By John Kemp
LONDON, March 28 Proposed emission rules for new
power plants unveiled by the U.S. Environmental Protection
Agency (EPA) on March 27 spell the gradual demise of coal-fired
power generation and entrench the current cost advantage for
The agency's proposed rule, signed yesterday, would set a
standard well within the capability of modern gas-fired plants
but impossible for coal-fired units to meet unless they employ
(unproven) carbon capture and storage (CCS) technology. ()
EPA has been careful to downplay the consequences. The
agency emphasizes it applies only to new power plants, not the
existing fleet, and there is a transitional exemption for any
new units that have acquired a complete preconstruction permit
by the time of this proposal and commence building within 12
Because natural gas is currently so much cheaper than coal,
the agency projects gas-fired units will be the facilities of
choice until at least 2020.
"Energy industry model ling forecasts uniformly predict that
few, if any, new coal-fired power plants will be built in the
foreseeable future," according to the proposed rule.
The key word is "foreseeable". No one can predict the
economics of natural gas as far ahead as 2020, let alone 2030.
Recent development of abundant gas reserves through fracking may
have caused prices to plunge, leading to a "golden age of gas",
but just seven years ago the industry was gripped by panic about
gas production peaking and thought America stood on the brink of
needing to import increasing quantities of expensive gas.
The main effect of the proposed rules is therefore to
entrench the current financial advantage of natural gas. It
confers a substantial benefit on gas producers and ensures the
coal industry will remain shut out of the power generation
system even if gas prices eventually rise.
NOT QUITE ALL THE ABOVE
President Barack Obama has been touting his administration's
"all of the above" strategy of blending fossil fuels and clean
technology to meet future energy needs in an affordable manner.
But while the president has sounded enthusiastic about clean
tech, happy about gas and even cautiously supportive of oil, he
has been silent about coal, which generates by far the highest
carbon emissions. Now it is apparent why.
The decision to tilt the market against coal is quite
deliberate. As EPA chief Lisa Jackson hinted, it is part of a
broader strategy to remake the energy industry by limiting the
use of coal in the power stack and substituting cleaner burning
gas or zero emission wind and solar.
Because gas prices are currently so low and no new
coal-fired plants are expected to be built, EPA thinks the
"proposed rule will not have direct impact on U.S. emissions of
greenhouse gases". But "it provides assurance that emission
rates from new fossil fuel-fired generation will not exceed the
level of the standard and will send a strong signal both
domestically and internationally.
"Domestically, this proposed rule can further stimulate
investment in CCS and other clean coal technologies by making it
clear that such technologies do provide a clear path forward for
new coal-fired generating capacity. Internationally, this rule
may encourage others to consider less GHG-intensive forms of
EPA's decision to tilt the market against coal is sure to
draw a furious reaction from miners, coal state senators and
congressional Republicans, who are already incensed by the EPA's
tendency to push through rules requiring substantial economic
shifts as part of its regulatory process.
Rather than trying to build bridges with a restive Congress,
EPA appears intent on raising the stakes in the poker game.
In this instance, EPA is picking a fight with coal-state
Democrats. But the administration is already embroiled in a
fight with oil-state and conservative Democrats as well as
congressional Republicans over routing for the Keystone XL
The agency's aggressive push to control emissions through
the regulatory process, despite the demise of cap and trade, is
multiplying its congressional enemies and inviting a backlash
from angry legislators.
As the proposed new source standards work their way through
the rule-making process, it is likely lawmakers will hit back by
cutting the agency's funding, attempting to pass a congressional
resolution of disapproval vacating the rule, or trying again to
amend the Clean Air Act to curb the agency's powers.
PROVIDING REGULATORY CERTAINTY ...
The rule confers some important benefits for power producers
as well as the oil, gas and clean technology sectors.
In effectively banning new coal-fired plants unless they use
CCS, EPA's new rule would provide much-needed certainty to
underpin big investments in gas production and gas-fired
The rule ensures gas will still remain the fuel of choice
even if prices rise significantly in the years ahead. It shuts
the door against a coal revival and guarantees a rising market
share for natural gas producers, currently struggling with
rock-bottom prices and a massive surplus.
To the extent that it provides a strong financial incentive
to make CCS work, it could also help a technology that is
currently struggling to become commercial.
... OR DANGEROUSLY INFLEXIBLE?
The main drawback is that the new rule would buy greater
certainty at the cost of reducing flexibility. In particular, if
the golden age of gas fails to live up to expectations or gas
prices rocket again, there will be no way to relieve the
pressure by reverting to coal-fired production.
The other problem is no one has been able to make CCS work
commercially yet. According to EPA, "New coal-, coal refuse-,
oil- and petroleum coke-fired boilers and IGCC units should also
be able to meet this standard by employing carbon capture and
"While a coal unit with CCS may be more expensive to
construct than NGCC generation, for reasons explained below, we
expect the difference to decrease over time as CCS becomes more
mature and less expensive."
Rather disingenuously, EPA goes on to say that despite the
rule, "We recognize that some owners/operators may nevertheless
seek to construct new coal-fired capacity. This may be
beneficial from the standpoint of promoting energy diversity,
and today's proposal does not interfere with construction of new
"At present, while CCS would add considerably to the costs
of a new coal-fired power plant, there are sources of funding
available to support the deployment of CCS, including a limited
number of government demonstration programs.
"We expect that the costs of CCS will decline in the future
as CCS matures and is utilized more widely."
The problem is that the most promising technology -
integrated gasification and combined cycle with carbon capture
and storage (IGCC-CCS) - is nowhere in commercial use at
present. Various demonstration projects have run into trouble or
Necessity is the mother of invention, however. "The proposed
rule will assist the deployment of CCS technology for new
coal-fired power plants and reinforce incentives for the use of
efficient natural gas-fired generation," EPA wrote.
"The standard established in this proposal would help create
the regulatory certainty that CCS is the path forward for new
But the restrictions on new coal-fired units and mandate for
CCS also are something of a technical leap in the dark.
EPA's ambition to cut greenhouse gas emissions is
praiseworthy. There is something disturbing, however, in using
the rulemaking process to remake the entire energy industry,
making distributional decisions about winners and losers,
without any input from Congress.
Yet opponents cannot say they were not warned. In 2009-2010,
the administration threatened that if Congress did not act on
the cap and trade bill, it could achieve most of the same
objectives through EPA rulemaking. Now the EPA is making good