Much ado about nothing?

“Cutting carbon pollution from power plants” is the first item on President Obama’s 2013 Climate Action Plan.  The first milestone in this effort involves setting carbon dioxide emissions standards for new power plants. Last week, EPA administrator Gina McCarthy met with predictably mixed reception as she toured the country to promote the new standards. Environmental groups celebrate this as a “forceful blow against climate change”. Coal industry supporters predict the standards will have “devastating impacts to the coal industry and our economy”.  Many expect the proposed rule will be challenged in court.

With all this bluster, you might think these new standards will deliver substantial emissions reductions at substantial economic cost to the coal industry. Think again. A detailed regulatory impact assessment concludes that, across a range of assumptions, the rule will “have no, or negligible, costs or monetized benefits associated with it.”

An emissions standard that’s not expected to reduce emissions?

For natural gas fired power plants, it is easy to see why these new source standards will have little bite. Erin Mansur and Matt Kotchen find that approximately 95 percent of existing combined cycle gas plants built since 2006 currently meet the new source standard.  It is expected that new, more efficient combined cycle natural gas generators will have no trouble complying.

In contrast, new coal plants would be significantly impacted. Emissions rates associated with new coal-fired power plants will exceed the standard (set at 1,100 lbs CO2/MWh) by an estimated 40 percent. To comply with the standards, new coal plants will have to “capture” carbon dioxide and either sequester it in underground geologic formations or use it for industrial purposes.

The figure below helps to explain why these new source emissions standards for coal plants are expected to have no impact, their stringency notwithstanding.  The National Energy Modeling System (NEMS) Annual Energy Outlook (AEO) 2011 has been used to examine the future competitiveness of new power generation capacity under different scenarios.  In the “reference” – or most likely- scenario, it is forecast that no new coal-fired capacity (i.e. pulverized coal (PC) or integrated gasification combined cycle (IGCC)) will be built.

fowlie_figures pg 1

Source: NETL, 2012

So what’s the point?

You might be wondering why, as sea levels rise and the climate warms, policy makers are working hard to implement a rule that is expected to have little if any impact on future emissions trajectories. There are at least two ways in which the proposed standards could exceed expectations:

(1) A backstop for future emissions increases

If economic conditions manifest differently than expected and there is renewed interest in building coal plants, this policy will require that any new coal capacity be equipped with at least partial carbon capture and storage (CCS) technology.  For example, if natural gas prices are much higher than expected, the new source standard could reduce the carbon intensity of new power plants below what would otherwise prevail.

The figure below summarizes some of the numbers used in the regulatory impact assessment of the new source standard. The 20 year levelized cost of energy for new natural gas generation (blue bars) is estimated over a range of natural gas prices. The grey bars correspond to the levelized costs of new coal plants with no carbon capture.

fowlie_figures pg 2Source: I took these numbers from the US EPA Regulatory Impact Analysis (September 2012)

Taking these levelized cost estimates as given, this figure shows that new supercritical pulverized coal (SCPC) plants without CCS are cost competitive with new combined cycle gas in the scenario in which natural gas prices are much higher than expected. In this case, the new emissions standards would increase industry costs and reduce industry emissions. The cost of building new capacity would increase by an estimated $5/MWh because natural gas generation would be deployed (LCOE $86/MWh) versus the more inexpensive pulverized coal (LCOE $81/MWh). The emissions intensity of new power plants would be reduced by an estimated 1000 lbs CO2/MWh. Assuming the reductions in domestic emissions are not offset by leakage in the form of coal exports (not necessarily a safe assumption), the benefits from this emissions standard would exceed the costs so long as the social cost of carbon exceeds $11 – $12 /ton.

(2)  Incentivizing the development of carbon capture technologies

There is another way in which these standards could contribute to future emissions reductions.  Many analysts see CCS is an essential part of the portfolio of technologies needed to achieve substantial global greenhouse gas (GHG) emissions reductions. But CCS technology is currently quite expensive. And these costs are unlikely to fall without significant investment in research and development. A firm regulatory commitment to lowering the emissions intensity of the power sector has the potential to incentivize increased investment in clean coal technologies  (although the ways in which these standards create incentives to accelerate investment is quite nuanced).

