Green No More, Europe Is Desperate For Cheap Coal

  • Date: 06/05/14
  • John W Miller, The Wall Street Journal

Before the financial crisis, Europe was happy to favor the environment, but now cheap coal is booming.

Even as it faces increased regulatory scrutiny at home, America’s dirty and unwanted coal is being embraced in one of the world’s cleanest energy markets: the European Union.

At the biggest power plant in the U.K., operated by Drax Group PLC, a small black mountain of a million tons of coal sits at the base of a dozen 374-foot cooling towers.

Much of it is high-sulfur coal from under the plains of Illinois and Indiana—exactly the kind of high-emission, power-plant fuel receiving closer scrutiny from U.S. regulators and courts. Last week, the Supreme Court ruled in favor of enforcing regulations that require power plants in 28 states to cut coal emissions that blow across state lines.

Many U.S. power plants were already reducing emissions in anticipation of tougher Environmental Protection Agency rules that take effect in 2015. Now, the Supreme Court ruling could affect 1,000 power plants in the eastern U.S. that might need to install additional pollution controls or cut back on coal consumption.

These are tough times for the global coal industry, which has been battered in recent years by regulations, the U.S. boom in extracting gas from shale-rock formations, and lower prices caused by softening demand from China. Coal now generates about 39% of electric power in the U.S., off from 55% in 1990.

Low domestic demand has renewed the focus on U.S. exports, which are on track for a record-setting third straight year of more than 100 million tons. The 28-nation EU imported 47.2 million tons of U.S. coal last year, up from 13.6 million tons in 2003. Exports to the U.K. alone are up tenfold in the same period. The U.S. ranked second only to Russia in supplying Europe with coal last year, and the U.S. could further increase its market share if recent political tensions with Moscow disrupt Russian shipments.

Germany’s decision to phase out of nuclear power after the 2011 Fukushima nuclear disaster in Japan has also made it a significant buyer of U.S. coal, mostly because the commodity is so inexpensive.

“Before the financial crisis, Europe was happy to favor the environment, but when the economy started not doing well, they weren’t quite ready to accept the high power price,” so energy consumers returned to coal, says Daniel Rohr, an analyst for Morningstar Inc.

Since 2003, German imports of U.S. coal have risen to more than 15 million tons from under a million tons. A spokesman for E.ON, Germany’s largest power and natural-gas utility, says it now purchases more than four million tons of coal a year, or 17% of its total, from the U.S., up from 800,000 tons in 2010. E.ON operates power plants in several European countries. [...]

The use of high-sulfur Illinois Basin coal in Europe is disrupting the plans of policy makers hoping to wean the EU off dirty fuel sources, and has angered environmentalists who contend its high sulfur content damages the environment, despite power plants now using scrubbers to remove more than 90% of the sulfur. Imports have also brought high-cost coal mines in Germany, Poland and the U.K. to the brink of closure. U.K. coal output fell 24% last year to 13 million tons.

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