(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, July 3 "The president has declared war
on coal," West Virginia Senator Joe Manchin complained last
Manchin, a Democrat, was responding to President Barack
Obama's much-heralded announcement that he had directed the
Environmental Protection Agency (EPA) to develop new emission
standards for existing power plants.
West Virginia is the second-largest coal-producer in the
country, so Manchin vowed to fight what he described as
destructive policies that threaten America's economy.
"The regulations the president wants to force on coal are
not feasible. And if it's not feasible, it's not reasonable," he
"It's simply unacceptable that one of the key elements of
his climate change proposal places regulations on coal that are
completely impossible to meet with existing technology," he
Manchin's language prefigures the arguments that coal
producers and power station owners will make as the EPA develops
the regulations and in any eventual request for judicial review.
Regulations singling out coal-fired power plants and
imposing impossible burdens on them will be fiercely contested
under laws that require the EPA to weigh costs and will be
challenged in court as being "arbitrary, capricious (and) an
abuse of discretion" under the Administrative Procedure Act.
But Obama's new initiatives may make little real difference
to the outlook for coal-fired power generation in North America,
which is already bleak as a result of shale gas and requirements
that power companies get a minimum percentage of their
electricity from renewable sources.
RHETORIC BUT LITTLE ACTION
Obama's speech captured the headlines as it was meant to do.
Green groups and news organisations had been tipped off about
the details by White House staff, and they duly treated it as a
major development of administration policy. It seems to have
been heard the same way by coal supporters.
"As a president, as a father, and as an American, I am here
to say we need to act," Obama said. "I refuse to condemn ...
future generations to a planet that's beyond fixing. And that's
why, today, I'm announcing a new national climate change action
But the president's announcement was short on new
initiatives. Less than a quarter of the speech was spent on
specific policies. The president devoted fewer than 300 words in
6,000 (less than 5 percent) to discussing emissions standards
for power plants.
In concrete terms, the speech was accompanied by a
"presidential memorandum" to the EPA directing the agency to
issue a new version of its proposed regulation for carbon
emissions from new power plants by Sept. 20, 2013.
Obama also directed the agency to work on new emission
standards for modified, reconstructed and existing power plants,
asking for a draft by June 2014, a final rule by June 2015, and
implementation by June 2016.
None of this is new. The EPA has been working on emission
standards for new power plants under its authority to issue New
Source Prevention Standards. It has long been assumed the agency
would try to regulate emissions from existing and upgraded power
plants under its authority to issues rules covering Prevention
of Significant Deterioration.
In effect, the president lent his imprimatur to initiatives
that the EPA has already been working on. It was meant to rally
his base, and convince environmental groups he remains serious
about tackling climate change, after a period when many were
starting to question the administration's resolution in this
HOW MUCH OF A THREAT?
There has never been much role for coal in the president's
"all of the above" energy strategy.
In theory, the administration sees a future for coal-fired
power generation if coal plants can be coupled with technology
designed to capture carbon dioxide emissions and store them
underground. However, carbon capture and storage technology
remains totally unproven at commercial scale for power plants.
Like the International Energy Agency, the energy adviser to
the advanced industrial economies, the Obama administration has
made no secret of the fact it would like to see coal replaced in
power generation by cleaner-burning natural gas.
If two-thirds of fossil fuel reserves will have to remain in
the ground, unburned, to keep the rise in global temperatures
below 2 degrees Celsius by 2050, then coal reserves rather than
oil or gas are likely to be put off limits first.
Manchin is therefore correct that the administration has
"declared war on coal". But it is less clear that the
president's policy will put coal at any greater of a
disadvantage than it already is.
OLD, INEFFICIENT BOILERS
Cheap gas and the renewable portfolio standards enacted by
most states have already reduced the amount of coal combustion
in the power sector.
Coal accounted for just 37 percent of power generation in
2012, down from 48 percent in 2008. Gas-fired generation climbed
from 21 to 30 percent over the same period, while renewables
such as wind and solar went from 3 percent to 5 percent.
Power generators have largely abandoned plans for new
coal-fired power plants. Only four new coal-fired power plants
are planned between 2013 and 2018, according to the Energy
Information Administration's (EIA) "Annual Electric Generator
Nearly 26 gigawatts (GW) of coal-fired generating capacity
are scheduled to retire before 2023, about 8 percent of the
total for coal. Coal-fired plants account for almost two-thirds
of all retirements over the next decade, according to the EIA
For the most part, coal-fired plants are old and
inefficient. Most of the coal fleet was built between the
mid-1960s and the mid-1980s. The average coal-fired power plant,
weighted by capacity, entered service in 1974 and is now almost
40 years old, compared with a service date of 1988 for non-coal
fired plants (Chart 2).
Chart 1: link.reuters.com/fag49t
Chart 2: link.reuters.com/hag49t
More than 70 percent of the U.S. coal fleet is stuck with
subcritical technology, which limits thermal efficiency to 36-38
percent, compared with 40-42 percent for a supercritical plant.
GRADUAL PHASE OUT, PERHAPS
The average coal-fired power plant has long since recovered
its initial capital costs. But to remain in service and
competitive, most coal-fired plants will require expensive
refits, whether or not new emissions regulations are enacted.
Like nuclear, coal is struggling to remain competitive in a
world where natural gas is plentiful and cheap and where
policymakers have mandated that 20-33 percent of electricity
must be generated from renewables such as wind and solar.
Because renewables are guaranteed priority in the power
generation merit order, fossil fuel plants in the future will
have to operate for fewer hours and at much lower levels of
average capacity. But coal plants are not well suited to act as
peaking plants backing up wind and solar generation. They ramp
up and down much more slowly than gas-fired units.
Even without the threat of new regulations, coal-fired power
stations and coal miners face a difficult future and can survive
only if gas prices rise, or they receive hefty capacity payments
for providing back up generation.
But the EPA will have to proceed carefully.
Gas and renewables cannot immediately replace all the 1.76
terrawatt-hours of electricity generated from coal last year. It
will take decades to put alternatives in place.
Any new emissions standards will have to be crafted to allow
many coal-fired plants to continue operating for another decade
or more. The new rules will not even begin to take effect until
towards the end of the decade.
The main impact of Obama's regulations will be to foreclose
any widespread return to coal if gas prices rise.
Even that is not certain, however. If the gas market does
tighten in future, threatening to make electricity much more
expensive, a future president will have plenty of time to ease
the rules again to allow new coal plants to be built.
(editing by Jane Baird)