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EPA Carbon Rule Will Lock in Coal Power for Another Generation

A key aspect of the Obama EPA’s proposed “first ever” carbon emissions standard is being completely misunderstood and misrepresented by the media and politically loyal environmental groups.

The NY Times editorial “New Rules for Power Plants” led with and amplified that key error. Ignoring the elephant in the room (i.e. emissions from existing power plants), The Times wrote (with my insertions):

Power plants account for about 40 percent of America’s global warming emissions  with the bulk of that coming from [unregulated and exempted] coal-fired plants. On Tuesday, the Obama administration took another important step for public health and the environment, proposing the first nationwide limits on carbon dioxide from new power plants. If approved, the new limits will accelerate the shift from coal to natural gas and cleaner alternative fuels.

But exactly the opposite will occur - instead of accelerating the shift away from coal, the new rules would lock us into coal power plants for another generation – here’s why.

There are about 500 existing coal power plants. Most of them are old and because they were expected to shut down, were grandfathered from many pollution control requirements by a huge loophole in the 1970 Clean Air Act.

The new Obama EPA carbon emission standard applies only to new facilities – it does not apply to these existing coal plants.

[Note; this fact is something that the NY Times editorial people clearly understood in this July 21, 2009 editorial: “Climate loopholes”:

The bill does not, however, impose any performance standards on existing power plants. And it explicitly removes these plants from the reach of the Clean Air Act. This is a mistake. The overall cap on industrial emissions will not be fully effective for a long time, and, meanwhile, the government should be able to impose lower-emissions requirements on the older, dirtiest plants.

EPA Administrator Jackson went even further – she said that not only does the rule not apply to existing coals plants, but that EPA “has no plans” to regulate carbon emissions from existing coal plants.

But it gets even worse: the EPA proposed carbon standard rule explicitly exempts existing coal plants from any carbon emission standards if it upgrades to meet new mercury and other pollution control standards.

EPA recently adopted two major new air quality regulations that will apply to and have significant economic impacts on these coal plants – in December 2011, the Mercury rule and in July 2011 the Cross-State Air Pollution Rule.

In addition to those 2 rules just adopted, there are big rules in the pipeline.

EPA is considering additional rules that could have signifiant impacts on coal plants. The Cooling Water Intake Structures Rule, the Coal Combustion Residuals Rule, and the greenhouse gas emissions rule that was just announced. EPA has signaled retreat on those rules.

The unknown impacts of pending rules creates considerable economic uncertainty for the energy industry in terms of evaluating strategic options and decision-making, particularly in estimating compliance costs, payback periods, and return on investment at these old coal power plants.

Basically, existing coal plants now will have two decide whether to: a) retrofit with costly new pollution control technology; b) switch fuel from coal to natural gas; or c) shut down the plant.

Obviously, from an environmental standpoint, plant shutdown is the best option.

The energy industry attacked the EPA mercury and Cross-State rules by claiming they would be so costly that they would shut down many plants, leading to local power outages, brownouts, and loss of “grid reliability”.

President Obama directed EPA to evaluate this issue and the US Department of Energy prepared a Report on it that supported the EPA rules and rejected energy industry claims regarding “grid reliability” problems.

The decisions about whether to shutdown, fuel switch, or retrofit an old coal plant are complex.

Basically, the factors include the cost of the pollution control; how long the facility can remain operating to generate revenues to pay for the pollution control; and uncertainty based risks associated with the price of fuels and any future new EPA pollution control regulations.

So, in considering the pollution control retrofit option, in addition to the costs of compliance with the EPA mercury and Cross State rule, coal plant owners had to consider future regulation.

If they chose to retrofit at a cost of hundreds of millions of dollars and keep the plant open another 30 years, would EPA impose even more costly requirements in the future by regulating carbon emissions?

The uncertainty and costs of future EPA regulation of carbon emissions was a big factor in deciding whether to shut down old coal plants or remain operating.

EPA just resolved that uncertainty.

Here in NJ, PSEG already made that decision, by choosing to invest $1.6 BILLION in retrofitting 2 old coal plants with pollution controls instead of shutting them down or converting to natural gas (see: NJ Pays Over $1.5 Billion To Keep Obsolete Coal Plants Open).

So, just as the energy industry was considering these huge decisions across the country, the Obama EPA needlessly weighed in to tell them: “don’t worry – we won’t regulate your carbon emissions”!

Of course, that provided “regulatory certainty” that will impact the decisions about plant closure and very likely result in many coal plants retrofitting and staying open for another 30-40 years.

Here’s how the energy industry analysts welcomed this gift horse - which explains why many old coal plants that were considering shutdown will now remain open (regardless of what the NY Times editorial and ENGO’s think – especially regarding the naive hope that upcoming EPA Section 111(d) “New Source Performance Standards” will regulate and reduce carbon emissions from existing coal plants. We already explained why that won’t happen):

Christine Tezak, an analyst for Robert W. Baird & Co., said in a research note that the proposal is good news for today’s coal plants, which already face major investments due to other EPA regulations to curb mercury and toxic emissions.

“The Environmental Protection Agency explicitly stated that these new standards would not apply to existing power plants that have increases in carbon dioxide resulting from upgrades related to conventional pollutants,” Tezak wrote.

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