It's Official: EPA Issues Draft Regulation for Power Plant Greenhouse Gas Emissions

We’ve heard about it already, but last week EPA made it official: First ever greenhouse gas regulations for power plants hit the Federal Register.  EPA’s move is the next step in a process that started with the 2007 Supreme Court case Massachusetts vs. EPA, a decision that gave EPA the authority to regulate greenhouse gas emissions if they pose a threat to human health and the environment.  EPA claimed its authority with a 2009 endangerment finding, and has been taking steps to toward this regulatory action ever since.

Last week’s regulation limits the amount of carbon dioxide a power plant can emit per unit of power produced to 1,000 pounds per megawatt-hour.  To put this in perspective, new natural gas facilities emit just under that limit; coal plants emit as much as 1,800 pounds per megawatt-hour.  Good news for gas; bad news for coal.

Still, EPA doesn’t deem this regulation to be “economically significant,” meaning it won’t impose an impact of more than $100 million.  How does that add up?  First, the regulation doesn’t apply to any existing facilities.  Second, the Obama EPA has been hard at work issuing waves of burdensome regulation on traditional air pollutants that make coal substantially less competitive.  Third, natural gas – coal’s chief competitor – is hovering at its lowest prices in 10 years.  Put it all together, and this regulation isn’t economically significant, because the EPA has already regulated the coal industry into oblivion and natural gas prices are taking care of the rest.

The EPA says that new coal can be built as long as it employs carbon capture and sequestration (CCS) technology.  They even give facilities a lengthy compliance window, allowing them to average facility emissions over 30 years.  But CCS hasn’t yet been employed at a commercial stage and there are considerable technological, legal, and infrastructure challenges to overcome before the technology can be viable.  This all adds up to an effective death knell for King Coal, a strategic fossil fuel that has dramatically fallen from favor while still supplying half of the nation’s electricity. 

Limiting the cost impacts of killing coal hinges on cheap natural gas for the foreseeable future.  This seems like a viable reality, with fracking (and mild winters) putting a glut of natural gas on the market, driving down prices.  With prices this low, we can expect new generation to be natural gas heavy, sidelining not just coal but also nuclear, wind, solar, and other alternatives.

Natural gas, however, has a volatile price history, swinging between $2 and $11 per MMBtu over the past decade.  And there are forces that could cause prices to swing again.  Pending EPA and Interior regulations may slow the pace at which we get natural gas out of the ground and drive up the costs to develop, process, and transport the fuel.  The natural gas industry itself is desperate for higher profits, and is looking for new markets, like a natural gas-fired automobile fleet and exports overseas.  Counting on natural gas now commits us a future in which natural gas price swings can change the tide of our economy.

At its core, government command-and-control regulation of greenhouse gases is an expensive proposition.  Carbon dioxide is wholly unlike traditional air pollutants; it doesn’t result from fuel impurities or any limitation in combustion.  Carbon dioxide is the emission that drives our economy, producing 70% of our electricity and fueling virtually all of our transportation.  No matter how you slice it, EPA greenhouse gas regulations will be “economically significant,” even if they’ve found a way around that tag for now.