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COLUMN-Obama's phoney war on coal: Kemp

Source: Reuters - Wed, 3 Jul 2013 04:48 PM
Author: Reuters
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(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON, July 3 (Reuters) - "The president has declared war on coal," West Virginia Senator Joe Manchin complained last month.

Manchin, a Democrat, was responding to President Barack Obama's much-heralded announcement that he had directed the Environmental Protection Agency (EPA) to develop new emission standards for existing power plants.

West Virginia is the second-largest coal-producer in the country, so Manchin vowed to fight what he described as destructive policies that threaten America's economy.

"The regulations the president wants to force on coal are not feasible. And if it's not feasible, it's not reasonable," he warned.

"It's simply unacceptable that one of the key elements of his climate change proposal places regulations on coal that are completely impossible to meet with existing technology," he protested angrily.

Manchin's language prefigures the arguments that coal producers and power station owners will make as the EPA develops the regulations and in any eventual request for judicial review.

Regulations singling out coal-fired power plants and imposing impossible burdens on them will be fiercely contested under laws that require the EPA to weigh costs and will be challenged in court as being "arbitrary, capricious (and) an abuse of discretion" under the Administrative Procedure Act.

But Obama's new initiatives may make little real difference to the outlook for coal-fired power generation in North America, which is already bleak as a result of shale gas and requirements that power companies get a minimum percentage of their electricity from renewable sources.

RHETORIC BUT LITTLE ACTION

Obama's speech captured the headlines as it was meant to do. Green groups and news organisations had been tipped off about the details by White House staff, and they duly treated it as a major development of administration policy. It seems to have been heard the same way by coal supporters.

"As a president, as a father, and as an American, I am here to say we need to act," Obama said. "I refuse to condemn ... future generations to a planet that's beyond fixing. And that's why, today, I'm announcing a new national climate change action plan."

But the president's announcement was short on new initiatives. Less than a quarter of the speech was spent on specific policies. The president devoted fewer than 300 words in 6,000 (less than 5 percent) to discussing emissions standards for power plants.

In concrete terms, the speech was accompanied by a "presidential memorandum" to the EPA directing the agency to issue a new version of its proposed regulation for carbon emissions from new power plants by Sept. 20, 2013.

Obama also directed the agency to work on new emission standards for modified, reconstructed and existing power plants, asking for a draft by June 2014, a final rule by June 2015, and implementation by June 2016.

None of this is new. The EPA has been working on emission standards for new power plants under its authority to issue New Source Prevention Standards. It has long been assumed the agency would try to regulate emissions from existing and upgraded power plants under its authority to issues rules covering Prevention of Significant Deterioration.

In effect, the president lent his imprimatur to initiatives that the EPA has already been working on. It was meant to rally his base, and convince environmental groups he remains serious about tackling climate change, after a period when many were starting to question the administration's resolution in this area.

HOW MUCH OF A THREAT?

There has never been much role for coal in the president's "all of the above" energy strategy.

In theory, the administration sees a future for coal-fired power generation if coal plants can be coupled with technology designed to capture carbon dioxide emissions and store them underground. However, carbon capture and storage technology remains totally unproven at commercial scale for power plants.

Like the International Energy Agency, the energy adviser to the advanced industrial economies, the Obama administration has made no secret of the fact it would like to see coal replaced in power generation by cleaner-burning natural gas.

If two-thirds of fossil fuel reserves will have to remain in the ground, unburned, to keep the rise in global temperatures below 2 degrees Celsius by 2050, then coal reserves rather than oil or gas are likely to be put off limits first.

Manchin is therefore correct that the administration has "declared war on coal". But it is less clear that the president's policy will put coal at any greater of a disadvantage than it already is.

OLD, INEFFICIENT BOILERS

Cheap gas and the renewable portfolio standards enacted by most states have already reduced the amount of coal combustion in the power sector.

Coal accounted for just 37 percent of power generation in 2012, down from 48 percent in 2008. Gas-fired generation climbed from 21 to 30 percent over the same period, while renewables such as wind and solar went from 3 percent to 5 percent.

Power generators have largely abandoned plans for new coal-fired power plants. Only four new coal-fired power plants are planned between 2013 and 2018, according to the Energy Information Administration's (EIA) "Annual Electric Generator Report 2012".

Nearly 26 gigawatts (GW) of coal-fired generating capacity are scheduled to retire before 2023, about 8 percent of the total for coal. Coal-fired plants account for almost two-thirds of all retirements over the next decade, according to the EIA (Chart 1).

For the most part, coal-fired plants are old and inefficient. Most of the coal fleet was built between the mid-1960s and the mid-1980s. The average coal-fired power plant, weighted by capacity, entered service in 1974 and is now almost 40 years old, compared with a service date of 1988 for non-coal fired plants (Chart 2).

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Chart 1: http://link.reuters.com/fag49t

Chart 2: http://link.reuters.com/hag49t

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More than 70 percent of the U.S. coal fleet is stuck with subcritical technology, which limits thermal efficiency to 36-38 percent, compared with 40-42 percent for a supercritical plant.

GRADUAL PHASE OUT, PERHAPS

The average coal-fired power plant has long since recovered its initial capital costs. But to remain in service and competitive, most coal-fired plants will require expensive refits, whether or not new emissions regulations are enacted.

Like nuclear, coal is struggling to remain competitive in a world where natural gas is plentiful and cheap and where policymakers have mandated that 20-33 percent of electricity must be generated from renewables such as wind and solar.

Because renewables are guaranteed priority in the power generation merit order, fossil fuel plants in the future will have to operate for fewer hours and at much lower levels of average capacity. But coal plants are not well suited to act as peaking plants backing up wind and solar generation. They ramp up and down much more slowly than gas-fired units.

Even without the threat of new regulations, coal-fired power stations and coal miners face a difficult future and can survive only if gas prices rise, or they receive hefty capacity payments for providing back up generation.

But the EPA will have to proceed carefully.

Gas and renewables cannot immediately replace all the 1.76 terrawatt-hours of electricity generated from coal last year. It will take decades to put alternatives in place.

Any new emissions standards will have to be crafted to allow many coal-fired plants to continue operating for another decade or more. The new rules will not even begin to take effect until towards the end of the decade.

The main impact of Obama's regulations will be to foreclose any widespread return to coal if gas prices rise.

Even that is not certain, however. If the gas market does tighten in future, threatening to make electricity much more expensive, a future president will have plenty of time to ease the rules again to allow new coal plants to be built. (editing by Jane Baird)

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