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GAO: Expect significant changes for coal electricity

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A new report out today from the Government Accountability Office says coal will remain a key fuel source into the future, but its share of generation is going to continue declining.

The report was requested by Sen. Jay Rockefeller, D-W.Va. and chairman of the committee on commerce, science and transportation.

The report adds to the fairly common notion that less coal will be burned for domestic electricity production. In the Central Appalachian coal basin, many companies are beginning to turn their focus to metallurgical coal used for steel making as opposed to that fed into coal-fired power plants.

"Available information suggests that the future U.S. use of coal may be determined by several key factors, including the price of natural gas and environmental regulations," a GAO summary of the report states. "For example, available information suggests that the price of coal compared with other fuel sources will influence how economically attractive it is to use coal to generate electricity."

The report says the two main factors resulting in coal's decline is the market and environmental regulations.

"Regarding retirements, forecasts GAO reviewed based on current policies project that power companies may retire 15 to 24 percent of coal-fueled generating capacity by 2035--an amount consistent with GAO's analysis," the summary explains. "GAO's statistical analysis, examining data on power companies that have announced plans to retire coal-fueled units, found that these power companies are more likely to retire units that are older, smaller, and more polluting."

The report found that plants expected to retire emit about twice the amount of sulfur dioxide as units expected to remain active.

"In total, GAO identified 15 to 18 percent of coal-fueled capacity that power companies either plan to retire or that GAO estimated may retire -- an amount consistent with the forecasts GAO reviewed," the report stated. "Regarding retrofits, the coal-fueled generating fleet may also become less polluting in the future as power companies install controls on many remaining units."

In the U.S. about 90 percent of the coal mined is used to generate electricity, about 42 percent of electricity generated on the whole in 2011. Electricity produced from coal has increased since the 1960s, but has recently been on the decline due to cheaper alternatives such as natural gas and to other market conditions.

"Coal is likely to continue to be a key fuel source for electricity generation in the United States, but its share as a source of electricity is expected to  decline, and the future use of coal to generate electricity in the United States may be affected by several key factors that include the price of natural gas and other competing fuels, environmental regulations, and the demand for electricity, among others," the report states. "In addition, several stakeholders we interviewed said that coal may increasingly be exported for use in other nations, though the extent of future exports is uncertain."

The shift in coal production is also projected to happen differently in different regions.

"In EIA's reference scenario, coal production from Appalachia declines, and production from the Western and Interior regions increases through 2035," the report states.

According to EIA data used for the GAO report, in 2010, 31 percent of coal was produced in Appalachia. The EIA projects that these production figures will change by 2035, with just 24 percent of coal produced in Appalachia. Specifically, it expects declines in southern West Virginia, Virginia, eastern Kentucky and northern Tennessee.

"This expected shift in coal production from the eastern United States to the West represents an industry trend ongoing since the early 1990s that is influenced by each region's unique set of complex geological, mining, and transportation characteristics," the report states. "For example, some stakeholders told us that demand for western coal has increased primarily because it is low in sulfur content, and the region's coal reserves can be mined relatively inexpensively compared with Appalachian and Interior coal reserves, which are often more deeply underground and costlier to access."

The Environmental Protection Agency and EIA were asked to provide comments on the report. At request of the EPA, the GAO moved sections of the report discussing market challenges to coal to the highlights section.

The EPA, the GAO wrote, said it was misleading to emphasize regulatory effects on the electricity markets because many of those effects would exists without regulation.

"EPA stated that market changes, which we discuss in the report, would have significant impacts even in the absence of EPA's regulations," the report states. "We do not agree that the report was misleading, but given that the Highlights page may be read without the benefit of the fuller discussion found in the report, we moved language from the body of the report to the Highlights page about other factors affecting the use of coal."

The GAO did not make any recommendations in the report. The full report is available from the GAO.

Rockefeller did not immediately respond for comment.