds of offers and counter offers, Clarke was unable to secure a reclamation bond because he could not come up with sufficient collateral to satisfy the bond provider. Surety bond providers are now demanding additional collateral because the risk of default is increasing. The Kemmerer mine primarily serves the nearby Naughton power plant, and one of the Naughton plant’s three units was shut down in 2019. The other two units are scheduled to close by 2029, but the plant’s owners recently announced that they are developing plans to shut down the entire Naughton facility in 2022. Kemmerer will now be sold to a group of Westmoreland Resource Partners’ secured lenders.
Sierra Club will continue to monitor coal mine operators, and coal mine operator bankruptcies, as the industry stumbles towards its inevitable end. In the Westmoreland bankruptcy, Sierra Club’s participation ensured that the company would not use the proceeding to weaken or strip away environmental protections. This included securing commitments that the new owners of the San Juan mine would carry out the reclamation obligations required under an existing settlement. Sierra Club also acted to protect the public’s right to participate in administrative actions under the Clean Water Act and Surface Mining Act related to the company’s mines throughout Westmoreland’s bankruptcy.
Coal Miners’ Pension, Health Benefits Under Stress After Bankruptcies
A pension plan covering 90,000 retirees and dependents was 38% funded before the bankruptcy of Murray Energy and other coal companies.
A pension fund covering about 90,000 coal workers and their families is on the brink of insolvency while hundreds of these miners also face losing medical benefits, part of mounting financial stress on the larger safety net meant to protect sick or out-of-work miners.
The United Mine Workers of America multiemployer pension plan is projected to become insolvent during its 2022 plan year if Congress doesn’t authorize using public funds to buttress it for the first time in a history tracing back more than 70 years. Murray Energy, which filed for bankruptcy Tuesday, is the last major contributor to the fund.
Large U.S. coal producers have used bankruptcy as a tool to survive the industry’s decadelong decline. Several companies have successfully argued in chapter 11 that they must walk away from pension and medical obligations to stay in business, keep mines open and save jobs, according to court records, testimony and interviews.
Since last October, at least eight coal companies employing nearly 16,000 union and nonunion workers have filed for bankruptcy protection.
The bankruptcies have coincided with a decline in the U.S. coal market, which has grappled with environmental regulations during the Obama administration and competition from alternative fuel sources such as natural gas and renewable energy.
A Growing Shortfall
The use of chapter 11 has nearly eliminated coal company contributions to the plan. During the 2018 plan year, the pension fund collected $30 million in employer contributions, dwarfing its $613.8 million in benefit payments. The fund’s assets were valued at about $2.4 billion, compared with $6.6 billion in liabilities. For every active worker, the plan supports roughly 28 retirees, UMWA Health and Retirement Funds Executive Director Lorraine Lewis told House lawmakers in July.
The multiemployer pension plan was 38% funded, Ms. Lewis said at the time, a significant fall from 2008, when the plan was 93% funded before the financial crisis.
If the plan fails, it would likely mean cuts to monthly benefit payments that average $596 for all pensioners and $368 for surviving spouses. More than half of pensioners get less than $500 a month.
“Chapter 11 has clearly been used, by the coal industry at least, as a convenient way for people to get out of living up to their obligations,” UMWA spokesman Phil Smith said.
Mining companies also have used chapter 11 powers to avoid the costs that come with withdrawing from the pension plan. For instance, Patriot Coal Corp, Alpha Natural Resources, Jim Walter Resources and Mission Coal Corp.—all of which have filed for bankruptcy since 2012—have avoided paying nearly $4 billion in combined withdrawal liabilities, according to Ms. Lewis’s testimony.
Murray Energy said in court papers Tuesday it paid about $15 million into the pension fund in 2018 and as a result of the previous bankruptcies faces liabilities upward of $6.4 billion if it withdraws from the plan. A restructuring support agreement backed by Murray’s senior lenders calls on the company to negotiate modifications to its retiree benefits and reject collective bargaining agreements.
The UMWA said Tuesday: “Our retirees should understand that their health care will continue to be paid, at least until the bankruptcy process is completed.”
The decline of the pension plan has prompted Congress to consider remedies. The UMWA is lobbying Senate Majority Leader Mitch McConnell (R., Ky.) to take up legislative proposals that would send excess funds from an abandoned mine reclamation fund to the pension plan. Mr. McConnell’s spokesman said he “is concerned about the insolvency issues facing a number of multiemployer pension plans and he supports the ongoing process to find a bipartisan solution for pension reform.”
The Pension Benefit Guaranty Corp., the U.S. government’s pension insurer, would step in if the UMWA pension plan goes insolvent. PBGC Director Gordon Hartogensis said the miners’ plan is one of roughly 125 multiemployer pension plans expected to run out of money in the next 20 years, affecting nearly 1.4 million people. The PBGC has said its multiemployer pension program could itself run out of money by 2025.
Recent bankruptcies also have put medical benefits for hundreds of retirees who worked at Mission Coal Co. and Westmoreland Coal Co. in jeopardy. Former coal miners who spoke with The Wall Street Journal said they agreed to do hazardous mine work because they were promised a pension as well as medical benefits for after they retired.
“You put your life at risk every day you go underground. You don’t know if you’re going to make it out or not,” said Westmoreland retiree Gary Wells, 76 years old. “You put your health and everything at risk for the company.”
Westmoreland retirees and their dependents are expected to lose medical benefits by year’s end if Congress doesn’t add them to a UMWA health plan. The company’s bankruptcy advisers said such a plan was needed to avert liquidation and preserve jobs. Lenders that took over Westmoreland provided $6 million to fund retiree benefits temporarily.
Westmoreland retiree Bethel Brock, 79, said he has been notified that he could lose medical benefits for himself and his wife at the end of the year. Mr. Brock said he has been diagnosed with a complicated form of black lung disease and relies on the Westmoreland benefits, UMWA pension, Medicare and Social Security. Westmoreland withdrew from the UMWA pension plan in 2004.
“When a coal company is through with you, you’re just like a used piece of equipment,” Mr. Brock said.
Black Lung Resurgence
Since 2014, coal bankruptcies also have transferred more than $310 million in corporate liabilities to the federal Black Lung Disability Trust Fund, which compensates workers diagnosed with black lung disease. The shift has come as researchers have documented a resurgence of a severe form of the disease in Appalachia.
“Our clients are younger and sicker than ever before,” said Rebecca Shelton, coordinator of policy and organizing at the nonprofit Appalachian Citizens Law Center, which helps workers seeking black lung benefits.
An excise tax to fund this trust fund was scaled back at the end of last year because of Congress inaction, meaning the fund likely will need to borrow more public funds to continue providing benefits. A former miner could get between $660 and $1,320 in monthly black lung benefit payments depending on the number of their dependents, according to the Government Accountability Office.
“A lot of people that are drawing black lung [benefits], they’re struggling to pay their bills,” said Patty Amburgey, a member of a black lung association in southeast Kentucky who lost her husband to the disease.
Sen. Joe Manchin (D., W.Va.) has been a lead sponsor on proposed legislation that would add affected retirees of Westmoreland and Mission Coal to a UMWA health plan, direct excess reclamation funds to the pension plan and restore the higher black lung excise tax. That bill, introduced in January by Democrats, is co-sponsored by presidential candidates Bernie Sanders, Elizabeth Warren and Kamala Harris.
The Hidden Deaths of Coal Mining
Some workers killed on the job aren’t counted in fatality records, making the industry appear safer than it is.
Many mining deaths aren’t captured by global safety statistics, making the industry seem safer than it is to regulators, investors and consumers.
An Examination Of A Handful Of Mining Deaths Around The World And An Analysis Of Mine-Safety Statistics In Several Large Mining Countries Found:
—Mining Deaths In Brazil, One Of The Largest Mining Nations, Could Be Underestimated By As Much As 50% Because They Don’t Count Many Contractors Who Die In Accidents. That Includes The Deaths Of As Many As 139 Of The 270 People Who Died In Brazil This Year In One Of The Worst Mining Accidents Of Its Kind.
—Big Miners May Not Report Deaths At Some Joint Ventures, Leaving Dozens Of Recent Fatalities Off The Books.
—Fatalities That Happen When Transporting What Companies Mine Are Often Undercounted.
“There is a massive statistical gap on just how dangerous mining is,” said Tyler Gillard, a senior official at the Organisation for Economic Co-operation and Development.
Pressure to improve safety is especially intense after a mine-waste dam operated by Vale SA burst early this year, unleashing a river of mud in the Brazilian town of Brumadinho. More than half of those killed weren’t Vale employees, meaning many won’t make Brazil’s official mining death statistics.
Some countries require mining companies to report deaths to the government—though each country has its own standards.
Miners and industry bodies say the sector has made strides in bringing down fatalities and injuries. But a lack of reliable accounting in the most basic safety metric makes it difficult to determine the extent of any gains.
The global death toll from mining also doesn’t include the large number of fatalities in the developing world involving illegal mining—operations on government or company sites mining without permission—or at small-scale digs that escape government scrutiny. The World Bank estimates that 90% of the world’s miners, around 40 million people, work at small mine sites or illegally, without permission to mine.
In many developed countries, though, mining statistics are more consistently collected. In those countries, numbers typically show a steady decline in fatalities in recent decades. Last year, the death toll from mining in the U.S. fell to its second-lowest level ever, with 27 fatalities, according to the Mine Safety and Health Administration. The industry, though, remains one of the deadliest in developed countries.
There is no widely used estimate on how many people die in mining globally. In 1998, the International Labour Organisation, a U.N. agency, estimated that mining accounted for 8% of fatal deaths at work, but only 1% of the global workforce. The agency made that estimate—its most recent—with little data from major mining nations like China and the Democratic Republic of Congo, where mining statistics are non-existent or considered untrustworthy.
The International Council on Mining and Metals, which represents 26 of the largest metals and mining companies, releases a widely watched annual casualty number. In 2018, the 26 members of ICMM recorded a total of 50 fatalities. That’s down from 90 in 2012, among the 22 company members that reported then.
Those numbers are clouded by inconsistencies in how miners report their numbers.
For instance, the ICMM recommends that its members count deaths of employees killed transporting resources, like truck drivers hauling mine production. However, members including Anglo American PLC, Barrick Gold Corp. ,and BHP say they don’t always, for different reasons.
Anglo American noted in its 2013 sustainability report that two workers lost their lives on “work-related travel,” but they weren’t included in that year’s fatality tally of 14. Anglo American said transport deaths are recorded if the company has “managerial control over the direct cause of the incident.”
Susana Peñarrubia Fraguas, a fund manager and adviser on corporate governance at Germany-based DWS Group, which invests in mining stock among other sectors, said miners should report such deaths.
“You need to have your contractors and supply chains more under control,” she said. “It’s all part of the same economic transaction.”
Among uncounted mining deaths are those of contractors who die at mine sites but who aren’t mine-company employees. Brazil doesn’t count deaths at many contractors as mining related, reducing overall fatality tallies for the sector.
Nearly 45% of Vale’s 124,900-strong workforce were contractors at the end of last year, according to the company. Vale is by far the country’s largest miner.
Brazil reported about 15 mining deaths per 100,000 workers for 2017, or 25 deaths, the latest year available. A decade earlier, government numbers showed a death rate of 32.6 miners per 100,000, according to government figures compiled by Dieese, a statistical research body funded by unions.
Those numbers don’t include many of the contractors.
Large mining companies account for deaths in joint-venture operations they manage. They rarely report deaths in joint ventures they do not lead, though they have influence on these mines’ health and safety policies.
Mario Parreiras de Faria, occupational safety and health inspector at Brazil’s ministry of economy’s labor authority in Minas Gerais, which includes Brumadinho said that in his experience investigating mine accidents in Brazil, at least 50% of mine-related deaths were of contractors, and not included in national numbers.
In a 2015 mine-dam failure in the town of Mariana, at an iron-ore mine jointly owned by BHP and Vale, 19 people were killed. Mr. de Faria said only one of those deaths was of a person employed by a mining company. The other 18 deaths weren’t included as mining fatalities.
“Outsourcing masks the fatality statistics,” Mr. de Faria said.
A Brazilian government spokeswoman said job fatality statistics are published based on the official classification of each company reporting a death. Fatalities at Mariana and other places—both miners and contractors—are also recorded by location, she said.
Duke Energy Agrees to Coal-Ash Cleanup Settlement
North Carolina regulators, environmental groups say deal will make state’s water safer.
