The Libertarian Party convention is going on this weekend. The party is choosing, among other things, their candidates for president and vice president. The eventual nominee, Gary Johnson, was booed on stage for suggesting the free market, not government intervention killed the coal industry in the United States (the Libertarians are rabidly anti-regulation).
But was he wrong? I don’t think so. I think the evidence suggests that it is free market competition that killed coal; the EPA regs have been largely coincident, not causative.
The crux of this argument relies on the notion of substitute goods in the US power generation sector.
According to the EIA, the US power generation industry is powered largely by coal (38.8% as of 2014), Natural Gas (27.4%), and nuclear power (19.5%). The remaining 14.7% is renewables and “other.” Further, the majority of coal consumption in the US is for power generation. However, it is important to note coal has been losing share of power generation noticeably since about 2005. (the actual peak was about 1990, but the decline was very moderate/nonexistent until about 2005).
The year 2005 is important. Why? Because that’s the year natural gas prices reached their peak and began their decline. Since December 2005 (the month natural gas prices hit their all-time high), natural gas prices have fallen 84.5% thanks to fracking. Over that same time, natural gas’ share of power generation has risen 15 percentage points, from ~18% to ~33%. The rise has come entirely at the expense of coal. Coal’s share has fallen 18 percentage points, from ~50% to ~32%. Nuclear power has stayed flat. Renewables gained the remaining three percentage points.
Natural gas is a substitute for coal. With such a precipitous decline in natural gas prices, natural gas became the better option for power generation, forcing coal to the back burner, especially considering it’d be three more years before coal’s price peaked.
It certainly is true the Obama Administration’s EPA has passed new regs on coal and coal power plants. But these regs occurred too late to have been a causative factor in the coup against King Coal by Prince Natural Gas (keep in mind Obama wouldn’t be elected for three more years, and his regs wouldn’t be approved until 2014). They’re more likely the final nail in the coffin.
It seems to me this is just another case of the free market doing something good (reducing carbon emissions), causing creative destruction (death of King Coal), and the credit/blame going to government. Unfortunately, this time it was the Libertarian delegates mis-attributing the actions of the market.