EPA Emissions Rule Will Destroy U.S. Coal Industry

On September 20, the Environmental Protection Agency (EPA) is scheduled to release its new regulations for constructing coal (and natural gas-fired) power plants. The buzz is that these regulations are more lenient than those EPA proposed earlier. Regardless, either version will deny U.S. citizens the right to have new generating facilities built using coal, the most abundant fossil fuel resource in the United States. The lower 48 states have several hundred years of coal available to supply our needs at current usage rates without tapping into even larger coal resources in Alaska.

This move makes it clear that the Obama Administration wants to continue its war on affordable energy and particularly coal—an energy source that has served us for well over a century, even as coal is set to become the world’s largest fuel source by 2017.  Furthermore, EPA only claims that this rule “addresses climate change.” “Addressing” climate change is the same thing as “addressing” the wind. It might make you feel good, but it doesn’t affect the wind in any meaningful way.  According to EPA’s climate models, this regulation will, at best, have a negligible impact on climate change.

The New Rule

It is expected that the new EPA proposed rule will require the carbon limit for large natural gas plants to be set at 1,000 pounds per megawatt hour (relaxing it slightly for smaller gas plants) and the carbon limit for coal plants will be set at 1,300 or 1,400 pounds per megawatt hour, more lenient than the 1,000 pounds per megawatt hour originally proposed. Because U.S. coal plants emit an average of 1,768 pounds per megawatt hour, utilities will need to capture some of the carbon dioxide they emit in order to comply. The problem is that to capture the excess carbon above the limit, utilities will need carbon capture and sequestration technology, which is still not commercially available. The EPA is thus proposing a classic “Catch 22”:  although the EPA has relaxed the proposed rule from what the agency initially developed, the cost would still be too exorbitant for any new coal-fired plant to be built in the United States. Note that because U.S. natural gas plants emit an average of 800 to 850 pounds of carbon dioxide per megawatt hour, they will not be affected by this proposed rule.[i]

EPA’s previous version of the proposed rule allowed more than a dozen coal-fired plants to be grandfathered; the new proposal limits the exemptions to two possible new plants–one in Georgia and the other in Kansas. Both plants will have to begin construction within the year, and will have to obtain a special determination from the agency within 120 days of the rule’s proposal.[ii]

The Energy Information Administration (EIA) projects the cost of a future new coal-fired plant with carbon capture and sequestration (CCS) to be 35 percent higher than a new conventional coal plant. That percentage calculation is misleading, however, because EIA assumes that any coal-fired plant without CCS technology would be penalized at the equivalent of a carbon price of $15 per metric ton of carbon dioxide.[iii] Further, no new coal-fired plant with CCS technology is constructed in the agency’s reference case, which forecasts the energy supply and demand system through 2040.

The administration reworked the original rule that it had set because legal specialists questioned setting a single standard for both coal and natural-gas plants at 1,000 pounds of carbon per megawatt-hour, particularly since coal-fired plants emit about twice the carbon dioxide as natural gas-fired plants emit in generating electricity.[iv]

The American Public Power Association met with White House officials on September 4, urging the standard for coal to be set at 1,900 pounds per megawatt hour, and to revisit the commercial availability of carbon capture in eight years, when more will be known about whether progress can be made to develop a commercial CCS capability. Other meetings are expected to occur with White House officials before September 20.

The biggest problem with this rule, however, is that it is fundamentally dishonest. Here’s how EPA summarized the purpose of this regulation in the proposed rule last year:

The EPA is proposing these requirements because CO2 is a greenhouse gas (GHG) and fossil fuel-fired power plants are the country’s largest stationary source emitters of GHGs. The EPA in 2009 found that by causing or contributing to climate change, GHGs endanger both the public health and the public welfare of current and future generations.

EPA claims that greenhouse gases “endanger public health and the public welfare” but this rule will have a negligible climate impact at best. Consider the fact that “if the U.S. as a whole stopped emitting all carbon dioxide emissions today, the impact on projected global temperature rise would be a reduction, of approximately 0.08°C by the year 2050 and 0.17°C by the year 2100—amounts that are, for all intents and purposes, negligible.”[v]

EPA does not dispute this temperature impact (because EPA is the source of the climate model), but instead EPA willfully ignores the actual climate impact. Instead of claiming the rule will actually have an impact on global temperature, EPA claims they are “addressing climate change.” These are weasel words that have no substantive value. EPA wants the American people to think it is doing something about climate change, when in reality they are working to increase energy prices by banning new coal-fired power plants.

Conclusion

 According to Jeff Holmstead, the head of EPA’s office of air and radiation during the George W. Bush Administration, “As a practical matter, this means that the new proposal will still stop any new coal-fired power plants for the foreseeable future. Given the cost of carbon capture and all the other problems associated with it, any rule that requires [it] will effectively prohibit the construction of new coal-fired plants.”

More importantly, while coal has to compete with natural gas currently, this standard would lock out coal for the long term once the market price of natural gas rises, which forecasters expect will eventually occur.  EIA, for example, expects natural gas spot prices at the Henry Hub, to more than triple by 2040, in nominal terms.[vi] As Scott Segal, a lawyer at Bracewell & Giuliani LLP, indicates, “Once you set something in stone, you discourage investment in that sector, and you take a flexible market and ossify it. The market price of natural gas can change” but regulations don’t.

What is clear is that the Administration appears intent upon knocking out the most robust leg of the stool upon which U.S. electricity production stands.  This will have wide-ranging effects on the price of electricity, the lives of those throughout the country whose jobs depend upon coal and the ancillary industries which have sustained our largest electricity source for decades.  The United States has a larger percentage of the world’s proven reserves of coal than Saudi Arabia has of world proven reserves of oil.  For the Obama Administration to “bankrupt the coal companies” as President Obama said in 2008 will have far-reaching consequences for our nation.