EPA Carbon Rule for Existing Power Plants in OMB’s Hands

Last week, several news reports noted the EPA sent a draft rule for carbon emission standards for existing power plants to the “White House.” What does that mean exactly? It’s not as if the rule is sitting on President Obama’s desk ready to be stamped with approval. Actually, the rule is now in the hands of the Office of Management and Budget (OMB) and specifically the Office of Information and Regulatory Affairs (OIRA). OIRA reviews rulemakings to determine whether EPA has satisfied the requirements of coordinating between federal agencies and considered various regulatory options. The review process is dictated by Executive Orders 12866 and 13563. The review process goes something like this:

GAO OMB

OMB is supposed to review a rule within 90 days, although that can be extended by 30 days by the director of OMB. The average time for OIRA to complete reviews in 2012 was 79 days. However, there have been instances of a rule languishing in interagency review for considerable time, particularly in 2013. There have also been times where OIRA’s review resulted in the agency making changes to the draft rule before issuing it for public comment. The Obama administration has been pushing for a draft rule on existing power plants to be completed by June 1st, with a final rule in June 2015.

There is much speculation as to what the draft rule looks like, which was supposed to give states control over how carbon emissions standards are met. One intriguing idea is from the Brookings Institute speculating that a carbon excise tax could be used by states to limit greenhouse gas emissions. An excise tax would be consistent with the law and would discourage the use of an energy source in proportion to it’s carbon burden. Notably, this type of approach would NOT mandate a particular technology (i.e. CCS for coal-fired plants) nor a strict carbon emissions limit for individual sources.

 

 

 

 

 

Legal Hurdles, Political Battles Ahead for EPA Carbon Rules

The U.S. Environmental Protection Agency (EPA) has a fight ahead over proposed and pending greenhouse gas regulations for power plants. The agency published proposed carbon emissions standards for new power plants on January 8, with comments due March 10. Those standards, which would preclude new coal-fired power plants without carbon capture and storage (CCS) quickly drew criticism from the electric power industry and legislators from states that rely heavily on coal. The latest in the political fight is the resolution of disapproval filed by Senate Minority Leader Mitch McConnell. Under the Congressional Review Act “major” federal regulations can be overruled using an expedited procedure in the Senate, requiring only 51 votes to pass. Of course, the resolution of disapproval must be either signed by the President or passed by two-thirds of Congress. This resolution has an infinitesimal chance of being passed. Of note – since its creation in 1996, 43 resolutions have been introduced in the Senate or House. Only two have passed one house of Congress, and only one (1!) regulation (rule on ergonomics) has been disapproved by Congress. The resolution is thus largely symbolic (and political). In other Congressional moves, a coalition in the House has introduced a bill that would require EPA to make public all its research before implementing a new environmental policy. The prognosis for passage of this bill is equally poor.

On the legal front, the Supreme Court will hear arguments in the coming week challenging EPA’s carbon standards. 74 state and business groups across the U.S. argue that the regulations will have severe economic consequences. The National Rural Electric Cooperative Association (NRECA) has urged the Obama administration to withdraw the rule after an official from the Department of Energy testified during a Congressional hearing that requiring CCS would result in an increase of 70 to 80 percent in the price of electricity from coal plants. In the meantime, the EPA may be having difficulty writing a rule on existing power plants that could withstand legal challenges. EPA seems to be trying to do their homework on this rule, meeting with state officials, environmental groups and utilities. President Obama has directed the EPA to issue a draft rule by June 1st.

It is important to note that despite numerous media reports of reduced coal dependence in the U.S., generation from coal-fired power plants increased in 2013 to 39% due to a four-year high for natural gas prices. Natural gas-fired generation was 27.5% in 2013. While coal’s share of electric generation is down from 50% (in 2005), it is projected to have a bigger share than natural gas in 2014, according to projections by the Energy Information Administration (EIA). The impact of the Mercury and Air Toxics Standards (MATS) which will be implemented next year will force many older coal units without pollution controls to retire. EIA projects 60 GW of coal-fired power to retire by 2020 as a result of MATS, drawing more criticism for EPA rules that predominately affect coal.

 

 

Congressional Challenge to EPA Climate Rules

To start off the new year, EPA’s proposed rule on carbon emissions from new power plants was published in the Federal Register, with comments due by March 10, 2014. Congressional leaders from coal states wasted no time in challenging the new rules, with proposed legislation to limit EPA from issuing carbon standards based on carbon capture and sequestration (CCS) as the “best system of emission reduction (BSER)” which is “adequately demonstrated.” Coal proponents and many energy experts point out that CCS has not been demonstrated at commercial scale for power plants. Currently, only one plant with CCS capability is under construction in the United States (Kemper County IGCC) and one in Canada (Boundary Dam). For a good overview of CCS projects worldwide, including planned and active projects for various industries, check out the Global CCS Institute’s handy mapping tool. The legal justification for EPA to use CCS as BSER for setting emission standards is sure to be challenged in court. But the proposed carbon rule has other far-reaching regulatory implications – including standards for new sources not already regulated.

