GILLETTE — One month ago, Tom Stalcup, plant manager at the Dry Fork Station, sat in a plush conference room inside this power plant 8 miles north of Gillette and ticked off the environmental challenges coal has faced during his 30 plus years in the utility sector. First came particulate matter, the dirt or soot that once flowed unabated from smokestacks. Then came sulfur dioxide and nitrogen dioxide. Mercury standards, which went into effect last year, were the most recent example.
In each case, Stalcup said, utilities had learned how to reduce emissions in order to meet society’s concerns. Carbon dioxide would be no different, he predicted, before adding a cautionary note.
“But we gotta have enough time to come up with the solution,” Stalcup said. “You ask me how long is it going to take? In my mind it’s that 15- to 25-year timeframe. That’s part of the concern some of us have with the rule as it came out. Is there enough time to come up with a solution?”
There may not be. Coal is in a race for its life, as concerns mount over the fuel’s contribution to rising global temperatures. President Barack Obama’s Clean Power Plan calls for cutting U.S. carbon emissions by a third in the next 15 years. Coal-reliant states have sued, but if the plan survives, it has the potential to reshape the American power sector.
The Environmental Protection Agency estimates coal will fall to around 27 percent of U.S. power generation, down from 40 percent in recent years.
The trend has stark implications for Wyoming’s economy and budget. In 2015, Cowboy State mines removed 376 million tons of coal, the most in the nation. Roughly 23,000 people work in the industry, directly and indirectly, and coal companies annually pay around $1 billion in taxes.
That’s why so much is riding on efforts like the one at Dry Fork Station, where teams of scientists will compete to find economic uses for the plant’s carbon emissions starting in 2017. Industry representatives and state officials hope the research will turn what is now viewed as a liability into a product that can be sold. Similar work is being done at two plants — one in Canada, the other in Mississippi — to inject carbon emissions into nearby oilfields to stimulate production.
But such efforts risk crossing the finish line too late. Utilities retired 12.3 gigawatts of coal power through the first 11 months of 2015, according to U.S. Energy Information Administration. That amounts to about 4 percent of American coal capacity. The spate of retirements has been accompanied by a wave of coal company bankruptcies, including two leading Wyoming producers.
Plans for new coal plants, meanwhile, are scarce. Coal accounts for 2 percent of the 93 gigawatts in planned power projects nationwide. Natural gas comprises 43 percent of that total, followed by wind (21 percent) and solar (13 percent).
A great deal of the incentive for carbon capture and utilization is based on coal’s importance to the U.S. power sector, said Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming. But the economic rationale for clean coal technology wanes as more and more plants retire and coal’s peers become more competitive, he said.
The cost of utility-grade solar and wind has fallen by 80 percent and 60 percent, respectively, since 2009, according to Lazard. The investment bank reckons prices have dropped to the point where both renewables are competitive with traditional fossil fuels, even without government subsidies.
Natural gas is a fiercer competitor, having displaced coal as the country’s leading source of electricity generation in six of 2015’s first 11 months, a first.
“It just seems like a perfect storm of events that are going to make coal markets very challenging,” Godby said. “Technological changes in competitors could make coal obsolete. And regulatory changes could make it so we can’t afford coal anyway.”
The trend has bleak implications for Wyoming’s coal mines. John Hanou is an industry consultant who produces an annual study of the supply and demand for Powder River Basin coal.
He estimates some 232 million tons of production, or about 52 percent of the 445.6 million tons the Powder River Basin’s mines produced at their peak in 2008, will be lost to coal plant retirements over the next two decades.
In a low-cost environment where demand is shrinking, only the most efficient producers will survive, he said. The mines with the highest costs of production are likely to absorb much of the lost tonnage, he said.
Alpha Natural Resources’ Belle Ayr mine and Cloud Peak Energy’s Cordero Rojo mine top the list of high cost Powder River Basin mines. Kewitt Mining Group’s Buckskin mine is another facing higher expenses.
