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Coal Survival Depends on the EPA’s Carbon-Pollution Standards for Future Power Plants

SOURCE: AP/Rogelio V. Solis

Vehicles fill the parking lots at Mississippi Power's Kemper County energy facility near DeKalb, Mississippi.

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The cornerstone of President Barack Obama’s Climate Action Plan, released on June 25, is the production of cleaner electricity by cutting carbon pollution from power plants. These facilities are the largest source of climate pollution in the United States. On September 20, the Environmental Protection Agency, or EPA, took a big step by proposing carbon-pollution standards for future coal and natural gas power plants.

Coal-fired electricity produces 30 percent of all domestic carbon pollution. Although there are strict limits on other power plant pollutants—including mercury and ingredients for smog and acid rain—there are no limits on carbon pollution. Under the proposed EPA standards, however, new coal plants would have to produce 40 percent less carbon pollution than the best-performing plants in use today. The new limits would ensure that future coal plants contribute about the same amount of carbon pollution as natural gas plants. This would provide a path for future, cleaner coal-powered electricity in a carbon-constrained world.

The proposed carbon-pollution standards for future power plants were developed under Section 111 of the Clean Air Act. This section requires that any “new source performance standard” for future industrial facilities must be based on “the best system of emission reduction” that the EPA determines has been “adequately demonstrated.” The Washington, D.C., federal appeals court has concluded that this provision of the law was intended to “create incentives for new technology” and “stimulate and augment the innovative character of industry in reaching for more effective, less costly systems to control air pollution.” This same federal appeals court concluded that the act “looks toward what fairly may be projected for the future, rather than the state of the art at present.”

After careful analysis, the EPA found that carbon capture and storage, or CCS, technology has been adequately demonstrated and is available to meet the agency’s proposed emissions limits for future coal plants. CCS lowers emissions by capturing carbon pollution formed during power generation, compressing it into a liquid, and then injecting it into underground repositories that will store it permanently without leakage.

The EPA’s proposal would limit emissions to 1,100 pounds of carbon dioxide, or CO2, per megawatt hour, or MWH. This is a common-sense standard that will save money by only requiring partial CO2 capture, even though nearly complete capture is feasible using existing technology. The proposed rule would also allow plant operators to delay operation of CCS equipment until later in the useful life of the future plant, providing time to fine tune the technology.

Technologies to capture CO2 during industrial processes are well-established outside the power sector and have been successfully demonstrated in pilot-scale testing at power plants. Moreover, the EPA found evidence to “indicate[s] that geologic sequestration is a viable long term CO2 storage option.” Geological formations found across the United States have the capacity to safely hold vast amounts of CO2.

Several projects to deploy CCS at commercial-scale power plants are actively progressing. The Massachusetts Institute of Technology reports that there are 24 large-scale CCS power projects worldwide, including seven in the United States and Canada that are under construction or in advanced planning stages.

For instance, Southern Company is building a 582-megawatt Integrated Gasification Combined Cycle, or IGGC, plant in Kemper County, Mississippi, that will capture 65 percent of its carbon pollution (3.5 million tons annually). The nearly finished plant should begin operation next year.

Poised to begin construction later this year is Summit Power’s Texas Clean Energy Project, or TCEP—a 400-megawatt IGCC unit that will capture 90 percent of its carbon pollution (2.5 million tons annually). Saskatchewan, Canada, is home to SaskPower’s Boundary Dam project, where an aging 110-megawatt coal-fired generation unit is being rebuilt with post-combustion carbon capture technology that will remove 1 million tons of carbon pollution annually. It should be on-line in early 2014.

Not all CCS projects, however, have moved forward. American Electric Power, or AEP, successfully tested CCS at its Mountaineer power plant in West Virginia, but halted further deployment in 2010. The New York Times reported that the project “would not move again unless there were clear federal rules setting a timeline for when and how much coal plants have to reduce emissions.”

The AEP project demonstrates that the most significant impediment to the development and deployment of CCS is the lack of a price or limit on carbon pollution. The Government Accountability Office, or GAO, reported to Congress in 2010 that “without a tax or sufficiently restrictive limit on CO2 emissions, plant operators lack an economic incentive to use CCS technologies.”

Likewise, several University of Utah faculty recently surveyed 229 CCS experts on the availability of CCS and determined that “lack of a price signal or financial incentive” is a major barrier to commercialization. Nonetheless, the study found that “CCS experts share broad confidence in the technology’s readiness, despite continued calls for commercial-scale demonstration projects before CCS is widely deployed.” Clearly, the EPA’s proposed carbon-pollution rule for future power plants is precisely the signal necessary to develop a market for CCS technology, which could maintain coal as part of the future electricity-generation mix.