By EPA’s own admission in the rule, the emission standards for new generating facilities will have negligible effect on carbon emissions. With natural gas prices low, and the flexibility of natural gas power plants, there are few plans to build new coal units anyway. EPA is pursuing the rule as written to establish their regulatory authority for electric generating units and use of CCS as BSER, with the idea to follow up with a rule on existing sources. Coal-state Congressional representatives (from both parties) see this writing on the wall, and through legislation are attempting to preempt EPA’s ability to set such standards. Congressman Ed Whitfield (R-KY) is hosting a lively discussion about the legislation over at OurEnergyPolicy.org. Tau Technical will be monitoring the unfolding developments on EPA’s carbon regulations and the political and legal battles that follow, and posting updates with analysis, so stay tuned!

Dissecting EPA Regulations

The Congressional Research Service issued a new report in mid-July that provides a comprehensive history of proposed and promulgated regulations by the U.S. Environmental Protection Agency under the Obama administration. The report EPA Regulations: Too Much, Too Little, or On Track? examines 43 major regulatory actions undertaken by the EPA since January 2009 and discusses factors that affect regulatory timelines including statutory and judicial deadlines, and permitting procedures. A pertinent conclusion in the report is that “dates for proposal and promulgation of EPA standards effectively underestimate the complexities of the regulatory process and overstate the near-term impact of many of the regulatory actions.” The 33-page report is well worth a read.

Northwest Coal Exports and Impacts on Climate Change

The Sierra Club and other environmental groups have sued coal and rail companies in federal court over coal dust from trains heading to export terminals in the Northwest. This action is an attempt to force Clean Water Act regulations on coal transport, but the larger goal is to impede the permitting and construction of the remaining planned coal export terminals in Oregon and Washington. Plans for three export terminals have already been scrapped, which environmentalists view as a win. The export terminals are intended to transport low sulfur Power River Basin coal to Asia, where coal is high in demand and expected to increase. Environmental groups cite pollution from coal dust, diesel emissions from rail traffic and climate concerns as reasons to oppose coal export terminals.

Coal companies are increasingly looking to growing overseas markets as U.S. coal use declines. Domestically, coal demand is falling due to low natural gas prices and environmental regulations. The combined effect of commodity competition and compliance costs are causing older coal electric generating units to retire or be replaced with new natural gas-fired capacity. Currently, the largest coal export terminal in the U.S. is at Norfolk, Virgina with most shipped coal headed to Europe. In 2012, U.S. coal exports were double what was exported in 2009. Coal exports from the U.S. to UK alone jumped more than 70 percent in 2012.

Unfortunately, actions to stop coal exports or shutter U.S. coal plants do little to battle climate change. In this regard, the actions of environmental groups seem to ignore that developing countries will continue to use coal, with or without U.S. exports. Even if the U.S. could completely eliminate its dependency on coal and significantly reduce carbon emissions, those reductions are projected to be offset by increases in carbon emissions from developing countries. In countries where the population has access to (mostly) reliable electricity, it can be easy to overlook that 1.2 billion people in the world still lack access to electricity. We are are world of energy haves and energy have-nots, both in terms of resources and access. The energy source that is most available and affordable to developing countries? Coal. While the U.S. has the largest coal deposits of any country, the combined reserves in Russia, China, and Australia eclipse U.S. reserves. China’s growing demand for coal alone will drive production and use.

Energy and climate organizations including the International Energy Agency (IEA)World Resources Institute, and a coalition of environmental non-governmental organizations that includes the Clean Air Task Force, The Climate Institute and E3G have pointed to the critical role that carbon capture and storage (CCS) has in mitigating climate change. The problem is that carbon capture for existing power generating stations has been expensive and not even approached the scale needed. Sequestering carbon from exhaust gases produced by the burning of fossil fuels (post-combustion) requires cooling the flue gas, using a solvent to separate the carbon dioxide (CO2) from the other gases in the exhaust (the CO2 only makes up a small percentage of the exhaust gas), and compressing the CO2. The energy required for the process significantly decreases the plant’s power generating capacity (called the energy penalty or parasitic load), so in essence you have to burn more fossil fuels to capture carbon, thus producing more carbon emissions.