An essential first step

Will these new source standards deliver the kinds of greenhouse gas emissions reductions that will be needed to address the global climate change problem? Absolutely not. That said, the proposed standards do represent an important first step that does not require additional action from Congress.  Importantly, new source emissions standards serve as foundation for the next milestone: regulating greenhouse gas emissions from existing power plants.  Standards for existing sources have the potential to have a much more significant impact because they affect the current fleet of sources. To learn more about proposals for existing standards, look for an EPA-sponsored listening session near you.

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9 Responses to Much ado about nothing?

  1. David Lea says:

    Please define CT in the graph.

    • Meredith Fowlie says:

      Apologies. CT stands for combustion turbine (versus combined cycle gas turbines). I took this graph from a presentation by Kristin Gerdes which can be found by following the link. Thanks for reading.

  2. Dr. A. David Rossin says:

    This paper (and apparently the EPA) assume that the US can have a sustainable, reliable and diverse supply of electricity in the coming decades while reducing coal and replacing it with natural gas. No mention is even made of nuclear power which for almost 4 decades has been generating 20% of our electricity. Without baseload nuclear and coal, there is little likelihood that gas, wind and solar can support our grids. The premium on reliability will grow year by year. Remember how quickly Gray Davis’s term as Governor of California ended when the electricity crisis hit? Remember that CA is still paying huge interest rates on its bonds?

    • Meredith Fowlie says:

      Thanks for the comment. I should clarify. The regulatory impact assessment (RIA) *does* incorporate nuclear in the impact analysis and cost comparisons. On an LCOE basis, the cost of new nuclear is estimated to be similar to the cost of new coal with partial CCS. Factoring in revenues associated with enhanced oil recovery reduces the cost of new coal with CCS below the estimated costs of new nuclear. For the purpose of the blog post, I take these RIA numbers as given. But would be interested in hearing from those who take issue with the LCOE estimates.

    • Tam Hunt says:

      David, I question your assumptions. Many jurisdictions are phasing out nuclear and coal even as they rely more heavily on renewables, gas and a more efficient economy. California, for example, is now phasing out SCE’s 2.2 GW SONGS reactors b/c they were determined by SCE to be too expensive to salvage after the very expensive retrofit that went awry. At the same time, CA is phasing out coal under SB 1368 (which has just been proposed as a national rule by the EPA in relation to new power plants). Diablo Canyon may be next as there is a lot of opposition to this plant that is located near at least one major fault line. Germany is, of course, another example of a major economy phasing out both nuclear and coal. There is also a growing push to phase out natural gas in favor of a fully dispatchable renewable energy model, made possible with baseload renewables and storage. Storage is the new big thing and while storage technologies are still fairly expensive, we’ll see costs come down dramatically as deployment scales – just as we’ve seen with solar, where we’ve seen module prices drop by 80% over the last five years. This is a real game changer.

  3. Tam Hunt says:

    I noticed the same thing, with this round of proposed regulations and the last round also in 2012. It’s an interesting conundrum and I agree there are still some benefits of the proposed rule even though it’s impact may in fact be negligible, including those you list. I think, however, there is a bit of a problem more generally with the regulatory and legislative process highlighted by this example. There are many incentives in industry, government and the advocacy community, to pass regulations that appear to do something substantial but don’t actually do anything. The regulated industry gets off easy. Government officials look like they’re doing their job and being tough. And advocates get to claim victory. But this can happen even when the regulations don’t actually do anything real, as is actually fairly common. It’s a real problem.

    • Tam Hunt says:

      In reviewing the regulatory impact analysis again I realized that setting a standard for new plants is in fact a necessary prerequisite for setting a standard on existing plants – not just a foundation for doing so, as Meredith writes. This is, then, a very big step in the right direction even if the direct impacts are negligible with respect to new power plants.

  4. Paul Brady says:

    Great piece, Meredith – thank you for all this info! In an earlier life I was a oil industry geophysicist, overseas and in Houston, and then a professor of Physics – now retired. I have retained an interest in fossil fuels and recently in climate change. One thing I try point out below is that some energy experts feel that our fossil fuel supplies may be more limited than presently assumed and that a temperature [+2 degrees C] where global warming does more harm than good may never be reached. Have you encountered such thinking?

