(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, June 4 Despite the heated war of words
between supporters of the coal industry and environmentalists,
the Obama administration's Clean Power Plan is relatively
generous to coal interests.
By carefully selecting the baseline against which emission
reductions will be measured and giving states a long period to
come into compliance, the proposed rule is much less radical
than it appears.
The principal effect of the regulations, if they are
implemented, would be to foreclose any return to coal-fired
power generation if natural gas prices rise in future.
"The proposed guidelines are based on and would reinforce
actions already being undertaken by states and utilities to
upgrade ageing electricity infrastructure," according to the
Environmental Protection Agency (EPA). "The guidelines would
ensure these trends continue."
COAL IN THE CROSS HAIRS
The proposed rule, which would cut nationwide emissions 30
percent from a 2005 baseline by 2030, applies to emissions from
all existing fossil-fuel power plants, but the real target is
Gas-fired plants produce just half the carbon dioxide
emissions of coal, and oil-fired generators account for less
than 1 percent of U.S. electricity consumption, so any
substantial reduction in emissions will most likely have to come
from the coal sector.
Coal-fired generation has been declining owing to the
abundance of cheap natural gas thanks to fracking.
Coal generation has already fallen by more than 21 percent
between 2007 and 2013, according to the Energy Information
Administration. Coal's share of generation has shrunk from
almost 50 percent to just 39 percent since 2007, with gas making
up about half the difference.
The Clean Power Plan ensures the switch from coal to
cleaner-burning gas and renewables will continue even if the
economics of gas become less favourable in future.
Financial Times columnist Edward Luce has likened it to a
giant bet on gas. The Obama administration's professed "all of
the above" strategy has become "one of the above" ("Obama's bet
on gas throws caution to the wind", May 18).
SELECTING THE BASELINE
Senior officials within the administration make little
effort to hide their disdain for coal, leading to complaints
from politicians in coal-producing states and some utilities
that the president is leading a "war on coal".
Nonetheless, the proposals are relatively generous to coal
interests and would ensure a fairly gradual transition.
The baseline from which emission reductions will be measured
is the most favourable the coal industry could have been given:
2005 was virtually the peak for coal-fired power generation
Coal generation has already fallen more than 20 percent
since 2005. Greenhouse emissions from the electricity sector
were down almost 16 percent by 2012, and have probably fallen
further in 2013-14, mostly because of the switch from coal to
gas and renewables, according to government data ("Inventory of
U.S. Greenhouse Gas Emissions 1990-2012", April 2014).
OLD AND INEFFICIENT UNITS
The long implementation period is also favourable to the
coal sector and utilities. States do not have to submit their
emission reduction plans until 2016-2018. The federal government
anticipates states and utilities will have up to 15 years to
achieve the full reductions by 2030.
Many existing coal-fired power plants are already very old
and would almost certainly be retired before the end of the next
Almost no coal-fired power plants have been built since
1994. Virtually all new fossil-fuelled capacity has been natural
The capacity-weighted average age of bituminous coal-fired
power plants is 44 years compared with just 13 years for
gas-fired plants (Chart 2).
Roughly half the fleet of coal-fired power plants was built
in the 1950s and 1960s. Most of these older plants are very
small and use inefficient subcritical boilers rather than more
modern supercritical and ultra-supercritical ones. Supercritical
and ultra-supercritical plants generate more electricity from
the same amount of fuel and thereby reduce emissions per
Chart 1: link.reuters.com/gyc89v
Chart 2: link.reuters.com/jyc89v
Power plants do not last forever. Most of these older plants
are nearing the end of their service lives and must either be
retired or refitted with expensive new boilers and heat
exchangers as the old ones wear out.
Most would also need the addition of expensive flu-gas
scrubbers to reduce emissions of mercury and other toxic
substances from their smoke stacks.
Coal advocates blame the Obama administration for forcing
the closure of many coal-fired power plants by imposing
expensive new emissions regulations.
In fact, coal-fired plants have been closing steadily since
2004. Most of the units that shut have been smaller, older
plants dating from the 1950s or even before which owners have
decided are not worth upgrading: it is simply not economic to
refit them when cheaper alternatives exist in the form of gas or
even ultra-supercritical technology.
Even before the proposed rule was published, 163 coal-fired
generating units with a net summer capacity of almost 23,000
megawatts were scheduled to close between 2014 and 2017,
according to the Energy Information Administration.
USING A RATCHET EFFECT
The Clean Power Plan would give states and utilities
considerable flexibility in how to meet their mandated reduction
Existing coal-fired generation could be switched to natural
gas, renewables or even larger and more efficient
ultra-supercritical boilers. States and power companies could
use emission trading schemes to pay for cheaper reductions
In the final analysis, though, the Clean Power Plan employs
a ratchet effect. It banks the existing emission reductions from
switching out of coal since 2005 and the likely power plant
retirements over the next 15 years and ensures they cannot be
undone even if gas prices rise and coal becomes more attractive
The plan more or less guarantees a growing market share for
gas (which is one reason why the strategy has received quiet
backing from some of the major oil and gas producers). It will
also make it very hard for coal to stem or reverse its declining
market share, no matter how low coal prices fall.
Coal's long-term fortunes would depend on the uncertain
implementation of carbon capture and storage (CCS), but there
are no successful utility-scale demonstration projects yet in
operation and the technology remains far from commercialisation.
Even then, coal would be less attractive than natural gas.
The EPA estimates coal would still meet about 30 percent of
U.S. power demand in 2030 under its new rule, down from 39
percent in 2013 and 37 percent in 2030 if nothing is done.
Domestic coal production would be 20-28 percent lower than if
the proposed rule were not enacted, according to the agency's
regulatory impact assessment.
But the agency will almost certainly seek even more emission
reductions beyond 2030, which will likely squeeze coal's share
even further in the long term.
Coal supporters and environmentalists are therefore both
partly right in their assessment of the plan's effects: the
Obama administration is unenthusiastic about the long-term
future for coal and is plotting its gradual demise, albeit more
slowly than the heated rhetoric implies.
(Editing by Dale Hudson)