Duke Energy Corp. has agreed to move 80 million tons of coal ash to lined landfills at six power plant sites in what state regulators are calling the biggest cleanup of its type in U.S. history.
The compromise between Duke Energy, state regulators and environmental groups likely puts an end to a yearslong legal dispute in North Carolina over the environmental risks of the disposal of coal ash.
Coal ash is a byproduct of coal-fired power plants, which scrub potential air pollutants from their emissions. That ash can contain arsenic, selenium, lead and mercury. Coal ash has been commonly stored in pits on-site at power plants, which are often located near rivers and lakes since they need water to produce steam.
Duke, one of the nation’s largest utility companies, said the agreement was reasonable, prudent and “a major achievement that puts the coal ash debate to rest in North Carolina.”
Frank Holleman, a lawyer with the Southern Environmental Law Center, said the settlement ensures that North Carolina’s water will be safer than it has been in decades.
The Southeast has a disproportionate number of unlined coal-ash storage pits in proximity to rivers and lakes in part because of its historic reliance on coal for power, Mr. Holleman said. But he said he expects the settlement to have national implications.
“No utility can now say it’s acceptable to cap this material and leave it in an unlined pit,” Mr. Holleman said.
Michael S. Regan, secretary of the state’s Department of Environmental Quality, said the agreement ensures public health and protects natural resources. “We are holding Duke accountable and will continue to hold them accountable for their actions,” Mr. Regan said.
Coal ash became a flashpoint in the state in February 2014, when a metal pipe running underneath an aging waste-storage pit poured tons of slurry into the Dan River in the central part of the state. In 2018, heavy rains from Hurricane Florence washed out a small portion of a coal-ash landfill near Wilmington, allowing some material to spill into a nearby lake.
Duke has long said it was acting responsibly by gradually phasing out coal-fired plants and ensuring previously generated material was safely stored at more than two dozen sites across the state. Some of the storage basins were lined but many weren’t.
Environmentalists have said the material posed significant health risks, as it could leach into groundwater or flow from faulty basins into nearby bodies of water.
Last April, the state Department of Environmental Quality ordered that Duke had to completely remove coal ash from all storage basins in North Carolina, rather than cover some ponds and leave the ash in place as the company proposed.
Duke balked, saying the order was overly restrictive and costly.
In recent months, Duke, state regulators and a half-dozen environmental groups worked out a settlement agreement, which was signed Dec. 31.
The agreement extends the life of some coal-ash recycling facilities, allows a few old, covered landfills below newer uncovered ones to remain intact and expedites the permitting process, according to a Duke spokeswoman.
Duke said the compromise costs about $1.5 billion less than what the state had originally proposed, with the current estimate being $8 billion to $9 billion to close all ash basins in the Carolinas.
The company will gradually be removing coal ash over the years, with the goal of closing all basins by the year 2034, according to the Duke spokeswoman.
“Five years from now, a heckuva lot of ash will be gone,” said Mr. Holleman, the environmental lawyer. “Every year that goes by, the level of pollution and the risk of catastrophe is being reduced.”
Duke shares fell 1% to $90.28 in afternoon trading Thursday.
Many Miners Die, And It Never Shows Up In Safety Data
Uncounted deaths in illegal and small-scale mining add thousands to the industry’s death toll, according to some estimates.
Surat Lal died with seven colleagues in an explosion at a small quarry in India, but like thousands of other casualties at mines in the developing world, his death wasn’t counted as a mining fatality.
Around 90% of the world’s miners, according to the World Bank, work in small-scale operations or illegally by trespassing on land controlled by others, including bigger mining companies. Those miners—who dig up materials used in cars and smartphones, among other products—are frequently operating in emerging economies like India, in dangerous conditions with no safety regulations, poor equipment and a culture of risk-taking.
When tragedies occur, few of the deaths are recorded as mining-related, partly because governments frequently fail to properly document such fatalities and some smaller companies don’t want to invite increased regulatory scrutiny, mining experts say.
By some estimates, uncounted deaths in illegal and small-scale mining add thousands to the industry’s death toll. Leaving them out distorts mining’s safety record and makes it harder to detect and improve potential hazards.
Pressure to improve safety in mining has intensified after a mine-waste dam operated by Vale SA burst a year ago in the Brazilian town of Brumadinho, killing 270 people.
The official death toll for the sector in India—one of the world’s biggest mining nations—was 120 in 2018, though a former government official said it could reach 20,000. In the Democratic Republic of Congo, which releases no fatality data, up to 2,000 illegal miners are dying a year, according to research from a Harvard University professor.
A Wall Street Journal investigation in December revealed that disclosures of mining fatalities were being kept lower because large miners don’t always disclose deaths in transport and joint ventures, and some governments weren’t including mine contractors in fatality statistics.
The lack of accurate data in illegal and small-scale mining is a big problem, said Richard Adkerson, chief executive of Freeport-McMoRan Inc., one of America’s largest miners. “Numbers would shine a spotlight that could translate into government action and enforcement to constrain the risks these miners take,” he said.
The World Bank estimates that around 40 million people work at small mine sites or illegally. Around 20% of the world’s new gold mined globally comes from illegal and small-scale mining, according to the Organization for Economic Cooperation and Development.
Some 25% of cobalt—a key ingredient in smartphone and electric-car batteries—produced in the Democratic Republic of Congo, the world’s largest producer, comes from illicit and so-called artisanal mines.
Around 90% of the world’s miners work in either lightly regulated small-scale operations or illegally by trespassing on land controlled by others.
The northern Indian state of Uttar Pradesh supplied the country’s long building boom with stone.
In 2015, Mr. Lal was mining dolomite stone at a small Uttar Pradesh quarry when a storehouse holding explosives caught fire and blew up, killing him and seven others, according to Manbasiya Devi, Mr. Lal’s mother, and Amar Shah, a miner who was injured in the blast.
India’s Directorate General of Mines Safety, the industry’s regulator, didn’t include these deaths that year, according to U.P. Singh, at the time the agency’s director for the region where the accident happened. Mr. Singh said the deaths weren’t reported to the agency.
Arvind Kumar, director of mines safety at DGMS head office in Dhanbad, said deaths that occur in areas where mining companies are granted leases to land by state authorities don’t always get reported to the DGMS, and the agency doesn’t consider such fatalities for the official statistics of mining fatalities.
The company that owned the site is no longer in business, and the owner couldn’t be reached for comment.
India has more miners working in small mines or illegally—15 million—than any other country, according to the World Bank. Mr. Kumar said deaths of illegal miners aren’t counted as mining fatalities as per India’s mines law.
In 2014, DGMS reported that the total number of deaths in mining was 107. India’s National Crime Records Bureau, a government agency that maintains a database on crimes, deaths and accidents, puts the number that year at 210, including fatalities in illegal mining.
B.P. Singh, who until 2018 was second in command at India’s DGMS and who isn’t related to U.P. Singh, said the average annual figures for mining fatalities could be as high as 20,000, counting deaths of illegal miners and at small mining companies. He added the unreported deaths that he learned about in his mine visits and those that colleagues said were occurring in different parts of the country, and extrapolated figures in areas where he had no feedback.
Mr. Kumar declined to comment on the estimated number of deaths, and the Journal couldn’t independently corroborate the number.
In the DRC, up to 2,000 illegal and artisanal miners die a year, said Siddharth Kara, a lecturer in public policy at the Harvard Kennedy School. Mr. Kara has researched mining in the DRC and based his estimate on data sampling and a questionnaire he administered in the country’s cobalt-producing provinces.
Mr. Kara said he witnessed the collapse of one tunnel near Lake Malo in September last year that he said led to the deaths of more than 60 people who were underground at the time, including children.
Companies rarely report deaths of illegal miners who trespass onto their land.
New York-listed Harmony Gold Mining Co. recorded the deaths of 65 workers in its South African mines between 2010 and the end of 2018. But the Mines Rescue Service, a South African organization that helps free trapped miners, reported finding the bodies of 27 illegal miners in Harmony’s mines during the period.
A spokeswoman for Harmony Gold said the company tries to combat illegal mining, but such miners “ignore the safety standards of mines, ultimately putting their lives and the lives of our employees at risk.” The company said it doesn’t report the deaths of illegal miners. Mining companies say illegal miners often work in places and at times when the company cannot protect them. The problem can be overwhelming, they say.
In the developing world, smaller mining companies often want to keep deaths out of official fatality statistics to avoid paying compensation and fines, or having their safety regulations scrutinized, miners and B.P. Singh said.
Under Indian labor laws, companies have to pay higher compensation and become subject to further regulatory action when a fatality is classified as an industrial death.
According to Indian law, the family of Mr. Lal would have received about $9,000 from the company and more from local authorities if the death was classified as an industry death. Mr. Lal’s mother, Ms. Devi, said she received 400,000 rupees (about $5,600) from the local government and the owner of the mine where her son died.
Mr. Lal began mining after he gave up his studies at the age of 18. Ms. Devi said she tried to convince her son that mining was too dangerous.
“He wouldn’t listen,” she said.
Emissions Costs Jump In Europe, Hastening Coal’s Demise
Swift recovery in carbon prices, despite falling emissions, took traders by surprise.
The price of carbon credits in Europe has rebounded from a pandemic low, reflecting government stimulus efforts and the reopening of economic activity.
The bounceback is bad news for coal. The rising value of carbon credits means many coal-fired power plants aren’t profitable, even though the price of the fossil fuel has edged down this year.
Prices for European Union carbon credits jumped 69% from their low in mid-March to €25.74 ($30.19) a metric ton on Tuesday. They neared a record high earlier this month, surpassing €30 for the first time since at least 2008, according to FactSet.
Costly CarbonProfits on generating electricity with coal in Germany have shrunk as prices on credits for carbon emissionshave risen.
The speed of the recovery has surprised carbon traders, since it took place when emissions were falling due to a historic downturn in Europe’s economy. Higher permit prices are making it more expensive for coal-fired power plants to operate, encouraging utilities to switch to natural gas or renewables.
“The carbon market is working: it’s doing its job,” said Lueder Schumacher, head of European utilities at French bank Société Générale. “Many coal plants are no longer profitable at these kinds of levels.”
Fuel markets are also shifting the economics of electricity production against coal. The price of thermal coal–the kind burned for electricity–delivered into Northwest Europe has slipped 2.4% this year, to $50.25 a metric ton, according to S&P Global Platts. That decline is dwarfed by the 62% plunge in day-ahead prices for natural gas, to $1.49 per million British thermal units in a key Dutch market.
The market for carbon credits was set up in 2005 to meet the EU’s commitments under the Kyoto Protocol and is a key plank of the bloc’s efforts to combat climate change. It puts a limit on emissions from companies covered by the system, responsible for around 45% of EU greenhouse gases. Utilities, steelmakers, airlines and other players buy and sell allowances depending on how much they plan to emit.
Once a year, firms must hand over enough permits to cover their emissions or pay a fine. The market is supposed to prod sectors that can easily curb emissions to do so, while avoiding a clampdown that would drive heavy polluters out of business.
A clutch of companies have expedited the closure of coal-fired power stations, including Energias de Portugal SA, which this month brought forward the retirement of two plants. A third will be converted from coal to gas. Higher carbon prices, cheap gas and growing renewable-energy capacity combined to make the stations uncompetitive, EDP said.
“The big story this year is coal has been crushed,” said Matthew Jones, an analyst at commodities tracker Independent Commodity Intelligence Services.
Falling demand has prompted utilities to cut their least profitable means of generating electricity. For many, that is coal. German utilities lose €5.59 on every megawatt-hour of coal-fired electricity they sell ahead for 2021, according to ICIS. Burning gas, which is plentiful and requires fewer carbon allowances, can earn them €4.68 a megawatt-hour.
The bounceback in carbon prices partly reflects steps taken by the European Central Bank and governments to steady Europe’s economy.
Stimulus efforts averted a fire-sale of carbon permits by companies seeking to raise cash, according to Dougal Corden, director of power and carbon trading at Citigroup. Such selling during the eurozone debt crisis, starting in 2009, led to a glut of credits that depressed carbon prices for years afterward.
This year’s round of rescue packages “proved to be effective at removing the likelihood of forced selling by industrials,” said Mr. Corden. “The carbon market has shown a huge amount of resilience.”
The cap on total emissions shrinks each year, and the pace is due to quicken in 2021. It would accelerate again if the EU decides to tighten its 2030 target for emission cuts, as Brussels has mooted.
