As market dynamics and increased competition reshape the utility industry, what role will coal play in the United States' energy portfolio moving forward? During today's OnPoint, Mike Duncan, president and CEO of the American Coalition for Clean Coal Electricity, explains why he believes economics favor coal over natural gas for base-load power generation.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Mike Duncan, president and CEO of the American Coalition for Clean Coal Electricity. Mike, thanks for coming on the show.
Mike Duncan: Monica, thanks for having me.
Monica Trauzzi: Mike, based on what the president said in his State of the Union address specifically on carbon emissions, is your expectation that he's going to continue to move aggressively forward on his Climate Action Plan?
Mike Duncan: Well, today in America a lot of people are asking the questions, "What did the president say about energy last night?" He said he was for all of the above. He didn't mention coal. He talked about a transition fuel, a bridge fuel in natural gas, and he talked about tough choices. And we want to know what those tough choices are. I was disappointed that he didn't level with the American people about what his policies are.
Monica Trauzzi: So, one of the cornerstones of the Climate Action Plan is EPA's regulation of power plants. You represent clean coal electricity. It would seem that you would be in support of propelling the development of carbon capture and storage technology, which is seemingly the future of coal. Don't EPA's regulations propel that technology forward and help the industry move forward and compete in this changing world?
Mike Duncan: Yes and no. It's counterproductive. The proposals that they have are unproven at this point. We have some great test cases out there on carbon capture, and it is one of the tools that we'll use going forward to make the air even cleaner, to make coal even cleaner as we burn it not only in America but in the world. But the standard that they're imposing for new-source performance is not achievable yet, and they're taking away our ability to incrementally improve things. Over the last four years, we've spent $130 billion as an industry making the air cleaner. We're prepared to spend more money, but now we're going to be at a halt because of these standards. And technology will continue to be developed. I suspect someday we'll be buying the technology back from another country if this policy's allowed to stand.
Monica Trauzzi: We're seeing the utility industry, though, shutting down coal-fired units around the country because of the economics of the situation. What is the case, then, for keeping units open or building new ones?
Mike Duncan: Well, there's some economics involved. There's no question we have some old coal plants in the country that have gone through their useful life. The natural gas price has been low for a period of time. Those are. But when we look at the shutdowns, and it's about 20 percent of where the plants were in 2012, about 15 percent of the overall plants, about 300 plants, 56,000 megawatts, can be traced back to EPA regulations, Utility MACT and regulations that're in place. And I'm concerned going forward, particularly if we have a cold winter in 2015, 2016, for the capacity of the system.
Monica Trauzzi: So, what poses a greater risk to the coal industry, then? Is it EPA's regulations or low natural gas prices?
Mike Duncan: Well, the market will set itself. Over a period of time, the marketplace will work. I'm not worried about that and I don't think the coal companies are really worried about that. It's having a disproportionate impact on central Appalachian coal, particularly eastern Kentucky coal, and that's where I'm from. The cost structure is higher in eastern Kentucky, and it's, natural gas has to reach above $5 probably for a break-even point there, but it's much lower in the central Illinois basin and with Western coal. So, market forces will take care of themselves, but government regulations pick winners and losers, and that's an artificial economy.
Monica Trauzzi: When you're talking about competition on the grid, you have coal and natural gas competing against each other, but you also have this next generation of technology that's coming online that's slowly taking up a more significant share of the market. How does coal, then, stay competitive against all of those factors?
Mike Duncan: Well, coal can be competitive because it's the base load. You have to have the ability to flip on the switch and have it 24/7, and we're the best position because of the way you can transport coal, the way that we've got a hedge market on coal to provide that base-load electricity. I believe in all of the above. I believe that we should have natural gas, and I believe that we should have hydro and wind and solar. And as a director of the Tennessee Valley Authority, I voted for all those, but I always knew that when times were tough that coal was going to be there for us.
Monica Trauzzi: And TVA actually recently shut down eight coal-fired units.
Mike Duncan: Well, actually one of those units was one that I'd voted to scrub, and I still believe that that's what should be done at that Paradise plant. There were some old units at TVA that couldn't be scrubbed that had reached their useful life, but I think they may have gone a little too far with this last closure.
Monica Trauzzi: Is the coal industry resisting inevitable change?
Mike Duncan: I don't think so. I think they understand that there's an 8 billion-ton market in the world. There's a billion-ton market here in America. They believe that over a period of time that the technology will be there to allow them to use the 300 years of reserve that we have here because it's in the best interest of America and the world. There's still 15 percent of the population of the world, 1.4 billion people, that don't have electricity. And if you look at the history of how we've developed as a society, coal's played an important part of that, as well as other fossil fuels.
Monica Trauzzi: Why do you think so many major companies are taking aggressive steps to address climate change in their business plans if, as you would contend, it's bad for the economy?
Mike Duncan: Well, I think they're taking plans to do things that their shareholders want them to do. I think they're taking plans to make sure that they have affordable, reliable electricity, and that will include coal. Whether you're a manufacturer of, whether you have a smelter or whether you have a small business, you want the lowest cost possible for your electricity. And if we don't provide that in this country, we're going to lose some of the manufacturing base that we have. That's another one of the economic concerns.
Monica Trauzzi: What would you prescribe, then? What's the road map that you would prescribe for moving forward on clean coal but also addressing carbon emissions?
Mike Duncan: Well, first I would say, Mr. President, recall the proposal that you've made on new-source standards. Let us incrementally improve this. There's technology out there. I do support carbon sequestration. I think it's one of the tools that you have, but there's other tools and there's development. ARPA-E's looking at things all the time. I talked to a U.S. senator recently about this when we were talking about use of algae. Let the marketplace work on new source, and then let's look at the existing plants. I don't think you have the ability under the Clean Air Act to propose what your friends, the Sierra Club and others, are wanting you to do. That would be my advice to the president.
Monica Trauzzi: And we'll see what the agency does later this year. Thank you for coming on the show.
Mike Duncan: Monica, thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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