Perspectives on Obama’s clean power plan: small step for US, big step for mankind?

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ObamaThe proposal made by the US Environmental Protection Agency to reduce CO2 emissions from power stations in the US by 30% has been hailed by many as a historic breakthrough in US climate policy. Others, however, argue that the proposal is quite moderate. Some even say the plan will do nothing for the climate at all. Supporters say the main benefits of the plan is the precedent it sets and the message it sends. Energy Post editor Karel Beckman takes stock of what Obama’s action means – for the US and the rest of the world.

The EPA’s Clean Power plan, launched on 2 June, is really quite simple. The EPA proposes a rule which, in its own words, “would achieve CO2 emission reductions from the power sector of approximately 30 percent from CO2 emission levels in 2005.”

As can be read in the full text of the plan, the proposal has two elements: first the EPA has assigned each State in the US certain CO2 reduction goals, taking into account the unique energy conditions of the various US States (rather like the EU practice of setting different targets for EU Member States). Second, it has issues “guidelines for the development, submission and implementation of State plans” (again, following the model the European Commission usually works with).

The EPA does not prescribe how States should meet their goal: “Each state will have the flexibility to design a program to meet its goal in a manner that reflects its particular circumstances and energy and environmental policy objectives. Each state can do so alone or can collaborate with other states on multi-state plans that may provide additional opportunities for cost savings and flexibility.”

State governments may even partially exempt power plants (called EGUs, or electric generating units) and make themselves responsible for achieving the targets, e.g. through demand-side energy efficiency programs and renewable portfolio standards.

State plans can make use of four “building blocks”:

  1. Reduce the carbon intensity of generation at individual EGUs through heat rate improvements.
  2. Reduce emissions from the most carbon-intensive EGUs by substituting generation (e.g. coal by gas).
  3. Reduce emissions by expanding “low- or zero-carbon generation”, i.e. renewables.
  4. Reduce emissions through the use of demand-side energy efficiency measures.

Note that so far the Clean Power Plan is only a proposal. If it is adopted it will go into effect on 1 June 2015 and States will have to submit their plans on 1 June 2016.

EU climate package

There are some obvious similarities with the EU’s climate and energy package adopted, which was adopted at the end of 2008. The EU package mandates a 20% CO2 emission reduction by 2020 with a baseline of 1990. (The EPA’s baseline is 2005.) The European Commission has now proposed a 40% reduction for 2030, although it is not clear yet whether the Member States will agree to this.

Unlike the US approach, the EU measures are not aimed exclusively at the power sector. They are nation-wide targets. For the power sector and for industrial installations, the overall goals have been translated into “caps” that they must adhere to under the EU’s Emission Trading Scheme (ETS), launched already in 2005. The installations get a certain number of “emission credits” that they are not allowed to exceed, but that they can trade among each other.

In theory the ETS is a flexible and efficient system; the problem, most observers agree, is that the allocation of credits has been too generous, as a result of which CO2 prices have remained low and investment in low-carbon generation has not been forthcoming.

“The new greenhouse gas regulation is no profile in political courage”

Although in time the US lags behind the EU, it should be noted that the EPA’s proposal has been a long time in the making. It’s part of the President’s Climate Action Plan and follows from a directive issued by Obama in June 2013. But, as Steven Cohen, the influential Executive Director of Columbia University’s Earth Institute, notes, already in 1999, “ a number of states and cities petitioned EPA to reduce greenhouse gases from motor vehicles. In 2003, under then-president George W. Bush, EPA asserted that it did not have the authority to regulate greenhouse gases and, even if it had the power, it wouldn’t exercise it. Eventually, Massachusetts sued, and in 2007 the Supreme Court decided that EPA had the authority to regulate greenhouse gases and that unless the agency could provide scientific evidence that these gases did not cause harm, it also had the obligation to regulate them. In January 2014, EPA issued greenhouse gas regulations for new power plants.”

carbon visuals

Small step

So how much of a “breakthrough” is the proposal? Well, most commentators agree that the plan is hardly earth-shaking.

In fact, the EPA itself goes out of its way to stress that its plan is not radical in any way but rather only reinforces existing trends.  “This goal [of 30%]  is achievable”, it says, “because innovations in the production, distribution and use of electricity are already making the power sector more efficient and sustainable while maintaining an affordable, reliable and diverse energy mix … The proposed guidelines are based on and would reinforce the actions already being taken by states and utilities to upgrade aging electricity infrastructure with 21st century technologies. The guidelines would ensure that these trends continue in ways that are consistent with the long-term planning and investment processes already used in this sector, to meet both region- and state-specific needs.”