The prospect of a diminishing pool of credits encouraged utilities to stock up when prices fell in March, said Bernadett Papp, senior analyst at emissions-trading company Vertis Environmental Finance. This bout of buying prompted the recovery in prices, according to Ms. Papp.
Electricity producers and industrial companies “are really afraid of less supply and significantly higher prices from next year onwards,” she said. “When they see the price falling, they are hasty to jump in and buy.”
Prices were also bolstered after EDF SA said in April that electricity generation at its French nuclear plants would fall 20% this year because of disruption from the coronavirus. That meant more coal and gas would need to be burned to meet Europe’s power needs, requiring utilities to own more allowances. EDF has since said the decline won’t be as drastic as first feared.
Carbon credits need to become significantly more expensive to drive a meaningful reduction in greenhouse-gas emissions, according to some traders.
“It is doing its job to some degree on the fuel switching,” said Casper Elgaard Madsen, head of climate markets at Danske Commodities, a trading house owned by Norway’s state-oil giant Equinor. “To really matter in the green transition, we have to aim for prices to go above current levels.”
Purchases of permits by utilities slowed in June, but carbon prices kept surging as investors piled into the market, according to traders and analysts. Although they aren’t obliged to own permits to cover emissions, fund managers trade futures contracts to bet on the direction and gap between prices.
Politicians in Germany and elsewhere are “showing clear interest in meeting more aggressive carbon-reduction targets,” said Greg E. Sharenow, a portfolio manager at Pacific Investment Management Co. “That has really been a strong signal to the market.”
Pimco is looking at ways to expand its involvement in carbon, according to Mr. Sharenow, who said few other markets have as much growth potential over the next decade.
Trump’s Promise To Revive Coal Thwarted By Falling Demand, Cheaper Alternatives
Production is declining at a faster rate than under Obama;, many in the industry fear things could get worse.
John Hickman was filling out a coal production report about 2½ miles deep in a mountain when his foreman’s voice came over the intercom.
“Stop mining,” the foreman instructed. “Bring the men out.”
It took nearly two hours for Mr. Hickman, a supervisor, and his workers to reach the mouth of the mine last September. There, they were given news they feared: Murray Energy Corp., one of the largest U.S. coal producers, was idling the Maple Eagle No. 1 mine, effective immediately.
“It’s just a level of stress that sets in,” said Mr. Hickman, who has been laid off before. “What am I going to do? Where am I going to find a job? How am I going to take care of my family? All of those things just keep cycling.”
President Trump hasn’t been able to bring back “beautiful, clean coal” as he promised four years ago. As mines and power plants continue to close, the question many are asking in the diminishing American coal industry is—what now?
Coal companies and their workers experienced a brief renaissance during the first two years of Mr. Trump’s term despite declining domestic consumption, thanks in part to a surge in demand from countries such as India and South Korea.
Exports have since fallen. U.S. coal output and consumption are now on pace to decline at faster annual rates, on average, under President Trump than under President Obama.
The use of coal to generate electricity in the U.S. is expected to fall more than a third during Mr. Trump’s first term, data from the U.S. Energy Information Administration show, as a glut of cheap natural gas unlocked due to fracking and increasingly competitive wind and solar sources gained market share.
More than half of that drop happened before the new coronavirus outbreak. That compares with a decline of about 35% in coal consumed for power generation during Mr. Obama’s eight years in office.
Last year, the U.S. consumed more renewable energy than coal for the first time since the 1880s, federal data show. That includes coal and renewables used for electricity, as well as for purposes such as steelmaking and transportation.
In the power sector, the EIA expects coal will generate just 20% of U.S. electricity this year, down from 31% in 2016. Another 20% is forecast to come from renewables, up from around 15% four years ago.
“Coal isn’t coming back. You can’t legislate it,” said Karla Kimrey, previously a vice president at Wyoming-based coal producer Cloud Peak Energy Inc., which filed for bankruptcy protection last year.
Domestic demand has continued to drop as utilities retire coal power plants and turn to cheap natural gas and renewables to make electricity, trends that have only accelerated as economies have slowed due to the pandemic. With less demand for power, many utilities have cut back on coal generation first, as it is generally more expensive.
Last year in the U.S., annual renewable energy consumption eclipsed coal consumption for the first time inmore than a century.
Meanwhile the rise of “ESG” or environmental, social and governance investing is constricting the industry’s ability to obtain capital, current and former executives say.
As major investors such as JPMorgan Chase & Co. and BlackRock Inc., the world’s largest asset manager, turn away from coal over concerns about climate change, coal companies are struggling to secure the insurance they need to operate. That hurts not only companies that mine the thermal coal used to generate electricity, but also those that mine metallurgical coal to make steel.
Contura Energy Inc., one of the nation’s largest producers of coal for steelmaking, has seen insurers and bonding providers flee the industry over the past two years.
“If they can cut off your financing, they cut off your ability to function as a company,” said David Stetson, the Tennessee-based company’s chief executive.
He and other executives expect to see more American coal companies go private in coming years. Firms such as Westmoreland Coal Co. and Cloud Peak that were publicly traded before filing for bankruptcy are emerging as private entities or selling assets to private firms.
Westmoreland was North America’s sixth-largest coal producer before it entered bankruptcy protection in 2018. Hobbled by more than $1.4 billion in debt, Westmoreland was taken over by its senior lenders and emerged last year as a private company.
Months later, Cloud Peak sold three mines in Wyoming and Montana to a private energy company owned by the Navajo Nation.
Meanwhile, the value of an exchange-traded fund of global coal companies has lost nearly 40% of its value since Mr. Trump’s inauguration, as the value of the S&P 500 index increased by about half.
“There is a shrinking pool of candidates to own stock in public coal companies,” said Mr. Stetson, whose company is publicly traded.
During his campaign for president in 2016, Mr. Trump repeatedly promised miners and others in America’s coal-producing regions that he would bring jobs back. The pledge helped him to deliver key swing states such as Pennsylvania, one of the nation’s largest coal producers, which sided with Mr. Trump by fewer than 50,000 votes.
Mr. Trump has sought to ease the regulatory burdens on coal by repealing or replacing a series of Obama-era rules, including ones designed to require power plants to rein in carbon dioxide emissions and further restrict mining activities near streams, making surface mining in particular more expensive.
In the first years of his term, before the coronavirus slowdown, U.S. coal-mining employment held relatively steady, Bureau of Labor Statistics data show. Average annual pay increased more than 10% from 2016 to 2019, to around $91,000.
“President Trump has kept his promise and ended the outright war on America’s coal industry,” a White House spokesman said.
Yet total U.S. coal production is expected to fall about 30% in four years on Mr. Trump’s watch, EIA data show. That compares with a 38% slide in output over Mr. Obama’s eight years in office.
Many in the industry plan to vote for Mr. Trump again this year, saying that a Democratic president would devastate the sector.
Democratic nominee Joe Biden has said that he wants to set the country on a path to eliminate carbon emissions from the power sector by 2035 and the broader U.S. economy by 2050, targets likely to hasten a transition away from coal. Mr. Biden’s energy plan calls for creating jobs to reclaim abandoned mines, among other forms of community investment.
“At the end of the day, Biden is the one who will stand up for these workers,” said Stef Feldman, policy director for Mr. Biden’s campaign.
David Khani, a former chief financial officer for Pennsylvania-based coal producer Consol Energy Inc., said that the pace of the coal industry’s decline could have been worse were it not for Mr. Trump’s policy rollbacks.
“He has had an impact for sure positively on the coal industry. It’s just hard for people to see it,” said Mr. Khani, now chief financial officer for natural gas driller EQT Corp.
The reality of recent years has been harsh for companies such as Murray Energy, founded by Robert Murray, one of Mr. Trump’s most vocal backers in coal country.
Murray Energy filed for bankruptcy in October, one of more than a dozen U.S. coal companies to do so during Mr. Trump’s presidency. A subsidiary that owned Maple Eagle, the mine where Mr. Hickman worked, followed suit in February. It is the mine’s third trip through bankruptcy in just over five years, each time under a different owner. Murray Energy has been approved to exit chapter 11 and transfer its assets to its top creditors.
Many large coal producers such as Peabody Energy Corp. and Walter Energy Inc. filed for chapter 11 protection toward the end of Mr. Obama’s presidency after prices for coal used in steelmaking collapsed, making the debt the companies took on to fund expansions unsustainable.
More recently, a glut of cheap natural gas has accelerated declines in the consumption of coal used for electricity. As of June, the U.S. was producing some 54% more natural gas than it did a decade earlier, a surge that helped to cut benchmark prices by roughly two-thirds in that time, EIA data show. In the past decade, more than 100 coal-fired power plants have been converted to or replaced by natural gas-fired facilities, the EIA said recently.
“We’ve just gotten swamped with gas,” said Jeff Wilson, chief executive of White Forest Resources Inc., a private Virginia-based coal company. “Those market forces are unstoppable.”
In the hollows of Appalachia, one mine after another has shut down in recent months, putting miners out of work and squeezing small-business owners.
Steve Kessler, 47, was among those laid off last September from the Maple Eagle No. 1 mine. He was home watching the television show “Impractical Jokers” after finishing a shift when a friend texted: The mine was shutting down. No work tomorrow. Mr. Kessler had already laid out his clothes, packed a lunch and set his alarm for the next morning.
“There was no warning, no nothing,” he said, calling the layoff a punch in the gut. It took Mr. Kessler around a month to find another job hauling coal underground at a nearby West Virginia mine.
The coronavirus pandemic made a bad situation worse. The mine, like many in the area, furloughed employees for weeks as concerns about transmitting the virus mounted and coal demand plunged still further. Mr. Kessler was called back to work in early April, but his $25-an-hour wage was cut 5% and he lost benefits including his 401(k) match.
Increasingly, Mr. Kessler worries that the pay won’t justify the risks associated with working underground, and that it could become more difficult to switch fields as he gets older. “Do I really want to do this for the next 20 years?” he found himself thinking on a recent shuttle ride through a mine. “Will this even be here in 20 years?”
The 48-year-old chose to double down. Mr. Argabrite bought the assets of one of his biggest competitors in the hopes that capturing more market share would put him in a better position to ride out the economic downturn. Plus, he wanted to keep his men employed and figured that countries would likely invest in infrastructure in the wake of the pandemic, increasing demand for the coal used in steelmaking.
Mr. Argabrite is putting off other big decisions, such as whether to invest in a larger facility, until after the election.
“Everybody’s on the edge of their seat trying to make it through this year,” Mr. Argabrite said. “If Donald Trump doesn’t win in November, the coal industry’s finished.”
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How Should The Deaths Of Mine Workers Be Counted?
Coal Finds A Surprising 2020 Bright Spot In Europe
Power plants started to burn more thermal coal over the summer and fall, responding to a steep rise in the price of natural gas.
European coal prices have jumped to their highest level in almost a year, after a surge in natural-gas prices spurred demand for the cheaper fossil fuel.
Prices for thermal coal delivered into northwestern Europe have leapt 50% from their low in May to $57.77 a metric ton, according to data from Argus Media, a trade publication that tracks commodity prices. Thermal coal, the kind that power stations burn to generate electricity, hasn’t cost as much in Europe since late October 2019.
Unusually, coal is now more expensive in Europe than in Australia, where prices were hit by reports that China had curbed imports amid a diplomatic feud with Canberra. Australia’s government has said it is working to clarify the situation. Traders said Chinese buyers are acting as if the restrictions are real, knocking Australian export prices.
Europe’s rally has turned the region into a surprise bright spot in the international coal market. Prices tumbled globally this spring when coronavirus restrictions hammered demand for electrical power, and remain under pressure in the Asia-Pacific region. Taking into account coking coal, which is used to make steel, global consumption is on course to slump 7% in 2020, the International Energy Agency said this week.
European governments are moving faster than those in other regions to drop coal from the energy mix to cut planet-warming emissions. The recent rise in prices shows that coal’s decline will be halting, analysts said, with bursts of higher demand even as the continent’s shift toward cleaner sources of energy accelerates.
“There’s still going to be a need for coal,” said Jake Horslen, editor of Argus’s Coal Daily International, pointing to the flexibility that coal gives utilities, especially in the winter when lots of gas is burned for heating. Still, “it does look like coal is going to be phased out sooner rather than later,” Mr. Horslen added.
Coal prices measure slightly different things in Europe and Australia, reflecting their positions in the market. In northwest Europe, they reflect the price of coal delivered to a port, including insurance and freight costs. The benchmark in Australia, one of the biggest exporters, represents the price of coal cleared for shipment and loaded onto a vessel.
