Is U.S. EPA preventing new coal-fired power plants from being built with its New Source Performance Standards? During today's OnPoint, Jeff Holmstead, a partner at Bracewell & Giuliani and a former assistant administrator for air and radiation at EPA, discusses EPA's latest air regulation and the impacts it will have on coal and natural gas markets.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Holmstead, a partner at Bracewell & Giuliani and a former air chief at U.S. EPA. Jeff, it's great to have you back on the show.
Jeff Holmstead: Thank you, it's nice to be here.
Monica Trauzzi: Jeff, it was a long time coming and U.S. EPA finally released its New Source Performance Standard. The rule seeks to regulate emissions from new power plants. With this rule, is EPA preventing new coal plants from being built or are they simply seeking to regulate emissions and make things more efficient?
Jeff Holmstead: Well, it depends who you ask. I think everyone who's being honest agrees that it effectively bans new coal-fired power plants. And EPA even says, well, you know, this will require a technology that hasn't been demonstrated yet, but their theory is, well, all we need is combined cycle natural gas plants and because you can produce power with combined cycle gas. So it is a curious rule. It's completely inconsistent with the way EPA has run this program for 40 years. But it's kind of hard to figure out what the thinking is here.
Monica Trauzzi: But there's a lot of work being done to get the technology up to speed and we may see it in a few years.
Jeff Holmstead: Right, but EPA has never mandated a technology that's not been demonstrated. So, the administration had its own task force looking into these issues and they said commercial availability was at least 10 years away. That was a couple of years ago. So, it is odd that they think it's a good idea to ban new coal-fired power plants.
Monica Trauzzi: So, if this technology does become commercially viable, then is there no problem? Can the industry proceed and all will be well?
Jeff Holmstead: It depends on a whole bunch of things. First of all, I think it's highly unlikely that this rule will still be in place a few years from now. It just doesn't make sense legally. It doesn't make any sense for a whole bunch of reasons. And one of the things that I point out to people, and I talk with a lot of people about energy policy and you say, OK, what are the countries around the world that are actually growing economically? And whether you look at China or India or Vietnam or Thailand or Brazil, all of them are building state-of-the-art coal plants. Not with CCS, because that's outrageously expensive. No one's ever done that. But having affordable electricity is a key to having a robust economy. So, in this global marketplace where all of the people who we compete with have state-of-the-art pulverized coal, EPA decides to ban coal-fired power plants in the United States. That's just a puzzling thing.
Monica Trauzzi: But is EPA really shifting the dynamics of the market or is natural gas already doing it on its own?
Jeff Holmstead: Well, that's the other strange thing about this rule. If you believe EPA's assumptions, this rule is meaningless because no one is going to build a new coal plant. Everyone's going to build new combined cycle gas. There are many people who have different views about what's likely to happen to the price of natural gas. Maybe it will stay low and if they stay low, then this rule provides no benefits and no costs. If the price goes up very much, then the costs are massive, but the benefits are still pretty small. So, it is certainly true that given where natural gas prices are today, not a lot of people are looking at new coal, although some still are, just to maintain fuel diversity. But it really does -- EPA is essentially putting all of our eggs in one basket.
Monica Trauzzi: So, there's a 60 day comment period right now before the standards become final.
Jeff Holmstead: Oh, no, no, no, no, the standards are binding now. The NSPS program is unusual in that, well, as soon as they're put in the Federal Register, then they're binding on anybody who commences construction after that date. So, EPA doesn't need to finalize these rules. They're in effect as soon as they're published in the Federal Register.
Monica Trauzzi: So, whatever the utilities may say from this point forward, not going to have much been impact?
Jeff Holmstead: Well, EPA could change the rules and do something more thoughtful in the final rule. But until EPA does that, the proposed rules are binding on anyone that's building a new power plant. Now, right now there's not a lot of demand growth because the economy is not doing so well. And anybody who is looking at new power plants is pretty much looking at new natural gas plants. So, maybe this won't have a big impact. It won't in the near term, but the bigger picture is really what does it mean over the next few years as we hopefully come out of our economic troubles.
Monica Trauzzi: So, what will the word be from the industry during this comment period?
Jeff Holmstead: Oh, I suspect that they will point out, A) that EPA can't do this under the Clean Air Act. For 40 years they've set New Source Performance Standards based on different fuel types. And so for 40 years you've had certain standards that apply to natural gas, a different set of standards based on the best demonstrated technology for coal and a different set for oil. And so this is the first time that EPA has said, well, you know, the standard for a coal plant is what you can achieve with a gas plant. And so I think just legally those will be the things that they point out. And I suspect that there will be some political pressure brought to bear. There are Republicans and Democrats who believe that there should be a future for coal. And this rule essentially says no new coal in the United States.
Monica Trauzzi: Would you agree that industry is kind of divided on this issue though? Because there are some companies that have taken steps already to eliminate coal and improve their facilities, so they already have taken steps.
Jeff Holmstead: No, actually, I don't think industry is so divided on this. On things like CASPR and the MATS rule, you did see a fair amount of rent seeking by different companies, depending on what their fleet is. This really hits people differently depending on whether they're near a supply of coal or not. So, there may be some differences, but you don't have the same kind of dynamic that you've had with these last few rule makings, because it, at least thus far, only affects new plants. So everybody can choose to build whatever they want to at this point going forward.
Monica Trauzzi: Lisa Jackson says the agency has no plans for an existing source rule. Do you --
Jeff Holmstead: Was that after she promised to do an existing source rule or before?
Monica Trauzzi: It was just this week. So, do you believe that EPA will follow up on the NSPS rule with some kind of rule for existing sources?
Jeff Holmstead: Well, they do have a settlement agreement that they've signed that promised actually that they were going to do standards for existing sources as well. And I think everybody understands that there is an election coming up and they don't want to announce yet more regulations before that. But I think the environmental community is pretty confident that EPA will then come up with an existing source, if the president is re-elected.
Monica Trauzzi: So, if he's re-elected, what could a second Obama EPA look like?
Jeff Holmstead: I assume it would be pretty much what we've seen for the last few years. I mean they've really aggressively targeted coal plants. We've seen a lot of shutdowns announced or a lot have already occurred. I think there is a lot of concern over what happens with natural gas development. There's certainly some pressure from the environmental community to have EPA regulate that and some concerns that that would drive up the price of gas. So, it's hard for me. They've accomplished a great deal. Well, at least they've issued a lot of regulations in the first four years and, you know, their next step apparently will be CO2 emission restrictions for existing power plants, although they have no current plans to do that.
Monica Trauzzi: Well, we'll see what happens I guess. Thank you for coming on the show. We're going to end right there.
Jeff Holmstead: Thank you for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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