Pre-combustion technologies and research into new chemical processes to capture carbon are promising for reducing the cost and increasing the efficacy of CCS. Pre-combustion technologies include chemical looping and gasification. In chemical looping, coal is is chemically broken down rather than directly burned and produces a highly concentrated CO2 stream, enabling more economical separation and higher capture rates. In gasification, coal is thermally decomposed (not combusted) into a syngas which primarily contains hydrogen, carbon monoxide, and CO2. The CO2 is removed to produce a syngas with certain specifications. Carbon capture from gasification is a mature technoology that has been commercially used in chemical plants.

Unfortunately, “clean coal” (which I always thought was a terrible term) has been labeled as a farce, demonstration projects have experienced delays and cancellations, and the shale gas boom have combined to derail investment in CCS. Interestingly, the same groups that lambaste CCS as too expensive and say it should prove itself without government investment are proponents of investing in renewable energy…with the government’s help. Okay, what about a carbon tax to level the energy playing field? Resources for the Future Center for Climate and Electricity Policy research indicates that natural gas would be the winner with a moderate tax on carbon, and a 10 percent reduction in U.S. carbon emissions would be partially offset by a 1 to 3 percent increase elsewhere in the world.

The data suggest that the “progress” of reducing the reliance on coal in the U.S. doesn’t address the larger issue of a growing world population dependent on fossil fuels. I am reminded of a sobering article on the U.S.’s “cognitive dissonance” courtesy of the Duke Nicholas School of the Environment blog. We are neither absolved of carbon responsibility if we reduce domestic carbon emissions, nor isolated from the effects of climate change if emissions from the rest of the world continue to increase. And that is precisely why the U.S. must invest in commercializing low carbon technologies, including CCS. Until solutions for reducing carbon emissions from fossil fuel combustion (not just coal, but oil and gas too) become economical we will continue spinning our wheels on climate change.

Regulations and Natural Gas: A Perfect Storm Hitting Coal in the U.S.

The decline of coal generation in the U.S. has been written about extensively over the past year, and whether low natural gas prices or EPA regulations are to blame. So which is it? Are natural gas prices or regulations shuttering coal units? The answer is not that simple, and is dependent on the economic situation of each coal unit. Factors that influence the retirement, repowering, or replacement (with new natural gas-fired unit) decision include:

  • Unit characteristics: age, heat rate, type of boiler, and currently installed emission controls. A supercritical pulverized coal unit equipped with a scrubber and selective catalytic reduction (SCR) system has a different economic vulnerability than an unscrubbed, inefficient 50-year-old unit;
  • Capacity utilization of the unit;
  • Geographic location and delivered price of coal or natural gas – which takes into consideration infrastructure such as pipelines and rail networks;
  • Electricity market in which the unit resides, as different markets have different electricity prices, generating fleet profiles, and merit orders;
  • Reliability considerations and the valuation of ancillary services such as spinning reserves;
  • Projected fuel prices into the future;
  • Asset diversification and risk considerations;
  • Ability to retrofit or use some portion of the generating unit if repowered with natural gas;
  • Timelines for compliance;
  • Other regulatory permitting considerations including New Source Review.

Recently, a Duke University study attempted to tease out the interaction of natural gas prices and regulations by estimating the cost of coal-fired generation compared with natural gas-fired generation at different gas prices and under existing and pending EPA emissions standards. Under current standards and at current fuel prices, the study estimates that 9 percent of coal-fired plants are more costly to run than a median-cost natural gas plant, but even a modest increase in natural gas prices would make coal power the least-cost option. The influence of new emissions standards would make 65 percent of coal plants as costly to run as a natural gas powered plant, even with significant increases in gas prices. The study is useful for understanding the influence of regulations under different natural gas price scenarios, illuminating that this perfect storm of regulations combined with low gas prices will change the economics of coal-fired generation.

However, it is important to note what the study did not address: compliance decisions, retirements and replacement power costs. The competitiveness of coal with natural gas generation is regional and basin-dependent, with lower cost Powder River Basin coal (PRB) competitive with natural gas at lower prices than Appalachian coal. There may also be market shifts once some units retrofit with scrubbers to comply with the Mercury and Air Toxics Rule, as the demand for low-sulfur PRB (driven in large part by unscrubbed coal units) may decrease while demand for medium and high sulfur bituminous increases. Some utilities are also hesitant to overly rely on natural gas in their generation portfolio. This is due to the risk associated with supply disruption rather than concerns about price volatility. As some coal units retrofit to comply with regulations, while others retire and are replaced with natural gas capacity, the generating fleet profile and markets for coal and natural gas will change. One thing is certain, however: coal will no longer be the least cost source of electricity generation in the U.S.

