The Environmental Protection Agency (EPA) released a revised proposed rule to limit greenhouse gas emissions from new power facilities. This is the most recent component of the President’s “Climate Action Plan,” and follows two prior greenhouse gas rules that regulated the fuel economy of heavy-duty trucks and cars. Though this rule is not considered “economically significant,” it will be devastating to new coal construction.

Emissions Limit Proposal

This proposal improves the legal foundation of a March 2012 proposed New Source Performance Standard for power facilities, and prescribes emissions limits per megawatt hour (MWh) for new power facilities as follows:

 

Emissions Limit (lb CO2/MWh)

Natural Gas – Larger Units

1,000

Natural Gas – Smaller Units

1,100

Coal – one year average

1,100

Coal – seven year average

1,000-1,050

 

These regulatory limits rely on specific technologies as the “best system of emissions reduction.” Requirements for natural gas are based on the emissions profile of state-of-the-art natural gas combined cycle (NGCC) units. Smaller facilities are generally less efficient than larger facilities, and are given a degree of leniency.

The limits on coal are based on estimates of emissions from facilities employing partial carbon capture and storage (CCS). These limits apply to utility boilers and integrated gasification combined cycle (IGCC) units, alike. (IGCC is a newer technology that gasifies, rather than combusts, coal, allowing for more efficient isolation of pollutants from the emissions stream.) The two compliance time frames allow facilities to select between employing CCS at start-up or phasing it in during operation.

This regulation will not require any significant technology improvements for the natural gas sector. A new natural gas facility built with the best available equipment will comply without any additional control technology. Not so with new coal facilities.

The American Coalition for Clean Coal Electricity advocated for emissions limits for new coal of 1900-2150 lb CO2/MWh, which reflect the emissions profiles of top-of-the-line coal facilities.

Existing coal facilities

Emissions Rate(lb CO2/MWh)

Ten largest coal facilities by total generation

2034

Ten largest coal facilities by nameplate capacity

1960

Ten cleanest coal facilities

1678

Source: EPA’s Emissions & Generation Resource Integrated Database, Year 2009

The National Energy Technology Laboratory composed a lifecycle analysis of a coal facility using highly efficient integrated gasification combined cycle (IGCC) technology. Their results suggest an IGCC facility will emit roughly 1850 lb CO2/MWh, slightly below ACCCE recommendations. A facility that employs CCS to remove roughly 90 percent of its carbon emissions stream would emit 250 lb CO2/MWh.

The emissions limits stipulated by EPA are unattainable without the addition of CCS technology. Though EPA contends that partial CCS is demonstrated, this is the subject of considerable debate.

Obstacles to Carbon Capture and Storage

The CCS requirement for new coal is a controversial red line for the industry. Despite EPA’s claims, the U.S. does not have an operational commercial-scale power facility operating CCS that serves as an industry-wide example. Demonstration projects have been underway for a number of years, but the size of these facilities and the emissions stream they capture do not provide adequate evidence of the feasibility of CCS.

The regulation cites Southern Company’s Kemper facility in Mississippi as a commercial example. Employing both IGCC and CCS, this 582 megawatt facility is heralded by the Department of Energy as a “technological first.” It will capture roughly two-thirds of its CO2 emissions for sale to nearby oil fields, which will use the gas to increase output in a process called enhanced oil recovery (EOR). It has also seen $1 billion in cost overruns, received partial financing from government, benefits from the unique coincidence of a nearby oil field, and, significantly, is not yet operational. Using the Kemper facility as a model for all new facilities is a preposterous leap, and any suggestion of the effectiveness of its CCS technology is pure conjecture.

In reality, there’s much work to be done on CCS, particularly in storage. Oil fields employing EOR present only a finite market for captured CO2; once their demand is met, facilities will have to rely on (and pay for) geologic storage. Evidence suggests 3,000 gigatons of available national storage potential. To use it, we’ll need to figure out how to get CO2 to storage sites, price storage costs, settle issues of long term risk liability, and determine the proper ways to monitor and protect the sequestered gases. Both the national infrastructure and the legal framework are woefully inadequate to begin commercial-scale storage of the type prescribed in this regulation.

