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Fiscal Notes

 

Fiscal Notes

A Review of the Texas Economy from the Office of Susan Combs, Texas Comptroller of Public Accounts

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Texas Coal

Past, Present and (Almost Certainly) Future

By Bruce Wright

The Lone Star State is in fact the nation’s fourth-largest coal producer, yielding nearly 46 million tons in 2011.

The production boom in U.S. shale formations has produced vast quantities of cheap and readily available natural gas, greatly altering the nation’s energy mix – and leading some to speculate, as a recent study by the National Center for Policy Analysis (NCPA) put it, that coal is “beginning the long goodbye.”

Due to emissions of atmospheric pollutants and greenhouse gases, this ancient fuel has never been more controversial. But given the nation’s ever-growing need for energy, it seems much too early to be writing obituaries for coal. And that’s good news for tens of thousands of Texans who depend on coal-fired power for their livelihoods.

Texas’ Lignite Arc

When we think of coal mining, we tend to get images of deep shaft mining in the mountains of Kentucky or West Virginia. Texas doesn’t necessarily come to mind; we’re short on mountains and haven’t had an operating underground mine since 1951.

Our coal, mostly a low-grade form called lignite, is found in deposits sweeping in a broad arc running from South Texas to the state’s northeastern edges. Texas lignite is mined at the surface in mind-boggling quantities. The Lone Star State is in fact the nation’s fourth-largest coal producer, yielding nearly 46 million tons in 2011, according to the U.S. Energy Information Administration (EIA).

Coal Mining Locations in Texas

February 2013

  • Permitted Coal Mines
  • Areas of Geologic Conditions Relating to Occurrence of Lignite
Lignite is found in deposits sweeping in a broad arc running from South Texas to the state's northeastern edges.

Source: Railroad Commission of Texas, Surface Mining and Reclamation Division


Mining alone employs about 9,450 Texans, many of them in areas that sorely need the jobs.

Lignite was mined in Texas as early as 1819. The Railroad Commission of Texas (RRC) reports that the lignite belt currently includes 24 permitted coal mine locations, 11 of them held by Luminant, the state’s largest electric utility. Nearly all of this lignite is used near its source in adjacent power plants, in what are called ‘mine-mouth’ operations, says Trey Powers, executive director of the Texas Mining and Reclamation Association.

A Rural Job Creator

The coal-and-power combination is hugely important to many Texans.

According to a recent report prepared by the University of North Texas’ (UNT’s) Center for Economic Development and Research, coal mining and coal-fired power generation, as well as some manufacturing of activated carbon from lignite, generate more than $6.2 billion in the Texas economy each year. Read the study (PDF, 309K). The industry supports more than 23,000 jobs in the state. Mining alone employs about 9,450 Texans, many of them in areas that sorely need the jobs.

Texas lignite is mined at the surface.

“The counties where Texas coal is mined are rural, and in many cases those mines are the number-one driver of the local economy,” says Powers, whose organization commissioned the UNT study. “A municipality like Fairfield [in Freestone County] would be devastated if mining went away.”

Government benefits as well. According to the study, coal mining and coal-fired power contribute about $641 million in annual tax revenues to Texas state and local governments. Luminant reports its mines and plants paid more than $110 million in 2012 property taxes, noting that its operations are usually the largest taxpayers by far in their areas.

At present, however, the Texas coal industry faces two intertwined challenges, one economic and the other government-made.

“There has been a national transition. We’ve seen a dramatic change in the nation’s electricity generation mix.”

– Dr. Scott W. Tinker,
director of the University of Texas’ Bureau of Economic Geology

Cheaper Gas Changes the Market

The recent surge in production from shale and other “tight” formations, a trend driven by the use of horizontal drilling and “fracking,” has enormously increased the availability of natural gas in the U.S. market. According to the NCPA, proven U.S. natural gas reserves have nearly doubled since 1990, from 177 trillion cubic feet (TCF) to 317 TCF.

Predictably, falling prices have made natural gas more attractive for power generation.

“There has been a national transition,” says Dr. Scott W. Tinker, director of the University of Texas’ Bureau of Economic Geology. “We’ve seen a dramatic change in the nation’s electricity generation mix, from about 50 percent coal and less than 20 percent natural gas in 2004 to about a 50-50 split now, some 30-odd percent each.”

