New coal plants would need to install expensive equipment to limit climate-change emissions under a proposal the U.S. Environmental Protection Agency is close to issuing, according to people familiar with the plan.
The EPA agreed to revise a similar proposal from last year in response to opposition by utilities and mining companies that said it would effectively kill new coal generation. The new version will be structured differently, though it offers little solace to them, according to the people who have been briefed and who asked not to be identified before the public release.
The rules, the subject of intense lobbying by the industry, areunder review by White House officials, and could be reworked before the Sept. 20 scheduled release. The EPA has proposed retaining a provision letting utilities phase-in the capture technology over time, one person said.
Relying on carbon capture to limit coal emissions is challenging because the technology is unproven and it’s too expensive, according to the industry. Still, the practical impact of the rule is likely to be limited over the next few years, because cheap natural gas is prompting utilities to invest in those plants and shutter — not open — coal plants.
Alisha Johnson, a spokeswoman for the EPA, declined to comment.
‘Very artful’
“They are going to have to be very artful, given the stage of development of the technology, it’s apparent costs and the fact that the government is subsidizing it,” said William Bumpers, a lawyer at Baker Botts LLP in Washington who deals with EPA rules. “That doesn’t strike me as commercially viable.”
Bumpers said he didn’t know what EPA planned to do.
The Standard & Poor’s 500 Coal and Consumable Fuel Index of two companies fell 1 percent to $42.69 on the report, before erasing the loss to close today at $43.65. The index tracks the performance of Consol Energy Inc. (CNX) and Peabody Energy Corp. (BTU)
The administration was forced to rework the first rules on greenhouse-gas emissions from power plants after legal experts questioned its approach in setting one standard for coal and natural-gas plants. Coal emits about twice the carbon dioxide as natural gas when burned to make power.
Carbon caps
Carbon-dioxide emissions since the Industrial Revolution have led to a warming of the Earth’s temperature in the past 50 years, worsening forest fires, drought and coastal flooding, according to the U.S. Global Change Research Program.
To deal with the threat, President Barack Obama directed the EPA to cap carbon pollution from power plants, which account for 40 percent of U.S. emissions. The first step is for the agency to issue rules for new plants. The more contentious rules would govern emissions from existing plants, and those aren’t scheduled to be issued until next year.
“There are very few companies currently building new coal plants,” Hugh Wynne, a senior analyst at Sanford C. Bernstein & Co. in New York, said in an e-mail. “It’s the next step, when EPA moves to regulate existing sources, that would affect the existing coal and gas-fired fleet.”
The proposal for new plants was issued by the EPA in 2012. It set the same standard for coal and natural gas plants of 1,000 pounds of carbon-dioxide per megawatt hour. A new, efficient natural gas plant can meet that standard, according to the EPA. A coal plant’s emissions are at least 1,800 pounds per megawatt hour, and so would need equipment to capture the carbon.
30 years
The EPA initially gave plants the option to average emissions over 30 years, so that they would not have to employ the expensive capture process for the first decade of operation.
Because of cheap natural gas, the EPA forecast that no utilities would build traditional coal plants over the next eight years, and so the impact of the rule would be negligible.
Lawyers for industry groups argued that EPA violated legal precedent by lumping natural gas and coal together, and in response the agency agreed to start again and issue a new proposal this month.
The EPA is now pushing for separate standards for coal and natural gas, with both likely to be set at greater than 1,000 pounds. The coal standard would be significantly less than 1,800 pounds, the people familiar with the proposal said.
OMB lobbying
So far, lobbyists for coal producers such as Peabody Energy Corp. and Arch Coal Inc. (ACI), and utilities such as American Electric Power Co. (AEP), have visited the Office of Management and Budget, which is reviewing the EPA proposal, and made their case that requiring carbon capture, knowns as CCS, is a mistake.
“Since CCS technology is not commercially available at this time, requiring the use of this technology would function as a complete ban on the development of new coal-fired generation,” Scott Segal, a lawyer for utilities at the Electric Reliability Coordinating Council in Washington, wrote in a letter to the Office of Management and Budget on Aug. 23.
The American Public Power Association, in a meeting with White House officials on Sept. 4, urged it to set the standard for coal at 1,900 pounds, and revisit the commercial availability of carbon capture in eight years.
“The Obama administration has been waging a war on coal and Kentucky jobs ever since the president was elected,” Senate Minority leader Mitch McConnell, a Kentucky Republican, said today in an e-mail. “If these reports are accurate, his latest proposal is not only an open war on coal jobs, but on all the residents, jobs, and businesses across the commonwealth that rely on this vital industry.”
Mississippi plant
Environmental groups, meanwhile, urged the administration to stick to its demand for carbon capture. Southern Co. (SO) is building a new coal plant in Mississippi that will gasify low-cost lignite and then capture the carbon dioxide and sell it to oil drillers. Oil producers use carbon dioxide to recover oil from oil fields, and the liquefied gas stays underground.
Once the Mississippi plant goes live next year “it makes every existing coal plant seem pretty obsolete,” John Thompson, director of the fossil transition project at the Clean Air Task Force, said in an interview. It can “transform the way fossil fuels are used.”