The EPA notes that under its plan “coal and natural gas would remain the two leading sources of electricity generation in the US, with each providing more than 30 percent of the projected generation.” It also points out that “in 2025, the average age of the coal-fired generating fleet is projected to be 49 years old, and 20 percent of units would be more than 60 years old if they remained in operation at that time. Therefore, even in the absence of additional environmental regulation, states and utilities can be expected to be, and already are, making plans to address the changes necessitated by the aging of current assets and infrastructure.”

Steven Cohen points out that many States, “such as California and a number of those in the Northeast, may have already met the targets being proposed.” He writes that “While the new greenhouse gas rule is a significant first step, it has taken years to accomplish and, in a global sense, represents a small step in a long journey.”

In Cohen’s view, “the new greenhouse gas regulation is no profile in political courage, but I gave up hope long ago that President Obama would respond aggressively to the climate crisis.”

War on coal

Climate and energy scientist Roger Pielke Jr. notes that the proposal, if implemented, would represent a reduction in coal generation from about 39% of the mix today to about 33% in 2030, “a drop of about 15% from total 2012 coal generation (and under different scenarios it could be a bit more or less).” This is hardly a revolutionary development: “The US economy has already seen a larger reduction in coal electricity generation – a 25% drop from 2005 to 2012.”

“The overall change to the US electricity mix is best characterized as marginal, rather than revolutionary”, concludes Pielke. “This is especially the case from 2020 to 2030 where there is very little projected change in the mix.”

“Utilities should have been seeking different sources of power a number of years ago”

Independent energy expert Zane Selvans concurs: “Despite the passionate rhetoric from both sides of the climate divide, the proposed rules are very moderate — almost remedial.  The rules grade the states on a curve, giving each a tailored emissions target meant to be attainable without undue hardship.  For states that have already taken action to curb greenhouse gasses, and have more reductions in the works, they will be easy to meet… Furthermore, many heavily coal dependent states that have so far chosen to ignore the imperatives of climate change (e.g. Wyoming, West Virginia, Kentucky) must only attain single-digit percentage reductions, and would be permitted to remain largely coal dependent all the way up to 2030.”

Selvans’ conclusion is that “The EPA is not waging a war on coal.  This isn’t to say that a war on coal would be a bad idea, but rather that it’s mostly unnecessary.  Coal in the US is dying off on its own, and at most what we’re doing is equivalent to taking it off life support.  Our task is to manage the graceful transition to a much lower carbon energy system.”

Independent consultant Christine Hertzog, author of the Smart Grid Library, makes a similar point. The EPA proposals are not an existential threat to utilities relying on coal-fired power, she notes. Rather , coal plants have become “a riskier investment for utilities” for a number of other reasons:  the plants are aging (average age 42 years) and are being replaced by gas-fired power plants already. Coal power plants are also shuttering because they can’t compete against low natural gas rates and declining electricity use.

Hertzog points out that “utilities … should have been seeking different sources of power a number of years ago…. There are far more existential threats to utilities than closure or cleanup of coal power plants.  These threats focus on the very nature of the utility business model regarding centralized generation and a fragile supply chain of transmission and distribution grids.”

power station

The methane problem

Not only will the EPA’s proposal have a limited effect on the US power sector, it will probably also have a very limited effect on the climate. As Roger Pielke points out: “To stabilize atmospheric concentrations of carbon dioxide at a low level (say 550 ppm or lower) requires that the carbon-free proportion of the global energy mix (not just electricity) increase from about 13% carbon free to more than 90%, regardless of how much energy the world ultimately consumes. The US in 2012 was about 13.5% carbon free. These regulations mainly switch electricity from coal to gas and thus do very little to increase the US proportion of carbon-free electricity generation. The so-called climate benefits of the regulations are thus essentially nil, though I suppose one could gin some up via creative but implausible cost-benefit analyses. Atmospheric carbon dioxide is a stock and flow problem and these proposed regulations make a only a very tiny contribution to the flow side of the equation. That is just math.”

Indeed, the climate effects may even be negative – if, that is, methane emissions from gas production and transport are larger than is generally assumed. This is a point made by Nick Cunningham of Oilprice.com.

