Did EPA’s New Carbon Emissions Rules Put Coal Industry on Life Support?

It’s not dead yet, but the Environmental Protection Agency’s (EPA) new limits on carbon emissions has all the appearances of putting the U.S. coal industry into a medically-induced coma with the slimmest hope of recovery coming in the uncertain form of carbon capture and sequestration (CCS) technology.
Appearances Can Be Deceiving
The EPA’s new carbon emissions rules apply only to new power plants. That means that it’s unlikely we’ll be seeing many, if any, new coal-fired power plants in the works. But that was already the case, even before the EPA’s new limits, because lower prices on cleaner-burning natural gas have made natural gas-powered plants a more attractive option.
Coal consumption had already fallen by about 5 percent last year, according to the Energy Information Administration (EIA), due to low gas prices driving U.S. utilities away from coal. With natural gas plants emitting about half the carbon dioxide as coal plants and the precedent of these new EPA limitations, don’t expect to see those plants returning to coal any time soon.

CCS an Uncertain Technology to Hang Coal’s Hopes On

Several new coal-fired plants using CCS were in the works before the EPA rules were announced. It remains to be seen which of these comes to fruition, but the Southern Company’s Kemper County plant in Mississippi is looking the most promising. Slated to begin operation in 2014, the Kemper plant is a standout because it was built with the help of a $270 million federal grant and it will sell captured CO2 to nearby oil producers for use pressurizing depleted oil wells.

Whether other plants can rely on the revenue generated by selling captured CO2 will depend on their proximity to existing oil wells or pipelines that are primarily still on the drawing board. And finding ways to sell the CO2 will be critical: power plants using CCS will cost around 75 percent more than traditional coal plants. At present, CO2 injection is used to produce only about 6 percent of the nation’s crude.

Market for CO2 Could Buoy CCS Investment

The good news for the coal industry is that the EPA is optimistic that there will be a large enough market for CO2 to make investments in new CCS coal plants attractive. According to the EPA: “There are currently 23 industrial source CCS projects in 12 states that are either operational, under construction, or actively being pursued which are or will supply captured CO2 for the purpose of enhanced oil recovery.”

In addition, the Energy Department has found that the market for CO2 for oil recovery will be the equivalent of “93 large, 1000-megawatt coal-fired power plants operated for 30 years.”

Whew. The Coal Industry is Saved, Then, Right?

Not so fast. A possible fly in the EPA’s and Energy Department’s optimistic ointment comes from Steven Chu, former energy secretary for the Obama administration, who called for caution in the development and use of CCS. The problem is in the early stages of storage, when the CO2 is an unstable mass of gas that could leak to the surface. In the concentrations expected with CCS, such a leak would be fatal to any humans nearby. Cue the anti-CCS environmental lobby.

Then there’s the fact that we don’t yet know what carbon emission limits will be set for existing plants. Under the Clean Air Act, the EPA will have to address emissions from the 6,500 existing power plants operating in the U.S., which are responsible for about 40 percent of U.S. CO2 emissions.

How far the EPA will go in clamping down on emissions from existing plants is difficult to predict, for two reasons: the EPA cannot tell existing plants how to meet the new standards (i.e., it can’t mandate that existing plants be retrofitted with CCS systems), and regulation of emissions from existing plants falls to the states to enforce.

All this may be moot, at least for awhile, with utility companies challenging the new limits in court (the regulations don’t have to be approved by Congress).

NatGas Enjoying Rare Respite From EPA’s Laser Scope

Whatever the eventual impact of the EPA’s carbon emission rules on the coal industry, it’s all a bit of rare good news for those in the natural gas industry. For once, natgas producers aren’t in the EPA’s sights and natgas plants won’t need any additional pollution controls to be in compliance with the new rules.

The new EPA rules limit emissions from natgas plants to 1,000 pounds of CO2 per megawatt hour of electricity produced, which most natgas-fired plants already easily meet with existing technology. Meeting the limit of 1,100 pounds for coal plants is a much steeper challenge, with existing plants currently producing up to 1,800 pounds.

According to the EPA: Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide. As utilities look at the costs involved in trying to meet the new EPA CO2 emission limits, natgas can only be looking better and better, while coal’s struggle to become a “clean” energy is sounding more and more like a raspy death rattle.