Power & Market

The Coal Industry’s Ongoing Demise Is Helped Along by Federal Regulators

US policymakers are spurning free competitive markets for government-created energy monopolies and oligopolies, and the picking of winners and losers among fuel types. The preference for monopolies that block innovation, along with favoritism for oil and natural gas, as well as wind and solar, increases the risks of economic and environmental crises, and even war.

Monopolies Favored Over Competition

US politicians favor the Organization of the Petroleum Exporting Countries (OPEC) with immunity from antitrust law. OPEC comprises fourteen member nations, mostly located in the unstable Middle East and having authoritarian governments with nationalized oil monopolies. The oil cartel has the world’s lowest-cost oil reserves and provides 60 percent of global oil exports. OPEC has caused volatility in oil prices by limiting production for price gouging and overproducing (by increasing or maintaining production) to lower prices and wipe out competitors with predatory pricing.

US politicians also favor domestic big oil and gas oligopolies, such as Exxon Mobil and Chevron. Their costs have been reduced by preferential access to government-owned natural resources, land at no charge or below fair market rate, tax shelters, and environmental exemptions. In 2005, President and former oil man George W. Bush favored fracking for oil and by-product natural gas by leading legislation granting immunity from key provisions of the Safe Drinking Water Act. Regardless of whether or not one supports the Safe Drinking Water Act, the fact remains that by granting exemptions to some firms regulators are granting them monopolistic advantages. Half of US oil and two-thirds of natural gas is now produced using fracking.

US politicians have granted monopoly franchises to natural gas and electricity distribution utilities controlling gas pipelines and electricity grids, respectively. In regulated states, others are not even allowed to use the pipelines and grids for sales to customers unless permitted by the utility and regulators. Even in the few states where potential competitors are now allowed to use utility pipelines and grids, so-called deregulation rules first strengthened monopolies and then allowed manipulation by market participants. Monopolies were strengthened by allowing the utilities to spin off their power plants to affiliates and cronies for pennies on the dollar. Markets were manipulated with preferential and complicated rules and regulations. In addition, states allow utility monopolies to block direct sales of heat and electricity to large customers by lowering their rates while raising prices on smaller customers. Some states require the monopolies to conduct so-called competitive bidding for natural gas and electricity, but they commonly just select bids from themselves and cronies.

Oil and Natural Gas Favored Over Coal

Oil and gas account for 67 percent of total US energy use, compared to 13 percent from coal, the next highest source. US energy policies favor the use of oil and natural gas for all three major energy applications:

(a) Over 90 percent of transportation fuels are made from oil.

(b) Nearly 90 percent of heating comes from fossil fuels, mostly natural gas.

(c) Over 60 percent of electricity comes from fossil fuels, mostly natural gas, followed by declining coal use.

Each of these uses accounts for nearly a third of greenhouse gas emissions. Yet, recent environmental regulations have mainly affected the electricity sector and increased the market share of natural gas at the expense of coal. The US fuel mix is often compared to that of Germany, which has used renewable energy to reduce the use of fossil fuels to less than half of electricity consumption. However, Germany prefers coal to natural gas, as fracking is banned for environmental reasons.

US politicians, especially Republicans, favor oil and gas, even though the US is among the world’s highest-cost oil producers. Since 2015, fracking for oil and natural gas has failed to attract much investment even at oil prices of about $60 a barrel. World markets appear to be headed again toward increased reliance on oil exports from OPEC. This will increase the possibility of oil and natural gas price spikes, especially if global demand continues to increase. This could change with economic recession, however, as oil price spikes have preceded ten of the last eleven recessions. Moreover, the Middle East continues to host the world’s major war zones, and even more risk is posed by Trump’s baiting of Iran and abandonment of Syria to Russia.

Meanwhile, US politicians disfavor coal burning. Coal was often a more economic fuel than natural gas for power generation before the US passed new environmental regulations against it and, unlike with fracking, strictly enforced them. The US is also disfavoring coal by favoring wind and solar energy, since natural gas power plants can more economically provide complementary power (load following) for the fluctuating output from the renewables. The loss of coal markets has impoverished many local mining communities.

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