In the nearly eight years since EPA announced the nation’s first carbon emissions limits on power plants, the utility sector has undergone a rapid shift.
Retirements of coal plants are accelerating, replaced with a flood of wind and solar projects competing to get on the grid. Unlike in the Obama era, the largest U.S. power producers are generally striving to meet net-zero carbon goals.
But new EPA rules set to restrict emissions from power plants will test the limits of the sector’s transition, raising questions about whether businesses are ready to meet President Joe Biden’s most ambitious climate goals. Technologies that can capture and store carbon dioxide are not used at major U.S. power plants, for example, and the ability of utilities to decarbonize faster than currently planned is uncertain.
Final details of the EPA rules have not been released, though reporting by E&E News suggests they could require coal- and gas-fired plants to cut or capture almost all of their carbon dioxide emissions by 2040. The target could change depending on other factors. Companies could be given the option to shut coal plants by 2040, people familiar with the proposals said, or outfit them with carbon capture technology by 2030.
“Anything is achievable, but there are costs to consider and technological improvements are needed to ensure reliability,” said Sam Berman, principal analyst for power and renewables for consulting firm Wood Mackenzie.
An E&E News review of the climate commitments from the nation’s largest power producers shows that most have set a target date of 2050 to achieve carbon neutrality, although the details differ as to whether companies plan to achieve net-zero emissions or completely eliminate them. Among the nation’s top ten producers based on power generating capacity, the only ones with earlier goals are NextEra Energy Inc. (2045), American Electric Power Co. (2045) and Constellation Energy Corp. (2040). Calpine Corp., a competitive power producer, doesn’t have a net-zero carbon goal at all.
Those goals signal the widespread differences in how utilities are approaching the climate crisis across different regions and generation sources, as well as the challenges they may face with an earlier target.
“The general consensus is that it is within reach to achieve relatively high levels of clean generation by 2040 with current technology and emerging longer duration storage,” Berman added in an email. But, he said, the specifics of how utilities handle the interim decades will show how quickly and efficiently they hit that goal.
“The incremental cost to 100% of net zero is where a lot of the uncertainty lies with emerging technologies and how cost effective their solutions are,” he said.
According to data collected by the Edison Electric Institute, a trade organization representing U.S. investor-owned utilities, a handful of electricity providers have more ambitious decarbonization goals than what the administration may propose.
Avangrid Inc., for example, plans to achieve 100 percent carbon neutrality by 2035, the same year Houston-based CenterPoint Energy Inc. aims to reach net-zero emissions. Eversource Energy has a 2030 target. New Jersey-based Public Service Enterprise Group Inc. likewise has a 2030 goal for net-zero carbon emissions. Vermont’s Green Mountain Power Corp. aims to achieve 100 percent carbon-free electricity even earlier — by 2025. Those goals refer to companies’ direct emissions, not Scope 2 or Scope 3 emissions related to the full supply and value chains.
Those goals, however, are not binding and utilities could blow past them — or meet them sooner — depending on the pace of technology.
Coal, gas and lessons from the Clean Power Plan
Research from the Electric Power Research Institute (EPRI), a research and development nonprofit, found that the Inflation Reduction Act could incentivize nearly twice as much solar and wind capacity in the next seven years than was planned before the law passed. All told, those incentives could lead to a 54 percent reduction in carbon dioxide from the U.S. electricity sector by 2030 based on 2005 levels, said EPRI research and development director Jeffery Preece.
Whether that’s enough to meet what is called for in the EPA rules remains to be seen. Many executives of power providers and utilities say their progress on decarbonization should set them up to comply with a coming EPA rule. However, in many cases they have a target, but do not detail fully how they will achieve it.
They also frequently say they must continue to provide affordable and reliable power, which can be at odds with the rapid retirement of fossil fuel plants, especially when economic and climate pressures are increasing demand.
For example, Southern Co. President Chris Womack said during a first-quarter earnings call in April that his company has “been pursuing our fleet transition, our focus on sustainability, with a real commitment of balancing affordability … and we’ll continue to do that as we go through this fleet transition.”
Atlanta-based Southern, which has a 2050 net-zero greenhouse gas emissions target, currently operates about 12,300 megawatts of coal-fired power and 15,400 MW of gas-fueled capacity across several states in the South.
“All of it is headed in the direction that we as a company are already headed,” Drew Marsh, the CEO of Louisiana-based energy company Entergy Corp., told E&E News recently. The company has a 2050 target to achieve net-zero carbon dioxide emissions, with an interim goal to achieve 50 percent clean energy by 2030.
Entergy plans to retire all coal-fueled power plants by end of 2030, according to its latest climate plan. It calls natural gas a "bridge fuel" to reach net-zero emissions, while full details remain unclear about how the company may reach its 2050 net-zero goal.
Marsh added that progress has to be balanced against the need to keep the lights on. E&E News has reported that the rule could exempt so-called peaker plants, which run on natural gas and only provide power during peak times, including when renewables may not be available because the sun isn’t shining or the wind isn’t blowing.