European power plants started to burn more coal over the summer and the early autumn as natural gas became steadily more expensive. Gas prices in northwestern Europe have more than quadrupled from their trough in May, partly driven by a fall in the supply of liquefied-natural gas from the U.S.
“In Germany and in some of the other markets, you actually saw coal-fired power generation come back into the market, just because it was cheaper,” said Matthew Boyle, lead coal analyst at S&P Global Platts. “That was part of the reason why we did see a sort of rally.”
Gas prices have risen faster than the price of carbon permits, which utilities and other users of fossil fuels purchase under the European Union’s emissions-trading program. That created a financial incentive to dial back gas consumption, burn more coal, and buy carbon permits to cover the extra emissions.
“It’s actually making coal burn fairly attractive,” said Georgi Slavov, head of fundamental research at commodities brokerage Marex Spectron. Half of Europe’s coal-fired power-plant capacity was in use this week, Mr. Slavov calculates, up from under a 10th at the start of June.
Giving prices an additional boost: Crimped output in Colombia, Europe’s second-largest source of thermal coal after Russia.
Workers at Colombia’s Cerrejón mine, jointly owned by BHP Group, Anglo American PLC and Glencore PLC, went on strike in August. Meanwhile production by Prodeco Group, a unit of Glencore that owns two mines in the country’s northern Cesar region, has been suspended since March.
“There’s huge concern right now about the availability of Colombian coal,” said Mr. Horslen.
American miners stand to benefit if the rally in European thermal-coal prices keeps running. U.S. exports to Europe, which have steadily declined in recent years, could start to pick up if prices rise to around $65 a metric ton, two traders said.
Any uptick is likely to be fleeting, however, as Europe continues to pivot from thermal coal to gas and renewable sources of energy. “You have to get past 60 bucks to get the Americans in,” said David Price, senior director in IHS Markit’s coal unit. He doubts prices will get that high.
In the long run, the outlook for thermal-coal suppliers in Europe remains gloomy. Coal consumption will drop by nearly 60% in the EU from 2019 through 2030, faster than in any other region, the IEA said. The power sector is set to account for almost all of that decline, suggesting the pressure will be particularly acute for producers of thermal coal.
Portugal is likely to close all its coal-fired power plants by 2021, followed by France, the U.K., Ireland and Slovakia in the following years, the Organization of the Petroleum Exporting Countries said this month.
Dumping Coal Can Be Good For Insurance Company Stock
Their valuation can see a bump, analysts say. As for coal producers, no more insurance may mean no more mining.
As far as climate groups like the Sunrise Project are concerned, getting insurers out of the coal underwriting business is the most important thing they can do. No more insurance, no more coal.
It’s something Sunrise has been pushing for years. But while it’s happening in Europe, it hasn’t caught on in America.
Analysts at Societe Generale SA published a report about European insurers and reinsurers that, for the first time, includes a specific ESG input for stock valuations. It primarily reflects each insurer’s stance on coal, the dirtiest of atmosphere-wrecking fossil fuels.
The analysts determined that an insurer’s position on coal underwriting and investments can have an effect on its valuation ranging from -3% to +9%.
In other words, insurers that do more to exit coal can gain points in their stock valuation while those who have done the least will lose.
SocGen’s scoring metric is most heavily weighted toward environmental issues, as opposed to social and governance factors. Using this system, the bank’s analysts raised their target price for Axa SA shares by 6%, their target price for Swiss Re AG, Zurich Insurance Group AG, Assicurazioni Generali SpA, Allianz SE and Munich Re by 5%, and their target price for Scor SE by 4%.
Prudential Plc ranked lowest of the 10 companies in the SocGen report, getting just a 1% boost in its target price from its coal policies.
Putting a stop to coal underwriting is particularly significant because, without insurance, coal projects are simply not viable, the SocGen analysts wrote in their 74-page report. “Therefore, the insurance industry can, almost single-handedly, exert pressure on coal energy producers, which other industries are less well placed to do,” they wrote.
Climate Analytics, a climate science institute, said coal is the most carbon-intensive fossil fuel, and getting rid of it is a key step to achieve the emissions reductions needed to limit global warming to 1.5°C. The institute said its research shows that coal needs to be phased out globally by 2040 to meet commitments in the Paris Agreement.
Nevertheless, little has been done to curb the growth of coal, the SocGen analysts wrote. As recently as July, new coal projects with a combined capacity of 737 gigawatts were still in the pipeline or under construction. Given this potentially disastrous trend, insurance companies deciding to get out of the business could have an outsized influence on curbing coal.
The SocGen report cites analysis from Insure Our Future, which said Axa and Swiss Re scored the highest for their underwriting policies.
Both companies said they have stopped insuring new and existing coal projects. Scor, Munich Re, Allianz and Zurich Insurance have “somewhat less comprehensive” efforts to sideline coal, since they still provide insurance for some existing coal operations, according to the report.
European insurers are at the forefront of dumping their coal investments, too. Scor, Axa, Swiss Re, Zurich Insurance and Allianz are leading the way, the analysts said.
The same can’t be said for U.S. insurers, such as American International Group Inc. and Travelers Cos., said Ross Hammond, senior strategist at the Sunrise Project. These companies are providing a lifeline to the coal industry by continuing underwriting support, he said.
AIG and Travelers are among the companies that have yet to take any steps to restrict support for the fossil-fuel industry, according to a report published in December by Insure Our Future.
The Sunrise Project is among the nonprofits behind “BlackRock’s Big Problem” campaign, which is pushing the world’s largest money manager to use its heft to press companies to align practices with a low-carbon world. For the past four years, Sunrise Project has worked through Insure Our Future to pressure the global insurance industry to stop underwriting and investing in coal.
“Ending insurance for coal and other fossil fuels is most important thing for insurers to do to fight climate change,” said Peter Bosshard, the Sunrise Project’s finance program director. “It’s in the public interest.”
A New Coal Mine Undercuts U.K.’s Claim To Climate Leadership
The government’s defense of the new mine is a good case study of the doublespeak rife in climate diplomacy.
As the U.K. prepares to host the next round of major global climate talks in November, Prime Minister Boris Johnson’s government has adopted the most ambitious emissions-reduction goal among large economies.
It’s hoping that leading by example will encourage other countries to put forth stronger targets to arrest global warming. That’s why the U.K. government’s backing of a new coal mine has baffled climate experts. Endorsing the extraction and use of the dirtiest fossil fuel directly contradicts its green agenda.
“It’s a disastrous decision for the U.K.’s claim to climate leadership,” said Rebecca Willis, a professor at the Lancaster Environment Centre. “It’s confusing to people that, as the country leading international climate negotiations, the U.K. is telling other countries what it expects of them, but consenting to a new development digging out the most polluting fossil fuel.”
The U.K. government’s own adviser on these issues, the Climate Change Committee, declared last week that the decision to open up a new coal mine “gives a negative impression of the U.K.’s climate priorities.”
The Johnson administration’s difficult position echoes a bigger conundrum. Many countries are trying to balance their desire to contribute to the global fight against climate change against domestic pressures to exploit their own natural resources. The U.K. government’s defense of the new mine is a good case study of the doublespeak rife in climate diplomacy.
First, the facts. The new mine, located in the West Cumbria region, is expected to receive permission to keep digging till 2049—just one year before the U.K.’s legally mandated deadline to reach net-zero greenhouse gas emissions. The country will use some of the coal for making steel, but 85% of it is marked for export to Europe.
In that period, the CCC expects the project to add about 400,000 metric tons of carbon dioxide equivalent of emissions each year.
Willis’ analysis, which accounts for all emissions from burning the coal from the mine, whether added to the U.K.’s ledger or not, comes to a staggering 420 million tons. That’s approximately how much the U.K. emitted from all its activities in 2018.
In West Cumbria, about 25% of the population has no educational qualifications and about 25% of the population is above the age of 65.
The prospect of 500 jobs at the new mine convinced the local council to approve it. But it also defended the decision by saying that opening the coal mine at home saves another country from opening a mine to meet the U.K.’s demand, while saving emissions from transporting that coal.
Such arguments are “economic nonsense,” Paul Ekins, professor of resources and environmental policy at University College London, wrote in April. The increase in supply of a commodity (in this case, coal) reduces its price, which could encourage greater use and thus increase demand and emissions. In other words, the opening of a U.K. coal mine is no guarantee that another one somewhere else will not open.
The national government typically does not interfere with decisions of local authorities, but it has the right to do so. In January, Robert Jenrick, the minister who holds that power, declined to exercise it. In light of the CCC’s comments, campaigners are now calling on Jenrick to reconsider the decision and stop the mine opening, though there’s no indication he will change his mind.
On Tuesday, Energy Minister Anne-Marie Trevelyan said it was better for the U.K. to have its own coking coal, rather than import it from overseas in order to make the steel needed for wind turbines, electric cars and nuclear power plants. The CCC has said the U.K. will have no use for coking coal after 2035.
“That is part of that whole question of carbon leakage, which is absolutely critical in the big picture to this journey that we’ve set ourselves on as a planet,” Trevelyan said at an online panel discussion hosted by the think tank Onward. “Now that China and the U.S. are also in this conversation, it’s all about the balance between nationhood and ensuring that we can have the security we need.”
These kinds of conflicts over climate and resource extraction are expected to intensify. It’s one reason, for example, that even China’s state-led economy is struggling to decarbonize as quickly as its goals demand. Even there, coal mining and other emissions-intensive industries have a tight grip on local economies and politics.
“The solutions need a bit more imagination and creativity” to hold officials accountable, said Doug Parr, Greenpeace U.K.’s chief scientist.
One way to ensure a climate-aligned outcome in such conflicts, says Willis at the Lancaster Environment Centre, is for national governments to set out clear dates on when different types of carbon-intensive activities are to be phased out entirely. The U.K. has a goal to phase out coal in electricity generation by 2025, but no such deadline on the mining of coal, leaving wiggle room for places such as Cumbria.
Coal Country Races to Shield Itself From Biden’s Climate Plan
A series of state proposals would make it harder to shut down coal-fired power plants even as clean energy becomes cheaper.
Coal’s slow downfall is gaining momentum across the U.S. as clean energy becomes cheaper and wins widespread support, but lawmakers in mining states from Wyoming to West Virginia are determined to fight back with a series of roadblocks to President Joe Biden’s plan to cut greenhouse-gas emissions.
Seeking to prolong the lifespan of an industry that’s vital to local economies, at least five states are seeking to pass legislation that would give them weapons such as bigger hurdles to shut coal-fired plants, a war chest for potential legal battles, more power to state regulators over utilities, tax cuts and cheaper state insurance for power stations.
The race to shield coal country from an energy transition that Biden contends will generate jobs and wealth in everything from solar-panel manufacturing to wind power generation highlights the political complexity of the shift to renewables.
Even some Democrats in coal-producing states support the efforts to protect people’s livelihoods and the funding of schools and other public services in areas that derive income from the dirtiest fossil fuel. Meanwhile, utilities say the measures will drive up costs for ratepayers, while environmental groups say they’re only slowing, not stopping, the eventual move away from coal.
“It’s not planning for the future,” said Dennis Wamsted, an analyst for the Institute for Energy Economics and Financial Analysis. “It’s protecting the past.”
In Colstrip, a town in eastern Montana founded by the Northern Pacific Railway in 1924 to provide coal for steam locomotives, a power plant supplied by local mines has long been crucial to the area’s economy. That’s why Mark Sweeney, a Democratic state senator, supports proposals aimed specifically at keeping it open.
Even though he recognizes climate change is a serious issue and that his stance makes him an outlier in his party, he says he worries about the devastating impact of a shutdown to the community. If it shuts, “it’s a ghost town,” he said.
Sweeney, who hopes the Colstrip plant can run for at least another 10 years, also argues that few emissions are produced delivering coal from the nearby mine, and that’s much more efficient than shipping the fuel to power plants in other states or across the world.
“The last one that should be shut down is the one that’s sitting on a coal pile,” he said by phone. “We have a whole lot of coal.”
In Wyoming, the country’s biggest coal producer, the Republican-dominated legislature is considering a bill that would require the Public Service Commission to assume that early retirement of coal-fired power plants isn’t in the state’s best interest, making it harder for utilities to shut facilities they’ve determined aren’t economic.
Another proposal would set aside half a million dollars for legal challenges against other states that pass laws restricting the use of coal.
