CO2 Cap-and-Trade Meets the (China) Dragon: Why Legislating Trillions of Dollars in Regulatory Costs Would Be Climatically Inconsequential

[Editor’s Note: Projected emissions from China will more than cancel the effects of Waxman-Markey in the year 2050 when the proposed law’s 83% cut in U.S. emissions would be fully imposed. This finding, calculated with the assistance of Chip Knappenberger and the MAGICC model, is part of a wide-ranging analysis below. Discussion, comments, and questions are invited by the author.]

The Waxman-Markey climate bill–characterized as a “648 page cap-and-trade monstrosity” by Al Gore’s mentor, James Hansen–is intended to bring the U.S. into line with Europe and Japan on CO₂ policy. But as I have explained previously, the current U.S. policy discouraging new coal and new nuclear capacity will:

1. Make the U.S. more dependent on energy imports,
2. Drive up generation costs,
3. Artificially incite demand for fickle natural gas, and related infrastructure such as LNG regasification facilities, and
4. Increase reliance on old coal and old nuclear for baseload power, resulting in less efficient, less clean, and less reliable electricity.

Such government intervention will block self-interested private investors who would otherwise provide America with more domestic, lower-cost energy, and more modern infrastructure for better reliability. And ironically, our more expensive, imported and unreliable electricity system will hardly make a difference in worldwide CO₂ levels and associated global climate change.

A One-Country Negation

The expected growth of coal-fired generation in China over the next 20 years will result in a net increase in CO₂ emissions from their power sector of more than ten times that of reduced U.S. emissions due to coal constraints.

Using the IPCC base case conventions for converting carbon emissions to temperature changes, the U.S. policy of limiting coal-fired power generation will, on net, decrease temperatures by about 0.02°C by the year 2100, while China’s growth in emissions will increase temperatures by about 0.25°C over than same period. The climatic effects of a costly U.S. policy to substitute more expensive sources of electricity for less expensive ones needs to be seen in the context of continued high rates of growth in China (and elsewhere) without substantial limitations on coal use.

Thus U.S. efforts are essentially part of the statistical “noise” and not a real option for reducing world emissions of carbon.

The Future of Power Generation Is In China

Since 2003 electricity generating capacity in China has risen from 365,000 MW, a little more than one third of U.S. generation capacity, to more than 700,000 MW in 2008. In 2006 alone, China added 106,000 MW of capacity, roughly equivalent to two new large coal-fired power plants every week.

In China almost all of the thermal generating capacity additions (which account for 82% of total capacity additions) use coal. Importantly, China pushes its power plants harder than do U.S. generators, supplying roughly the same number of kWh from its power plants as does the U.S. with its greater total capacity.

In contrast, the rate of growth of power generation in the U.S. is a small fraction of that in China. Between 2003 and 2007, the U.S. added 49,000 (net) MW (less than 6 months’ work for China at its current growth rate), and an average of 236 MW per week (181 MW thermal, the rest was wind), about one-fourth the rate of China during the same period.

By 2030 the consensus forecast is that China will generate 70% more electricity than the US, with about 25% more generating capacity. More than 60% of China’s total generating capacity (1,034,000 MW) is projected to be based on coal in 2030. Under cap-and-trade restrictions, revised projections show that the U.S. is likely to expand generating capacity at a rate below its historic level of about 1.2% annually, with the fraction provided by coal falling from 30% of capacity (50% of generation) to 28% of capacity in 2030 (~360,000 MW and 41% of generation).

The vast differentials in the climate impacts of the reduction in U.S. emissions with a restrictive policy on coal vs. the increase in Chinese emissions gives the lie to current ideas that restrictive U.S. energy policies can successfully tackle climate change. In fact, the impacts of expanded coal use for electricity (only!) in China far outweigh the impacts of U.S. restrictions on coal consumption, using the conventions of the IPCC on climatic impacts of carbon emissions over the next 90 years.

U.S. Coal: A Shackled Giant

The U.S. boats the largest coal reserves in the world, with about 27-28% of the world’s total. China, with about half the U.S. reserves, produces almost 40% of all coal mined every year.

In spite of the vast U.S. coal resources, coal has lost ground in the US energy mix. In fact, the U.S. is not even among the top five coal exporters. Indeed, for a generation coal has lost ground in the U.S. energy mix, mostly to natural gas.

Most of the thermal generation capacity added in the U.S. since 1990 uses natural gas as a fuel. Regulatory delays, lender reticence in the face of pending carbon restrictions, and the attractiveness and cleanliness of gas technology for meeting variable demand levels have combined to make natural gas the preferred generation technology in the U.S. When presented with the already issued permits for new plants using more efficient and low emission coal combustion technologies, U.S. regulators at both the state (Kansas) and federal (re New Mexico) levels have summoned a full load of sanctimony and have rescinded the permits for the two plants.

Plants in China are commissioned in weeks; two coal plants in the U.S. have been stuck in regulatory limbo for years. And the China plants  burn more coal per kWh and lack the emissions controls that have been standard on U.S. plants for almost 20 years. This is reality.

