Can the Republican House neuter the Obama Administration’s war against coal-fired power plants? I’m not optimistic, but coal is an plentiful, improving resource that will be hard to put and keep in the energy cellar.
The coal industry has been fighting on five key regulatory fronts during the past two years. The good news is that cap-and-trade of carbon dioxide (CO2), a back door energy tax, is defeated. The subject is kryptonite in Washington among Republicans and a surprising number of Democrats–and rightly so.
Cap-and-trade was defeated despite the clever Administration strategy to bribe stakeholders by making their support of the American Power Act economically worthwhile. Several major utilities (especially those with nuclear plants), most equipment manufacturers that sell to the industry, and even the Edison Electric Institute lined up in support of cap-and-trade legislation.
I was especially amused by the strong support from nuclear utilities—I’m sure it had nothing to do with the formula for allocating allowances that would have given them a windfall of hundreds of millions of dollars over time for sitting quietly on the sidelines. Thankfully, the Senate euthanized that legislation before it got much traction.
The Big Regulatory Four
Legislative control of CO2 is closed, perhaps for a decade or more, but this battle hardly ended the conflict. Instead, the Executive Branch has sidestepped Congress to put its full weight behind the regulate-to-death option. There are four fronts:
1. Carbon Regulations. The administration’s backup plan to the legislative option was the much less desirable approach (the “stick”) to reducing carbon emissions: Let loose the Environmental Protection Agency (EPA) to regulate carbon under the imprimatur of the Clean Air Act (CAA).
Over the past two years, the EPA has pushed forward regulations to control carbon from all segments of our economy. Most recently, it released rules for determining best available control technology. These regulations become effective January 2011, although the EPA has been exerting its authority to slow or stop new coal plant permit applications for some time.
Many lawsuits have been filed to stop these regulations from becoming effective. Some challenge the EPA’s science, others are challenging the process, while several suits challenge the EPA’s interpretations of the CAA, particularly with regard to its “Tailoring Rule,” which has arbitrarily redefined the level of emissions from stationary sources that must be regulated. In addition, not all of the states are happy about the rapid introduction of carbon regulations given their administrative burden or because they believe the EPA doesn’t have the authority to impose the rules.
How the myriad lawsuits will play out in the future remains unclear, but given the EPA’s rush to carbon judgment and its remarkably poor record of writing rules that pass judicial scrutiny (remember the Clean Air Interstate Rule and the Clean Air Mercury Rule?) I suspect carbon regulations have little chance to remain whole over the next year or two.
2. Cooling Water Regulations. The North American Electric Reliability Corp. (NERC), in its annual report, “Potential Resource Adequacy Impacts of U.S. Environmental Regulations,” identifies the Clean Water Act Section 316(b) regulations governing cooling water intake structures as having significant potential impact on system reliability. In essence, the regulations, still under development, will require plants that use ocean and river once-through cooling water to replace that process with cooling towers.
NERC notes in the report, “Implementation of this rule will apply to 252 GW (1,201 units) of coal, oil steam, and gas steam generating units across the United States, as well as approximately 60 GW of nuclear capacity (approximately a third of all resources in the U.S.).” The report goes on to note that the rule may have the effect of forcing smaller plants to close because of the high retrofit cost. However, it’s the nuclear industry that will take the big hit with derates up to 3.5% possible on 59 affected plants. Other sources list 413 coal plants affected by the regulation and estimate the cost of compliance from $300 million per coal plant up to $1 billion per nuclear plant.
This regulation has been written, released, and suspended over the past nine years. The regulation finally landed in front of the Supreme Court in 2009. The court held, in the words of an EPA fact sheet, that the EPA “may consider cost-benefit analysis in choosing among regulatory options, but did not hold that the Agency must consider it.” Although it’s difficult to predict when a revised regulation will be finalized, the EPA is now working on a new Information Collection Request to “value the benefits” of the proposed regulations.
