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Texas’s Free Markets Light the Way to Clean Energy

Rather than bail out the coal industry, we should follow the Lone Star State's lead.

(Editor’s Note: TAC is cohosting a discussion on this topic with the Texas Clean Energy Coalition and the R Street Institute in Washington tomorrow. You can find more information on the event here.)

“Trump Digs Coal” became one of the most recognizable slogans of the 2016 U.S. presidential campaign, and candidate Donald Trump’s promise to bring back coal jobs struck a chord in Midwestern mining states. It was this vision of an unfettered, resurgent U.S. coal industry that resonated with working class voters, and helped tilt the electoral map Trump’s way on election night.

Yet even as the Trump administration followed through on its promises to scuttle Barack Obama’s controversial Clean Power Plan, withdraw from the Paris Climate Agreement, and abolish other environmental regulations, the coal industry continues to struggle against strong economic headwinds, primarily free market competition from sustained natural gas prices under $4 per million British thermal units (MMBtu).

As price competition from natural gas and renewables continues to depress U.S. demand for coal, policy discussions in Washington, D.C. and in Appalachian coal country have moved beyond loosening environmental controls and into more direct forms of economic intervention.

They should instead be looking to Texas, where a deregulated electric market has highlighted the benefits of a market-based approach.

Under conservative leadership from former governors George W. Bush and Rick Perry, starting in the late 1990s, Texas moved to deregulate its electric market. It also pursued other forward-looking initiatives, such as creating one of the first Renewable Portfolio Standards and investing $7 billion in the Competitive Renewable Energy Zones (CREZ) for new transmission lines to bring renewable power to Texas cities.

Texas’s energy policy choices are paying off. Recent studies by The Brattle Group, commissioned by the center-right Texas Clean Energy Coalition (TCEC), found that market forces like low prices for natural gas and solar PV—not federal environmental regulations—are the primary factors driving the ERCOT electric grid away from coal and toward cleaner fuels like natural gas and renewable energy.

ERCOT, the Electric Reliability Council of Texas, operates the state electric grid and manages the deregulated market for 90 percent of its electric load.

TCEC’s Brattle research found that if natural gas prices remain below $4 per MMBtu (as of early March 2018, natural gas futures are mostly at or below $3 per MMBtu for the next decade), carbon emissions will be on track to decline so much that the Clean Power Plan guidelines will have been irrelevant for ERCOT. And wholesale electricity prices will remain virtually flat in real dollar terms.

Further research has shown that coal plant retirements are unlikely to impact ERCOT’s reliability, and the CREZ transmission lines have enough capacity to bring up to 11 GW of new solar power from West Texas to Texas cities.

Recent experience in Texas has borne out these predictions. In October 2017, power generator Luminant announced that they would retire three coal-powered plants in Texas due to “economic challenges” from renewables and natural gas. Despite the retirement of two of Luminant’s coal plants in early 2018, a January cold snap that saw record electric demand on the ERCOT grid did not cause blackouts or other reliability problems for Texans.

Wall Street analysts agree that long-term economic forces are working against any federal effort to bail out the U.S. coal industry. They identify the advanced age and inefficiency of many coal-fired power plants; long-term regulatory uncertainty that discourages investment in new coal plants; and, most importantly, sustained price competition from cheap natural gas, as the major economic factors that make a U.S. coal renaissance highly unlikely.

Ill-conceived policies like coal subsidies or taxpayer bailouts for coal plants would distort the U.S. energy market, delaying or derailing the potential for a Texas-style market-driven transition to clean energy.

Texas is a model of how free energy markets allow cheaper, cleaner power to thrive. Asking taxpayers to bear the burden of propping up a coal industry whose product cannot compete in the open energy market is a violation of free market principles and a self-defeating economic policy for our country.

Fiscal conservatives should reject attempts to manipulate the energy markets to prop up older, uneconomical plants that burn coal at the expense of cleaner, cheaper electricity produced from homegrown natural gas, wind, and solar power.

The rightward shift in the national environmental policy landscape places Texas and its market-driven clean energy transition at the forefront of new discussions about environmental regulation and electric markets.

When you combine Texas’s conservative pro-market credentials; its role as a coal consumer and carbon emitter; its market leadership as a producer of clean energy from natural gas, wind, and solar power; and its fondness for market-driven outcomes rather than government programs, they all add up to an opportunity for conservatives to build on Texas’s research-supported message of a market-driven transition to clean energy.

Elizabeth Lippincott is executive director of the Texas Clean Energy Coalition.



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