Are There Benefits from the EPA's Proposed Rule?

Last week EPA administrator Gina McCarthy testified before the House Energy & Commerce Committee on President Obama’s climate policies. Representative Mike Pompeo of Kansas had a simple question for McCarthy—what are the benefits of President Obama’s climate policies?  Ms. McCarthy could not identify any quantitative health and/or welfare benefits that would be positively affected due to the President’s climate agenda, despite the fact that there are 26 quantitative indicators to track climate change listed on EPA’s website that should be impacted. Rather, according to Ms. McCarthy, this rule is to provide U.S. “leadership” to the international community.

According to the Administrator, Americans will be asked to pay higher energy prices so that we can ‘look good’ and ‘be an example’ for the international community. As Larry Bell writes in his Forbes op ed:

“Regardless of the countless billions of taxpayer and consumer dollars being spent to wage war on natural and inevitable climate change, the EPA head is unable to identify any discernible health and welfare benefits of her agency’s draconian regulatory policies. Instead, the apparent goal of the EPA’s current and proposed greenhouse gas regulations is to persuade the international community, particularly China, India, and other developing nations, to follow the Obama administration’s U.S. leadership over an economic precipice.”[i]

The Proposed Rule

According to the proposed rule on new coal-fired and natural gas-fired power plants, new coal-fired plants are limited to 1,100 pounds of carbon dioxide emissions per megawatt-hour and new gas-fired power plants are limited to 1,000 pounds of carbon dioxide emissions per megawatt-hour.[ii] According to industry experts, the average advanced coal plant currently emits almost 1,800 pounds of carbon dioxide per megawatt-hour and natural gas-fired power plants emit 800 to 850 pounds of carbon dioxide per megawatt-hour. So, the proposed rule allows most new gas-fired power plants without additional controls, but does not allow new coal-fired power plants without carbon, capture and sequestration technology.

Unfortunately, this technology is not commercially available and if it were, its cost added to that of a new coal-fired power plant would make the plant far too expensive to be economic, which is most likely the reason behind the rule—to eliminate new coal-fired power plants entirely. What industry and the American public should fear next, and what the administration has promised to do, is extend this type of  rule to existing coal-fired power plants that currently produce about 40 percent of the nation’s electricity.

According to Ms. McCarthy, EPA will not call for existing coal plants to install carbon capture and sequestration technology next year. However, EPA has already started its outreach to develop the regulation for existing plants. According to Ms. McCarthy, the rule will require states to develop their own regulations in a way that is “consistent with how that state wants to grow, how it wants to maintain reliable and cost-effective energy supply.” Then, EPA would have to approve each state’s plan.[iii]

EPA’s Response to the Technology Issue

EPA highlighted four examples of what it believes to be demonstrated carbon capture technology on coal plants:  Southern Co.’s Kemper County Energy Facility, SaskPower’s Boundary Dam project,  Summit Power’s Texas Clean Energy Project and the Hydrogen Energy California Project. Two of these projects are under construction—Boundary Dam in Saskatchewan, Canada, and Kemper in Mississippi—and the Texas and California projects are in the permitting and financing stage.[iv]

The problem with these examples is that they do not include sequestration and they are heavily reliant on public funding. The Kemper facility, costing $4.7 billion, is expected to capture 65 percent of the carbon dioxide of an advanced coal gasification plant when it begins operations in May 2014. The project uses low-cost lignite coal and its captured carbon dioxide is to be used in enhanced oil recovery at nearby oil fields. The Kemper plant received a $270 million grant from the Department of Energy and was allocated $133 million in federal tax credits. But, the plant’s cost is over double the original estimates made three years ago, and there was an additional $450 million overrun announced just last month.

The SaskPower’s Boundary Dam project in Saskatchewan, Canada also is not a good prototype. Like the Kemper facility, the project received over $200 million from the government but unlike Kemper it is a reconstruction of an existing 43-year-old plant. Also, the utility system in Canada is very different from that of the United States and the SaskPower facility is owned by the people of Saskatchewan. Because of this, its developers have a streamlined financing process, which would not be the case for new U.S. plants. Like the Kemper project, the carbon dioxide captured will be used for enhanced oil recovery.

EPA’s other U.S. examples also received hundreds of millions in federal government funding. The Texas Clean Energy Project received $211 million from the Obama Administration’s 2009 stimulus package, which is part of a $450 million grant from the Department of Energy; and the California Hydrogen Energy Project received an award of $308 million from the Department of Energy. Since the Texas and California projects are still in the permitting and finance stage, there is no guarantee that they will get built. Also, both plants plan to sell the carbon dioxide capture for enhanced oil recovery.

While the Department of Energy recently announced an $8 billion loan guarantee program for clean coal projects, loan guarantees tend to be more useful for projects that already have permits and engineering design plans, and there are few of those on the drawing board.

The largest carbon-capture project so far was a pilot project at the Mountaineer coal-fired plant in West Virginia. This project burned coal conventionally and used an ammonia process to capture the carbon dioxide out of the flue gas. To equip the entire plant with the experimental technology would have cost an additional $1 billion, driving up costs per kilowatt-hour by 60 to 80 percent. The project was eventually shut down because the developers could not recover the additional costs from its customers. Further, carbon dioxide was only permitted to be injected into the earth because the project was classified as a research project.[v]

EPA also tries to defend its case by stating that the three components of carbon capture and storage technology, which consist of capture, transport and underground sequestration, have been demonstrated separately in different parts of the world. A U.S. example cited is the coal gasification plant located in North Dakota, which is a synfuel project, not a power plant, but which uses pre-combustion capture technology. While the captured carbon dioxide is currently being used for enhanced oil recovery, there is only so much carbon dioxide that that industry can use and few coal-fired power plants near enough to oil fields to be able to sell it. All four of the plants that EPA points to are close to areas that can use the carbon dioxide for enhanced oil recovery. For power plants where there is no need for carbon dioxide for enhanced oil recovery, the next step would require some sort of underground storage that would be massive, requiring a huge pipeline system to carry the carbon dioxide to underground storage sites.  Permitting alone for such an exhaustive system would likely be fraught with difficulties in our litigious governmental system.

Conclusion

Clearly, the Obama Administration is continuing its ‘war on coal’ by proposing that new coal-fired power plants must meet a requirement that is unattainable with current technology. The agency is trying to defend its position with experimental projects that are not at all representative of the U.S. coal-fired generating industry—either because they do not include sequestration, require government funding, use a low-cost coal in lignite, or are located near oil fields that can use the captured carbon dioxide in enhanced oil recovery.  And while EPA plans to finalize its rule in the fall of 2014, it can expect legal challenges.

As existing law describes, the goals that EPA establishes have to be met by techniques that are “adequately demonstrated.” Since the proposed rule requires technology that is not commercially available, the rule will face political and legal challenges because the technology needed has not been close to being proven as the law requires.  It does, however, have the desired effect of driving investment decisions away from coal plants, and rendering the U.S.’s largest-in-the-world coal supplies unusable.  The opponents of using abundant, affordable U.S. energy understand that if they can propose sufficient potential impediments to investors who will build the plants our nation will need tomorrow today, the ends they seek may justify their means, regardless of their legality.