Regardless of the preferences of regulatory bureaucrats in the U.S., the denial of construction permits for new coal-fired power plants will not eliminate the need to update our generation portfolio. The next few years are critical, since a number of the coal and nuclear plants now in service will need to be retired or extensively overhauled. Coal and nuclear together, roughly 40% of generation capacity, produces 70% of total output. Political authorities in the U.S. at either state or federal levels have all but ruled out new coal and nuclear plants to replace the ones to come out of service over the next few years. But things could change quickly if a grid crisis occurs to get the public’s attention on what is being done in government office buildings on both the state and federal side.

Natural Gas Now, Natural Gas Forever

So as U.S. baseload units go out of service they will be replaced by . . . . . ?

Wind cannot replace thousands of MW of baseload electricity. As explained in previous posts, wind is simply not comparable in terms of its supply quality. Solar has similar problems, and would require massive investments not only in generation but also in storage and transmission.

Oil – been there, done that.

Hydro, moving down not up.

One alternative, the default in the US for the past 20 years, is more natural gas. Gas-fired combined cycle power plants (CCGT), now more than one third of the U.S. generating fleet, produce about the same amount of electrical energy as the 10% share of capacity taken by nuclear plants.

The reason that gas-fired plants are not used as baseload facilities is not technical. Oil refineries and other critical reliability facilities use such plants, often with cogeneration of steam and process heat. Rather it is the simple fact of cost.

Coal plants are costly to construct, but once built they cost little to operate. A new high efficiency coal-fired plant built in the U.S. for about $2 million per MW will feature total generation costs that average about 6.7 cents per kWh, with oil ranging from $45 per barrel to $80 per barrel.

A new gas-fired CCGT plant, with construction costs less than half what a coal plant will run, and even accounting for the current weakness in gas prices relative to oil, will produce electricity at an average cost of 6.8 cents per kWh.

So there is hardly anything to choose from, is there? Not quite. The gas plant costs on average 3.2 cents per kWh for the fuel, while coal and the costs of emission reduction run less than half that, 1.3 cents per kWh. Anyone with a choice will operate a built new-technology coal plant before running the gas plant – such is normal utility procedure, one that we are apparently prepared to disrupt for a chimerical pursuit of emissions reductions.

And it should be noted that once we stoke gas demand by replacing coal and nuclear plant retirements, the gas price weakness is unlikely to last long and we shall find ourselves once again paying something like LNG price parity for gas supplies to generate electricity.

A return of U.S. domestic natural gas prices to the “pre shale discovery” levels of 2001-05 vis-à-vis oil would add about $0.4 cents per kWh on average, and raise fuel costs in a CCGT plant to about 3.6 cents/kWh at current crude oil prices.

Emissions “Benefits” Are Part of the Statistical Noise

So what precisely does the world gain if the U.S. ties itself to near total dependence on natural gas as the default option for electricity generation. If we imagine CCGT installations of about 10,000 MW annually for the next 20 years, then the U.S. electric power system will reduce its use of coal by almost 30% compared with the Department of Energy’s base case projections for fuel use in power generation.

That same forecast shows gas use falling by more than 15% over that same period. Nuclear power is expected (in this base case) to grow by roughly the same amount that gas falls. By 2030 the gas production and imports needed to replace the missing coal and nuclear generation will represent about 8 Quadrillion BTU/year of energy, accounting for the superior efficiency of CCGT plants in fuel conversion to electricity. That volume of energy represents 3.6 million barrels per day of oil equivalent energy (the US currently imports about 12 million b/d of oil and refined products). In terms of current US gas production meeting such a demand for additional fuel would require a production increase of more than 30% (7.6 TCF per year). It may be possible to meet much of this additional demand with aggressive domestic gas development and production.

Equivalently, should the current administration succeed in its efforts to retard development of incremental sources of domestic natural gas, the US would need the entire planned, proposed, posited, dreamed and doodled LNG production capacity worldwide through 2030.

And what if this dream actually did come true and the U.S. was able to replace 30% of its coal-generated electricity with CCGT in the next 20 years—what impact would this have on the course of future global climate? Basically none.

The cumulative emissions saving for the U.S. from 2010 to 2030 of the low-coal scenario described above compared with the base case projections amount to about 5,258 million metric tons of CO₂ (mmtCO₂). All the while, China, according to the base case projections, adds 77,190mmtCO₂ from its coal-powered electrical generation. So, even if a savings of 5,258mmtCO₂ from the U.S. meant something climatologically (it doesn’t), it will have only “saved” about three-thousandths of a °C by 2030. See here for a quick conversion from emissions to temperature).

U.S. reductions in CO₂ emissions would be replaced nearly 15 times over by China’s growth. Loosely extrapolating to the end of the century, while assuming that the 2030 emissions from coal and natural gas used to generate electricity from the U.S. and China remain constant (for example). China adds no new coal plants after 2030), US policy results in a cumulative savings of 36,327mmtCO₂ from the U.S. compared with a 477,081mmt CO₂ emissions addition from China. The former results in a global temperature “savings” of about two-hundredths of °C,[1] while the latter results in a temperature rise of about 0.25°C—again China’s greenhouse gas emissions from coal-fired electrical production add more than 10 times the amount of global warming that the U.S. saves by converting from coal to natural gas. Even without considering China, the temperature impact from U.S. actions alone is so tiny that it falls deep in the statistical noise of our natural climate variability—that is, you couldn’t detect it using current measuring equipment or statistical models.