Mines may well employ “shutdown economics,” Hanou said, greatly reducing their output but remaining in operation to avoid the reclamation expense of closing a mine.
“It wouldn’t surprise me, five years from now, 10 years from now, if they reduce production by 50 percent,” he said. “If you can postpone that final reclamation, that is future money you’re saving.”
Concerns over reclamation have become a central focus of Arch Coal and Alpha Natural Resources’ recent bankruptcies. The two companies have about $900 million in combined cleanup costs but lack the financial guarantees to ensure complete reclamation. Alpha, in particular, has said that full payment of its $411 million cleanup tab could hinder its effort to restructure its balance sheet.
The Powder River Basin’s largest mines are relatively well placed, Hanou said. Peabody Energy’s North Antelope Rochelle Mine and Arch Coal’s Black Thunder mine have 10 to 20 years of reserves at present production rates, he noted.
Reduced mining output has potentially far-reaching implications for Wyoming’s budget. The Cowboy State lacks personal and corporate income taxes, with mineral royalties accounting for the vast majority of its revenues.
But where revenue from oil and natural gas tends to fluctuate with commodity prices, coal has generally been steady, said Buck McVeigh, president of the Wyoming Taxpayers Association.
“You take that out of the picture, and we have to be looking at some way to make up that revenue source,” he said, noting the state faces a projected shortfall of roughly $626 million over the next three fiscal years. “When you’re talking about making up hundreds of millions of dollars, you’re not talking about a beer, alcohol or cigarette tax to get through this. You’re talking about a major change for taxpayers in the state.”
Not all are pessimistic on coal’s future, however. Kipp Coddington, director of the Carbon Management Institute at the University of Wyoming, acknowledged the difficult economic and regulatory challenges facing coal.
But he pointed to efforts in China and Japan to deploy high-efficiency coal plants as an example of the progress being made to address the sector’s carbon concerns. The University of Wyoming, meanwhile, is finishing the first of a multi-year project aimed at creating a coal refinery capable of producing carbon fiber, he said.
“I do think coal will be able to pivot more quickly than people think,” Coddington said, noting that consumer products and other markets might account for much of coal’s future revenue.
And for all its struggles, coal still accounts for about a third of U.S. power generation. Competing fuels also face their own challenges. Transmission capacity remains one of the greatest constraints for the expansion of renewable power. Natural gas faces questions over its susceptibility to price spikes. And new nuclear capacity has been hamstrung by worries over safety and waste.
“I am aware of no credible third-party analyst that is forecasting the end of coal,” Coddington said.
“(International Energy Agency) models, the EIA models — they all forecast robust percentages of coal use. I take those at face value. If a wand could be waved and coal were to go away, what would replace it?”
Coal’s supporters argue it remains the most tried and true way to produce electricity for cheap, making investments in clean coal technologies warranted.
The so-called Integrated Test Center at the Dry Fork Station, which will host teams of scientists chosen by the X-Prize foundation to test strategies for turning carbon emissions into sellable products, is important on two fronts, said Jason Begger, director of the Wyoming Infrastructure Authority. The center would become only the sixth facility in the world to test carbon emissions for commercial uses at utility scale. The project is also key to unlocking federal financing for additional research. Wyoming committed $15 million to the center.
“From Wyoming’s perspective, it is really difficult for the state to go back and point fingers at the (Department of Energy) and ask them to come up with a solution if we’re not willing to have any skin in the game,” Begger said. “I think with the ITC, we’re saying, hey, we’re putting our money where our mouth is. We’re willing to invest, do something, take the lead, whatever. Where are you?”
The emphasis on research accompanies a subtle shift in state officials on climate change. That is not to say Wyoming politicians have embraced climate science. Instead, the focus reflects a growing understanding that much of the world is moving toward low carbon energy – with or without coal.
“The fact of the matter is that society is demanding low carbon energy, and that’s the way we look at it. Let’s think of low carbon, low emission, environmentally friendly energy. Coal can be a part of that,” Begger said.
Wyoming’s future economic prosperity may well depend on it.