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Natural Gas, Not a Carbon Price, Spelling Trouble for Coal

Deutsche Bank report predicts massive fuel switching from coal to cleaner burning gas, even without a price on carbon

by Kevin Murphy

Nov 22, 2010

In 2009, U.S. lawmakers hoping to pass comprehensive climate legislation added tens of billions of dollars in federal subsidies for “clean coal” in the hope of striking a political deal to give coal a competitive future. The bill never made it through Congress.

Now a report released last week touting the bright future of natural gas points to the uphill battle coal may face holding on to its current share of the U.S. energy mix. A gas glut that has kept prices low to continue for another five years.

In the report, Deutsche Bank AG analysts predict natural gas—which creates about half as much carbon dioxide as coal—would comprise 35 percent of America's electric power generation by 2030, an increase from the current 23 percent. At the same time, they predict coal's share of the power grid would drop from 47 percent to 22 percent, with clean coal accounting for just one percent of the diminished total.

The Deutsche Bank report, , assumes that abundant supplies of natural gas and falling prices will drive a switch from politically-embattled coal even without a price on carbon.

The report says the developments would allow the United States to achieve a 44 percent reduction in CO2 emissions from the electric power sector by 2030, compared to 2005 levels.

"These reductions would be realized by using domestically abundant and secure sources of energy based on known technology that can easily be deployed at reasonable costs," said the report by Kevin Parker, head of asset management, and Mark Fulton, who oversees climate change investment research.

But clean coal industry spokespersons discounted the projection that coal use would fall by half in the next 20 years.

"It's the first time I've heard anyone make a prediction like that," said Jason Hayes, communications director for the American Coal Council. Hayes said coal has made a small resurgence in the past two years and will remain a strong force, especially due to technology that makes it burn cleaner while capturing and storing CO2.

Hayes said the country's increasing population and the rapid growth of computer devices and vehicles powered by electricity will create a growing demand for coal-powered sources. 

Clean coal is the industry’s preferred term for carbon capture and sequestration (CCS), a suite of technologies that capture, transport and bury CO2 emissions from power plants and industrial facilities.

CCS has yet to be successfully deployed on a commercial scale. The Waxman-Markey climate bill that passed the House of Representatives included up to $60 billion in bonus payments for the first fleet of CCS-equipped plants.

Without considerable incentives, coal's future seems troubled. Numerous plans for new coal plants have been blocked or scrapped in recent years because of climate concerns and investor uncertainty over looming regulations.

Climate Goals versus Coal

Coal has long been cast as the cheapest electric power option, but it is also the most emissions intensive, attributes which stoke the political struggle over how to keep it in the mix while addressing climate change. Though the Deutsche Bank report does not assume a carbon price, it does assume the coal industry will be confronted with some type of emissions regulations going forward.

In 2009, President Obama's promised to cut greenhouse gas emissions by 17 percent in 2020 and by 83 percent in 2050. But those goals rely on significant federal climate action, which so far has not materialized.

But Lisa Camooso Miller, vice president of media relations for the American Coalition for Clean Coal Electricity, maintains coal has a sound future.

"Leaders on Capitol Hill [recently] suggested that clean coal technology can be an area where Republicans and Democrats can agree," Miller said. "We believe that investments in clean coal technology will provide for the continued use of affordable and abundant coal as an energy source for America."

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