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Will coal survive the EPA’s new carbon rules?

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On Friday, the Environmental Protection Agency is officially proposing new limits on carbon-dioxide emissions from all future power plants built in the United States. It's the first major piece of the Obama administration's second-term climate plan.

Under the rules, which will take a year to finalize, the EPA will impose limits on carbon emissions from all future coal and natural-gas plants. This is just an initial step that only covers plants not yet built: Later on, the EPA will separately tackle emissions from the thousands of existing power plants that are already operating.

The limits on future coal plants are stringent enough that utilities will likely only be able to new coal-fired facilities if the plants can capture their carbon emissions and bury them underground, a technology that's still unproven.*

In theory, this could mean a moratorium on all new coal plants for decades to come. In practice, though, the rule may not change much. The power industry has been building very few coal plants in recent years anyway, in part because cheap natural gas has made them uneconomical. (Of course, that means the EPA rules may not have much effect on U.S. greenhouse-gas emissions or climate change in the near term, either.)

Still, this aspect of the rules got lots of attention during a House hearing this week. Everyone wanted to know: Can coal survive in this new regulatory world?

The carbon capture question

One big question here is whether carbon capture and sequestration (CCS) technology will ever be viable. That technology would, in theory, allow future coal plants to pass muster under the carbon standards. On that score, EPA Administrator Gina McCarthy sounded optimistic.

"I will say that [carbon capture] was an issue that was heavily discussed,” she told the House committee. "I will say that on the basis of information that that we see out in the market today and what is being constructed and what is being contemplated, that CCS technology is feasible and it is available today."

As evidence, McCarthy pointed to four coal plants “now being constructed” that capture their carbon dioxide and could, in theory, survive under the rules. That includes the $2.4 billion Kemper County coal plant being built in Mississippi by Southern Co. which is scheduled to begin operation in 2014 and was built with the help of a $270 million federal grant.

Not everyone was satisfied with this answer, though. Rep. Mike Doyle (D-Penn.) pointed out that the Kemper County plant was capturing its carbon for use by the oil industry to defray costs — an option that may not be available to coal plants in, say, Pennsylvania. And Rep. John Shimkus (R-Ill.) worried that the EPA was requiring power plants to adopt a technology that "has not been commercially proven by operation at commercial scale."

Other analyses, meanwhile, have been less bullish on the viability of carbon capture. Last year, the Congressional Budget Office concluded that it was unlikely the technology would become cost-competitive anytime soon. Power plants that can capture and store their carbon are initially expected to cost about 75 percent more than regular coal plants. And those costs won't fall unless there's either a huge technological breakthrough or utilities invest a lot more of their own money in building new plants. Neither appears imminent.

The coal industry, for its part, has argued that the EPA's rules could make it even harder to develop carbon capture technology by preventing the industry from working incrementally toward the goal. "If reports are correct, [the new standards will] thwart the development of second-generation carbon capture and storage (CCS) technology," said Laura Sheehan of the American Coalition for Clean Coal Electricity.

Why coal might be hurting regardless

There was one crucial point, however, that went overlooked at the House hearing: It's entirely possible that no coal power plants of any type will get built for years, regardless of what the EPA does Friday. That's because natural gas is so cheap right now it's not really economical to build coal plants.

Roughly speaking, natural gas prices needs to rise above $7 per million BTU for new coal plants to be competitive. But the U.S. Energy Information Administration projects that natural gas prices will stay under $6 per million BTU for the next two decades. As a result, the agency doesn't think any coal plants will be built between 2018 and 2035.

That's one reason why an earlier draft of the EPA power-plant rule predicted that the regulations for new power plants would have virtually no costs in the near term. After all, no new coal plants were likely to get built in the United States anyway. So the EPA rule won't make much difference one way or the other. Unless, of course, natural gas prices rise unexpectedly  — something that's happened in the past.

At the hearing, both McCarthy and Energy Secretary Ernest Moniz answered "Yes" when asked whether they thought coal had a future in the U.S. energy mix. But it was hard to see how new coal plants could actually fit into the picture.


* To get into specifics: The EPA's new-power-plant rule will require all future coal plants to emit no more than 1,100 pounds of carbon dioxide per megawatt-hour. That's well below the current U.S. coal plant average of 1,768 pounds of carbon dioxide per megawatt-hour, and the standard is likely impossible to meet unless future coal plants capture and sequester their carbon.

New, large gas-fired plants, meanwhile, would be restricted to 1,000 pounds of carbon dioxide per megawatt-hour. Smaller gas turbines would be limited to 1,100 pounds. The average combined-cycle gas plant already meets this standard. [Edit: I've fixed these numbers now that I've read through the rule.]

Further reading: Everything you need to know about the EPA’s carbon limits for new power plants.