Shaping the Future of Fossil Fuels on the Electric Grid
The EPA’s proposed power plant rules include features that deserve more economic analysis.
Last week the EPA published a draft of the next chapter in the federal government’s efforts to reduce greenhouse gas emissions from power plants despite congressional inaction. The EPA’s proposed rule draws from several areas of legal authority and navigates recent court cases to require existing and new fossil fueled power plants to dramatically reduce greenhouse gas emissions.
The EPA is asking for public input on its proposal. While the proposal has only been out for days, I wanted to take the opportunity to highlight several areas where I hope the EPA, economists and other stakeholders will take a close look.
Much of the immediate political pushback that has appeared in the press has focused on the requirements that coal power plants that do not retire before 2040 must add carbon capture and storage. Proponents of coal say the regulations will force the closure of the remaining plants and harm the economy. But coal is already on the way out. The EPA projects that 80% of current coal power plant capacity will shut down by 2035 even without the new regulations. Yes, the rules could accelerate retirements and raise the costs of plants that remain, but the much bigger impact of the regulations will be on natural gas power plants, the ascendent fossil fueled plants on today’s grid.
In the new proposal, the EPA projects that 309 gigawatts of new natural gas capacity will come on-line by 2050. This represents thousands of new power plants. The regulations will require many of these plants to install carbon capture and storage or burn clean hydrogen. Hundreds of existing plants could face similar requirements. In short, with these new regulations, the future of the natural gas power plant fleet will look very different than the past.
Several parts of the regulations raise questions about their impact on the natural gas fleet.
Treating the New Differently from the Old
The proposed rules cover existing and new power plants, but the old and new power plants are not all treated the same. New plants would have to achieve lower emissions rates per unit of energy production than older plants. Such “vintage-based” standards are very common in energy and environmental regulation. Fuel economy standards, building codes and appliance standards are examples of regulations that apply to new capital investments, but not past investments. These rules often have an engineering and cost logic that it is cheaper to build efficiency into a new product than to retrofit what came before. However, research has shown these kinds of regulations can have impacts that ripple through the market and provide an incentive to prolong the life of the older, dirtier technology, thus undermining the regulations. The concern here is that the EPA’s stringent requirements on new natural gas power plants lead owners to extend the life of older, dirtier plants that are less regulated. As the EPA evaluates whether and how to harmonize the requirements faced by existing and new power plants, they should carefully consider the degree to which this could occur, the consequences and possible remedies.
Frequent and Infrequent Polluters
The proposed rules categorize each new natural gas power plant based on its annual capacity factor – the percentage of time it operates during a year. Plants with high capacity factors face more stringent emissions requirements than low capacity plants. For example, peakers that operate less than 20% of the time would not be subject to carbon capture or clean hydrogen requirements.
This is another area where the rules could create incentives that undermine their intent. The uneven compliance costs could push investment toward plants that would run less frequently and, therefore, be less regulated. The rules could also impact how plants, once built, would be operated. Today’s natural gas power plant fleet has been extremely flexible in the face of changing market conditions. This flexibility has benefited the climate. As coal power plants have closed, the generation lost has been met partly by increasing production from cleaner natural gas power plants. The role that natural gas plants have played is constantly changing as more wind, solar and battery storage has come onto the grid, and the availability of those resources changes from day-to-day. Introducing regulatory rules that reduce the responsiveness of natural gas plants to grid changes could undermine progress in reducing greenhouse gasses.
The EPA should consider how the regulations can further address these risks, such as by eliminating the sharply defined categories based on capacity factor.
The Costs of Inflexibility
The cost to decarbonize fossil fueled power plants is highly uncertain. Investments in carbon capture and storage, as well as clean hydrogen, have been limited to date, but much more will be learned over time. The costs will likely also vary considerably from one plant to the next. For carbon capture and storage, suitable geology is needed for carbon storage. For clean hydrogen, proximity to renewable generation and/or hydrogen pipelines will be needed.
The technology uncertainty and variability between plants creates a good setting for applying flexible regulatory approaches. A flexible approach could allow a natural gas plant that can generate low emissions electricity at a low cost to be rewarded for over-complying with the regulation, and this over-compliance can allow a plant without the same low cost opportunity to be developed and operate even if does not quite meet the emissions requirements. In other words, flexible regulations could encourage more rapid investments into the lowest cost solutions and generate the same total climate benefit.