One of the goals is to protect mining jobs that underpin the local economy, said Eric Barlow, a Republican state representative who co-sponsored some of the legislation. His district in the northeast part of the state is in the heart of coal country, where output has plummeted in the past decade as utilities started using more renewables and natural gas.
“There’s no doubt we’re in a transition,” said Barlow, who raises cattle, sheep and yak on his ranch. “You can imagine what that does for jobs in this community.”
Republicans dominate the state’s government, controlling both chambers and holding the governor’s office. The effort is supported by the governor and at least some of the legislation is likely to become law, said Travis Deti, executive director of the Wyoming Mining Association.
“Wyoming is pulling out all the stops to try to save the coal industry,” Deti said.
The proposals don’t sit well with utilities, which typically seek to produce power at the lowest cost through a mix of generating assets.
When a plant no longer fits into the equation — because maintenance costs go up at aging facilities, or another asset might have lower fuel costs or a coal site may need to install expensive pollution-control systems — then closing it will help ensure ratepayers don’t pay unnecessarily higher costs.
That’s what’s likely to happen if the state assumes more control over this decision, said David Eskelsen, a spokesman for Rocky Mountain Power, a PacifiCorp utility that operates four coal power plants in Wyoming. The company converted part of one of them to gas last year.
“Legislative attempts to force these plants to stay open does raise concerns about the price of electricity customers will have to pay,” he said.
Power providers in other states concur. West Virginia, the second-biggest coal producer, is considering a bill that would give state agencies additional oversight and approval authority over utilities that are seeking to close a power plant. The result could be higher power prices, or even making the state less attractive for outside investors, according to Jeri Matheney, a spokeswoman for Appalachian Power.
“It certainly would make closing a plant more difficult,” she said. The American Electric Power Co. utility has three coal plants in West Virginia, including the Mitchell facility that the company has said is close to being uneconomic and may go dark in 2028.
That’s what Rupie Phillips, the Republican state senator who co-sponsored the bill, wants to avoid. Coal accounts for about 20% of the state’s economy, and declining demand for the fuel at U.S. power plants threatens jobs in the region.
“I’m dead against shutting proven things down to make renewables more attractive,” he said. “Not on my watch.”
That strategy is ignoring a global trend away from fossil fuels, said Bill Corcoran, director of the Sierra Club’s Beyond Coal campaign.
“Sitting on a lot of coal reserves is no longer a path to prosperity,” he said. “These states are stumbling around to find some way to delay the inevitable transition.”
Other states are also pursuing legislation to protect local coal industries. North Dakota is considering a bill that would reduce taxes on coal power plants, while another would consider whether the state should offer insurance to the industry after premiums from third-party insurers climbed. Arkansas introduced legislation aimed at making it harder for utilities to close power plants.
In addition to the proposals to protect the Colstrip plant in Montana, another bill would require the state to evaluate the economic impact on local communities when a utility sought to shutter a power plant, another move designed to make the process of shutting down a site harder. While that one has been tabled in the Montana House of Representatives, its Republican sponsor Braxton Mitchell expects it to be picked up in the state senate soon.
“No plant, no mine,” Mitchell said. “No mine, no school, no libraries, no parks, no roads. It gets to be a pretty ugly picture pretty fast.”
Coal Is Getting Even Closer To The End of Its Line
The U.S. is on its way to using less than at any point since the 19th century.
In 2020, Americans used 447 million short tons (to distinguish from metric tons) of coal. That’s enough to fill 4 million railroad cars, which sounds like a lot. But it’s also the country’s lowest annual coal consumption since 1965, and even that barely hints at the historical territory coal may soon explore. A few more years at the downward pace of the past decade, and U.S. coal use will reach levels last seen in the 19th century.
This year coal is getting a respite as a roaring economic recovery boosts electricity demand after last year’s pandemic-induced drop. The U.S. Energy Information Administration is forecasting a 12% increase in coal consumption for the year and a slight increase in 2022.
After that, though, it’s hard to see what could stand in the way of a resumption of the decline, which averaged 5% a year in the decade before the pandemic.
Most of the market-share loss so far has been to fracked natural gas, but the combination of cheap wind and solar power plus better batteries will likely push coal’s continued decline. Donald Trump’s pro-coal policies failed to slow its downward spiral; President Joe Biden’s climate policies will aim to accelerate it. By 2030, BloombergNEF forecasts, electricity generation from coal will have fallen to about half of 2020’s depressed level.
Coal became the country’s primary energy source in the late 1880s, displacing the forest-destroying practice of burning wood. It ceded the top spot to petroleum in 1950 but enjoyed a late-20th-century renaissance as the primary fuel for power plants. Now its long and useful—if environmentally costly—run in the U.S. would seem to be nearing an end.
Working In The Coal Mine
Employment in U.S. coal mining peaked long before coal consumption did, hitting a high of 863,000 workers in 1923. In 2007, when coal use peaked, it was 77,000. In March it was 43,600.
Whose War On Coal?
U.S. coal use fell at a 5.2% annual pace during Barack Obama’s presidency and at a 10.1% pace during Trump’s.
Keeping The Lights On
Of the coal consumed in the U.S. in 2020, 91% was burned to generate electricity, with almost all the rest used for steelmaking and other industrial purposes.
No Coals In Newcastle
In the U.K., where the coal-fueled Industrial Revolution began, annual consumption has fallen below the 10 million metric tons it’s estimated to have first reached in the 1790s.
Replacing Coal Plants With Renewables Is Cheaper 80% Of The Time
A new report shows that the economics may not even support running U.S. coal plants, let alone building them.
About 80% of U.S. coal plants are now more expensive to keep running than to swap out for new wind and solar capacity, according to a report from Energy Innovation, a non-partisan climate and energy think tank.
While renewables cost more than fossil energy for much of the last century, prices for new wind and solar have dropped so quickly in recent years that they were already cheaper than new coal. This report shows that the price differential holds true for a growing amount of existing coal, as well. “This is becoming true for more and more plants moving forward—and at an accelerating pace,” said Eric Gimon, a senior fellow with Energy Innovation and a co-author of the report.
Coal has been steadily declining as a fixture of the U.S. energy mix for more than a decade due to combined pressure from activists and market forces. The Sierra Club, which runs the Beyond Coal campaign aimed at eliminating coal power in the U.S., says that 339 plants have either been retired or are on their way to retirement since 2010, leaving just 191 still operating indefinitely.
(Michael R. Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, has committed $500 million to launch Beyond Carbon, a campaign aimed at closing the remaining coal-powered plants in the U.S. by 2030 and slowing the construction of new gas plants.)
Coal use has dropped so precipitously that it’s no longer the leading stationary source of air pollution, according to another new study out Wednesday. The report from researchers at Harvard University found that as of 2017, burning biomass and wood for energy led to more detrimental health effects than coal. That same year, burning gas caused more deaths than coal in at least 19 states.
Still, coal plants produce about a billion tons of carbon emissions annually. President Joe Biden has committed the U.S. to reducing its greenhouse gas emissions by at least 50% compared to 2005 levels by the end of the decade, and energy modelers say that almost all remaining coal plants would need to be shuttered for the U.S. to meet this goal. The analysis from Energy Innovation should be an encouraging sign for those following the country’s progress.
The think tank’s numbers differ slightly from the Sierra Club’s. Researchers there looked at 235 existing coal plants in 2019, minus seven that were already slated for retirement, and calculated costs for fuel, operations, and ongoing capital expenses.
Then they compared those figures against weighted regional averages of the cost to build wind and solar from scratch and found that 182 plants, representing 72% of existing coal generating capacity, were no longer justifiable based on the economics.
Energy Innovation’s analysis doesn’t include all the considerations a real-world utility might take into account. For instance, it focuses narrowly on operation and construction and doesn’t factor in the added cost of decommissioning existing facilities. Perhaps a larger omission, the calculations don’t include the price of batteries, which are necessary to overcome the intermittency of wind and solar.
Given this, the authors said that in some cases, the cost comparisons might not hold up. Still Gimon said, the report should be seen as a “barometer” of the changing economics of coal-fired electricity.
Coal Prices Hit Decade High Despite Efforts To Wean The World Off Carbon
Rebounding electricity usage and scanty rainfall in China have added fuel to the rally.
Coal prices have climbed to their highest level in a decade, making the fuel a hot commodity in a year when governments are pledging reductions in carbon emissions.
A shortfall of natural gas, rebounding electricity usage and scanty rainfall in China have lifted demand for thermal coal. Supplies have been crimped by a closed mine in Colombia, flooding in Indonesia and Australia and distorted trade flows caused by a Chinese ban on Australian coal.
Prices for thermal coal—which power plants burn to boil water into steam, spin turbines and generate electricity—have more than doubled over the past year as a result. Coal delivered into northwest Europe earlier this month hit its highest price since November 2011, having climbed 64% in 2021. Prices for coal exported from Newcastle in Australia, most of which heads to Asia, have risen 56%, according to Argus Media.
Both coal-price benchmarks have outstripped gains in oil, copper and other commodity markets that are benefiting from a vaccine-fired burst of economic activity. The upswing in fuel markets is contributing to higher electricity prices in the U.S. and Europe. Central banks are grappling with a jump in inflation powered in part by rising raw-material costs, though highflying commodities such as lumber have lost steam of late.
The rally is a reminder that efforts to wean power systems off coal to limit planet-warming emissions are in their early stages, and may prove halting while the fuel competes with other energy sources. The world’s appetite for coal peaked in 2014 and is unlikely to return to pre-coronavirus levels, the International Energy Agency forecasts. But analysts say spurts of demand, coupled with a dearth of investment in new supplies, could lead to spells of higher prices.
Prices are expected to stay at elevated levels for several months, delivering a windfall for companies that held on to coal mines in the face of pressure from some investors to abandon them. Glencore PLC will be the chief beneficiary among big Western miners, according to UBS Group analyst Myles Allsop.
The U.K.-listed commodities giant has said it would run down its mines in Australia, South Africa and Latin America rather than divest them. BHP Group Ltd. , in contrast, is looking to exit thermal coal. Anglo American PLC this month spun off its South African coal business, shares of which have gained 48% since their debut in Johannesburg.
“Supply is shrinking and it’s probably shrinking faster than demand,” said Tom Price, head of commodities strategy at Liberum. “Everyone had turned their backs on these [thermal-coal mining] assets. Those companies that have clung on to them have made a small fortune on them in just the past few months.”
Analysts say the jump in European coal prices is most surprising because it has taken place alongside a surge in the continent’s market for carbon offsets. Prices for European Union emission allowances have shot up 69% to over €50 a metric ton, equivalent to about $60 a ton, and recently hit a series of all-time highs.
In theory, high offset prices should cool demand for thermal coal, which produces more than twice as much carbon per unit of electricity as gas. Instead, consumption has risen because gas and power prices have also jumped. That has made it less profitable to consume gas while boosting the appeal of coal and its sister fuel lignite.
Coal is hardly in ready supply, said Jake Horslen, editor of Argus’s Coal Daily International. Glencore’s Prodeco mine in Colombia, a big exporter to Europe, has been closed since spring 2020. Australian miners cut back last year and floods in the port city of Newcastle disrupted exports this March.
High prices in Asia, partly spurred by China’s decision to bar Australian coal over Canberra’s call for an international inquiry into the origins of Covid-19, have drawn cargoes away from the Atlantic and toward the Pacific.
In the long run, analysts say the outlook for coal producers is gloomy. Leaders at the Group of Seven summit this month said coal-fired power stations were the biggest source of greenhouse-gas emissions and pledged to double down on efforts to cut back on the fuel.
But for now, coal demand is back on the rise. German utilities are on course to produce 35% more power from coal and lignite in the first half than in the same period last year, according to Argus data.
Chinese import demand, meanwhile, has been boosted by a drought that knocked hydropower generation in Yunnan province.
Coal Shows Its Staying Power As Economies Bounce Back
Surging electricity use and higher natural-gas prices are giving coal new life despite its environmental drawbacks.
Coal use is surging in some of the world’s largest economies as electricity demand rebounds from the pandemic, illustrating the challenges to countries looking to wean themselves off the dirty but reliable fossil fuel.
Coal was in decline for years in many countries, but its use is now picking up in the U.S., China and Europe despite growing pressure from governments, investors and environmentalists to curb carbon emissions. The leading reason for the uptick—which has pushed coal prices to multiyear highs—is rising power demand as economies reopen rapidly from pandemic hibernation.