Some of Texas’ coal-fired power plants are feeling the price pressure. Last fall, Luminant’s Monticello Power Plant in Northeast Texas announced plans to shut down two of its three coal-fired units for the winter, saying that low power prices tied to cheaper natural gas had made them uneconomical to run year-round. Instead, the two units will be returned to service in time for the 2013 peak summer demand season, to ensure power reliability when temperatures are at their hottest.

And a proposed coal-powered site, Matagorda County’s White Stallion Energy Center, was cancelled in February due to low natural gas prices as well as another major hurdle to coal – regulatory compliance costs and the cost of litigation with plant opponents.

“It may be a smaller part of the pie than it was 15 or 20 years ago, but coal is a good market hedge.”

– Dr. Terry L. Clower,
director of the Center for Economic Development and Research and co-author of the UNT study

Outlook for New Regulation

The hard fact is that, with present technology, coal power production simply is not as environmentally “clean” as processes relying on natural gas or renewables, although coal plants have grown steadily cleaner over the decades.

“We’ve invested more than $16 billion in Texas coal plants to be sure that we’re as clean as can be,” says Powers. “And Texas has the youngest fleet of coal plants in the nation. I think a lot of the time, when people hear about coal-fired power, they’re thinking about plants built back in the 1930s and 1940s. And in the Midwest, that may be true. But all our plants are post-1970. And in terms of nitrous oxide emissions, for instance, we have the second-cleanest fleet in the nation.”

To say that’s not good enough for coal opponents is putting it mildly.

“Being concerned about air quality is good,” says Dr. Terry L. Clower, director of the Center for Economic Development and Research and co-author of the UNT study. “But I also see folks with an agenda – their world just doesn’t include coal.”

At present, the federal regulatory environment for coal is hostile but uncertain. Recently finalized standards for mercury, for instance, played a role in the cancellation of the White Stallion project. But a proposed “cross-state rule” targeting coal plant emissions was overturned by a federal appeals court in August 2012. And the Environmental Protection Agency is developing rules targeting greenhouse gases – potentially devastating for the coal industry – but an April deadline for their release has already come and gone.

“New greenhouse gas standards for new plants will be a huge challenge,” Powers says. “Depending on how the rules are written, they could mean that no new coal plants are built in Texas for a long time.”

“It’s not just the jobs, it’s all the things that go with it,” Clower says. “You’re talking about school districts losing tens of millions of dollars in property tax revenue. For many of these rural communities, their local governments and schools are still strapped, coming out of the recession.”

An Essential Part of the Mix?

Given our ongoing need for ever-greater amounts of energy, however, it seems unlikely that government action will end the use of coal in the foreseeable future.

Energy production from natural gas and wind is expanding much more rapidly than from coal. In Texas in particular, intermittent wind power can provide a useful supplement to our total power needs. Even so, the EIA still projects that coal will remain the dominant fuel for electricity production for years to come, supplying 38 percent of the nation’s electricity in 2035.

“It may be a smaller part of the pie than it was 15 or 20 years ago, but coal is a good market hedge,” Clower says. “It’s still a good source of locally produced power – and that means we keep the economic benefit of that production. It can stabilize markets and provide consistent baseload power.”

And while natural gas may have a cost advantage now, market conditions can and do adjust rapidly.

“I think coal will be a part of our power generation mix for a long time,” Tinker says. “Gas can’t do it all. Coal’s challenge is becoming a bit cleaner in its impacts, and that will add some costs, but natural gas prices are going up as well, and I see them as very competitive in the coming years – and good partners. Both are needed, globally and in Texas.” FN

Natural Gas, Renewables Growing Fast, but Coal Still Largest Power Source

Projected U.S. Electricity Generation by Fuel Source, 2010 through 2035

The U.S. Energy Information Administration projects that coal will remain the most common fuel for American electricity generation through 2035.
in billions of kilowatt-hours
Fuel20102020
(projected)
2035
(projected)
25-year
Growth Rate
Coal 1,851.2 1,671.5 1,896.8 2.5%
Natural gasĀ  982.1 1,112.8 1,397.9 42.3%
Nuclear 807.0 886.8 887.3 10.0%
Renewables 428.5 613.7 759.6 77.3%

Source: U.S. Energy Information Administration

Published May 22, 2013.

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