The Staggering Cost of Addressing Climate Change

Climate change took center stage this week as President Obama pledged that during his second term the U.S. would lead the transition to a more sustainable energy future. While the President’s address lacked any specifics, a study released this week by the World Economic Forum put a price tag on tackling climate change: $700 billion per year in new investments. The $0.7 trillion USD is an incremental investment – in addition to $5 trillion per year required for water, agriculture, telecoms, power, transport, buildings, industrial and forestry sectors to meet global population projections of 9 billion people under a business-as-usual (BAU) scenario. Not only does the additional $0.7 trillion need to be spent, but the $5 trillion must be “greened” to limit global temperature increases to 2°C. Currently, the report notes, that the BAU scenario investments are predominately in conventional, emissions-intensive technologies. The renaissance of coal power globally (while not in the U.S.) to meet growing energy demands as many countries abandon nuclear power means that BAU investments are going to be more carbon-intensive, not less.

So now for the good news: the required greening investments aren’t all in the power sector, which has been economically and politically difficult to move beyond fossil fuels. Energy efficiency investments for buildings and industry account for nearly 50% of the new green spending required, and transportation accounts for another 27% of new spending. In terms of total investment, greening these two sectors will get us halfway to the $5 trillion required. The maturation of enabling technologies for energy efficiency is encouraging, and improved battery technologies, fuel efficiency, and alternative fuels are poised to transform the transportation sector.

The study notes that investments in protecting access to water supplies remains uncertain. Indeed, the nexus of water and energy use has recently become a focus of scientific discussion. The impacts of climate change on water availability has not been sufficiently studied to make any quantitative predictions. Protecting safe water supplies for domestic, agricultural, industrial, and energy production needs to be a priority for all governments, which the World Economic Forum study highlights.

And what about the power sector? How can green investments offset the projected increased use of coal worldwide? Several prominent energy and climate groups, including the International Energy Agency (IEA), the Center for Climate and Energy Solutions (formerly the Pew Center on Global Climate Change), and the World Resources Institute have published on the vital importance of carbon capture and sequestration (CCS) to control carbon emissions from a world power sector dominated by coal. Carbon capture has been slow to deploy because of poor economics, and lack of policies to drive investment and adoption (whether that be a carbon tax, carbon cap, or other regulatory mechanism). It is important to note that in the U.S., the retirement and movement away from coal power has been due to low natural gas prices and expected compliance costs for new EPA regulations. With higher natural gas prices, as in some European countries, coal is more – not less – attractive compared to alternative energy sources. The study outlines the that private financing, rather than public funds, will need to drive greening investments.

Read the full World Economic Forum study: The Green Investment Report: The ways and means to unlock private finance for green growth.

Can the U.S. learn from other countries’ energy mistakes?

Amidst a steady stream of coal unit retirement announcements and lip service given to the coal industry during U.S. presidential debates, some very interesting energy news has surfaced in other countries. News that policymakers should pay attention to. In Britain, energy regulator Ofgem (that’s the Office of Gas and Electricity Markets) has warned that the United Kingdom could face blackouts by 2015 as a result of coal and oil-fired power stations being phased out too quickly. Most telling, the regulator said that despite encouraging the building of lower-carbon power sources to bolster the country’s power structure, the “problems have not gone away.” Coal remained the dominant fuel in the UK over gas, due to low prices. Over in Germany, the government shuttered nearly half of the country’s nuclear stations, only to find itself relying on coal even more. While Germany wanted to commit to reducing greenhouse gas emissions by 40 percent by incorporating larger percentages of renewable energy, problems with grid instability surfaced during a summer which saw unprecedented use of wind power.  And of course who could forget the massive power outages in India, leaving 670 million people without electricity due to inadequate generating capacity, with some coal plants idling from lack of fuel. For a country that depends on coal for nearly 70 percent of its electricity generation, India has messed things up with policies that limited investment in energy resources and created inverted electric pricing schemes. In the aftermath of the Fukushima disaster, Japan planned to abandon nuclear power entirely, only to abruptly back off on that policy amidst criticism. Japan relies on imports for 80 percent of its energy needs due to lack of domestic resources, so replacing displaced nuclear capacity (which accounts for 30 percent of the country’s power generation) would only make that country more reliant on imports. Japan’s future energy plans remain vague, and no new reactors are planned at this time.

If we can learn anything from other countries, it is that providing reliable power economically is a balancing act. It is not wise to abandon any major domestic source of energy in haste. To do so risks increasing reliance on imports and compromising the stability of the transmission system. The economic consequences of walking away from nuclear, coal, oil, or natural gas would be severe, not just to those industries and its suppliers, but also to American manufacturing and businesses from higher energy prices, a strained electric grid, and brownouts. The U.S. has a chance to be the world leader in energy, deploying advanced coal technologies, new generation nuclear power, safe extraction of natural gas and domestic oil reserves, innovation in biofuels and bioenergy, and a modernized transmission network that effectively utilizes solar and wind energy resources. Or we will just repeat other countries’ hapless mistakes.