Ed Crooks has a nice primer in the Financial Times this morning on the market outlook for coal. As you might expect, it’s not good. Natural gas and renewables are not only taking an increasing share of the U.S. power market, but look to be edging out coal in China as well. That makes India the only global growth market. There are a number of points in Crooks piece, but I wanted to pick up one in particular. He quotes from an IHS Markit report:

The only practicable way to stop that threatened loss of coal-fired and nuclear plants will be intervention in the market to provide them with additional support. IHS Markit argues that those moves should not be seen as market-distorting subsidies, but as ways to correct distortions already caused by mandates and tax breaks for renewable energy.

First, we can discuss whether mandates and tax breaks are the way to go about it, but clearly they are intended to correct for the climate change effects of burning fossil fuels. The only logic for recorrecting that correction is that you explicitly want coal in the mix. Indeed, that’s what IHS Markit seems to be arguing in a quote from earlier in the piece:

IHS Markit argues in a new report on Tuesday morning that the loss of diversity in the fuel mix for power generation threatens to make electricity supplies more expensive and less resilient to shocks such as extreme cold weather.

Now on the face of it, it doesn’t make sense that switching to cheaper natural gas powered electricity generation should lead to more expensive electricity supplies, but I am pretty sure I know what IHS Markit is getting at. Back in the olden days, as in pre-fraking, natural gas supplies were fundamentally limited by the number of fields in operation. Moreover, the largest supplies were overseas, and the U.S. consumed more oil and natural gas than it produced.

Residential customers burn natural gas for heat, using up the excess Canadian production stored over the summer. When winter came again, there would be little gas to burn and a lot of demand for electricity to run air conditioners. This could cause large spikes in natural gas prices and the cost electricity generation. Coal and nuclear helped spread that risk out.

Yet, today’s world is very different. Since modern wells have to be hydraulically fractured before the gas will rise to the surface, it is possible to drill wells and leave them in reserve. Once fraked, the wells then produce at much higher rates than traditional wells. This makes it possible for drillers to respond to winter draw downs in supply and have extra gas available for the summer. Thus, the concern about cold snaps is not nearly as important as it used to be.