10
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World Coal
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September 2014
Author
Hal Quinn is president and CEO of the National Mining Association, which
advocates on behalf of the coal and minerals mining industry in the US. Quinn
serves on the board of directors of the American Coal Foundation, National
Energy Foundation, and the US Energy Association. He also serves on the
International Energy Agency’s Coal Industry Advisory Board.
A
t the direction of President Barack Obama,
the US Environmental Protection Agency
(EPA) recently proposed carbon dioxide
performance standards for existing power
plants. The rule, which seeks a 30% reduction
in greenhouse gas emissions by 2030 from a
2012 baseline, is a stunning attempt to remake
the nation’s entire electric grid at great cost to
homes and businesses across the US. It also
threatens the reliability of the nation’s electric
grid, which has already been brought close to
breaking point by earlier EPA rules that are
forcing many baseload power plants to close.
This latest proposal will push the grid over the
edge.
Once again, the administration appears
determined to eliminate low cost and reliable
electricity and replace it with more expensive
and less reliable sources. Reducing the diversity
of electricity supply and raising costs will create
a structural barrier for economic growth. US
manufacturing will become less competitive
because of higher electricity and natural gas
prices, which will stall a US manufacturing
renaissance. Families will have less disposable
income, as they spend more to light and heat
their homes. Some of the most vulnerable
members of society, including senior citizens,
families on fixed incomes and lower-income
Americans will be the hardest hit.
Built on unstable ground
The EPA’s proposal is based on a complex web
of assumptions – many of them implausible –
about future energy demand, dramatic shifts in
generation sources, more intermittent sources
for generation and reducing energy use in
48 states. Each of these assumptions – referred
to by the EPA as “building blocks” – rests upon
a weak foundation.
Increase efficiency at coal baseload power
plants.
The EPA assumes its proposal will
create a 6% efficiency gain. The majority of this
gain will be made by deploying recommended
operation and maintenance practices. But
these practices are already routine and taking
place, since they make a power plant more
profitable. The efficiency of power plants is
further compromised by forcing them to operate
at suboptimal levels. The result is closing more
coal-fired power plants that are essential to
reliable, low-cost electricity.
Re-dispatching from coal-fired to natural
gas-fired power plants.
The EPA assumes
that natural gas-fired power plants can run at
a 70% capacity factor without any technical
or economic evidence to back that up. This
assumption appears to be based on plugging
into a model an assumed carbon price – one
well above those in current carbon trading
schemes – rather than any analysis of the
technical capabilities of the plants or gas
delivery system.
Increased deployment of intermittent
generation sources.
The growth of renewable
generation is highly dependent upon permitting,
financing, transmission access and technical
challenges posed by integration of intermittent
electricity sources into the grid. There is no
indication that the EPAappreciates why these
sources are called “intermittent” – that their
performance is highly variable, both seasonally
and daily.
Nationwide energy efficiency.
The EPA’s
assumption of 1.5% growth in energy efficiency
year-over-year lacks any credible basis. Between
the agency’s efficiency target and technological
reality is a chasm that has significant implications
for the cost of the rule. Since most of the lowest
cost efficiency measures are already in use, the
next increment will be more expensive, especially
in states with the lowest retail power prices.
Fitting an energy straightjacket
As each of the EPA’s building blocks crumble,
additional pressure is placed on those that remain,
making the EPA’s plan not simply implausible,
but actually impossible. Though the EPAand its
supporters tout the flexibility provided to each of
the US states, the proposal in fact fits themwith
an energy straightjacket. Each adjustment that is
made brings more economic pain and a system
increasingly at risk of unreliability.
What states need is genuine flexibility to
maintain a diverse and reliable generation mix
for their citizens’ economic and energy security.
But this proposal entirely ignores the value
of generation diversity to stability in power
supplies and prices. The harsh US winter over
2013/14 provided warning signals that the
nation’s bulk power system is already at its limit.
Additional power plant retirements, induced by
EPA rules issued two years ago, will push the
system over the edge. Businesses and families in
many parts of the country paid unprecedented
high prices for electricity and saw their heating
bills spike, as natural gas prices climbed with
competing demand among power plants,
factories and households.
Where are the benefits?
Coal-fired power plants supplied 92% of the
incremental demand for power this winter.
What will happen if another cold winter
occurs in the coming years, when many of the
coal-fired power plants have been closed due to
the EPA’s earlier rules? An analysis performed
by Energy Ventures Analysis shows:
n
Wholesale power prices would rise 27 – 55%
across different regions of the US. No state
is spared.
n
Businesses and households would pay
US$ 35 billion more for natural gas.
n
A combination of another cold winter,
followed by a warmer than usual summer
would cost US consumers US$ 100 billion in
higher electricity and natural gas prices.
These are the consequences of poorly
conceived policies and the reason why the EPA’s
assessment of the economic impacts of its rules
inspires little confidence. The EPApreviously
projected that its most recent rule would retire
less than 5000 MW of power capacity. As it turns
out, the true amount will likely be 10 – 12 times
greater than that figure. And this is all without
the current proposal for CO
2
.
Much is still to be learned about whether
states choose to implement this rule and meet
the CO
2
reduction targets assigned to them.
Legal challenges to the rule raise further doubts
about its viability. But one thing is clear: the costs
and risks are real and substantial; the benefits
are not.
DEMANDING THE IMPOSSIBLE
Hal Quinn, National Mining Association, US
THE EPA’S PLAN IS NOT
SIMPLY IMPLAUSIBLE,
BUT ACTUALLY
IMPOSSIBLE.