3. Coal Ash Regulations. I wrote last issue’s editorial, “Ash Me No Questions,” about the EPA’s bifurcated approach to developing new regulations for wet ash impoundments. In sum, the EPA issued two proposed rules where wet coal ash was considered a “non-hazardous” or “hazardous” waste product (a Resource Conservation and Recovery Act Subtitle C or D classification). It’s hard to tell the likely outcome of this regulation given the difference of opinions among top-level administration staffers. Earlier, the EPA wrote that “maintaining a [non-hazardous] approach would not be protective of human and the environment,” yet Carol Browner, President Obama’s top environmental aide, was the EPA administrator in 2000 when she ruled wet coal ash was non-hazardous. The word on the street was that the EPA would make a final decision by year-end.
4. Boiler MACT Regulations. The EPA has proposed rules to tighten limits on hazardous air pollutants (HAPs) from boilers of all types, including utility boilers. The rules would impose maximum achievable control technology (MACT) on any major HAP source, defined as any single source exceeding 10 tons per year or any combination that exceeds 25 tons per year. The rule applies to all existing fossil fuel–fired utility boilers by the end of 2013 and those built after the rule is finalized.
The EPA said the capital cost of the rule would be about $9.5 billion in 2013, and carry a total national annual cost of $2.9 billion, including fuel savings, control device operation and maintenance and monitoring, record-keeping and reporting, and performance testing. Industry representatives complain that the MACT rules were developed for each HAP independently, with no consideration of their many interrelationships. A good example is a selective catalytic reduction system that is effective at removing NOx but may increase the amount of CO or ammonia in the flue gas. These regulations have the potential, despite the EPA’s estimates, to require enormous investment by utilities given how little research and development and testing has been done to determine what clean-up equipment might be necessary.
Obama’s Threat: Promises Kept
During a campaign stop on January 17, 2008, President Obama was interviewed by the San Francisco Chronicle about his views of coal-fired power generation. During that 48-minute and 33-second interview, Obama was quite clear about his dislike of coal-fired power plants and reiterated that it was his goal to put owners (and their employees) out of business.
Excerpts from the transcript of that interview and audio excerpts including the following quotes provide much insight into the goals and motivations of the Obama administration’s preoccupation with heaping new regulations on coal plants:
“So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted…
“The only thing I’ve said with respect to coal, I haven’t been some coal booster. What I have said is that for us to take coal off the table as a [sic] ideological matter as opposed to saying if technology allows us to use coal in a clean way, we should pursue it…
“So if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them.”
These comments are usually written off as pandering to the electorate during a heated campaign season. I saw them then, as I do now, as Obama’s desired industry end-state. The EPA’s regulatory agenda is merely his means to that end.
One issue not mentioned here is the implications of the “Big Regulatory Four” on NSR application to existing power plants required to install new equipment or make substantive changes in existing equipment. US EPA, under President Clinton and Carol Browner, began using the courts as a blunt instrument against any utility which did more than routine maintenance or direct equipment replacement on existing power plants.
The concern here is that application of NSR would cause many plant owners to decide to terminate operation of many older coal-fired plants. Hopefully, compliance periods would be long enough to permit construction and commissioning of replacement capacity.
Good overview, Robert.
Other regulatory assaults include EPA’s mischievous interpretations the Clean Water Act and Surface Mining Reclamation Act to ban mountaintop coal mining in Appalachia (http://www.globalwarming.org/2011/02/02/obama-administration-plans-second-front-in-war-on-appalachian-coal-production/).
BTW, the American Legislative Exchange Council has just published “EPA’s Regulatory Train Wreck” (http://www.alec.org/AM/Template.cfm?Section=EPATrainWreck&Template=/CM/ContentDisplay.cfm&ContentID=15364), a superb report on the agency’s war on coal.
Don’t forget the proposed and recently adopted National Ambient Air Quality Standards which will require more controls at power plants and my personal favorite of stealth anti-coal regulation – visibililty requirements.
It is time the public became aware that the while the individual costs of each of these regulations is not that much the cumulative cost is huge. Further, I believe de-regulated companies are just going to close down rather than retrofit because of the cumulative impacts.
