Ecocentric

It’s Not Just Obama’s Carbon Rules That Are Killing Coal. It’s Cheap Gas

New regulations from the EPA will make it almost impossible to build a new coal plant. But cheap natural gas was doing that already

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Luke Sharrett/Bloomberg via Getty Images

Coal, long the single biggest source of U.S. electricity, is in trouble

Later this morning new Environmental Protection Agency (EPA) administrator Gina McCarthy — who was finally approved this summer after months of delay — will give a speech at the National Press Club announcing the Obama Administration’s rules to limit greenhouse-gas emissions from power plants. The regulations — which have been in the works for over a year — won’t be much of a surprise. The early reporting indicates that the EPA will propose to limit new gas-fired power plants to 1,000 lb. of CO2 emissions per megawatt-hour, and hold new coal plants to 1,100 lb. of CO2 per megawatt-hour.

Natural-gas plants shouldn’t have much trouble meeting the new standard — though gas is still a fossil fuel, its carbon footprint is about half that of coal on average. But in the absence of technology that can capture and sequester CO2 emissions — technology that is expensive and has yet to be proved commercially — coal plants won’t be able to come close to meeting the new standard, since even advanced coal facility produces 1,800 lb. of CO2 per megawatt-hour. Unless carbon sequestration becomes a reality, the regulations as drafted would all but prevent any new power plant from using coal — a fuel that still provides about 37% of U.S. electricity.

The coal industry will surely fight the new EPA rules. Robert Duncan, the president and CEO of the American Coalition for Clean Coal Electricity, said in a statement of the proposed regulations: ” This misguided policy only adds insult to injury to an industry which has successfully used clean coal technologies to reduce many emissions by more than 90 percent.” (I can only assume Duncan is referring here to emissions of other pollutants, not CO2 — which is, of course, the focus of the EPA climate regulations.) But Obama’s climate rules are only part of the problem for coal. Far bigger is competition from cheap natural gas.

Love fracking or hate it, the shale-gas revolution has fundamentally changed the American energy business. Between 2006 and ’12, U.S. natural-gas production increased by 30% while the price fell in half. Cheap gas — which seems here to stay, at least for the short term — enabled utilities to close their oldest, dirtiest coal plants in favor of gas turbines. Tighter air-pollution regulations from the Obama Administration only hastened that shift. As a utility owner, it makes little economic sense to build anything but gas, along with renewables like wind and solar when they’re supported by government subsidies. Add in the fact that electricity-consumption demand has actually been slowing in recent years — since 2000, electricity consumption has grown twice as slowly as population — and there’s little need for utilities to take the risk of building a new coal plant. The EPA’s rules only confirm that fact, as the Washington Post’s Brad Plumer noted:

Roughly speaking, natural gas prices needs to rise above $7 per million BTU for new coal plants to be competitive. But the U.S. Energy Information Administration projects that natural gas prices will stay under $6 per million BTU between now and 2030.

That’s one reason why an earlier draft of the EPA power-plant rule predicted that the regulations for new power plants would have virtually no costs in the near term. After all, no new coal plants were likely to get built in the United States anyway. So the EPA rule won’t make much difference one way or the other. Unless, of course, natural gas prices rise unexpectedly — something that’s happened in the past.

The coal-industry has powerful friends in Congress, so it won’t go down without a fight. The rules still have to go through a public-comment period, and utilities with large coal fleets are sure to challenge them. Then there’s the fact that even if new coal doesn’t get built, there are still plenty of existing coal plants in the U.S., providing baseload electricity — and adding more carbon dioxide to the atmosphere. Those plants might be the target of the EPA’s next set of rules, which will tackle greenhouse-gas emissions from existing power sources. And if the fight over coal looks bloody now, just wait until the next step.

8 comments
joelp77440
joelp77440

I say why put in the regulation.  Cheap natural gas is destroying coal (as it should). This framework was set up by Bush and Cheeny about a decase ago.   Why let the coal supporting Republicans turn this against Obama and make him look like the bad guy. 

JKBullis
JKBullis

The present leader of China said that prosperity would be not much good if pollution ruined our lives, but neither is it much good to have clean air and water and verdant mountains if there is no prosperity.  I roughly paraphrase the translation here, but I think the idea comes through.  

Perhaps the EPA and whoever pushes them believes that the backbone of industry can be smashed and we will coast along as a developed part of the world.  

And then we have articles like this, "Oh gee, there is no problem here at all."  And ignorance of energy and its production is demonstrated quite completely.  But the problem is that CO2 reduction by action of the ignorant and justification by the yet more ignorant seems likely to lead to damage to our prosperity, and then we will hear not much about clobbering coal.

Once clobbered, we should understand that the power generation industry will be a long time getting back to working on ways to make cheap electricity.  That industry will be fine with using natural gas and charging the higher costs to the customers. 

Then we might wonder if the traders will get back to their games and we  will see $12 per MMBTU.

Even now we are a puzzled Nation about why the economic recovery seems to lack a resurgence of good jobs.

JKBullis
JKBullis

A little truth is always needed to start a discussion such as this.  It looks like out author and Brad Pulmer are missing some data.

A MMBTU from natural gas is now running about $3.70.  When the coal industry was thriving a MMBTU from coal was around $1 with variable costs for shipping, mostly under $1.  In the Midwest US shipping was about $.50.

Apparently there were a few forward thinking investors who started to construct coal fired plants during the time the threat of CO2 capture was in the air.  Now it is possible that investment will be ruined.  

The reason some thought coal was wise is that it would keep the cost of electricity down.  It still does, and that is why coal is still used to respond to load variations, yes, up or down.  

Investors are not likely to step up under the present EPA rulings to take actions that would help keep electricity costs down.  And we might wonder if the anemic job growth results are related to that.  

Probably the zealots here will not read down to this line, but it is important to reduce CO2.  It is not the time to hack the power industry to death.  A better set of answers could be found; maybe not by the zealots. 

eagle11772
eagle11772

I saw this REALLY hot fat girl at the bar last nite I wanted to frack ! :)

MichaelDriver
MichaelDriver

CHEAP natural gas??? Where??? This statement's a joke, right? Bush deregulated prices for his buddies, and prices increased fourfold, literally overnight. My elderly in-laws uae natural gas to heat their home, and water. Their average monthly bill jumped from around $100 to $400! And, this is in the southeast, where winters tend to be mild. I've looked at changing my aging heat pump over to a split conventional system because here in TN it is supposedly not "ideal" to use heat pumps over

conventional. I did the calculations

comparing electric rates, and our annual energy costs, using the current heat pump as well as a higher efficiency new heat pump. Then I did calculations comparing a split conventional electric cooling, natural gas

heating annual energy costs. Of course our electricity costs went down, but natural gas costs came out as astronomical. Overall our annual energy costs would skyrocket using your so-called "cheap" natural gas!

bryanfred1
bryanfred1

@MichaelDriver Natural gas utilities are regulated at the state, not national, level - and certainly not by George Freaking Bush.  Princes in the mid-2000s jumped briefly from $7 or 8 to $15 before quickly settling to the current $3 - 4 range, where they've been since 2009.  That's as low as prices can go before it becomes unprofitable to produce; i.e. natural gas is as cheap as it's ever been or will ever get. 

I love posts like this.  Sure, Bush went to the time, trouble and expense of running for office so he could one day singlehandedly push up oil and gas prices and make his rich oil buddies richer.  You look a little old to need to be told to grow up, but I'm going to tell you to anyway.  Grow up.