The EPA is not proposing much flexibility at this point. Instead they are hoping that varying the stringency of emissions requirements based on power plant characteristics (new vs. old, high capacity vs. low capacity, big vs. small) will approximate the cost-benefit trade-offs that individual power plant owners and developers would make. I am not confident that the EPA’s crystal ball gets it right. The proposed rule asks for comments on whether or how compliance flexibility can be added to the rules, but suggests this will be difficult given legal constraints.
The coming weeks and months will be a critical period to dig into these issues and develop responses that increase the effectiveness of the EPA’s plan.
Suggested citation: Campbell, Andrew, “Shaping the Future of Fossil Fuels on the Electric Grid”, Energy Institute Blog, UC Berkeley, May 15, 2023, https://energyathaas.wordpress.com/2023/05/15/shaping-the-future-of-fossil-fuels-on-the-electric-grid/
Keep up with Energy Institute blog posts, research, and events on Twitter @energyathaas.
Andrew G Campbell View All
Andrew Campbell is the Executive Director of the Energy Institute at Haas. Andy has worked in the energy industry for his entire professional career. Prior to coming to the University of California, Andy worked for energy efficiency and demand response company, Tendril, and grid management technology provider, Sentient Energy. He helped both companies navigate the complex energy regulatory environment and tailor their sales and marketing approaches to meet the utility industry’s needs. Previously, he was Senior Energy Advisor to Commissioner Rachelle Chong and Commissioner Nancy Ryan at the California Public Utilities Commission (CPUC). While at the CPUC Andy was the lead advisor in areas including demand response, rate design, grid modernization, and electric vehicles. Andy led successful efforts to develop and adopt policies on Smart Grid investment and data access, regulatory authority over electric vehicle charging, demand response, dynamic pricing for utilities and natural gas quality standards for liquefied natural gas. Andy has also worked in Citigroup’s Global Energy Group and as a reservoir engineer with ExxonMobil. Andy earned a Master in Public Policy from the Kennedy School of Government at Harvard University and bachelors degrees in chemical engineering and economics from Rice University.
Missing from this discussion is that the EPA’s proposed rules are only relevant as long as the current political party retains the presidency. When that changes, the we can expect the rules to be rewritten from scratch.
The short-term implications of the rules are thus the only ones that are actually interesting. Anything beyond the next 2 years or so is completely up in the air.
Or, all the people trying to profit from the use of fossil fuels realize that doing so will kill us and they start doing the right thing without any government intervention.
Unfortunately, that’s true. The main problem, as Andrew alluded to in his opening sentence, is that the federal government is embarking on this effort “despite congressional inaction.” That doesn’t mean the Biden Administration shouldn’t take this action, but it would be far better if EPA was promulgating rules pursuant to federal law instead of “from several areas of legal authority” and navigation of “recent court cases.” But, like so many other policy areas these days, bipartisan legislation of that sort — or even like the ACA, totally partisan — rarely happens any more. That’s why it’s amazing that Biden managed to get the Inflation Reduction Act passed. To wit, even that bill’s primary author, Joe Manchin, is now farcically threatening to try to overturn it. We have to make progress where and when we can, as tenuous as it may be.
Re the issue of investment in “plants that would run less frequently”:
Isn’t the justification that the grid needs a certain amount of dispatchable or peaking capacity whose available is uncorrelated with the need (althought some thing that recent events mean gas plants aren’t even part of that group)? Those would be naturally low capacity-factor resources since they wouldn’t be needed much, which also means the investment opportunity would be limited anyway.
Unless … someone built 4 CTs with 15% CF to displace a single 60% combined-cycle with CCS, AND managed to arbitarily limit their dispatch to keep the capacity factors that low. Otherwise, if they were really subject to least-cost dispatch, presumably at least one of it would wind up subject to the more stringent regulation.
So is the EPA also proposing to get into the business of market monitoring?
The whole energy industry needs to take a step back and evaluate itself, we need a revolution. The Earth as a single object generates 30 billion volts of lightning per second. Something like 47tw from core to surface. Current experiments miss the mark by attempting to produce electricity out of “thin air”, Atmospheric conditions draw on the system, it comes from beneath our feet.
