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The incoming Biden administration will have an impact on coal with more pressure and regulatory squeeze on the use of fossil fuels and a larger focus on environmental justices but the two Georgia US Senate runoff elections on Jan. 5 could create even bigger impacts for the industry, including a potential carbon tax, two speakers said at a virtual conference Dec. 8.

┬áSpeaking at the American Coal Council’s virtual Coal Trading Conference, Thomas Pyle, president of the Institute for Energy Research, said he expects the first 100 days or even more of the Biden administration will be consumed by the coronavirus pandemic but added that the US will likely re-enter the Paris Agreement on Day One.

Pyle said that “we’re going to see an immediate return of a version of Barack Obama’s climate action plan” and expects the main driver to be corporate environmental, social and governance movement. “Combine that with social accountability and divestment and I see that being a principal driver of climate action with this administration buttressing that,” Pyle said.

There is a lot of pressure on the Biden administration with promises on climate, immigration, healthcare and taxes, according to Pyle, and the Georgia runoff elections on Jan. 5 are a crucial determining factor on what they will be able to do on these issues.

“The uncertainty is still out there of what’s going to happen with the Senate, but it will have a big impact on whether they can do a lot of things at the same time or if they have to prioritize,” Pyle said.

If the Senate does flip, Pyle said he could see Democrats potentially taking a run at a carbon tax and a gas tax, but only after passing pandemic and infrastructure spending.

Matt Preston, research director of North America coal markets for Wood Mackenzie, said even if Democrats sweep both seats in Georgia, they will still need Republican support to pass any legislation, as long as the filibuster is in play.

“The current set of environmentally-related legislations, such as the Clean Air Act and Clean Water Act, are totally insufficient to converting an entire civilization to something besides fossil fuels,” Preston said. “That needs legislation to do this, so Congress is very important, and it really does matter who holds the Senate majority.”

Resetting the social cost of carbon

Preston said “one of most important things that the administration will probably do right off the bat is reset the social cost of carbon, which has to be included in analysis under the National Energy Policy Act which directs environmental impact statements for all federal activities.”

The Trump administration’s social costs of carbon are between $1-$7/CO2e, according to Preston, but the International Panel of Climate Change has recommended something between $100-$200/CO2e. Preston said he does not know what the Biden administration will do, but using the IPCC recommendation “would make a huge difference on the outcome of an analysis impact on anything the government would do.”

Carbon tax would have extreme impact on coal demand

Preston said his company looked at a “middle-of-the-road carbon tax proposal” by US Senator Dick Durbin of Illinois, which was a tax applied at the source of the fuel. The proposal was for a $25/CO2e to be applied in 2022 and would increase annually by $10, which would mean coal prices would immediately jump by $50/st and grow by $10/st each year, according to Preston.

The tax would have extreme impacts on coal demand, Preston said, as coal demand would drop by 195 million st in the first year if a carbon tax came into effect, and by 2028, demand would be below 200 million st.

“There would also be a major impact on electricity power prices as the tax would probably double wholesale electricity prices initially in the first couple of years,” Preston said. “That declines as fossil fuels become less of a driver in electricity prices, but that’s offset by the other side of the rate bill, which is infrastructure and capital costs that would continue to increase.”