Just five years ago, the American coal industry was looking strong. Business was good. Opponents of climate change regulation had kept a Democratic-controlled legislature from enacting meaningful carbon-reduction legislation. With renewable energy in its infancy, nuclear power plant construction stalled, and due to the higher cost of natural gas, there was no immediate alternative on the horizon to replace the dirtiest fossil fuel.
But times have changed, and the market value of coal companies has collapsed. The four largest coal companies were worth a combined $21.7 billion dollars in June 2010. Now they're worth $1.2 billion. Two other large coal concerns, Patriot and James River, have both filed for bankruptcy in recent years. And one market analyst told the Financial Times in February to expect "multiple bankruptcies in US coal over the next 12-18 months."
What happened? As fracking and other unconventional gas extraction techniques have brought more natural gas onto the market, natural gas prices have plummeted. And coal prices have gone with them. But there's been no comparable technical innovation in the coal industry, which means that falling prices have resulted in lower profits.
For a long time, coal was cheap in part because the costs of the health and environmental problems that burning it cause were borne by all of society. But as environmental economists have come up with ways to put a price on those things, coal producers have had to take on that cost. In economist-speak, they've had to internalize the cost of what had been an "externality." That's because regulators have forced coal burners to clean up their operations. Eventually, some kind of climate legislation will probably pass Congress — and it'll be likely to hit coal harder than any other energy source, too.
Perhaps worse for coal companies, China seems somewhat serious about reducing its dependence on the dirty fuel, which could make the long-term export market weak.
Add it all up, and you get the numbers that you see in the chart above. What had been a powerhouse industry has been reduced to a shadow of its former self.
Via Dan Rosen