Nonetheless, the coal industry and its congressional allies have attacked the EPA’s proposed rule and dismissed prospects for technological innovation by utility companies and their equipment suppliers. For instance, House Energy and Commerce Committee Chairman Fred Upton (R-MI) said that “the proposed standards would require the use of expensive new technologies that are not commercially viable,” even though a number of large-scale power plants using CCS will soon be in operation. Contrary to GAO and other impartial analyses, Rep. Upton also claimed that the proposed rule would “discourage investment.”

Some opponents question the proposed carbon-pollution standards because the commercial-scale CCS projects underway received federal funds. As The Washington Post reported last week:

Joseph Stanko, head of government relations for the law firm Hunton & Williams, said the EPA’s reliance on “federally funded demonstration projects” as the base for its new standard “is illegal, it doesn’t ‘adequately demonstrate’ technology for normal use.”

But nearly every energy technology, including nuclear power, oil and gas, and renewables, has received government financial support. A study commissioned by the Nuclear Energy Institute found that the government spent $837 billion (in 2010 dollars) on federal energy incentives and support from 1950 to 2010. Twelve percent of that—$104 billion—was for coal.

And federal resources account for only a portion of the funding for the Kemper and TCEP projects, with far larger amounts deriving from the issuance of bonds, cost recovery from ratepayers, or equity investments. Investors’ willingness to back these projects is a vote of confidence in the commercial potential of CCS technology.

Many of the same legislators and companies who now claim that CCS technology needs additional time to mature before it can justify a pollution standard also opposed comprehensive energy and climate change legislation in the 111th Congress that would have stimulated investment in CCS. The American Clean Energy and Security Act of 2009, H.R. 2454, sponsored by Reps. Henry Waxman (D-CA) and Edward Markey (D-MA), would have provided $60 billion in incentives to speed the development of CCS. The Senate companion bill, drafted by Sens. John Kerry (D-MA) and Joe Lieberman (I-CT), which stalled in the Senate due to opposition from coal and utility companies, would have also invested billions of dollars in CCS development and deployment.

Similar to these legislative proposals, the EPA’s proposed rule will speed the development and deployment of CCS. With a clear and certain technology-based pollution-reduction target, equipment vendors would have an incentive to develop new carbon capture systems, and improve existing ones to lower costs and enhance performance. Utilities could seek federal grants or loan guarantees from existing programs to defray part of the CCS costs. Investors would be more inclined to finance the initial generation of CCS plants to gain a “first mover” advantage, knowing that a market would exist for more plants as the industry scales up.

Utilities are nervous that public service commissions that oversee their electricity rates will not allow them to recover the costs from the increased expense of building power plants with CCS technology. An EPA carbon-pollution standard would enable utilities to make a much stronger case for cost recovery because CCS would be a requirement for any future power plant burning coal. Captured carbon could be sold to meet the growing demand for CO2 in enhanced oil recovery, or EOR—a process where CO2 is injected into abandoned wells to recover additional petroleum. EOR now yields approximately 300,000 barrels of oil per day, but its potential is much greater. What’s more, the expansion of the existing pipeline network that supplies CO2 for EOR would provide more power plants with access to commercial markets for captured CO2, reducing the costs of CCS.

Although coal power plants are the largest source of domestic carbon pollution, coal’s share of electricity generation has recently declined. In 2008, 48 percent of U.S. electricity came from coal, but this number dropped to 37 percent in 2012. Over the past decade, most of the new electricity generation has come from renewables or natural gas, according to the Energy Information Administration. Furthermore, more than 160 planned coal plants were scrapped over the past decade, and none of the 136 new electricity generators that will come on-line this year is a traditional coal-burning unit, according to The New York Times.

In short, coal lost market share due to:

Conclusion

Every day, there is new scientific evidence that fuels the urgency to reduce the carbon and other pollution responsible for climate change. EPA’s proposed carbon-pollution standard couldn’t be more timely. With virtually no traditional coal plants under construction due to factors unrelated to EPA health rules, the claim that the agency’s proposed standards will ban future coal-burning facilities can’t hold water. Rather than attacking EPA’s proposal, the coal and utility industries should instead use the lull in new plant construction to make investments that secure a future role for coal-fired power plants while we finally slash pollution from power plants.

An ambitious but attainable standard that enables coal plants to achieve emission levels comparable to those of cleaner natural gas plants via deployment of a new and viable technology would give coal a new lease on life. Blocking this rule would continue the decline of conventional coal plants. That’s why coal and utility companies—and their political allies—should endorse the EPA’s common-sense proposal to clean up future power plants.

Robert Sussman was recently the senior policy counsel to EPA Administrator Lisa Jackson. Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at the Center for American Progress.

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