Powder River Basin coal tumbles as EPA regulations darken long-term outlook

GILLETTE — New federal rules that tighten regulations on coal-fired power plants threaten the lifespan of Wyoming’s coal industry while coinciding with a significant drop in coal production to start the year.

The Environmental Protection Agency rules, part of a Biden administration effort to curb the nation’s carbon emissions, hold coal plants to standards effectively requiring them to adopt expensive carbon capture technology or close.

Notably included in the new rules, the EPA requires coal plants — the primary customer base for Powder River Basin coal — and new gas-fired plants to either shut down or capture 90% of their carbon pollution by 2032, if they plan to stay open past 2039.

The changes have met resistance from the Cowboy State and beyond, with Gov. Mark Gordon planning to challenge the rules in court while officials from other impacted states have made similar statements.

Although those changes may have long-term consequences for Wyoming’s coal industry, the short-term outlook has also taken a hit.

After benefiting from a bump in demand for coal that lasted the better part of two years, Campbell County’s flagship mineral has resumed its downward glide.

Through the first three months of this year, production from the Powder River Basin’s 12 mines, which account for the vast majority of the state’s coal output, fell about 12 million tons when compared to the first quarter of last year — about a 20% drop.

Roughly 46 million tons of coal were shipped from the basin from January through March, which fell short of the 58 million tons in the first quarter of 2023 and roughly 57 million tons produced in the final quarter of the year, according to data from the Mine Safety and Health Administration.

The 20% loss in production fell short of estimates put out by Arch Energy Resources and Peabody Energy, two publicly-traded energy companies that operate five Powder River Basin mines, including the two largest, Black Thunder and North Antelope Rochelle Mine.

Although Arch and Peabody failed to reach their expected volumes, executives with each company voiced confidence that the mines would make up for that production in the back-half of the year, after enduring another down quarter from April through June.

Company officials pointed to consistently low natural gas prices, a relatively warm winter and utility companies burning through high coal stockpiles as the reason for the softening demand for thermal coal, which is burned for power and mined in the Powder River Basin.

Meanwhile, the future consequences of the federal clamp-down on coal plants appear grim.

Coal plant impact

In addition to the 90% carbon capture ultimatum for coal-fired plants, the EPA rules also include cuts to mercury emissions, wastewater from coal plants and changes to disposing of coal ash.

The goal is to mitigate greenhouse emissions from the remaining coal-fired plants while setting a precedent for new gas-fired plants to bake-in plans for carbon capture technology with the goal of reducing overall emissions from the power sector.

The EPA cited carbon capture and storage technology as an available means to curb emissions. Energy industry proponents have argued the high cost of attaching carbon capture technology is not cost-effective or feasible, especially for older power plants.

“It’s not unexpected,” said Travis Deti, executive director of the Wyoming Mining Association, of the EPA rules. “We knew the Biden administration was preparing a series of rules under the guise of climate change, but we know they’re designed to put an end to the coal industry. They’re every bit as bad as we thought they would be.”

The regulations may also have implications for the stability of the nation’s power grid.

“With this suite of regulations, we do believe the EPA has overstepped its authority granted to it by Congress and it’s threatening grid reliability in a time of increased energy demand,” said Jim Grech, Peabody President and CEO, during the company’s earnings call last week.

Demand for electricity fell about 2% from 2022 to 2023, but that’s expected to change this year, with the U.S. Energy Information Administration predicting a 2% increase in demand in 2024 and a 1% increase in 2025.

“We can’t produce enough power right now,” Deti said. “To take our coal-powered plants off the grid … it’s going to cause problems and I just don’t see any way around that.”

Grech said that he expects the strong pushback from several states and the energy industry to eventually cause a judge to put a stay, or pause, on the regulations while they’re vetted in court.

“Nothing in the near term,” Grech said of impact from the regulations, “and I think there’s enough opposition in the long term to really put some doubt in the impact these will have on U.S. generation mix, particularly given the fact that power plant lives are being extended because of the load growth.”

Falling production

The short-term impact on Powder River Basin coal production from the announced changes remains uncertain, although it’s possible that utilities may seek alternatives in anticipation of the new regulations.

Coal production has been on the decline for more than a decade as natural gas and renewable energy sources gained favor over coal, for cost and environmental purposes.

The Powder River Basin peaked with 446.5 million tons of coal mined in 2008 and went on to see that number fall steadily from 2014 through 2020, when production bottomed out at 206.9 million tons.

A roughly two-year revival brought production back from its nadir, but began sliding downward again last year, when about 230 million tons were produced.

If the 46 million-ton haul to start the year holds throughout, Campbell County is on track for about 184 million tons total, which would be a 20% and nearly 50-million ton drop.

The 20% decline seen from Powder River Basin mines to start the year is on par with estimates from the U.S. Energy Information Administration, which had predicted coal production would fall about 19% nationally as its share of power generation decreases.

Still, there’s optimism that this year’s production can rebound. And that the worst-case outcomes of the new federal regulations may be staved off.

“I think folks are optimistic,” Deti said. “It’s hard to predict the future but we’ve had some of our operators looking to a good year in 2025. We’re in a tough environment right now, there are just a lot of factors involved right now.

“We’re not going away,” he said. “It’s nothing for people to panic about.”

This story was published on May 6, 2024.