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

On Friday, the Environmental Protection Agency proposed new limits on carbon-dioxide emissions for all new coal and gas-fired power plants built in the United States. It's the first major piece of the Obama administration's second-term plan to tackle climate change.

The regulations aren't likely to have a huge impact in the near future — the standard will make it extremely hard to build new coal plants in the United States, but utilities weren't planning many new coal plants anyway, because natural gas is a cheaper alternative.

Still, the rule does have fairly big implications for the energy industry and climate change down the road. So let's break things down, as simply as possible:

Give me the basics. What is the EPA doing? 

The EPA is proposing limits on carbon-dioxide emissions from all future coal and natural-gas plants built in the United States. This is just a first step that only covers power plants not yet built: Later on, the EPA will separately tackle emissions from the thousands of existing power plants that are already operating.

Why is the EPA regulating carbon-dioxide emissions? Is this new?

It is new. Back in 2007, the Supreme Court ruled that the agency was required to regulate carbon dioxide under the Clean Air Act if it found the gas posed a threat to human health and welfare. Scientists tend to agree that carbon-dioxide emissions from power plants, cars, and other fossil-fuel sources are heating the planet.

So, after Obama took office, the EPA began regulating. The agency first set stricter fuel-economy standards for cars and light trucks. Today's rule, which falls under the New Source Performance Standards portion of the Clean Air Act, sets rules for power plants that haven’t been built yet. Eventually, the EPA will have to move on to existing power plants, and then — in theory — other sources like refineries and so forth.

How, exactly, will the EPA regulate future power plants?

If a power company wants to build a natural gas or coal power plant in the United States, it has to get permits from the EPA. And as part of that permits process, the firm has to show that the plant will follow certain guidelines.

To get more specific: All future coal plants will need 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.

All new large natural gas-fired plants, meanwhile (roughly 100MW or larger), would be restricted to 1,000 pounds of carbon dioxide per megawatt-hour. Smaller gas turbines, which typically less inefficient and used less frequently, will be limited to 1,100 pounds. Natural gas shouldn't have too much trouble here: Modern combined-cycle gas plants can already meet this standard.

There's also some flexibility built in. Coal plants can phase in the limits over a seven-year period as long as they average 1,050 pounds of carbon-dioxide per megawatt-hour over that period. The idea is that utilities can have some time to install stricter emissions controls.

So it's much, much easier for natural gas plants to meet the standard?

Correct. By and large, burning natural gas in a modern combined-cycle plant for electricity produces about half the carbon-dioxide emissions that you get from burning coal in an average plant for electricity.

How on earth are coal plants going to meet that standard?

It won't be easy. The limits on coal plants are stringent enough that utilities will likely only be able to build new coal facilities if the plants can capture 20 to 40 percent of the carbon they produce and bury it underground. That technology is still in its infancy.

So a lot hinges on whether carbon capture and storage (CCS) technology will ever become viable. The EPA thinks this is possible — and that the rule will ensure progress. The coal industry is less sure about this.

Right now, there are four coal plants under construction that plan to 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 Company which is scheduled to begin operation in 2014 and was built with the help of a $270 million federal grant. That plant will sell some of the captured carbon for use in oil recovery in order to defray costs.

That said, it's not at all clear that CCS technology will become widespread anytime soon — in part because it's so expensive. 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. A recent Congressional Budget Office analysis suggested that neither appeared imminent.

Indeed, Southern Company argues that the Kemper plant is so unique that it's unlikely to be widely duplicated, noting that the facility's "ideal" location allows the carbon to be used by the nearby oil industry. "The unique characteristics that make the project the right choice for Mississippi cannot be consistently replicated on a national level," says spokesman Tim Leljedal.

The coal industry, for its part, is arguing that the EPA's rules will make it even harder to develop carbon capture technology by preventing the industry from working incrementally toward the goal. "By stopping the development of new coal plants, the EPA is halting the development of carbon capture and storage (CCS) technologies," said Robert Duncan, CEO of the American Coalition for Clean Coal Electricity, in a statement.

If this is a moratorium on new coal power, will that disrupt our electricity supply? Will it raise electric bills?

Not necessarily. It's true that coal currently supplies around 37 percent of the country's electricity. But a key point here is that today's rule only affects future coal plants. And utilities haven't been building very many coal plants in the past decade anyway — most of the new generation being built in the United States has been wind and natural gas:

As a very rough rule of thumb, 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 once the CCS demonstration projects are finished:

The EPA thinks so: "Because these standards are in line with current industry investment patterns, these standards are not expected to have notable costs and are not projected to impact electricity prices or reliability," the agency said on Friday.

That said, nothing is ever for certain. The coal industry likes to point out that natural gas prices have often spiked in the past. If that happens again, they'll say, these rules could hamper our ability to build new coal plants and keep electricity prices down.

Doesn't that mean that these rules will have little effect on carbon emissions?

Correct. The EPA expects the standards "are not expected to change [greenhouse-gas] emissions for newly constructed [electric generating units]."

That's because, again, few coal plants were going to be built anyway and modern natural-gas plants can already meet the standard without needing many changes.

Whaaaaat? So why do these rules even matter?

Today's rules are significant for three reasons. One, this is the first time that the EPA is regulating carbon-dioxide emissions from power plants. That, in itself, is a big symbolic step — a sign that the agency is becoming more active in tackling climate change. That's why environmentalists have hailed the move.

Second, this is a sign of what's to come. Over the next year, the EPA will craft carbon regulations for the 6,500 existing power plants that are currently operating around the United States. That's a much bigger deal. Those power plants are responsible for about 40 percent of U.S. carbon-dioxide emissions, and the EPA will have to figure out how much to reduce all that carbon.

Third, these rules could influence the development of carbon capture technology — either making it harder or easier. That's a big deal because some analysts, like the International Energy Agency, think that we'll need carbon capture to become much cheaper and more widespread in order to have any hope of averting drastic climate change.

So the upcoming rules on existing plants are a bigger deal for climate change?

That's one way to look at it, sure.

Are there better ways to tackle global warming than these EPA rules?

Many economists would say that putting a price on carbon and letting the market figure out how best to cut emissions is the ideal policy here. That could include a carbon tax or a cap-and-trade system. Congress would have to set this up, though, and Congress doesn't seem inclined to do much about climate change right now.

So what happens next?

The rule for future power plants will go through a 60-day comment period. EPA will then consider all the comments it gets from industry groups, environmentalists, and other citizens, and modify the rule accordingly. In theory, the whole thing should get finalized a year from now.

Could the rule get struck down in court?

Anything's possible. Utility companies with lots of coal power plants are getting ready to challenge the rule in court on the grounds that the agency is requiring pollution controls that have not yet been “adequately demonstrated” in the marketplace.

The EPA has already revised this rule once out of concern that it was vulnerable to a challenge in court. Seeing as how the agency is taking some unprecedented steps by regulating carbon, it's always possible that the D.C. Circuit Court could find some way to strike the rule down. In that case, the agency would either have to tweak the rule even further or start all over again.