While analysts and executives say the resurgence of coal is likely to be short-lived, it shows the world’s continued dependence on fossil fuels until renewable-energy capacity grows further and storage technologies improve.
Countries have spent billions adding renewable-power capacity at record rates, but solar and wind projects generate electricity only when the sun is shining or the wind is blowing, and can’t be ramped up when demand rises. Those limitations mean the world is still reliant on fossil fuels, especially when there is a surge in electricity demand. Analysts say this will remain the case until more renewable capacity is added, along with storage such as batteries.
“It’s difficult to get off coal because of security of supply. At the end of the day you need to keep the lights on,” said Kathryn Porter, founder of energy consulting firm Watt-Logic. “When governments are faced with the choice of not supplying electricity, or using coal, they will use coal.”
The need for more coal is arising as economies recover. The global economy is expected to expand this year at the fastest pace since 1980, according to the International Monetary Fund, as advanced economies spend aggressively to counter the impact of Covid-19 and related lockdowns. The IMF said in April that it expects the world economy to grow 6% this year, after contracting in 2020.
In the U.S., improving economic conditions are forecast to boost retail electricity sales in the commercial and industrial sectors by 2% this year, according to the Energy Information Administration.
Coal supplied 23% of U.S. electricity production from the start of the year through mid-June, up from 17% in the same period of 2020, according to a Wood Mackenzie analysis of preliminary EIA data. The consulting firm attributes the rise to the economic recovery along with higher natural-gas prices, which have prompted some to turn to coal instead.
For Southern Co., an Atlanta-based power company that provides electricity and natural gas in the South and Midwest, coal accounted for 22% of its generation mix during the first quarter, up from 17% last year. The company said the uptick reflected an increase in electricity demand and natural-gas prices, as well as colder temperatures.
Credit-ratings firm Moody’s Investors Service expects U.S. coal consumption to increase by as much as 10% in 2021, boosting revenue for coal producers, though it still views the industry as one in decline as the power sector shifts toward renewable energy.
The two largest U.S. coal producers, Peabody Energy Corp. and Arch Resources Inc., each reported higher first-quarter demand for thermal coal, used in electricity generation.
“While we may see a temporary improvement in thermal coal demand due to accelerating economic growth, longer term we expect domestic and global thermal markets to remain challenged,” Arch Resources said in an April regulatory filing.
Most big global mining companies have continued to shed coal assets even as prices rally.
In Europe, coal use has risen this year in some countries, including Germany and France, according to consulting firm Energy Aspects. Its data showed the trend emerging in recent weeks in the U.K., which plans to phase out all coal power by 2024.
With electricity demand growing, European coal use also has been boosted by a shortage of gas supplies after a long, cold winter drained storage sites in the region. That in turn has boosted natural-gas prices, increasing the appeal of coal for some power producers.
In the U.K., which has shunned coal for renewable power in recent years, demand for electricity is such that the grid operator has issued six notices since November warning that the system could need more power. May 2016 had been the last time such a note was issued.
China is also feeling the pinch. There have been recent power outages in the country’s southern provinces because of growing power consumption, heat waves and a late rainy season that has hindered hydropower facilities, according to the National Development and Reform Commission.
For the first five months of 2021, China’s largely coal-fired thermal-power generation was up 16% from a year earlier, said the NDRC, which is the government’s economic-planning agency.
In May, plants in Guangdong, China’s manufacturing hub in the Southeast, were asked to curb power use and suspend operations for hours, or in some cases days. Under the NDRC’s guidance, the province stopped curtailing power usage from June 5 and instead has received electricity supplies from surrounding provinces.
Some analysts say the surge in coal demand is unique to the pandemic. They also note that the rise is off a low base after an exceptional fall in demand last year amid lower electricity use and cheap natural gas.
Other analysts and executives, though, say the resurgence of coal shows the challenge of curbing the use of fossil fuels for electricity generation even as renewables gain traction. The International Energy Agency forecasts renewables will surpass coal in global electricity generation by 2025 and account for 33% of the mix.
Initially, most grids can accommodate some solar and wind capacity and cope with the fact their output is dependent on the weather and time of day, sometimes using gas and coal power as backup. But as the percentage of electricity generation from renewables increases, the need for solutions to that intermittency grows.
Potential solutions include batteries that could store power over the seasons, as well as fleets of electric vehicles charging at times when renewable power is available, said Chris Kimmett, power director at grid-stability specialist Reactive Technologies Ltd.
“But we’re not there yet, which is why you see the immediate default to coal-fired power stations,” Mr. Kimmett said.
Some analysts say the problems caused by spikes in demand could be exacerbated as sectors that previously didn’t run on electricity, such as vehicles, make the switch before there is enough low-carbon power generation available.
For instance, in Norway, where sales of electric vehicles surpass those of cars with combustion engines, power consumption from electric transport is forecast to double to 2% of total demand in the next three years, according to consulting firm Volue AS A.
The rise in coal-fired power generation “reinforces the message to every government that we need to speed up the transition,” said Jonathan Cole, head of offshore wind at Spanish utility Iberdrola SA.
“Electricity demand will continue to rise as we electrify more areas of the economy, and it is unthinkable that coal can be part of the mix going forward,” he said.
Coal Projects In Asia Face Dwindling Financing As Climate Pressure Mounts
Banks pull back funds for new coal plants, a move that could accelerate world’s transition toward cleaner fuels—but China and India plans loom.
Banks are cutting off funding for new coal-fueled power plants in poorer Asian countries, a move that could hasten the shift toward cleaner energy sources in some of the fastest-growing parts of the world.
Asian financiers provide the bulk of funding for new coal projects in countries such as Vietnam and Bangladesh, after U.S. and European lenders largely stopped greenlighting coal deals over carbon-emissions concerns.
But most key financiers in Japan and South Korea as well as some in China have signaled in recent months that they are planning to stop or slow the flow of money for projects outside their borders as their governments increasingly view overseas coal projects as risky investments.
In mid-July, China’s environment and commerce ministries advised some of the country’s biggest overseas lenders against investing in coal, by jointly publishing international-investment guidelines instructing them to include climate considerations, such as carbon-emissions reduction, in their project assessments.
Climate researchers have argued to political leaders that Chinese-backed coal plants or projects abroad could get shut down or canceled before investment costs or financing are recovered, and could expose lenders to reputational risks, people familiar with the matter said.
The chief economist at state-backed Industrial & Commercial Bank of China Ltd., or ICBC, told an international forum in May that the lender is crafting a road map for phasing out coal finance entirely. The bank has told activists it is withdrawing funding from two coal projects abroad, in Kenya and Zimbabwe.
In Japan, some important sources for coal-project financing in developing nations are also changing their policies. Mitsubishi UFJ Financial Group, or MUFG, and the Japan International Cooperation Agency, known as JICA, have put no-coal pledges in their lending and bond-issuance policies, prodded by climate concerns from activists and institutional investors.
State-owned Korea Electric Power Corp. , or Kepco, said in October that it would stop investing in new coal projects overseas and will either eliminate or convert to natural gas two of the four coal plants it is currently developing abroad.
The pullback could force poorer countries that lack their own funding sources to crimp coal-expansion plans and accelerate transitions to energy sources such as solar and wind.
It won’t, however, affect most projects inside China and India, the two biggest sources of new carbon emissions from coal. Both countries have big pools of domestic funding and plans to keep expanding their coal-burning fleets at home.
China alone accounts for more than half of the roughly 480 gigawatts of coal-plant capacity in construction or planning stages world-wide, according to data from Global Energy Monitor, a San Francisco-based nonprofit group—though not all those plants are expected to be completed.
In late July, China joined several other countries in G-20 meetings in Naples, Italy, in opposing plans to phase out coal use. China has defended the right of developing countries to continue using the fuel, since it is relatively cheap, abundant and easily transported.
China and India are building new coal-power capacity at a significantly slower pace than a few years ago. Some analysts say international and economic pressures could cause them to slow further.
China, India and Southeast Asia together account for nearly 90% of the world’s new coal-plant approvals. However, the countries’ investment in terms of gigawatt capacity was 80% less in 2020 than in 2015, according to International Energy Agency data.
“We are absolutely within sight of the last coal plant in the world reaching financial close” as Asia tightens funding, says Tim Buckley, director of energy finance studies for Australia and South Asia at the Institute for Energy Economics and Financial Analysis, a U.S.-based nonprofit dedicated to speeding the shift to green energy.
Consumption of coal, considered the dirtiest fossil fuel, will still be around for a long time. The developing world has an enormous fleet of existing coal-burning facilities that will use coal for decades to come.
Still, several factors are driving a reconsideration of new coal projects in development world-wide, around 35% of which are outside of China and India, according to GEM data.
The price of solar and other renewable energies has plummeted, while the cost of financing coal projects has risen. The amount of interest lenders charge beyond their cost of capital on loans for coal-fired power plants rose 63% in India and Southeast Asia during the past 10 years versus the previous decade, according to a recent study by researchers at the University of Oxford’s Sustainable Finance Programme.
Meanwhile, anticoal activism and international pressure have been building, especially for public financiers in Asia.
Public finance, which includes money from lenders such as the China Development Bank and JICA as well as state-owned enterprises like Kepco, is key to funding coal power in developing countries, accounting for as much as 65% in recent years, according to IEA estimates. Asian commercial banks are mostly unwilling to lend without help from state-backed financiers.
U.K. asset manager Legal & General Investment Management, with $1.8 trillion under management, sold its shares in ICBC and Kepco because it wasn’t satisfied with the companies’ approaches to coal. Japan’s Sumitomo Mitsui Trust Asset Management Co., with $750 billion under management, helped lead the push last year to pressure Kepco.
ICBC didn’t respond to a request for comment. Kepco said it decided to curb funding to coal plants abroad because of investor pressure and its own sustainable-business strategy.
Junichi Hanzawa, chief executive of MUFG’s banking unit, told The Wall Street Journal in March: “We’re hearing from stakeholders and other involved parties that they want us to strengthen” MUFG’s coal-lending policy. Two months later it closed some loopholes in a 2019 policy that halted new money for many coal-power projects and pledged to eliminate loans to greenhouse-gas emitters by 2050.
Investors note that MUFG—Asia’s No. 1 fossil-fuel lender, according to an annual ranking by a group of nongovernmental organizations—still has loopholes in its coal policy, including the ability to finance developers that could then use the money for projects on their own.
Still, MUFG and other Japanese lenders have been more receptive to investors and activists calling for changes since Japan’s government said late last year that it will eliminate carbon emissions by 2050, says Sachi Suzuki, an associate director at U.S. asset manager Federated Hermes Inc. That pledge was followed by a policy stating the government won’t support most new coal projects overseas.
All of Japan’s biggest banks now have similar no-new-coal pledges. Investors helped persuade JICA, a state-backed lender that has extended nearly $5 billion in loans for coal power since 2009, to exclude future coal projects from its bond proceeds starting in April.
JICA said it operates in line with Japanese government policy and declined to comment further.
“The world of 2021 is barely recognizable from five years ago when it comes to the degree and the intensity of finance campaigning and the results that are being got from it,” says Julien Vincent, founder of Market Forces, an Australia-based climate campaigner.
In China, which announced its own carbon-neutral goal last year, researchers are arguing that providing money for overseas coal power plants—for example through China’s Belt and Road development program—is no longer wise.
China’s embassy in Bangladesh told the country’s Ministry of Finance in February that it would “no longer consider projects with high pollution and high energy consumption, such as coal mining, coal-fired power stations, etc.,” according to a letter seen by the Journal.
China didn’t provide financing or investments to any Belt and Road Initiative coal projects in the first half of 2021, according to a study by the Beijing-based International Institute of Green Finance published last Tuesday. More than half of the $160 billion in coal-fired plants China announced as part of Belt and Road since 2014 have been canceled or shelved, another study by the institute found in June.
China is emphasizing “green” developments in its Belt and Road initiative, showing it is “a major global player in actively responding to climate change,” China’s Ministry of Foreign Affairs said in a statement.
Renewables Are Fast Replacing Coal, Except In Rural America
Electric cooperatives in less-populous areas have lagged behind, but some of their members are agitating for a quicker transition.
U.S. utilities are moving to replace coal plants with renewable-energy sources, but the shift is happening more slowly at the cooperatives that serve much of rural America.
Electric cooperatives sourced 32% of their power from coal in 2019, according to industry data. By comparison, the U.S. as a whole got about 23% of its electricity from coal that year, a 42-year low, according to the Energy Information Administration.
