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.