It’s last year’s climate law — not this year’s carbon rules — that will end U.S. power generation as it exists today.
That’s the takeaway from EPA’s own projections for the future of power generation and capacity, as reflected in supporting documents EPA put out last week alongside standards it has proposed for gas and coal plant pollution. The White House pressured EPA to make those standards stronger (see related story).
The modeling shows that EPA’s Clean Air Act rules would have a limited impact on the U.S. generation mix: They’ll play only a minor role in ushering coal power off the grid and virtually no role in boosting renewable power.
That’s because the Inflation Reduction Act already did so much on both fronts there wasn’t much left for the power rules to do.
“Prior to this rule, the IRA had already transformed the industry,” said John Coequyt, director of government affairs at RMI.
EPA’s draft rules for power plant carbon pollution offered the first real look at how EPA expects the Inflation Reduction Act to affect the U.S. power grid over the next 20 years. The measure contains $369 billion in climate and clean energy spending.
The agency’s conclusion? The law will overhaul the U.S. power sector, set renewable power on a course for exponential growth and put coal on life support.
EPA debuted its assumptions about the post-Inflation Reduction Act grid last week to serve as a baseline against which it could measure the costs and benefits of carbon rules for existing coal plants and newly built gas power.
EPA proposed rules for a relatively small segment of the existing gas fleet at the same time, but the impacts of those standards weren’t modeled.
“As EPA works to finalize the rulemaking, the agency will complete additional advanced modeling, aligning methodologies across the rulemaking and considering real-world scenarios within the power sector to best understand how components of the rule impact each other,” the agency said in an email to E&E News.
EPA maintains a power plant baseline that uses an energy economics model to find the most cost-effective means of powering the country over time. The modeling is updated annually to reflect changes in policy and the marketplace.
This year, there was one big change — President Joe Biden’s massive climate spending package.
With the Inflation Reduction Act and its copious green energy incentives in hand, EPA now sees a utility sector that is careening toward decarbonization so fast that its own rules serve as backup, rather than driving the transformation.
Take coal.
In 2021, there were still 210 coal plants in the continental United States providing 220 gigawatts of power capacity and 22 percent of total generation. Before the Inflation Reduction Act was enacted, EPA expected that to drop to 131.7 GW by 2028. That was the baseline it used in a proposal for coal plant water pollution in February.
But the new projections EPA has embedded in its regulatory documents for this month’s climate drafts show EPA now expects coal to drop to 100 GW of capacity by 2028 — about 100 plants — and to provide about 11 percent of the nation’s power.
The carbon rules themselves don’t figure in that change.
In 2028, EPA’s proposed requirement based on 90 percent carbon capture for coal will be two years away, with a large segment of the sector expected to take advantage of additional grace periods for retiring or running less. When EPA does add its proposed standard for coal to the modeling mix, that adds only a 2 percent further reduction in coal capacity.
The news for coal gets worse from there. EPA’s effluent proposal in February showed that prior to the Inflation Reduction Act, the agency expected about 112 GW of coal-fired power to remain in 2030. But the Inflation Reduction Act changes that forecast with the help of the EPA power rules.
With the Inflation Reduction Act alone, EPA expected the U.S. coal fleet to dwindle to 60 GW and 5.5 percent of total generation by 2030. With the EPA rules demanding carbon sequestration beginning that year, almost a quarter of that projected capacity goes away. The Inflation Reduction Act and the draft carbon rules together cut coal capacity to 46 GW providing 1.8 percent of generation.
In 2035, EPA’s analysis shows that the draft power plant rule would be the last nail in the coffin for unabated coal. The post-Inflation Reduction Act baseline projected 44 GW of coal without carbon capture in that year. With the power rule, that falls to zero.
That’s an important projection given the heat EPA has taken over the last week from some environmentalists for giving coal a pathway to stay online through 2040. Biden has pledged that by 2035, the U.S. grid will run on zero-carbon power, and critics say the rule is inconsistent with that aim.
Carrots vs. sticks
The outlook for gas is different. The Inflation Reduction Act-dominated baseline shows gas-fired power capacity increasing slightly from 463 GW in 2028 to 503 GW in 2040 — about 8 percent — while its share of generation drops from 40 to 21 percent.
