Obama Power-Plant Rule Signals Demise of ‘Old King Coal’

Photographer: Andrew Harrer/Bloomberg

For critics, from mining companies and utilities to coal-country lawmakers, the Environmental Protection Agency regulations are meant to put coal out of business. Close

For critics, from mining companies and utilities to coal-country lawmakers, the... Read More

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Photographer: Andrew Harrer/Bloomberg

For critics, from mining companies and utilities to coal-country lawmakers, the Environmental Protection Agency regulations are meant to put coal out of business.

President Barack Obama’s proposed carbon-dioxide rules for power plants effectively prohibit new coal power plants, buttressing a shift away from a power source that fueled the Industrial Revolution to cheap natural gas.

Obama’s Environmental Protection Agency proposed the first limits on greenhouse-gas emissions from U.S. power plants yesterday, setting a standard natural-gas facilities can meet. A new coal plant would need carbon-capture technology, which industry advocates say isn’t available at competitive rates.

With natural gas at decade-low prices, no new coal plants are being built, with or without the EPA rules, according to the agency’s analysis. For critics, from mining companies and utilities to coal-country lawmakers, the rules are the latest in a string of EPA regulations they say are meant to put the fossil fuel out of business.

“This EPA is fully engaging in a war on coal,” West Virginia Democratic Senator Joe Manchin said in a statement. “This approach relies totally on cheap natural gas and we’ve seen that bubble burst before.”

“It might sound good now, but what happens if those prices go up?” Manchin added.

Coal Jobs

Coal, cleaved from the mountains of West Virginia and other Appalachian states for more than a century, had provided as much as half the electricity in the U.S. in recent years and more than 86,000 mining jobs. The boom in natural gas extracted by hydraulic fracturing is already cutting into coal’s primacy, pushing coal generation to less than 40 percent of power produced at the end of 2011, the lowest level since 1978.

The EPA rule “captures the end of an era,” Michael Brune, the executive director of the Sierra Club, said in an interview. “The market has been moving in this direction significantly in the last few years.”

The proposed nationwide standard is the first of its kind issued by the EPA for carbon dioxide. With the failure of Congress to cut carbon emissions, agency actions are seen by environmental groups such as the Sierra Club as the best chance to combat global warming.

‘Old King Coal’

“If old King Coal isn’t dead already, he’s certainly teetering toward life support,” said Frank O’Donnell, president Clean Air Watch in Washington.

Carbon-dioxide emissions since the Industrial Revolution have led to a warming of the earth’s temperature in the past 50 years, threatening to cause extreme weather, drought and coastal flooding, according to the U.S. Global Change Research Program.

The rules will permit emissions from new power plants at 1,000 pounds of carbon dioxide per megawatt hour, about the level for a modern gas facility, according to the EPA. It applies to new plants, not existing ones.

Yesterday’s proposal will now be open to public comment, and revision by the agency before taking effect. EPA Administrator Lisa Jackson yesterday didn’t commit to a deadline for issuing the regulation, and whatever final rule comes out could be challenged in the courts. EPA measures issued last year on pollution of mercury and sulfur dioxide from coal plants face legal challenge.

Congress may also pass legislation to overturn the rule, Representative Joe Barton, a Texas Republican, said today at a hearing in Washington.

Emissions Falling

Carbon emissions from energy in the U.S. probably will stay below the record level of 6 billion metric tons set in 2007 for the next 23 years, the U.S. Energy Information Administration predicted Jan. 23, the first time it forecast a long-term reduction. That’s an 8 percent cut in its forecast issued just last year, reflecting the increase in natural gas use.

Building a new gas plant already makes more economic sense, Hugh Wynne, a New York-based utility analyst with Sanford C. Bernstein & Co., said in a telephone interview.

Generators have announced the retirement of about 33 gigawatts of coal-fired generation, or about 10 percent of the total of 344 gigawatts of coal capacity, Wynne said. About 15 new coal plants are already cleared for construction, and if construction begins within a year they won’t need to comply with the new rules, according to the EPA.

“This is the tail end of coal generation build-out,” said Teri Viswanath, the director of commodity markets strategy at BNP Paribas SA (BNP) in New York. “The ones we are getting today -- that is going to be the last hurrah for coal-fired generation.”

Concerns About EPA

Representatives of the coal industry and some lawmakers are worried that may be the case, not because of the market but because of the EPA.

“You are not admitting the burden that exists on coal- fired generation today” from the mercury and sulfur rules last year, Illinois Republican John Shimkus told EPA Assistant Administrator Gina McCarthy at a hearing today. “You all are just killing us in southern Illinois.”

In addition to the air-pollution rules, the EPA has regulations in the works on water use by power plants and on the disposal of coal ash.

“Our concern is that EPA is making national energy policy through the development of environmental standards that force generators to select a single source of fuel,” Pat Hemlepp, spokesman for Columbus, Ohio-based American Electric Power (AEP) Co., the largest owner of coal-fired generation, said in an e-mail.

This specific greenhouse-gas rule, which only applies to future plants, is unlikely to have an impact on their coal facilities, he added.

Regulatory Uncertainty

“The uncertainty caused by these regulations could result in the loss of thousands of Ohio jobs and will increase electricity rates for families during tough economic times, in return for less reliable power,” Ohio Republican Senator Rob Portman said in an e-mailed statement.

While the EPA said that it has no plans to pursue a similar regulation on existing plants, lobbyists for companies such as Southern, which owns three of the top 10 plants for emissions of carbon dioxide, say they aren’t sure agency will stop with this first step.

“We have little confidence that the administration will adhere to this view, particularly after the election is over,” Scott Segal, a lobbyist at Bracewell & Giuliani LLP in Washington who represents companies such as Southern Co., said in a statement.

And he said the rule may have an unlikely impact.

“Coal may instead be exported and used overseas, thus eliminating any supposed environmental benefit while retaining tremendous energy cost, job loss, and squandered energy security here at home,” Segal said.

Coal exports reached 107 million tons in 2011, the most in two decades.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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