“Sustainability is important, but we also have to have reliability and affordability at the same time,” Marsh said. “That’s something that our customers are going to pay close attention to, our retail regulators are going to pay close attention to.”
Travis Miller, an energy and utilities strategist for Morningstar Research Services LLC, said market forces will continue to push utilities, possibly even at a faster pace than the EPA projects.
The power sector met the Obama-era Clean Power Plan targets — which set a 2030 target for a 32 percent reduction in greenhouse gasses from 2005 levels — about a decade earlier than required, according to a 2020 report from the Carbon Tax Center. That was in large part because of cheaper natural gas replacing coal on the market alongside an increase in wind and solar.
Twenty-two states, the District of Columbia and Puerto Rico, have 100 percent clean energy or electricity goals, according to the Clean Energy States Alliance, with many targets in the 2040-2050 range. Those targets have forced regulated utilities in many cases to step up decarbonization plans or retire fossil fuel plants.
The coming EPA rules are expected to incentivize carbon capture technology as well as the burning of hydrogen, which would reduce emissions from existing natural gas plants. Already some utilities have begun integrating the technologies into long-range plans to tout their emissions cuts.
Calpine is one. It does not have an emissions goal, but it plans to focus on developing more energy storage and carbon capture and sequestration, spokesperson Brett Kerr said in an email. In June 2022 comments to the EPA on a white paper about gas generation, Calpine said carbon capture “is clearly the most economic option to decarbonize natural gas-fired generation at this time.”
But hydrogen and carbon capture are emerging technologies. Hydrogen, for example, is not widely used in power plants now, and low-carbon versions of the fuel are not yet widespread.
In an email, EPRI’s Preece said it’s unclear how much of a role CCS and hydrogen could play in utilities’ plans — especially if renewables continue to be low cost. At the same time, the potential inclusion reflects the reality that all areas of the country face different challenges.
“Making use of every available technology will be important to decarbonize the energy system that is safe, reliable, resilient, and affordable for everyone,” said Preece. “There is no one-size-fits-all decarbonization solution.”
Timing and legal challenges
The new EPA rules could put some teeth behind decarbonization goals that some environmentalists have criticized as being too slow-moving to reflect the urgency of the climate crisis.
A 2022 report from the Sierra Club said that to meet the United States’ climate commitments, utilities need to achieve 80 percent clean electricity by 2030 and 100 percent by 2035, while also retiring coal plants and canceling new gas plants. Based on public plans as of July 2022, the report said utilities were “wholly unprepared” to lead the energy transition and were not on pace to meet the 2030 goal.
Sierra Club senior attorney Andres Restrepo said in an email that “a big stumbling block” has been the lack of federal standards for existing coal and gas plants.
“Existing units have thus far been permitted to emit unlimited amounts of climate pollution, which effectively gives them an invisible subsidy and helps prolong their operation. At the same time, the current greenhouse gas limits for new gas plants are so weak that they achieve essentially no emission reductions at all,” Restrepo said.
“EPA’s forthcoming climate pollution standards present a vital opportunity to correct these problems, and we urge the agency to adopt maximally stringent safeguards against greenhouse gas emissions from coal and gas plants,” he added.
Research from RMI, a pro-clean-energy nonprofit, shows that — based on reported emissions data — many of the largest power producers are not on pace to keep emissions below the 1.5 degree Celsius increase from 2015 levels as set out in the U.N. Paris Agreement.
Southern and Duke Energy Corp. topped the list with the most emissions above the pace needed to stay below the Paris target, while renewable giant NextEra Energy was well ahead of pace.
That is subject to change, however, based on market conditions, said Mark Dyson, a managing director with RMI’s carbon-free electricity program.
“Economics already favor the transition,” Dyson said. “Utilities are moving away from gas. And with the passage of the Inflation Reduction Act, that trend has redoubled.”
According to a 2021 RMI report, about 50 percent of the new gas plants proposed to come online between 2019 and 2021 in the United States were canceled prior to construction in part because of competition from clean energy sources.
EPA data also forecasts more coal closures even without accounting for the new emissions rules. Models published in April forecast that utilities will shutter 104,000 MW of coal-fired power by 2035 and 113,000 MW by 2040. The 2040 retirements are 28 percent more than EPA projected before the climate law passed.
The impact of EPA regulations, however, could be out of the hands of the agency or power providers. Like most of the agency’s climate rules, the power plant regulations are expected to be challenged in court.
The Obama-era Clean Power Plan was put on hold by the Supreme Court in 2016 before it could be implemented and was ultimately scrapped in favor of a weakened plan under then-President Donald Trump.
It's possible the Biden power plant rules could meet the same fate and become nothing more than a proposal on paper, according to Morningstar's Miller.
“The federal government has been trying for more than a decade to put in place an emissions program that passes court reviews and has failed,” Miller said. “We’re of the opinion that state policies are going to have a bigger impact going forward than any federal policies.”
Reporters Zach Bright and Jean Chemnick contributed.