Editorials

Washington should not invest in coal

The national conversation about the future of using coal to fuel electrical power plants has mostly focused on the environmental hazards of mining, shipping and burning this dirtiest of all fossil fuels. There’s been less attention to the financial sustainability of the coal industry, but it’s also important.

Tom Sanzillo, a nationally recognized expert on coal-industry economics and global energy trends, asked the telling question at last week’s meeting of the Safe Energy Leadership Alliance at Olympia city hall: “Why hook the state’s wagon to a declining industry with so little upside?”

Sanzillo argues that the world has an oversupply of coal now and the world’s biggest coal consumers – India and China – are backing away from plans to build more coal-fired plants. The U.S. is using less coal. Competition has increased from natural gas and renewable energy sources, such as wind and solar. Those factors have driven the price of coal down so low that many U.S. coal companies are likely to go bankrupt.

Although Sanzillo has the credentials to back up his gloomy predictions for the coal industry – he’s the finance director of the Institute for Energy Economics and Financial Analysis, oversaw New York’s $156 billion pension fund, and has 30 years of experience in global energy markets – you don’t have to take his word. Even coal industry leaders agree with him.

Robert E. Murray, the founder, chairman and chief executive of Murray Energy Corp., the nation’s largest closely-held coal company, told an industry conference in Pittsburgh this fall that the coal business will continue to shrink.

“We have the absolute destruction of the coal industry. If you think it’s coming back, you don’t understand the business — or you’re smoking O.P. — because it’s not going to come back,” he was quoted as saying by the Wall Street Journal.

There are sound reasons to believe him. Public policies restricting carbon emissions from burning fossil fuels will get stronger, not weaker, as climate change intensifies. The recent agreement reached between the U.S. and China to reduce each country’s release of greenhouse gases affirmed that trend.

Coal once enjoyed a near-monopoly in the energy business. But today, natural gas is cheaper, and new technologies have made power generation from wind and solar genuine contenders. Energy efficient appliances, weatherization campaigns and consumer awareness have reduced demand.

It’s also telling that large institutional investors that drive the stock market no longer consider coal a blue-chip stock. Sanzillo calls them “marginally prudent” to “highly speculative.” Coal stocks are down significantly and, for the first time in history, are running opposite to the Dow Jones Industrials trend.

So why do coal companies want to build new export terminals in Washington? Perhaps it’s to show progress in order to buoy stock prices, or because companies are desperate to find new overseas markets.

But if these terminals get built they’ll almost certainly produce far less tax revenue than promised, and quickly become abandoned facilities. Washington should focus instead on improving our rail and roadway infrastructure to our ports so they can move more agricultural and other sustainable products.

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