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September 17, 2013 7:06 pm
Regulations that would in effect ban the construction of new coal-fired power plants without costly carbon capture equipment are expected to be set out this week by the Environmental Protection Agency, the US regulator.
The proposed rules, setting limits to emissions of carbon dioxide that contribute to the threat of global warming, have already revived talk about the Obama administration’s “war on coal”.
In terms of its impact on US energy, however, the immediate battle is little more than a skirmish. In banning new coal plants, the EPA would prevent the US electricity industry doing something it does not want to do anyway, because low natural gas prices resulting from the shale boom have made investment in new coal-fired plants uneconomic.
The real conflict will come next year, when the EPA is set to propose rules for existing plants, affecting the coal-fired generators that provide 39 per cent of US electricity.
Last year the EPA issued proposed rules setting a limit on emissions from new power plants of 1,000 pounds of carbon dioxide for every megawatt hour of electricity generated. That would allow most new gas-fired plants, but not coal-fired plants unless they have equipment to capture and store their emissions.
The revised rules out this week are expected to set separate standards for the different fuels, but to set a limit for coal that is lower than the 1,600 pounds per MWh emitted by the most modern plants without carbon capture.
Those rules are scheduled to be finalised in September 2014.
For the first few years, at least, their impact would be minimal. In 2013-15, the US industry is planning to build just eight new coal-fired generators, according to the Energy Information Administration, compared to 138 new gas-fired units.
Cheap gas tilts the economics of generation heavily against coal.
A megawatt hour of electricity from a new coal plant, including both the capital cost and the fuel, will cost about $100 in 2018, according to the EIA, but just $66 from an advanced gas plant.
David Doniger of the Natural Resources Defense Council, the environmental group, says: “The idea that it’s this regulation that’s blocking new coal plants is a typical excuse from people who can’t make money and can’t sell their projects in the market place.”
Paul Bailey of the American Coalition for Clean Coal Electricity, the industry group, accepts that new coal plants are uneconomic today, but says if gas were to rise to about $7 per million British thermal units, up from $3.75 today and about $5 in the futures market for 2020, new coal would be competitive again.
“Our concern is that the industry will no longer have the option to build coal plants if the gas price rises, which is a real possibility,” he says.
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However, he sees regulations of existing plants as the bigger issue.
“The potential impact of regulating carbon dioxide there could be huge.”
When President Barack Obama set out his climate strategy in June, he told the EPA to come up with a plan for existing plants in a year’s time.
That plan is unlikely to follow the rule for new plants and set a single national standard. States would be allowed to develop their own plans to cut emissions. Even so, there would still be targets that they would have to hit.
Michael Obeiter of the World Resources Institute, an environmental think-tank, says: “Really to get a decline in carbon emissions pollution, you have to go after existing plants. And we think its essential that they do.”
Paul Bledsoe, a former climate official in Bill Clinton’s White House, now at the German Marshall Fund, says the states are likely to favour lower-cost options such as increasing energy efficiency over carbon capture, which will still require subsidy to be commercially viable.
“So the domestic outlook for coal is not good,” he says. “I guess we just continue to export it to China and the European Union.”
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