Co-ops, which provide power to about 42 million Americans, primarily in the Midwest and West, have remained more reliant on coal than investor-owned utilities in part because they don’t have the same means or motivation to retire coal plants.
Now, a growing number of co-op members are agitating for a faster transition to wind and solar energy, which is cleaner and increasingly cheaper than coal power. That push is creating tension within the organizations, which exist to share the costs of generating and procuring electricity for less-populous areas—leading some members to break away.
“The energy transition has been lagging for cooperatives,” said Duane Highley, chief executive of Tri-State Generation & Transmission Association, which serves more than a million customers in New Mexico, Colorado, Wyoming and Nebraska, and has seen some members depart. “But part of that is because we don’t have the same financial tools.”
Co-ops are different from their investor-owned counterparts in a number of ways. Because they are owned by customers, rather than shareholders, they can’t raise equity and instead rely mainly on debt for financing needs. They are exempt from federal income taxes and therefore can’t use renewable-energy tax credits. And many of the regions they serve rely on coal plants for jobs and tax revenue, making the prospect of closing them politically challenging.
The issue has emerged as a key challenge to the ambitious targets set by the Biden administration and many states to reduce greenhouse-gas emissions. Co-op industry leaders recently met in Washington to discuss ways to handle debt associated with coal plants as well as gaining access to federal tax credits for renewable-energy development.
Chris Riley, CEO of Guzman Energy LLC, a wholesale power company founded in 2013 to help co-ops purchase cleaner and less expensive electricity, said the prospect of harming local economies is a big hurdle for many co-ops in deciding whether to close coal plants prematurely.
“You’re spreading the positive economic benefit across a huge geographic area,” he said. “But you’re concentrating the negative impact in just a couple of towns and cities, those that have the coal plants and the coal mines.”
A Minnesota co-op last year said it planned to close a coal plant in North Dakota but opted instead to put it up for sale and continue purchasing the power it generates after local leaders opposed its retirement.
The transition to renewables has created new pressures for large co-ops like Tri-State, which own power plants and sell their output to smaller member co-ops that distribute power to homes and businesses.
Several of Tri-State’s members, who say they are now paying more for coal power than what they could pay buying renewables, are seeking estimates of what it would cost them to exit from their contracts. The Federal Energy Regulatory Commission is now examining the exit process.
Tri-State Generation & Transmission Association has been working to retire its fleet of coal plants more quickly as it expands its renewable-energy portfolio. The co-op retired the Escalante Station near Prewitt, N.M., last year.
Co-ops face certain financial hurdles in retiring coal plants, many of which still carry debt. Tri-State has been working to cut costs as it retires plants such as Escalante ahead of schedule.
Water is sprayed in the coal silos area, as Escalante is decommissioned. It is one of several coal plants that Tri-State has retired in recent years.
Coal plants are among the biggest polluting sources of electricity. But emissions aren’t released through the cooling towers as many people incorrectly believe, says Escalante’s plant manager as he points to a computer photograph of the facility’s six-celled cooling tower releasing steam.
Kit Carson Electric Cooperative Inc. in 2016 became the first to set off on its own after a protracted fight with Tri-State to negotiate an exit fee. Kit Carson has since been working to develop 35 megawatts of solar capacity by 2022, enough to meet about a third of its total demand.
It has also started purchasing wholesale power from Guzman Energy, which covered the co-op’s exit fee and structured its power-supply contracts to recoup that fee.
“Our members just wanted more renewables,” said Kit Carson CEO Luis Reyes. “If you look at renewables versus fossil fuels, it’s almost a no-brainer that at least part of your portfolio has to be renewable because it’s so cheap.”
The cost of generating power from a new coal plant over its expected life is now at least $65 a megawatt hour, according to investment bank Lazard, and can be as high as $159 a megawatt hour. New wind and solar farms, by comparison, can generate power for as little as $26 and $29 a megawatt hour, respectively.
Member defection could pose additional financial challenges for generation co-ops, which rely on their members for revenue that could be used to accelerate coal-plant retirements or otherwise spend on new generation.
“The economics of generation have shifted under their feet,” said Ray Gifford, an attorney who represents a Colorado distribution co-op in its effort to leave Tri-State. “You’re just waiting for catalysts to come along and make this shift happen.”
For many co-ops, coal-plant closures raise the possibility that the plants will become stranded assets, facilities that retire before they pay for themselves, with potential costs for their members. The Biden administration earlier this year proposed allocating $10 billion to help offset the costs of early coal retirements.
Since Kit Carson’s departure, Tri-State has set a goal to obtain 70% of its electricity from renewables by 2030, moved to close three coal plants and announced its intention to close another by 2030. But the plants had yet to fully depreciate, Tri-State’s Mr. Highley said, creating $800 million in stranded costs that it intends to recoup through customers. To offset the impact to rates, it has been trying to slash other operational costs.
“It’s got to all be paid back by our members,” Mr. Highley said. “There are no shareholders to eat it.”
Coal Is A Gold Mine (For Now) For Producers After Blistering Rally
Thermal-coal miner Glencore reported record first-half earnings and expects the fuel to be a big moneymaker for the rest of the year.
Miners are printing money from a business many are trying to exit: digging up thermal coal.
Prices for thermal coal, the variety burned to generate electricity, have shot to decade highs as supplies struggle to keep pace with demand from China and elsewhere during the global economic recovery.
Analysts expect prices to stay elevated because concerns about the fuel’s contribution to climate change have made it increasingly difficult for miners to obtain permits or funding to dig more thermal coal out of the ground.
The rally is filling the pockets of miners including Glencore PLC, Peabody Energy Corp. and Australia’s Whitehaven Coal Ltd. The companies stuck with thermal coal despite pressure from environmentalists and Wall Street to abandon the fuel.
The recent run-up in prices is also offering a parting gift to a clutch of miners, such as BHP Group Ltd., that are committed to leaving the energy-coal sector behind.
Glencore, the biggest producer of thermal coal for export by sea, on Thursday posted record earnings of $8.7 billion in the first six months of 2021, up 79% from a year earlier. A decline in coal production offset the effect of rising prices, which began to surge late in the first half, but Glencore said the coal market would be a big moneymaker for the rest of the year.
“For a responsible operator, you can still make decent money off these mines,” said Sean Munsie, a portfolio manager at South African investor Allan Gray, which is a large outside shareholder in Glencore.
Investors are rewarding the miners that stuck with coal. Peabody shares have more than quadrupled this year, while London-listed Glencore is up 39% and Whitehaven has risen 29%.
Even with higher share prices, companies will have a hard time financing thermal-coal projects, limiting supplies of the fuel.
Among the U.S. and European banks to have stopped greenlighting certain deals because of their carbon footprint, JPMorgan Chase & Co. said in 2020 that it wouldn’t provide project finance if the proceeds go toward developing completely new coal mines. Financiers in Japan, South Korea and China are also pulling back from the sector.
Glencore has said it would operate its coal mines in Colombia, Australia and South Africa until they run dry as part of its plan to get to net-zero emissions by 2050, an approach that sets it apart from other major diversified mining companies.
Rio Tinto PLC left the coal-mining sector in 2018, selling assets to the likes of Glencore, Whitehaven and Indonesia’s PT Adaro Energy Tbk. Anglo American PLC spun its South African thermal-coal business into a separate company in June and is on course to stop producing energy coal by the middle of next year.
Anglo American and BHP, the world’s No. 1 miner by market value, recently agreed to sell their one-third stakes in Cerrejón, a Colombian coal mine, to Glencore. BHP is also seeking to leave thermal-coal mining behind altogether, but high prices should help fatten profits while the company continues to own a large thermal-coal operation in Australia.
The price BHP received for thermal coal in the first half of 2021 was roughly 60% higher than in the previous six months. The company also has benefited from strong prices for commodities such as iron ore and oil. Analysts forecast a sharp jump in fiscal-year earnings and dividends when BHP reports results on Aug. 17.
For the U.S. industry, higher prices have provided a reprieve after a downdraft in coal markets in the early days of the pandemic tipped several smaller companies into bankruptcy. St. Louis-based Peabody reported a 15% year-over-year increase in second-quarter revenue and is spending on mine expansions. Chief Executive Jim Grech told analysts coal demand will grow globally even as it falls in the U.S.
Even with some grades of coal trading at over $150 a metric ton, those big international miners seeking to leave the commodity are unlikely to regret their decision, according to Tyler Broda, a mining analyst at RBC Capital Markets. “There’s a general aversion to thermal coal” among investors, he said.
The Surprisingly Stunning Afterlives of Old Coal Plants
As the U.S. moves toward greener electricity production, old coal-fired power stations are being repurposed for the new demands of a cleaner economy.
For environmentalists, climate change advocates, and public-health experts, the only good news on coal has been about the industry’s demise. Indeed, competition from cheaper natural gas, a boom in renewable energy, and tougher emissions regulations have forced coal-fired power plants across the U.S. to close.
While some opponents of the coal industry might want to see these fossil fuel relics flattened and sent to the dump, there are efforts to redevelop and preserve these important historical sites.
Here, we’ll show you some of the clever ways America’s coal infrastructure is being repurposed. With the use of tax credits and redevelopment grants, some dusty old plants are being turned into positive resources for the community.
One example is the Powerhouse (below), a decommissioned coal-fired power plant that was converted into a student union, recreation center, and athletics facility at Beloit College in Wisconsin. This summer the Powerhouse has hosted a mix of low-income, first-generation, and minority students as part of a program to help them prepare for applying to postgraduate programs at Ivy League universities.
Blackhawk Generating Station Commissioned as a coal-fired power plant in the early 1900s, the building now known as the Powerhouse once spewed clouds of dirty air into downtown Beloit, Wisc. Now, the site is helping young people plan for a brighter future.
Powerhouse Eatery, White Haven, Pa. Old coal-fired power plants have in some cases become a destination. At the Powerhouse Eatery, diners are served dishes of oysters, lobster, and filet mignon in a space that used to supply power to a sanatorium. The plant was renovated to create a restaurant in 1989, maintaining much of the existing construction.
Power House, St. Louis Many original features were maintained in the redesign of the site now known as the Power House in St. Louis. Years ago you could see giant coal-burning mechanics through the 26-foot-tall windows in this 1928 power plant. In 2006, after the building sat vacant for 25 years, architectural design firm CannonDesign bought it and converted it into an environmentally friendly regional office.
Shamokin Dam, Pa. More remote locations are proving to be attractive for new industrial purposes. The closure of a coal-fired power plant in Pennsylvania in 2014 opened up a 219‑acre stretch along the Susquehanna River for redevelopment. The area now hosts a medical marijuana cultivation facility, as well as a natural gas power plant.
Mt. Tom Solar Farm, Holyoke, Mass. The removal of a coal-fired power plant from the grid creates opportunities for cleaner energy generation. After one closed in Holyoke, Mass., in 2014, a portion of its land was used to build a community solar project.
The site now contains lithium-ion batteries that enable the storage of up to 3 megawatts of solar-generated energy.
Completed in 2018, the 5.8-megawatt photovoltaic facility with battery storage is helping Massachusetts reach its goal of net-zero emissions by 2050.
Germany Flirts With Power Crunch In Nuclear And Coal Exit
One of Germany’s biggest challenges in the fight against climate change is to keep the lights on.
As Europe’s biggest economy shuts its last nuclear reactor next year and utility RWE AG warns that coal plants may close earlier than planned, critics say green energy isn’t being added quickly enough. Germany’s ability to meet peak demand is poised to shrink rapidly over the next two years, increasing the risk of blackouts.
In a last push to save her fading reputation as ‘The Climate Chancellor’ before stepping down after next month’s election, Angela Merkel announced Europe’s strictest emissions goals. But the green power revolution she fronted for almost two decades is running out of steam just as the electrification of the economy will increase demand.
“There is no doubt that security of supply must be high on the priority list of the next government and political action is urgent,” said Alexander Nolden, chief economist at RWE. “The new climate law is a real game changer for Germany. It means a much higher ambition and will demand much higher speed for the changes needed.”
Merkel admits her government got it wrong. Power demand will probably increase more than official forecasts by the end of the decade, she said in June. A month earlier she recognized that increasing local opposition and too much bureaucracy have curbed investments in green power.
For a long time, Germany showed the world how renewable energy could be added to make up a substantial share of the power mix. Now, the Norwegian utility Statkraft SF says it takes twice as long to build a wind park in Germany compared with the U.S. Complaints from locals, a lack of space, stricter environmental standards and a longer permitting process are just some of the reasons growth is slowing.