In Robert’s other job, as editor of an industry journal, he has shown how good the performance of new technology coal-fired plants can be (http://www.powermag.com/coal/Top-Plant-Isogo-Thermal-Power-Station-Unit-2-Yokohama-Japan_3028_p2.html). The emissions profile of this ultra-super-critical plant is similar to that of a gas-fired combined cycle plants. Unfortunately, the regulatory hurdles faced by proposed new plants are so steep that not one has started construction in more than two years.
This means that an aging fleet of inefficient and unnecessarily polluting coal-fired plants will gradually dwindle in number, reducing reserve margins and overall reliability, all the while consuming more fuel and emitting more pollution than new plants would produce.
Unsaid in all of this is the state level regulation, which adds additional layers of approvals, compliance requirements and time/money. Even before the feds went after coal many of the states were enforcing their own imaginary Kyoto treaties (see http://www.coalpowermag.com/plant_design/305.html). The result has been a massive cancellation of prospective new coal plants in the US, perhaps as many as 100, since the mid-oughts.
Perhaps the grad irony of all of this is that these plants could be built entirely with private money, unlike renewables, and supply reliable power for many years.
Mr. Hertzmark,
Incredible irony as you say and an excellent point. Unintended consequences or the ends justifying the means?
Donald, very few of any of the proposed coal plants, inclucing those approved and under construction were/are Ultra Super Critical plants… (I am aware of only one) despite the fact that these are state of the art in Europe, and apparently Japan. Also, I haven’t seen evidence that their total emissions of current criteria pollutants is as low as the Japan plant.
Generally, every industry analysis I have seen says that about 60 to 70 GW out of 320 GW will be retired, and these are ancient plants, with very low load factors and no pollution controls. In fact, the 20 GW being built will likely produce much more power than the 60 to 70 that will be retired. Coal will hardly be put out of business… more like a thinning of the heard, and when you see the heat rates and age of the plant being retired, you can come to the conclusion that the only thing that kept them in operation was the “grandfathering” of the emissoins. Grandfathering was a terrible policy that let existing plants get away with far worse emissions than any new entrant would be required to meet.
I would argue that administration may be doing the industry a favor by presenting all the hurdles up front the plants will need to meet. Nothing is worse than getting piecemealed to death… better to know what you have to spend than meet a hurdle this year, and another you didn’t expect a few years later.
Also, one has to consider that if you have a new coal plant in your air shed – or upwind of you air shed – it might add to regional emission inventories to the extent that it becomes more difficult to permit a refinery or petrochemical plant expansion. The latter may actually add more economic value than gained by effectively replacing natural gas fired capacity with coal.
Thanks for the excellent comments. I must confess that this blog was derived from an earlier editorial I wrote specifically to members of the coal-fired power industry. I picked these four issues as being the most important to those actually running coal-fired power plants.
I very much agree that there are other issues of high (equal?) importance that threaten the industry. I also believe that if the Tailoring Rule withstands judicial review or the congress fails to exert their constitutional authority under the CAA on this issue, then NAAQS standards for GHGs will quickly follow. The impact on the economy is unimaginable.
Also, in response to the comment on NSR, please read my post last year on the efficiency gains possible in the power generation industry if NSR were repealed. They are substantial. In the EU, utilities are rewarded for plant efficiency improvements. In the U.S., they invite a visit from the Department of Justice. Ironically, the most effective route to reduce CO2 emissions from powerplants is an increase in combustion efficiency, precisely with NSR is designed to preclude.
Dear Javelina,
Thanks for your comments. I would disagree about the thinning of the herd effect. As long as no new plants are going to be built the fleet will dwindle inexorably. Even if the Administration, realizing the dramatic impacts on reliability of its policies, allows plants to remain in service we will burn too much coal and suffer too much pollution compared to what investors and consumers would be willing to put up and pay for. Right now the average coal fleet efficiency in the US is about 33%. This means that there are still a lot of very old, very dirty, very inefficient plants providing necessary baseload power. There has to be a better way than this to manage our electricity supply.
As to the supercritical or ultra plants, India is building a number of supercriticals, based on imported coal, as is China. But the difference between super and ultra is about 20 deg C, it is not a fundamental change.