    Climate change vs fossil fuel supplies: Recently there have been detailed and extensive studies of the future global production of fossil fuels. Eg, please see http://www.energywatchgroup.org for their detailed report: Global oil production is expected to peak in this decade, and coal and natural gas earlier and later, respectively, in the next decade. The EWG predicts the production of these fossil fuels to decline from the peak to around 25% of peak in ~50 years. This is near the time [~1980] when CO2 atmospheric levels, at present rate increases, are predicted to reach values where global temperatures will be close to a critical 2 degrees C above preindustrial levels. Climate experts believe that such a 2 C temperature increase is likely to produce effects that are more harmful than beneficial, and possibly lead to a climate crisis. Therefore, if fossil fuel production does reach limitations, as appears to be a distinct possibility, then temperatures may not pass 2 C and thus we may avoid a climate crisis.
    The preliminary 5th Assessment Report of the UN’s Intergovernmental Panel on Climate Change, the IPCC, has just been released. This UN panel is 95% certain that man is responsible for at least 50% of the post-industrial temperature rise. However, they have dialed back the rhetoric of a global warming crisis and the degree of future temperature rises.
    In 1990 the IPCC estimated that doubling atmospheric CO2 would lead to a rise of the Earth’s temperature of 9 degrees F [5 degrees C]. In its 2001 report this was changed to a little over 6 F, and in 2007, to near 5.4 F. Now in the present 5th assessment the estimate of likely warming is 2.4 F, in line with more moderate estimates from scientists who have been called “skeptics” or even “deniers” of the supposed climate “calamity”! Satellite measurements [deemed the most reliable] over the last 20+ years have shown little, if any, temperature rise although almost 40% more CO2 has been released into the atmosphere and CO2 has risen to a modern-era high of 400 ppm!

    Obviously, the IPCC cannot admit directly to the associated benefits of moderate warming. Their mission is to promote a climate crisis and garner more fame and fortune – some Billions of dollars per year, worldwide! However other climate experts and all sorts of data support the benefits of an increase of up to near 2 degrees C. Possibly, most important, is the striking decrease in weather-related deaths from near 400,00 per year in the 1920s to 74,000 in the 1970s to about 19,000/yr now. In this period temperatures increased about 0.8 C, or about 1.4 F. [Cold spell death rates exceed warm/hot- spell rates by factors of 2-5, mainly because the effects of cardiovascular events last for several weeks following a cold spell.] The decline in such death rates is continuing and is expected to do so for decades because the new IPCC warming estimates are moderate.

    Greater warming has occurred in the colder, dryer regions and has extended the range of productive agriculture farther north. The additional CO2 is improving crop yields and reducing the need for water, although the slightly warmer ocean surface is providing on average more rain and atmospheric water vapor – itself a powerful green-house gas. As noted by many observers the earth is greening. My brother and sister, living in different parts of Canada, tell me that winter weather has moderated considerably and heating costs have declined substantially. This and the milder climate have had substantial benefits to all.

    The failure of all climate models’ predictions has stunned the IPCC, and made us realize that our models are inadequate and/or Mother Nature is still playing an important climate role! For example, in this past year arctic ice increased 60%, leaving many boats ice-bound! And the hurricane season has been very quiet! Of course, these are probably one-year fluctuations. We have been in a warm era for more than 12,000 years and glaciers and the ice caps formed in the last ice age will continue to melt and the sea level to rise [also due to expansion of the warmer ocean] until we head into the next ice age. Maybe the expected decline in CO2 levels later in this century will be part of the glacial ice age trigger?

  5. Jack Ellis, Tahoe City, CA says:

    Tam,
    There are those who believe renewables plus storage can provide a reliable, round-the-clock supply of electricity but there’s not much evidence this is even possible (Denmark leans heavily on the Nordic hydro system so they don’t count). There is also no evidence that the cost of storage will decline as rapidly as some seem to think (and solar is PV not a suitable analogue). Moreover, if one takes pencil to paper, the amounts of storage that would be required for an all renewable electric supply in California alone, not include electrification of transportation, is simply staggering – equal to about 100 pumped storage plants the size of Helms. Finally, I would point out that so-called “clean” renewable resources are not as environmentally benign as the term clean seems to suggest. I think there’s a place for renewable energy, but I don’t think it can shoulder the whole burden by itself, at least not for a long time to come.

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