Residential electricity prices have been surging in the United States. Since the COVID-19 pandemic in 2020, U.S. citizens have dealt with around a 30 percent increase in electricity prices, according to Energy Information Administration (EIA) data. Such a rise makes it more difficult for the everyday American to afford basic necessities. In line with his presidential campaign promise to lower electricity costs, President Trump has come up with a solution: taxpayer subsidies for coal plants.
Last week, Trump's Department of Energy announced that it was going to commit $625 million to revitalizing the coal industry, whether it is for recommissioning coal plants, retrofitting coal operations, or for coal power projects aimed at making energy more affordable. For the DOE, this $625 million will help keep "electricity prices low and the lights on without interruption." The press release then said "Coal built the greatest industrial engine the world has ever known, and with President Trump's leadership, it will help do so again." Much like with manufacturing, Trump is clinging to a past that cannot repeat itself in the present moment.
I understand that $625 million in a $6.8 trillion budget might seem like a small amount to quibble over in the grand scheme of things. If Trump ramping up tariffs or immigration policies shows anything, it is that his subsidies could plausibly go beyond the initial $625 million. However, it is a matter both of principle and the fact that this amount will still cause economic harm to the everyday American. Let us set aside for the moment that this $625 million will be paid by taxpayers to benefit utilities and coal companies. The bigger question is whether it is worth spending money on salvaging the coal industry.
As I pointed out in 2017, the U.S. coal industry is on the decline. EIA data show that this trend has continued since my 2017 piece. Why is that the case? On some level, environmental regulations have gotten in the way of the coal industry market expansion. However, the main factors behind coal's decline are market-based, as this report from the Cato Institute illustrates. Demand for coal has declined in no small part due to natural gas and renewable energy becoming less costly to produce, not to mention the development of such storage solutions as lithium-ion battery storage and iron-air batteries. As the demand for clean energy continues to increase, coal demand will continue to decline.
While the subsidy targets supply by bolstering coal infrastructure, its effects could ripple into the demand side if utilities are nudged to favor coal through capacity contracts or guaranteed purchases. In theory, it could arguably decrease price while increasing supply. However, that will probably not happen.
Coal plants are uneconomical relative to natural gas and renewable energy, especially given that about a quarter of coal plants are expected to retire within the next four years. According to financial services firm Lazar in its 2025 report on energy costs, coal costs $69-168/MWh, which is more than natural gas ($48-$107 MWh), solar ($38-78/MWh) and wind ($37-86/MWh).
This subsidy would most likely create a crowding out effect that makes it harder to develop alternative energy sources. This has happened before with fossil fuel subsidies crowding out renewable energy (Monasterolo and Raberto, 2019). This takes place because energy subsidies "adversely affect price signals and lead to misallocation of resources" (Hartono et al., 2020). Even the Right-leaning Heritage Foundation, which is generally pro-coal, recognizes that coal subsidies calcify the industry and stymie technological progress for coal.
We should not be allocating taxpayer dollars to a dying industry. Biden threw billions at green and renewable energy, which I also criticized. Trump is now doing the same with coal. Regardless of political affiliation, the government has no business in subsidizing energy, especially if the goal is to keep energy prices low. We can delve into regulations in the coal industry and what their effects are on energy prices, pollution, etc. Odds are that if I scrutinized each regulation individually (see 2017 example here), I would most probably conclude that the government should regulate less than more, although you never know. Even so, if the idea is to let market forces determine which energy source is best, that also means that the government should not be using subsidies or any price supports instead of picking favorites. If nostalgia powered the electric grid, coal would be king. That is not how economic reality works. Propping up coal would only burn through taxpayer money while doing nothing to lower prices.
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