Take Roland Schueren. He runs 19 bakeries in western Germany and to save on power bills and help speed up the energy transition, he wants to add more solar panels for his power-hungry ovens and electric delivery vans. But the prohibitive rules are holding him back. He’s now targeting a parliamentary seat for the Green Party.
“We can’t build more photovoltaic, our roofs are full,” he said by phone from one of his shops in Hilden, a small town outside Dusseldorf. “We could rent our neighbor’s roof and build more photovoltaic there, but this is not allowed. The energy transition is slowed down by the government.”
Merkel’s coalition is still ahead in the polls, but the Green Party has emerged as a real contender in the Sept. 26 election. Utilities, energy traders and analysts are pondering what policy changes might come next to help meet the new goal of a 65% reduction of carbon dioxide emissions by the end of the decade.
RWE, which operates coal plants in Germany and abroad, said Aug. 12 that it is “conceivable” the next government will revise the plan to phase out lignite, the dirtiest form of coal. Currently, the exit should be complete by 2038.
Sabrina Kernbichler, a European power analyst at S&P Global Platts, expects the phase-out to be done early next decade. That would need higher wind and solar output for 2030 and beyond, as well as expanding the grids to carry the extra power.
But the crunch could come much earlier. By 2023, the margin of supply over peak demand is expected to plunge to 3%, or two gigawatts, from 26% before the pandemic, according to BNEF.
And by 2026, output from coal plants could fall as much as 70% compared with levels prior to the Covid-19 crisis, BNEF said. At the same time, power consumption is poised to return to pre-pandemic levels next year, according to BNEF. Demand would then increase 4% by the end of the decade and as much as 25% by 2040, according to the researcher.
A supply squeeze would send power prices soaring for the many thousands of companies that make up the backbone of the economy. Wholesale rates have already jumped almost 60% this year to their highest level since 2008. That increase will feed through to the nation’s 40 million homes already paying the highest bills in the European Union, partly to fund the energy transition.
The decisions to exit nuclear, and coal were preceded by careful research, said a spokesman at energy regulator Bnetza. “The security of electricity supply is regularly examined.”
In the state of Rhineland-Palatinate, once home to two nuclear plants, the head of chemicals company Berger-Lacke GmbH rues the closures and worries about future supplies.
“Blackouts is one of the biggest risks we face,” said Thomas M. Adam. “Even a couple of days without stable power supply would be very serious.”
In the meantime, Germany may have to rely more on neighboring markets for imports. But the closure of fossil-fuel plants in other nations too means that availability could be limited during harsh winters, just when the power is needed the most, according to BNEF analyst Andreas Gandolfo. “During a collective crunch, Germany could find itself in a tight spot.”
U.S. Coal Miners Could Be Next In Line For Industry Bailouts
There’s agreement on both sides of the political spectrum that funds need to be unlocked to clean up defunct operations.
There isn’t much that Senate Minority Leader Mitch McConnell and the Sierra Club agree on, but one of those rare things is a measure that’s part of the bipartisan infrastructure package to be considered by the U.S. House of Representatives later this month that would fund $11.3 billion to remediate coal mines abandoned before 1977.
It’s essentially a taxpayer subsidy of a polluting industry and yet it has plenty of support on both sides of the political aisle.
Coal’s harm is well known, and bipartisan consensus arose for reasons both environmental and economic. Abandoned mines pose both a physical danger as well as a climate threat. They leak copious amounts of methane — a greenhouse gas 80 times as potent as carbon dioxide over its first 20 years.
And fixing those myriad problems creates jobs for small businesses — particularly in former coal states like, yes, Kentucky, which McConnell represents.
Still, it wasn’t supposed to be this way: The coal industry was legally obligated to pay this bill.
For over a century, miners drilled holes in the ground, and when they were done extracting the coal, they would walk away. This had bad consequences: Open pits and collapsing walls are physical hazards, and underground fires and acidic drainage into streams are environmental nightmares
In 1977, Congress passed the Surface Mining Control and Reclamation Act to address the mess. Part one was a fee on coal production to clean up mines abandoned before that year. Part two mandated that companies promise to clean up before they could even start drilling a new mine. To ensure this, they had to bond — essentially put up a promise of assets as a guarantee that they wouldn’t walk away.
In the interim years, industry fees have been used to ameliorate roughly $6 billion of the pre-1977 mine damage with measures from filling in holes in the ground to setting up systems to reduce acid-rain runoff.
But there is at least $20 billion in remediation to be done, according to an April study by the Ohio River Valley Institute, a nonprofit that follows stranded assets from the oil and coal industry.
Rebecca Shelton at the Appalachian Citizens Law Center in Whitesburg, Kentucky, explains that there are two causes for the shortfall in funds. The first is that the industry is declining so there is less business to tax every year. The second is that the fee was never enough in the first place.
“It was a compromise between folks saying, ‘The industry does need to be held accountable for this, because they are continuing to profit off of this mineral resource’ and the current industry, who say ‘It wasn’t our company that created that mess,’” Shelton said.
So if the fee for the mines abandoned before 1977 wasn’t enough, what about the guarantees to clean up mines drilled since? Well, those aren’t so reliable either. “There are a lot of different kinds of bonds that companies are allowed to use in order to kind of ensure their reclamation responsibilities,” says Shelton, “but we already know that mostly they are inadequate.”
Ashley Burke, a spokeswoman for the National Mining Association, disputes that assessment, saying the industry is already overburdened. “Coal companies are paying twice for mine cleanup,” she wrote in an email. “They are paying for legacy mine issues dating prior to 1977 and they paying to ensure today’s operations are reclaimed.”
She also cast doubt on whether the fees were being put to good use. According to the Office of Surface Mining and Reclamation and Enforcement, almost $12 billion of fees have been collected, with only half being distributed to states and tribes for reclamation. The rest either hasn’t been allocated, was given to miners’ unions for health expenses, or has been used to cover the agency’s own operating expenses.
There are already signs that we are headed for further trouble. In some states, many coal companies were allowed to assure their own bonds. That turns out to be a huge loophole when a company is going to go out of business and doesn’t have the assets it claimed, say, 30 years ago when it signed the bond.
Shelton says her group and their allies are working hard now to get tougher bonding rules for the industry, but most of their efforts have failed. Another multibillion dollar bailout may be inevitable down the line.
S. Africa Challenged Over Plans For New Coal Fired Power Plants
South Africa’s energy regulator and energy department have are facing a demand from some of the country’s leading environmental groups to halt plans to allow the construction of new coal-fired power plants or face legal action.
Plans for the construction of 1,500 megawatts of coal generation capacity are included in the 2019 Integrated Resource Plan for Electricity and a so-called ministerial determination passed on Sept. 25 last year.
“Our clients’ instructions are to oppose the 1,500 megawatts of new coal in the determination and the IRP 2019 in the event it is to proceed,” the Centre For Environmental Rights, a legal organization, said in a statement on behalf of its clients on Tuesday.
The CER is representing groundWork, Vukani Environmental Justice Movement in Action and the African Climate Alliance.
The groups argue that the recent decision by the government to allow private companies to build power plants of up to 100 megawatts to be built without a generation license negates the need for more coal.
Greece Could Shut Coal-fired Plants Ahead of Plan, Premier Says
Greece is moving faster than expected to phase out coal-fired power plants, as the government of Kyriakos Mitsotakis steps up efforts to tackle the effects of the global climate crisis.
“We said we would do it by 2028,” Mitsotakis said in an interview with Bloomberg TV on Thursday, referring to his government’s target for shuttering the plants. “I think it will be possible to do it by 2025.”
Mitsotakis called on European allies to speed up their efforts to address climate change after record-high temperatures during the summer sparked a series of blazes in the country, scorching forests, farmland and populated areas.
Now, the continent is also facing soaring energy prices, with the specter of unmanageable utility bills for households and businesses.
“We have made a commitment to support electricity users in Greece,” the premier said. “We are doing it by providing state funding but also encouraging electricity producers to absorb part of the cost increase.” The premier pledged that, as a result, Greeks “will not see significant increases in electricity bills in the next three to six months.”
Athens called this week for the creation of a European Union-funded mechanism to use revenue from extra sales of carbon permits to limit the impact of soaring energy costs.
“This is a real problem for Europe and it needs a European response,” the premier said.
After Greece revised its full-year growth forecast to 5.9% following a robust second quarter, with output reaching pre-pandemic levels, the premier indicated that the target may prove to be too conservative.
“This may be a pessimistic forecast,” Mitsotakis said in the interview.
UN Launches Pledge To Stop Building New Coal Power Plants
Seven countries, including Sri Lanka and Chile, have agreed to stop using the dirtiest fossil fuel.
Seven countries have signed a pledge initiated by the United Nations to stop building new coal power plants, with the aim to gather more signatures before the global climate summit COP26 in Glasgow next month.
The No New Coal agreement is the latest attempt to try and piece together a global phase-out of the dirtiest fossil fuel. UN Secretary General Antonio Guterres wants to end the pipeline of new plants this year, while COP26 President Alok Sharma has said his goal for the summit is to “consign coal to history.” Chile, Denmark, France, Germany, Montenegro, Sri Lanka and the U.K. signed the latest pledge.
“Moving away from coal is not a death knell for industrialization, but rather a much better opportunity for green jobs,” said Damilola Ogunbiyi, chief executive officer of the UN-backed international organization Sustainable Energy for All. That’s “what will drive other countries to join,” she said.
A separate initiative launched in 2017, called the Powering Past Coal Alliance, sets a higher bar. It includes 41 countries that have committed to phasing out existing coal operations as soon as 2030 in many cases, on top of promising not to build new plants. An additional 40 nations outside the alliance don’t have a single coal power plant in the pipeline, according to environmental think tank E3G.
That means more countries were ready to commit to not building new coal plants, but not all were ready to phase out existing operations. The No New Coal pact adds a missing step in the ladder for such nations by allowing them to make an easier pledge in the hope that it will ultimately accelerate the end coal.
In the run up to COP26, a number of such voluntary alliances are being created. Last week, the U.S. and European Union launched the Global Methane Pledge that aims to reduce emissions of the super-warming gas by 30% within a decade. Last month, Denmark and Costa Rica launched the Beyond Oil and Gas Alliance seeks to end the extraction of oil and gas by midcentury.
The patchwork of alliances targeting dirty sources of energy or specific greenhouse gases is a far cry from the systematic, orderly energy transition that the world needs. Rather, it’s an acceptance of the political reality of climate diplomacy that has to accommodate countries’ different stages of development.
Burning coal for electricity generation contributes to about a third of the world’s total carbon-dioxide emissions. With cleaner sources of power, such as solar and wind, becoming cheaper to build and operate, the case for ending coal keeps getting stronger. All emissions from coal power plants should end by 2040 if the world is to keep warming below 1.5 degrees Celsius, according to the International Energy Agency.
That’s a deadline Chile plans to meet. “We have an ambitious phase-out plan for all coal power plants,” said Juan Carlos Jobet Eluchans, the country’s minster of energy.
The No New Coal pact got a boost before its launch, with President Xi Jinping telling the UN general assembly this week that China will stop building coal power plants abroad. He didn’t provide details, but the announcement could mean an end to about 40 gigawatts of new coal power plants.
That would avoid as much as 235 million tons of emissions, according to Global Energy Monitor. Xi’s pledge came after similar commitments from the only other remaining major financiers of overseas coal power plants — Japan and South Korea — earlier in the year.
“China’s decision is pretty much the end of public financing for coal,” said Chris Littlecott, associate director of fossil-fuel transition at E3G. “Private investors now face all of the risks of investing in coal on their own.”
The pipeline of new coal power plants has collapsed globally over the past decade. Since 2015, the world has canceled 1,175 GW of coal power plants—about the same size as China’s existing coal fleet, according to E3G—and thus avoided billions of tons of carbon dioxide that would have been dumped annually.
The No New Coal pact is a big step for some signatories. “Sri Lanka has been debating whether to build new coal plants for a few years,” said Christine Shearer of Global Energy Monitor, which tracks coal power plants globally. “If countries like Pakistan and Malaysia join, then we can really start to see the end of new coal plants.”
Still, there won’t be a significant reduction unless China, which is home to more than half of the world’s pipeline of new coal power plants, stops using the fuel. Xi didn’t address the domestic issue in his remarks to the UN.
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