Bailing Out Coal and Nuclear Plants Is Misguided

For decades the U.S. has relied on coal for much of its energy supply. States with abundant coal—Pennsylvania, West Virginia, Kentucky, and others—have towns and cities whose economies are driven by the coal industry. Now, as the coal industry declines and those areas struggle, the Trump administration wants to use taxpayer money to save coal and nuclear power plants under the guise of national security. National security is important, but the administration’s plan will harm the economy and won’t make us safer.

Despite the rise of oil, nuclear power, natural gas, and renewables over the last 100 years, coal still made up 50% of all U.S. power generation as recently as 2005. But in every industry, new products, created with new technologies, eventually supplant the old.

In 2005, natural gas production surged and its price has fallen since 2008. As a result, natural gas is now the country’s largest energy source for power generation. Renewables have also cut into coal’s market share as technological improvements lower the price of solar and wind power relative to coal.

While the rise of natural gas and renewables will likely continue to weaken demand for coal domestically, declining demand abroad, most notably in China, is also a problem. From 2002 to 2011, coal consumption in China grew rapidly, fueling demand for U.S. coal exports. But recently China has invested heavily in hydropower, wind and solar power, and nuclear power, causing it to rely less on U.S. coal. These investments, along with structural changes in the Chinese economy, make it unlikely that China’s demand will return to previous levels.

Less demand for coal has decreased coal companies’ revenues and left many plants unprofitable, leading to layoffs and plant closures. The Trump administration wants to prevent further closures, but the underlying economic forces, primarily cheaper natural gas, are hard to affect through executive policy.

This helps explain why the administration has explored using the 1950 Defense Production Act as a rationale to bail out coal plants. This Act gives the government wide discretion to assist companies that produce products needed during wars or after natural disasters.

The administration argues that coal-powered electricity plants—along with nuclear plants—are better able to withstand cyberattacks and recover faster from successful attacks than natural gas plants because the former’s fuel is onsite. The administration believes a reliance on pipelines to ship natural gas to plants is a security issue that justifies more government intervention in the energy industry.

But other experts disagree. A report from the Institute for Policy Integrity at New York University Law School argues that emergency financial support for coal and nuclear plants isn’t needed because there is no current grid-resiliency emergency. Instead, it argues for state and federal regulators to take a holistic view of the electric system and engage in careful cost-benefit analysis to gradually improve resiliency.

Unfortunately, many—including some in this administration—will attempt to use dooms-day scenarios to justify federal intervention. For example, the North American Electric Reliability Corp. (NERC) released findings this week that examined accelerated and highly implausible retirement scenarios for coal and nuclear plants. While the report mentioned there were some risks in this scenario, it also stressed that researchers did not find any urgent threats to grid reliability and that the findings should not be used as a predictive forecast. But many will likely attempt to hyperbolize the need for taxpayers to subsidize coal and nuclear, and use these unrealistic scenarios to prop up an industry that the market is naturally phasing out.

Moreover, one analysis of the administration’s proposal to help coal and nuclear plants estimates a cost of $9.7 billion to $17.2 billion annually, with subsidies to coal plants accounting for 74% to 84% of the total. If electric grid resiliency is really the issue, this money could be spent improving overall resiliency, irrespective of fuel source, rather than saving unprofitable coal and nuclear plants.

And let’s not forget that natural gas firms already have an incentive to invest in cybersecurity because successful cyberattacks cost firms money and reduce profits. A recent report from the American Petroleum Institute details the technology and best practices many firms have already implemented to strengthen the resiliency of their systems.

Finally, it’s not clear that government subsidies are in the best interest of the people in coal country. Research links coal-mining with less future economic growth links coal mining with less future economic growth, and there’s evidence that coal-mining jobs discourage workers in coal-producing areas from accumulating knowledge and skills, resulting in less innovation and entrepreneurship in those areas.

Regardless of the industry, funneling money from profitable businesses to struggling businesses through government subsidies is a recipe for economic stagnation. Robust economic growth occurs when businesses compete based on how well they serve consumers, not when the government picks winners and losers. National security and electric grid resiliency are important issues, but we should address them in ways that don’t give some companies a taxpayer-funded advantage.

—Adam A. Millsap, PhD is the assistant director of the Hilton Center at Florida State University and an affiliated scholar with the Mercatus Center at George Mason University.