As states and industry carefully analyze this week's U.S. EPA proposal to regulate carbon emissions from existing power plants, what are the coal industry's plans for lobbying within states on the economics and politics of the plan? During today's OnPoint, Hal Quinn, president and CEO of the National Mining Association, reacts to EPA's proposed rule and talks about his industry's plans for the next stages heading to a final rule.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Hal Quinn, president and CEO of the National Mining Association. Hal, thanks for coming back on the show.
Hal Quinn: Thank you, Monica.
Monica Trauzzi: Hal, earlier this week EPA released its proposed rule for regulating carbon emissions from existing power plants. It's considered modest by many. Would you agree with that characterization, and do you believe the agency did a good job at considering the viewpoints of the various stakeholders?
Hal Quinn: Well, I don't think it's modest. I mean, you know, some have been saying since it uses a 2005 base line it recognizes some of those emission reductions that have been accomplished to date, but at this point in time from the coal fleet, that's 24 percent reductions and we're fully into the backbone of the fleet so there's not a lot more you can squeeze out without closing more of base-load power from the coal fleet.
In terms of the other issues, you know, I think listening to stakeholders, I think they did a job of going around and talking to many different interests whether the rule reflects all of those different interests, always difficult to do, but I don't think it does. I don't it necessarily provides the flexibility and I mean a different flexibility than they're talking about, flexibility in terms of the optionality you have with different diverse resource base for the electric grid.
Monica Trauzzi: The regulations are tailored state by state so each state has a different goal. Which states do you see as the most vulnerable and which plants specifically as at the most risk for shutting down?
Hal Quinn: Well, I don't have a -- I haven't had time to go through it in detail or our team, but I would say in terms of the plants that would be most at risk would be the ones that have the higher heat rates that are left after the retirements from the mercury rule. We did an analysis of what would happen if they took 10 percent of the remaining fleet out which would nominate it just as a general purpose would be the ones that are the higher heat rate plants, and that took out quite a bit of necessary baseload capacity and actually put much more additional pressure on natural gas prices.
Monica Trauzzi: Do you see opportunities here for your industry to make improvements and advancements on the efficiency front? Is this an opportunity? Can you see it as an opportunity?
Hal Quinn: Well if the policies are balanced and framed that folks are not penalized from a regulatory standpoint and dragging out and having to reopen permits in a very comprehensive fashion to upgrade their plants, perhaps; but I would have to say that getting a lot more efficiency out of what the fleet will be what's left, it's going to be very difficult because what's going to be left is the largest on average plants and the most efficient left in the fleet.
Monica Trauzzi: So could these standards be met with the existing technologies?
Hal Quinn: No. No. I mean what you're talking about here is on a technology standard per se it's basically looking at a budget and saying everybody, every state live within this budget; here's your basic heat rate so adjust your resource mix to meet that. Some of it might be achieved through some slight improvements in operations at certain power plants, gas and based on coal, but for the most part it's going to really be fuel switching and resource changing.
Monica Trauzzi: There are two potential avenues for fighting this rule. There's litigation and legislation. What are the litigation plans at this point?
Hal Quinn: Well, we'll have to see. I think what everybody was looking at is how does this -- what does this mean in terms of every state's economy? Are they going to be -- I would expect states will see that their economy is going to be hollowed out by this to be very concerned and perhaps standing in the front line in terms of trying to get this to be a more balanced approach.
I mean if the flexibility they're talking about is using cap and trade and carbon taxes, let's just take a look at two areas that already use that: California where their electricity rates are 45 percent higher than the national average and New England where they are 36 percent higher. So whether in Indiana or Iowa I don't think that's the future they want and when you look at the rollout of all of this, Monica, we have not heard anything about what are really the climate benefits of all this. It's more about health benefits and that's really recycling several times the same data they've used for the last three rules.
Monica Trauzzi: So do you believe that there are not great climate benefits to implementing this rule?
