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Critics of the Trump administration’s energy plan have attempted to portray President Donald Trump’s support for policies that promote the use of coal and hydraulic fracturing, which is used to extract natural gas, as incoherent and incompatible, with each one serving to undermine the other.
However, this view is only correct if the goal of public policy is to pick winners and losers by promoting one source of energy over another. For the left, that might be the case, but most Americans don’t want government bureaucrats making their economic decisions for them.
The stated goal of the Trump administration is to make America “energy dominant,” which it aims to accomplish by promoting the most efficient, lowest-cost forms of energy. Under such a philosophy, coal and natural gas should play important, complementary roles in creating economic and geopolitical advantages for the United States, not pitted against one another.
Low energy prices are important for a variety of reasons, including that they give consumers, businesses, and would-be job creators more money to invest in other sectors of the economy. For example, low oil and natural gas prices created by hydraulic fracturing have resulted in the United States having the lowest natural gas prices of any advanced nation in the world, saving the average U.S. household more than $1,000 per year on its gasoline and natural gas expenditures compared to 2014 prices. Additionally, low-cost electricity generated by coal and natural gas provide U.S. households with the most affordable, reliable power in the world.
Despite these benefits, poor policy decisions designed to prematurely retire the nation’s existing coal-fired power fleet — most of which were established under President Barack Obama — currently threaten these competitive advantages.
On average, existing coal-fired power plants generate electricity at a lower cost than new natural-gas-fired power plants. This is because many of the existing coal-fired power plants have repaid their up-front capital and financing costs and can now operate at lower prices. As a result, existing coal-fired power plants generate reliable electricity at an average cost of $39.9 per megawatt-hour, compared to a cost of $55.3 per megawatt-hour for new combined-cycle natural gas plants. This means existing coal plants provide electricity at a cost that is nearly 28 percent lower than new combined-cycle gas plants.
While these price advantages are significant, they diminish over time as older coal-fired power plants become less efficient, which occurs when they age. Thus, it makes more sense to retain existing coal-fired power plants to generate electricity until they are no longer the lowest-cost producer of electricity.
Prematurely shuttering coal-fired power plants could result in an overreliance on natural gas, thereby potentially increasing the volatility of energy prices, because the United States is poised to substantially increase exports of natural gas in the coming years. (The Energy Information Administration estimates America will become a net exporter of natural gas in 2017.) Increasing natural gas exports have the potential to put upward pressure on natural gas prices and cause electricity prices to increase more than they otherwise would if coal-fired electricity generation units were available as part of a diverse energy portfolio.
Low energy prices are a boon to consumers and are a key reason why the United States has in recent years added 387,500 jobs in energy-intensive industries, such as manufacturing, fertilizer production, and steelmaking.
The Trump administration’s America First Energy Plan is an important, free-market approach to energy policy that has been missing in the United States for decades. By prioritizing competitive energy markets instead of attempting to pick winners and losers, the Trump administration will help revitalize the industries that helped to build America into the economic giant it is today.
[Originally Published at the Grand Forks Herald]