Trump won’t keep his elec­tion prom­ise to re­vive coal

The Daily Telegraph - Business - - Business Comment - Garry White is chief in­vest­ment com­men­ta­tor at wealth man­ager Charles Stan­ley

Arnold Sch­warzeneg­ger wants to travel back in time like the char­ac­ter he played in The Ter­mi­na­tor so he can stop fos­sil fu­els from ever be­ing used. One of Don­ald Trump’s key pre-elec­tion pledges was to in­crease US coal use to boost the prospect of min­ers in the Ap­palachian Moun­tains who had been side­lined by “phoney” cli­mate-change evan­ge­lists. Both of these sug­ges­tions are im­pos­si­ble dreams.

Mr Sch­warzeneg­ger was speak­ing at the open­ing of the United Na­tions lat­est cli­mate change con­fer­ence, known as the Twenty-Fourth Con­fer­ence of the Par­ties – or COP 24. It is cur­rently tak­ing place in Ka­tow­ice, a town right in the heart of Poland’s coal-min­ing re­gion. When it comes to coal, the hosts Poland and the Trump ad­min­is­tra­tion are on the same page. Poland has larger re­serves than any Euro­pean coun­try and gen­er­ates more than half of its elec­tric­ity from coal. The Pol­ish pres­i­dency wants to en­sure a “sol­i­dar­ity and just tran­si­tion” for in­dus­trial re­gions in­clud­ing creat­ing “favourable con­di­tions for the con­struc­tion of a prof­itable, ef­fec­tive and mod­ern hard coal min­ing sec­tor”. There are even some coal min­ers spon­sor­ing the cli­mate con­fer­ence. The aim of COP 24 is to fi­nalise the rules on how coun­tries will im­ple­ment the Paris Agree­ment on cli­mate change from 2015, which aims to keep global tem­per­a­ture rises be­low 2pc from 1990 lev­els. It is try­ing to put gov­ern­ments’ prom­ises on ac­tions to re­duce green­house gasses into ver­i­fi­able ac­tions. The US has still sent rep­re­sen­ta­tives to the con­fer­ence, de­spite pres­i­dent Trump an­nounc­ing that the US would cease all par­tic­i­pa­tion in the Paris Agree­ment in June last year. Legally, the US is still a party to the agree­ment un­til 2020. The mes­sage of the Trump ad­min­is­tra­tion will be that poverty can be re­duced by ac­cess to cheap en­ergy from fos­sil fu­els – a mes­sage that is likely to go down very well with the con­fer­ence’s hosts.

Coal re­ally mat­ters for Don­ald Trump. Coal min­ers were a cen­tral fo­cus of his elec­tion cam­paign, when he ar­gued that Barack Obama’s fo­cus on cli­mate change and in­creas­ing reg­u­la­tion was just an­other ex­am­ple of the lib­eral coastal elites dam­ag­ing the pros­per­ity of or­di­nary Amer­i­cans. He re­ceived a lot of fi­nan­cial back­ing from in­dus­try play­ers, and said he would end the “war on coal” started by his pre­de­ces­sor. To achieve this he has been rolling back en­vi­ron­men­tal leg­is­la­tion in an at­tempt to al­low the in­dus­try to flour­ish.

There is only one main prob­lem with Trump’s aim. The frack­ing in­dus­try means the US now has an abun­dance of cheap gas to gen­er­ate elec­tric­ity, so such a move does not make eco­nomic sense. In­deed, data from the US En­ergy In­for­ma­tion Ad­min­is­tra­tion re­leased this week showed that con­sump­tion of coal in the coun­try in 2018 is likely to be the low­est since 1979. The gov­ern­ment body said it ex­pects to­tal US coal con­sump­tion will fall 4pc this year and by a fur­ther 8pc in 2019. Amer­i­can coal use has been steadily fall­ing since 2007 as the price of gas has be­come more com­pet­i­tive and due to the ex­tra ef­fi­cien­cies in­volved in pro­duc­ing elec­tric­ity from gas over coal. De­spite the pres­i­dent’s wish to boost the coal in­dus­try for po­lit­i­cal gain – mar­ket forces are more pow­er­ful. “The coal in­dus­try is back,” pres­i­dent Trump de­clared at one rally in West Vir­ginia last sum­mer. This week’s data sug­gests that he is wrong.

Some in his ad­min­is­tra­tion ap­pear to un­der­stand this. US sec­re­tary of en­ergy Rick Perry spoke this week at the 128th Meet­ing of the Na­tional Pe­tro­leum Coun­cil, an in­dus­try body. A sig­nif­i­cant part of this speech re­lated to the devel­op­ment of nat­u­ral gas and petro­chem­i­cal in­dus­tries in Ap­palachian coal coun­try. “This is eco­nomic op­por­tu­nity for a re­gion that needs it,” Perry said. This seems like a more sen­si­ble route to pros­per­ity.

Glob­ally, coal is likely to re­main a sig­nif­i­cant part of the en­ergy mix. Coal con­sump­tion grew by 1pc glob­ally in 2017, its first in­crease since 2013, ac­cord­ing to data from BP. Growth was driven largely by In­dia, with Chi­nese con­sump­tion also up slightly fol­low­ing three suc­ces­sive an­nual de­clines. OECD de­mand fell for the fourth year in a row.

The sit­u­a­tion in the US is unique be­cause of its re­cent shale en­ergy revo­lu­tion. The costs of dif­fer­ent types of en­ergy vary de­pend­ing on a coun­try’s nat­u­ral re­sources – with the phas­ing out of nu­clear power sta­tions in coun­tries such as Ger­many and Ja­pan fol­low­ing the Fukushima nu­clear dis­as­ter in Ja­pan in 2011 lead­ing to in­creased de­mand for coal-pow­ered gen­er­a­tion. This means that fi­nal­is­ing the de­tails of the Paris Agree­ment at COP 24 will be a chal­lenge. Paris set out a plan and Ka­tow­ice should mark the start of coun­tries putting into place real ac­tions. How­ever, fos­sil fuel pro­duc­ers such as Aus­tralia, Saudi Ara­bia and the host Poland are likely to want to tem­per any ac­tion. And, of course, any agree­ment will be non-bind­ing.

The US is also unim­pressed that China will be treated as a de­vel­op­ing na­tion – so will be sub­ject to less strin­gent rules than ma­jor na­tions in the West. This means the re­sult of the talks may prove dis­ap­point­ing for some. But the eco­nomics of coal in the US means that Trump’s plans to re­vive an in­dus­try that sup­ported his el­e­va­tion into of­fice are likely to fail. This should please sup­port­ers of ac­tion to pre­vent cli­mate change – but leave a part of his base unim­pressed.

‘The frack­ing in­dus­try means the US has an abun­dance of cheap gas to gen­er­ate elec­tric­ity, so Trump’s aim makes no sense’

GARRY WHITE

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