Hal Quinn: Not from this rule, absolutely not. I think there's a more balanced approach. I think this is going to be a very symbolic gesture and an expensive one at that, symbolic in the sense of trying to arm the president with something to negotiate with overseas, but I think when somebody is going to go overseas and say I'm willing to put my economy at risk, please join me, I'm not so sure there are going to be any other hands crossing the table on that one.
Monica Trauzzi: But isn't this the strongest step ever taken in the United States on climate change?
Hal Quinn: Symbolically perhaps, but what we're talking about is it going to meaningfully make any difference, and the answer is no and I think that's exactly why you don't hear EPA saying anything about that.
Monica Trauzzi: You mentioned what this means overseas. Won't strong action by the United States spur other major economies to take similar steps?
Hal Quinn: I think meaningful action which would be in a longer term sustainable with really putting your shoulder behind technology improvements across all fronts I mean that's really the ultimate answer. So if you're going to talk about carbon capture and storage, then let's talk about it in terms of that's a fossil fuel actually; that's not just a coal answer. If we were to talk about renewables, let's talk about boosting efficiencies at renewables and their availability.
IEA predicts that maybe in another 15 years 20 percent of the installed capacity for electricity globally will be 20 percent. But it will only produce 2 percent of the electricity needed.
Monica Trauzzi: But isn't the U.S. government supporting all of those things, carbon capture and storage, improving renewables? Isn't DOE working at that right now?
Hal Quinn: Well they are, but the thing is are you going to put policies around it that are in sync with the tracking of that technology or are you going to step over that, well, I'm just going to draw a line in terms of some type of emission reduction without really figuring out whether it's achievable and what the real costs are.
Monica Trauzzi: What conversations are you having with the folks on the Hill about a possible legislative approach?
Hal Quinn: Well right now we're just informing them about what we see as the impacts of this rule on their constituents, and I think they're pretty substantial. In terms of what ideas might come up, I think for the first part I think we're going to see a lot of congressional interest through hearings and so forth which will be good for the debate. I mean we ought to talk about what are the assumptions here; are they realistic and what are the real costs?
EPA came out and say this will cost $8 million a year. Well this is the same EPA that said that only about 5,000 megawatts of coal plants were retired under the mercury rule. Well they are about off by a factor of 10, so if I did a factor of 10 to their costs to this rule I'd say we're at $80 million at least, which is even higher than the Chamber of Commerce puts it at.
Monica Trauzzi: All right. So as part of the process, states are going to need to develop compliance plans. What strategies should coal states have in order to find workable mechanisms at this point?
Hal Quinn: Well you know, each state is going to have to look at what its resource mix is and what's the potential impact on its ratepayers, on its businesses. It may be that some states won't be able to achieve this, and if that's the case they need to probably step up early and say this is just not achievable. We just can't risk our economy and risk our residents and our citizens' electricity rates to this type of plan. There may be some opportunities here to look at some other efficiency improvements and then go into EPA and say this is the best we can do.
Monica Trauzzi: Should industry be leading the charge in creating the most flexible compliance mechanisms? What role should industry play?
Hal Quinn: Well we laid out, at least from our industry perspective, we laid out a pathway we think's more balanced. We think and that's where we see a disconnect between the new plant rule and the existing plant rule. We think a better pathway would have been put a new plant standard in that was based on the available technology today, higher efficiency so it replaced the older coal plants, and you get 25-30 percent emission reductions of the plants that replaced.
Instead we're cut off from that because of the CCS requirement, which is it's not going to be available in this time frame. So we'd hoped somebody would consider that, that you can get real verifiable emission reductions by putting in new, higher-efficiency super-critical and coal gasification plants and replace the subcritical plants that dominate the fleet.
Monica Trauzzi: What will NMA's efforts look like in coal states ahead of the midterms now that this rule has been released?
Hal Quinn: Well, they'll be the same as they always have. I mean we've always informed, you know, our constituency of what the policies are and what they mean to them, and our group in the coal nation has been pretty quick to act and express their views about whether that's aligned with the public interest.
Monica Trauzzi: All right. A difficult battle ahead for sure. Thank you for coming on the show.
Hal Quinn: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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