REGULATION

EPA coal standards still face uphill battle

Imposing stringent caps on carbon dioxide from coal-fired power plants won't harm the coal industry but instead will inject new life in the waning coal-fired electricity sector, insists U.S. EPA Administrator Gina McCarthy.

EPA unveiled its proposed New Source Performance Standards for future power plants Friday, marking the first big step in President Obama's efforts to control climate change. The agency determined that partial carbon capture and sequestration (CCS) is the best system of emissions reductions for power plants.

That was a sting to the industry, which has said the technology is risky, expensive and unproven.

"I believe this proposal, rather than killing future coal, actually sets out a certain pathway forward for coal to continue to be part of the diverse mix in this country," McCarthy said to a packed morning audience at the National Press Club.

Since her confirmation to head EPA, McCarthy's message has been clear: Tackling the threat of climate change will only help the economy, not hurt it. Environmental groups have vigorously supported EPA's claim that carbon capture technology will allow coal to survive.

"[The industry] said the same thing about sulfur dioxide scrubbers, they said the same thing about nitrogen oxide control devices, they said the same thing about catalytic converters, they said the same thing about taking lead out of gasoline," said Dave Hawkins, director of climate programs for the Natural Resources Defense Council. "In every instance, when the government moved forward and set sensible standards based on the evidence that was in front of the agency, industry demonstrated that it could comply."

The proposed rule, which is set to be finalized next year, requires that all new combined-cycle natural gas-fired plants emit no more than 1,000 pounds of carbon dioxide per megawatt-hour, and coal plants no more than 1,100 pounds per megawatt-hour. Small, single-cycle natural gas plants, which are usually only used at times of high electricity demand, would also be capped at 1,100 pounds per megawatt-hour.

Although a lower-emitting combined-cycle natural gas plant could easily meet the standard, even the most efficient coal plant would have to cut about 40 percent of its carbon dioxide emissions. To do this, utilities would need to build a system alongside a power plant that captures carbon dioxide from the smokestack and either stores it in underground geologic formations or uses the gas for industrial purposes.

The agency used four facilities as viable examples of CCS for the future. Three of the four have yet to be built. The fourth, the Boundary Dam Project in Canada, is a 43-year-old existing plant, and the CCS technology operates differently there than on facilities built from scratch (see related story).

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"This rule is poor public policy because it requires technology that is unproven and not commercially viable," said the American Public Power Association in a statement. "APPA is very concerned that these developments will cause energy prices to increase considerably without new coal plants as a resource option."

The proposal is a rewrite of the same regulation announced last year, which set the limit at 1,000 pounds of carbon dioxide per megawatt-hour -- just slightly lower than the coal proposal announced Friday.

Written to hold up in court?

Coal industry groups immediately lashed out at the proposal, saying that a 1,000-pound limit was unrealistic. It was not right for EPA to create a single standard for all fuels, they said, or to mandate the use of CCS before it is commercially available.

So EPA went back to work, this time offering two different standards for coal and natural gas. The separation of the two standards was likely done to protect the rule from lawsuits, said Roger Martella, a partner with Sidney Austin LLP and former EPA legal counsel under President George W. Bush.

Many parts of the proposal read more like a legal brief than a traditional rule, he added.

"It is speaking directly to the D.C. Circuit and has many of the buzzwords and record-base structure the court looks for," he said, referring to the U.S. Court of Appeals for the District of Columbia Circuit, which hears most of the cases concerning the agency's rules.

Technically or practically, it's not very different at all. So EPA will have to justify why it split the standards while maintaining a nearly identical coal emissions limit from 1,000 pounds of carbon dioxide per megawatt-hour to 1,100 pounds per megawatt-hour, Martella said.

"It could be one step forward, one step back," he said.

The rule, if finalized, would also allow plants to average month-to-month emissions over seven years while they work out ways to incorporate CCS, meaning they would be in compliance as long as the monthly average over seven years is 1,000 pounds of carbon per megawatt-hour.

Nearly all of the coal-fired facilities currently under development have some kind of CCS included, said the proposal. There are three exceptions: the Wolverine Electric Generating Unit in Rogers City, Mich.; the Washington County plant in Georgia; and the Holcomb project in Kansas.

To maximize the economic benefits, plants could send the captured CO2 through pipelines and into depleted oil fields. The gas would be used to squeeze out stubborn deposits of petroleum from the fields in a process called enhanced oil recovery. Industry groups argue that enhanced oil recovery would work only for plants built near the fields, limiting its application.

While industry and coal state legislators may see the rule as an attempt to kill coal, the economics seem to indicate that it is slowly going extinct. As aging coal-fired power plants retire, utilities are replacing most of them with ones that run on cheap, abundant natural gas. Other environmental regulations, like last year's Mercury and Air Toxics Standards, are imposing large financial risks on the plants. The Energy Information Administration said that the percentage of coal-fired power in the country could be as low as 27 percent by 2040, a drop from 42 percent in 2011.

In EPA's cost-benefit analysis for this proposal, natural gas-fired generation will cost between $59 and $86 per megawatt-hour, depending upon assumptions about natural gas prices. The cost of electricity for partial CCS on a coal plant would be higher -- between $92 and $110 per megawatt-hour -- depending on technology choices and revenue from the sale of carbon dioxide.

Holding onto coal

Encouraging CCS to keep coal alive could be an economic loss, said Jason Schwartz, legal director at the Institute for Policy Integrity.

"We should have coal if it's economically efficient," he said. "We shouldn't use regulations to shift economic incentives in the marketplace."

Two standards could make more sense in the context of existing sources, added Schwartz. But it makes little difference when the future of coal seems to be tumbling downhill.

But utilities are still holding onto coal in the name of diversity, as a protection against high fuel prices.

"From a utility perspective, it's really nice to be able to look out of the window and see a pile of coal," said Rick Smead, director of the energy practice at Navigant, an expert services firm. "If gas stops flowing through the pipeline, there isn't any storage" (ClimateWire, Sept. 16).

In addition, no one knows whether the price of natural gas will stay low, say coal backers.

In the meantime, McCarthy has committed to transition the coal industry to a low-emissions future, while laying the groundwork for a much more significant part of President Obama's Climate Action Plan: a rule to control emissions from existing power plants, the source of close to 40 percent of the country's greenhouse gases.

"We will work with them over the comment period so they understand what type of carbon capture and sequestration will be necessary, and at what level," McCarthy said, "because it is only partial CCS, but it's going to get them prepared as time goes on to be competitive in a carbon-constrained world."

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