Wow! Whether one likes the president or not, one must concede he's not afraid of leading. Just a little over seven months from the election he has drawn a line in the sand and proposed a rule that may fundamentally alter America's energy mix and takes a big step toward addressing carbon dioxide emissions. Or it does nothing at all. We are talking of course of Tuesday's announcement of new source performance standards for electricity plants. In EPA's words:
The EPA is proposing standards of performance that require that all new fossil fuel-fired EGUs meet an electricity-output-based emission rate of 1,000 lb
CO2/MWh of electricity generated on a gross basis. This proposed standard is based on the demonstrated performance of natural gas combined cycle (NGCC) units, which are currently in wide use throughout the country, and are likely to be the predominant fossil fuel-fired technology for new generation in the future. EPA, Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units (proposed rule) at 13 (Mar. 27, 2012) .
So natural gas is in. And what about the other fossil fuels? New plants using coal or oil and even IGCC (integrated gas combined cycle) can be built but EPA expects that they will need to use carbon capture and storage (CCS) to meet the standards. Id.
What brought about this groundbreaking new rule? We set forth the legal foundation in a companion post. Suffice to say here that EPA has moved a long way from the days before Massachusetts v. EPA, 549 U.S. 497 (2007), when greenhouse gases were not Clean Air Act "pollutants." But the non-regulatory drivers were perhaps even more significant. All are aware of "fracking". The use of horizontal drilling with hydraulic fracturing in shales a mile beneath the surface has unleashed a torrent of natural gas. As Forbes reports this month natural gas prices are half of what they were just a few years ago. And the glut is not seen to be abating. EPA has seized on this surfeit: "technological developments and discoveries of abundant natural gas reserves have caused natural gas prices to decline precipitously in recent years and have secured those relatively low prices for the near-future." Proposed Rule at 15. As a result, "energy industry modeling forecasts uniformly predict that few, if any, new coal-fired power plants will be built in the foreseeable future." Id.
In other words, the proposed regulation will have hardly any effect (even none) on coal-fired generation because no one was going to build those plants anyway. "Our IPM modeling, using Energy Information Administration (EIA) reference case assumptions, projects that there will be no construction of new coal-fired generation without CCS by 2030. Under these assumptions, the proposed rule will not impose costs by 2030." Id. at 17.
We have read the commentary that this is the death of coal. The cost of capturing and storing carbon dioxide, which will be the only way for a new coal plant to meet the new standard, is prohibitive. Accordingly, no coal plants will be built. According to EPA, however, coal-fired production was dead anyway because of the glut of natural gas.
Crystal balls are notoriously unreliable. Some may remember that nuclear power was to make electricity too cheap to meter. But that didn't happen. America built the largest man-made construction the world has ever seen (the interstate highway system) on the assumption that gasoline would always be abundant. That was in error. An oil embargo introduced Americans to long lines at the fuel pump and locking gas caps. Most forget that natural gas production peaked in the early 1970s, not to be exceeded again until over twenty years had passed. The point is: smart people took their best science and made plans. But reality somehow did not get the message.
For what it is worth, here is our crystal ball on the demise of coal. First, CCS technology is pertinent not only to coal. Combustion of natural gas emits carbon dioxide as well. The regulatory imperative will push natural gas plants to address their CO2, and coal will be able to take advantage of improvements in CCS technology. Second, the United States has been called the Saudi Arabia of coal. To expect that industry to dry up and blow away is naïve. Shale gas went from a vanishingly small fraction of the US energy mix to over 20% in five years or less. Innovation made this possible. Just as ten years ago we could not imagine today's natural gas industry, we may not be able to recognize our coal resource in another ten years. Third, we thought it was fundamental that energy security depends on a mix of energy sources. It would be foolhardy to rely completely on natural gas. It will only take one cold winter and a natural gas pipeline calamity to make coal seem like a sensible alternative.
Whether the proposed rule will actually have an impact depends on numerous factors. All can agree, however, that climate change has been thrust back on the national agenda.