Part of Donald Trump’s plan to “make America great again” involves restoring America jobs in manufacturing and with them jobs in American coal mining.
Complex problems and simple solutions
Rising production costs, environmental regulations and heavy competition from cheap natural gas has cratered coal profits. The largest coal companies in America, including Peabody Energy, have filed for bankruptcy.
Trump has vowed to loosen all regulation on oil and gas production, opening up federal lands to drillers and freeing up pipeline and offshore projects. But to do this would only increase the competition to coal and make it more difficult to retake market share in electricity production.
That leaves exports. But US coal exports will have to compete with Australia, and there are still long-term indications that India and China, the two largest coal markets, will work to keep imports low, for security and fiscal reasons.
Coal production and consumption in the US has been in decline for nearly a decade.
Trump believes that granting more leases and digging more of it up will solve the problem. This assumption is based on a very simple but deeply flawed causal connection. (How to read Causal Loop Diagrams)
One of the flawed assumptions is that supply is the leverage point in the diagram and that as Supply goes up, Demand will go up and as Demand goes up, Supply will go up to meet it.
This is called a Magic Pudding scenario. The Magic Pudding is an Australian story that tells of a magic pudding which, no matter how often it is eaten, always reforms in order to be eaten again.
Bunyip Bluegum, Bill Barnacle, the Magic Pudding and Sam Sawnoff
In this scenario increased demand increases the price which in turn increases supply, rather like eating a magic pudding.
In this Magic Pulling scenario, as the price goes up everybody gets rich, particularly the coal producers.
What digging up more coal doesn’t do is address the problems inherent in the reason for the decline in the demand for US coal.
These are many and varied, amongst them:
- A decline in the American car industry and in demand for steel.
- Overseas coal producers undercutting US producers in foreign and domestic markets.
- A move away from fossil fuels to renewable energy.
Digging up more coal will address none of these.