Economic Impacts

Despite requiring major technological advancements for coal-fired facilities, this rule is not considered “economically significant.” To be economically significant, it would need to carry an impact of $100 million or more. Agency analysis suggests that market conditions alone are pushing operators to build units in compliance with this rule. As a result, it declares the proposed regulations “yield non-monetized benefits and impose negligible costs, economic impacts, or energy impacts on the electricity sector or society.”

The agency does admit that under certain circumstances, such scenarios could result in net costs. If natural gas prices increase dramatically, operators could potentially see net costs of $9.50/MWh at the high end. Another scenario EPA examines is the construction of new coal plants that utilize CCS technology. While the results vary depending upon the portion of carbon emissions captured and potential revenue from EOR sales, net costs under this scenario could potentially reach $44/MWh.

Paperwork burdens are not anticipated to change from the original EPA estimate of $15,570 and 396 hours of annual paperwork. In its discussion of the Regulatory Flexibility Act (RFA), EPA finds that the proposal would not “have significant economic impact on a substantial number of small entities.” However, the agency also notes that it felt the need to meet with various small business representatives multiples times during the proposals’ formulation.

In particular, EPA noted that there was “substantial interest in this rule among small entities (municipal and rural electric cooperatives).” AAF recently produced a study on the implications this rule, and the rest of the administration’s climate plan, could have on those entities. The RFA section also designates the particular North American Industry Classification System code for affected facilities: “fossil fuel electric power generation.” According to U.S. Census data, the following states could be the most affected:

State

Number of Fossil Fuel Power Plants

Texas

126

Louisiana

81

Ohio

66

California

64

Pennsylvania

64

 

Industry comments to the rule will shed further light on the regulation’s impacts. Though the stated costs are relatively light, the implications remain exceptionally broad. In particular, sweeping statements that existing market conditions justify these regulations (particularly the deployment of CCS) appear unwarranted. The March 2012 proposed rule tilted market assumptions about the future viability of traditional coal, and low natural gas prices already preference market investments toward natural gas. Any proposed facilities employing CCS will be exorbitantly expensive in comparison to new natural gas facilities using compliant technologies. Furthermore, CCS is not yet fully commercialized, nor has it been proven effective or economical. The economic significance of this rule may be misstated when considering the full implications for the power supply.

Policy Implications

In the near term, the administration’s war on greenhouse gas emissions will look a lot like a war on coal. Power facilities produce 40 percent of our annual greenhouse gas emissions. Even as we continue to tie our lives and economy into expectations of an abundant, secure electric power supply (consider personal electronics and the rising popularity of electric plug-in vehicles), tackling carbon emissions will require major improvements from the fossil fuel sources that constitute 68 percent of our supply. Regulations that make it difficult to adequately power the grid may undo many of the advancements that have helped us reduce our daily impact on the environment. Surely, this is not the intent of greenhouse gas-limiting policies.

The most emissions-intensive of all of our power sources, major technological leaps are requisite to coal’s survival in the fuel mix. Though EPA claims this regulation allows for further investments in this technology, there is little evidence to suggest the market is ready for a leap of this magnitude. Of course, commercial-scale CCS will never be economical until we start building out facilities. The true challenge is to advance the coal industry along the CCS cost and knowledge curves. An excessively strict near-term regulatory regime will hamstring the investments and innovation that can keep clean coal in our energy toolbox, especially as market conditions and other regulations are already decreasing its economic viability.

If this regulation is finalized with requirements for CCS technology on new coal facilities, it is certain that new fossil power will be almost entirely natural gas-fired. Fuel switching will achieve emissions reductions, but it will also introduce a structural dependency on natural gas to our power supply, along with potential vulnerability.

The administration will advance separate emissions limits for existing facilities in June 2014. Early rumors suggest that EPA does not plan on requiring CCS for the existing power fleet, but certainly this next wave of emissions limits will pose an even greater challenge to the coal industry and to a functional, reliable electricity supply.