The proposed rule changes that trajectory very little over that timeline. That may in part be due to EPA’s decision to model the existing gas standard separately from the proposals for new gas and existing coal.
But it also reflects EPA’s decision to pair a very stringent draft standard for existing coal with rules for new and existing gas that environmentalists are already gearing up to fight.
A sliver of the gas generation sector does face standards in line with 90 precent carbon capture. But the vast majority would meet laxer standards — or none at all — under the draft rules.
“So we’re not talking about a ton of tons [of carbon reduction] in a single year, in part because the current existing gas standard, as EPA has proposed it, covers very few plants,” said Amanda Levin, director of policy analysis at the Natural Resources Defense Council.
NRDC’s analysis shows the rule would cover about 7 percent of today’s gas power fleet, responsible for a quarter of gas generation and about 30 percent of its emissions. EPA is taking comment on the proposal’s exemption for existing plants that are smaller than 300 GW and run less than half the time. Levin said NRDC would urge EPA to lower its thresholds for both size and capacity in the rule it finalizes next year, and to phase in the strictest requirements more quickly.
EPA expects many gas plants to comply by limiting how often they run and avoiding the toughest standards. But lower thresholds and earlier compliance dates could move more of them offline, and also create an opening for something else that is absent from EPA’s projections — regulations that boost renewable power.
While the rules don’t require any renewable energy to be built, utilities and states will decide how to comply. States will plan implementation for their fossil fuels power sectors, and those can incorporate renewable energy. But they’ll be more effective, Levin said, if EPA’s rule gives fewer gas plants a free pass.
“Stronger standards that cover more plants will require utilities and states to pursue efforts to really cut pollution rather than shift pollution,” Levin said. “Because right now as it stands, they have the opportunity to really kind of shift amongst their fleet rather than make necessary investments to clean up their fleet.”
EPA projects a renewable energy renaissance throughout the 2028 to 2040 time frame it models — but it’s all in the Inflation Reduction Act baseline. The draft rules are projected to do even less to encourage renewables than they do to reduce gas power. Due largely to the Inflation Reduction Act, EPA projects that sources such as wind and solar will provide about 22 percent of U.S. generation in 2028 and 55 percent in 2040.
But there are areas where EPA’s standards are projected to change the U.S. power mix.
For example, the draft coal rule is expected to significantly increase carbon capture and storage at coal plants after 2030, when its strictest standards kick in. Under the Inflation Reduction Act baseline, EPA would have expected 9 GW of coal with CCS in that year without the rule, compared with 12 GW with it.
That’s the high-water mark for coal with CCS, EPA’s modeling shows. By 2040, only 9 GW of coal with CCS would be left on the grid even with the rule in place.
EPA’s modeling for the existing coal and new gas standards shows that fewer utilities retrofit their gas plants with CCS if the rule is finalized than would have done so without it. But that counterintuitive finding is difficult to parse given EPA’s choice not to model the standard for large existing baseload gas plants — which would also have to capture 90 percent of carbon or burn hydrogen by the second half of the 2030s.
Under the rules, EPA projects that gas with CCS will decline from the 7 GW in the baseline to 4 GW by 2030. By 2035, gas with CCS would weigh in at 8 GW with the rules, instead of 10 GW without them.
But EPA projects more hydrogen co-firing with the rules than without them — 11 GW in 2035 and 13 GW in 2040, versus none.
Ben King, an associate director with Rhodium Group, said the drop-off in gas with CCS might have some regional explanation that will become clear when EPA releases more information on its assumptions.
“If because that coal is retiring there’s some deficit of load that needs to be met, there may be certain regions where it makes more sense for that to get met by renewables now instead of by gas with CCS,” he said. “So all of this is like a waterbed, right? When you push down on one thing, another piece goes up.”
EPA’s models don’t credit the regulations with changing the power mix. But Mike O’Boyle, senior director for electricity at Energy Innovation: Policy & Technology LLC, said that might partly be a limitation of modeling, which doesn’t capture variables such as a utility’s determination to recoup sunk costs or the political leanings of a state public utility commission.
The Inflation Reduction Act’s incentives are voluntary, he said, while the rules provide guaranteed emissions reductions.
“The IRA is a series of carrots,” O’Boyle said. “And the standards are a series of sticks that ensure that utilities take advantage of the carrots offered in the IRA.”