“Negawatts will prove to be the cheapest compliance. Saving electricity is considerably cheaper for a utility than producing it”

“By the EPA’s own estimate, coal generation will decline by 20 percent to 22 percent by 2020”, he writes. “That will create an opening for natural gas, which could rise by up to 45 percent, jumping from 22 billion cubic feet per day to 32 bcf/d. The Obama administration has bet its climate legacy on this trend, which was already underway before the EPA regulations. This is why the administration chose 2005 as a baseline, when emissions were near a peak. 2005 predated the shale gas revolution, which led to significant reductions in carbon dioxide emissions as cheap natural gas displaced coal. By 2013, the U.S. had already achieved about a 10 percent reduction in emissions since 2005 – meaning we are already well on our way to the 2030 goal.”

The problem is, though, as Cunningham writes, “that we don’t know what’s happening with methane emissions. Natural gas, which is essentially methane (CH4), may burn cleaner than coal, but what happens when it isn’t burned? As a greenhouse gas, methane emitted into the atmosphere is more than 20 times as potent as carbon dioxide over a 100-year period.”

According to Cunningham, “the EPA estimates that methane emissions have actually declined over the past 20 years as technology has improved.” But many scientists dispute those claims. For example, “Robert Howarth of Cornell University believes that methane leakage could be much higher than the government says, which would mean pushing utilities to switch from coal to natural gas may not be constructive. He has conducted studies that conclude methane leakage far exceeds EPA estimates.”

Innovation and pollution

Even though the EPA’s proposal is hardly revolutionary, many commentators also see positive implications. For example, the analysts at Lux Research argue that the plan can help spur innovation in renewable energy and energy efficiency: “Commercial and utility scale solar demand will rise in unexpected places. Subsidized internal rates of returns (IRRs) are already high for commercial and utility solar installations in states like California and Massachusetts, ranging from 10 percent to 15 percent (see Lux Solar Demand Tracker). The new carbon emissions rules will likely open up hitherto unattractive markets such as Georgia and South Carolina; expect a greater flow of debt capital and competing business models such as leasing from SolarCity and solar loans from Sungage to make their presence felt.”

In addition, notes Lux Research, “Negawatts will prove to be the cheapest compliance. Saving electricity is considerably cheaper for a utility than producing it – as little as $0.028/kWh, according to the American Council for an Energy Efficient Economy, twice as cheap as coal. Expect the utilities in coal-dominant regions, like American Electric Power (AEP), to expand their residential energy efficiency programs, leading the adoption of air barrier materials, LED lights, and double pane low-e coated windows.”

“The regulations are an important step to help motivate the electricity generating sector to move closer to the technological frontier”

Lux Research also predicts that “Clean coal will get a new lease on life. Current costs of carbon capture and sequestration (CCS) for coal plants using integrated gasification combined cycle (IGCC) are $60/ton, according to the US Department of Energy, making the approach impractical. The new rules will accelerate the development of second- and third-generation technologies for CCS, such as metal organic frameworks (MOF), which have the potential to get costs down to $20/ton.”

What is more, as several commentators have noted, the EPA plan will also contribute to reducing air pollution, with corresponding health benefits. “The non-carbon public health benefits of decreased reliance on dirty coal are the most compelling reasons for the regulations, and they are considerable”, writes Roger Pielke Jr.

Command and control

Finally, commentators agree that the EPA plan is important – even historic – in the precedent that it sets: this is the first time that the federal government is actually setting a limit on greenhouse gas emissions in the US. As such, the plan is “a clear signal being provided to private corporations, governments, nonprofits and everyone else that climate change is a real threat and the US federal government is at long last ready to respond”, writes Steven Cohen.

Roger Pielke Jr also notes that “the regulations are an important step to help motivate the electricity generating sector to move closer to the technological frontier”. Both Cohen and Pielke support what Cohen calls “the command and control regulation of greenhouse gases” by the Obama administration – which not everybody in the US is likely to accept.

In this context, Cohen notes that “the second reason that I am heartened by the administration’s move is that it is the only policy option available under current political conditions. While it will be a decade before it is meaningful and operational, and other policies might be speedier and more effective, it beats the current US national policy: doing almost nothing.”

The big question for the rest of the world now is how other countries will interpret Obama’s action. Christiana Figueres, the UN’s top climate change official, said she expects the new power plant rules could spur other big emitters – such as China and India – to begin taking action on climate change and move forward on reaching a deal by the 2015 deadline.

The Clean Power Plan may be a small step for America, it could become a big one for mankind.

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