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Coal Industry Future Uncertain Without Carbon Capture

The growing drive to reduce carbon dioxide emissions responsible for global warming has dramatically increased the uncertainty about the future of the U.S. coal industry. Although coal currently powers half of all electricity, proposals to build new coal-fired power plants have met great resistance largely due to their contribution to global warming. As The Washington Post noted in a headline earlier this week, “Coal Rush Reverses, Power Firms Follow; Plans for New Plants Stalled by Growing Opposition.”

But coal can continue to power a significant portion of our electricity in a carbon-constrained world if power plants employ new technology that would capture and sequester this pollution. Carbon capture and sequestration technology must be deployed as soon as possible to slow the growth of global warming pollution while also sustaining the coal industry.

In the absence of CCS, proposals for new coal-fired electric plants currently face great opposition, which has resulted in the cancellation of many projects. This opposition manifests itself in the following ways:

  • Rising public opposition and lawsuits in regard to new plants with uncontrolled CO2 emissions.
  • State opposition, such as new legislation in California that makes it impossible for California utilities to sign new contracts with out-of-state coal plants without CCS, and energy policies in Florida that foreclose coal plant construction.
  • Investor reluctance to finance or build new coal plants without CCS, as seen in the cancellation of eight of the 11 proposed new coal plants as part of the acquisition of TXU.

In July 2007, Citigroup coal analysts downgraded the stocks of coal companies across the board because of global warming and other concerns, noting that “plans for a new wave of coal-fired plants have vaporized.”

Leading proposals to reduce global warming pollution from power plants and other stationary sources could also cast doubts on the future of coal. The U.S. Energy Information Agency analyzed the Climate Stewardship and Economic Innovation Act of 2007 (S. 280) sponsored by Sens. John McCain (R-AZ) and Joe Lieberman (D-CT). The analysis concluded that power plants, including generators in the industrial and commercial sectors, will likely switch away from a historic reliance on coal to generate electricity.

  • The Energy Information Agency concluded that coal generation will be between 7 percent and 70 percent lower than current levels in 2030, depending on the availability of offsets, including those from international projects. In the EIA’s S. 280 "Core Case," coal generation is 48 percent lower in 2030 than in 2005.
  • In the absence of global warming legislation, the EIA predicts that 163 gigawatts of new coal capacity will be built between 2005 and 2030, but if S.280 passes, only between 11 and 21 GWs will be added, and most of the plants that will be built are already under construction.

The Environmental Protection Agency’s recent analysis of S. 280 is more optimistic about coal use but predicts a 7 percent drop in coal production between now and 2020, and then a slight recovery resulting in a net 4 percent reduction in coal generation from 2005 levels in 2025.

We can reconcile our reliance on coal for electricity with the need to reduce the threat of global warming. Timely CCS deployment would enable new coal plants to continue to help meet America’s need for electricity while avoiding growth in CO2 emissions. Sufficient financial assistance to new coal plants with CCS would overcome the cost differential between coal plants with CCS and nuclear and gas plants, removing the basis for the EIA’s negative prediction about the future of coal. Replacement of existing, uncontrolled plants with new CCS plants would be a valuable tool to reduce CO2 emissions.

Global Warming and the Future of Coal: the Path to Carbon Capture and Storage,” released by the Center for American Progress earlier this year, examined various approaches to achieve rapid adoption of CCS. The report and subsequent analysis concluded that only an emission performance standard requiring CCS in new plants would achieve this goal. Under this standard, all new coal plants built after 2008 must include CCS capability, and plants must meet CCS level emissions reduction requirements by 2016 or within four years after they become operational, whichever is later. The four-year time period would decrease over time as CCS technology and operation improves.

An emissions performance standard would pave the way for the continued use of coal in the U.S. electricity mix. S. 280 does not contain an emission performance standard for all new coal-fired power, so neither EIA’s nor EPA’s analyses incorporate such a standard.

To ensure that the cost of constructing a new plant with CCS is competitive with the cost of a plant without it, these plants would receive financial assistance equal to 20 percent of the cost of plant construction. Assistance to new plants would also be provided to decrease or eliminate the operational cost differential between the CCS and non-CCS plants once the cost of purchasing allowances for the non-CCS plant is taken into account. This financial assistance would use the revenue derived either from the sale of CO2 auction allowances under a cap-and-trade system, a mechanism like a national “wire charge,” or a mix of financial instruments such as tax credits and grants. Assistance would decrease over time as the plants with CCS become more cost-competitive.

The CCS emissions performance standard is essential:

  • Without an emission performance standard, the price of carbon under a cap-and-trade system will not spur CCS deployment in the near term. EPA’s analysis concludes that CCS systems will be available for implementation in new coal plants by 2015, but that the cost of carbon allowances will not be high enough until 2030 to lead to their widespread adoption.
  • Bonus allowances and other proposals to encourage utilities to include CCS in new coal plants are too costly and highly uncertain in their results because of the large non-price barriers to entry into the CCS market (see “The Path to Cleaner Coal: Performance Standards More Effective than Bonus Allowances”).

A national target date of 2016 for implementing CCS at new coal plants is feasible:

  • Based on expert assessments of the state of the technology, “Global Warming and the Future of Coal” determined that all proposed coal plants could implement pre-combustion CCS using integrated gasification combined cycle, or IGCC, technology by 2016 or within four years of each new IGCC plant becoming operational, whichever occurs later.
  • Michael Morris, the CEO of American Electric Power, predicted that post-combustion CCS would be ready for deployment by 2015-2020 (Argus Air Daily, Aug. 28, 2007).

The United States has relied on coal to provide cheap, ample electricity for over 100 years. Unfortunately, burning this coal added billions of tons of carbon dioxide into the atmosphere, causing global warming. Coal-fired power plants are responsible for more than one quarter of all global warming pollution, and the effects are already apparent.

It is imperative that the United States promptly reduce its global warming pollution from power plants and other sources. A CCS emission performance standard for all new coal-fired power plants would enable the United States to lower its emissions while maintaining its coal industry. Without an emission performance standard requiring the best available CCS technologies, the United States will reduce its electric sector emissions by switching from coal to other, cleaner fuels.

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