QM and relativity are incompatible(nonrenormalizable), we don’t have a single accurate model of anything… only vague approximations, with conclusions that ought not be trusted considering we don’t have answers. We disproved ourselves on gravity requiring dark matter to make up the difference on galactic behavior. The whole concept of electricity relies on a particle that has not been observed directly in over a century. Qm is an entire branch of physics devoted to an electron that doesn’t exist.
Worried about trace gasses in the atmosphere adding a few degrees and we don’t understand gravity light or energy… simply excited about the unkown.
The clock is advancing. Political parties can continue to play the game of United States politics. It is difficult to imagine where this will end up. The days are approaching when not only agriculture will be impacted but hundreds of thousands of families will need to rebuild homes and pay much steeper insurance.
Few properly appreciate where this is heading, days when summers are too hot and humid for laborers to work outdoors, and taxation by towns to rebuild necessary infrastructure and facilities like water and sewer, and erecting emergency plans and structures for extreme weather.
Because we speak of EVs and solar panels and wind does not means it will be built and in use soon enough to counteract these changes. And we don’t specifically know what +1.5C to +2C will do to life in various regions of the United States or what its implications will be for regional economies and transport.
Once certain levels of radiative forcing are achieved you can’t go home again and that may become a slogan for much of the 21st Century.
Thanks for a good article drawing our attention to the proposed regulations.
It is not clear how these regulations will affect plants that might be run with synthetic natural gas or other carbon neutral biofuels. (Use Google search terms “synthetic natural gas” and/or “biofuel” for references like this “https://www.man-es.com/discover/decarbonization-glossary—man-energy-solutions/synthetic-natural-gas”.)
It is clear that as more renewable capacity come on line existing generating plants may be used for peak periods of use or when renewables are not generating. Whereas large amounts of synthetic natural gas may be difficult to produce, a small steady production may be stored in the existing gas network, or the syngas converted to a synthetic liquid fuels. (Google search terms “synthetic jet fuel” for reference like “synthetic jet fuel”.) This fuel could then be used to operate gas generators a peak periods. If the carbon is sequestered this will have the added benefit of removing CO2 from the atmosphere. The pure O2 needed for the retorts to convert biomass to syngas could come from the surplus produced by the electrolysis of water for H2 production.
This may be a viable tool for overcoming the intermittent nature of renewable energy using some existing infrastructure.
I would like to rebut a couple of points in this article:
First, the title. It implies that fossil fuels are OK. They are not. Humans (and 80% of all other species) face an existential threat caused by human activity. Probably the leading activity that has led us to this point is the use of fossil fuels. When you think about costs, one must ask the question, “What is the continuation of our species worth?” Yeah, we won’t be around forever, but we don’t have to commit self-specie-cide.
There are people that believe that climate change is not an existential threat, that with a will of the people and employment of yet-to-be technology that we’ll get through this. On the former, humans have shown a predilection to sloth. On the latter, part of the technology is to eliminate the use of fossil fuels. If we do nothing, we die. If you don’t believe that, consider this: When you pick up your cell phone to make a call, there is a 99.99% probability that the call will go through. The same scientific method that produced your cell phone was used to predict that there is a very, very high probability that if we do nothing, we become extinct.
The rest of the article is about how many weasels can dance on the head of a pin. I reiterate: When you think about costs, one must ask the question, “What is the continuation of our species worth?”
“The uneven compliance costs could push investment toward plants that would run less frequently and, therefore, be less regulated. ”
Generally there is a pretty sharp distinction in gas power plant capacity factors, with the 20% threshold in the midst of that distinctive valley. Combined cycle plants generally run at 30% to 60% CFs while combustion turbines run 1% to 10%. The cost differentials would have to be quite significant to justify CTs running up to 20% or CCGTs running only 19%. In particular, CCGTs would have difficulty operating their steam trains at such low CFs, and many aeroderivative CTs are not built to run at such high CFs.
As for carbon capture or hydrogen, neither is an economic slam dunk, particularly the latter. The renewable capacity required to create sufficient green H2 is probably larger than the net capacity gain from enabled gas fired technology. It’s likely to be cheaper to just use batteries instead. Green H2’s target market with be hard to electrify industrial uses, not electric generation.