Obama’s Carbon Rules Seen as New Battleground for EPA

The U.S. Environmental Protection Agency’s proposed limits on power-plant emissions blamed for climate change is a broad new battleground for an agency that has spent four decades focused on the local impact of pollutants such as lead, mercury and ozone.

The draft regulations, issued yesterday, would impose the first cap on carbon emissions from new power plants, dealing a blow to the market for coal. While restrictions on emissions of sulfur dioxide and other pollutants have been in place for years, these are a first for gases blamed for global warming.

“It’s a new day,” said Vicki Arroyo, director of the climate program at Georgetown University. Carbon dioxide is unique because “it’s a ubiquitous pollutant, we all contribute to it in our daily lives, and it’s contributing to a global problem,” she said.

While analysts said the immediate impact of the rule will be limited, it sets the stage for the more far-reaching set of rules governing emissions from existing power plants, which account for 40 percent of U.S. greenhouse-gas emissions. Those rules, which the EPA said will not be as stringent, are due by June 2014.

“That’s the 10-billion-dollar question,” Brendan Collins, a lawyer at Ballard Spahr LLP, said in an interview. “People are trying to set the table for the arguments that will be made in” the debate over rules for existing plants, he said.

Coal producers, some utilities and Republicans in Congress all said that the standard announced today would effectively outlaw construction of new coal-fired power plants, raise prices for electricity and cost jobs. On Capitol Hill, House Energy and Commerce Committee Chairman Fred Upton, a Michigan Republican, said his panel will hold a hearing on the proposal.

New Limits

Because of low natural-gas prices and the boom in installations of wind and solar power, no new coal plants will be built with or without this rule over the next eight years, according to the EPA. As a result, the agency forecasts that this plan will result in “negligible” costs, benefits, changes in carbon-dioxide emissions and overall economic impacts over that period.

“These carbon pollution standards are flexible and achievable,” EPA Administrator Gina McCarthy said in remarks at the National Press Club in Washington. “They pave a path forward for the next generation of power plants.”

Still, the announcement elicited a strong response from supporters and opponents because the rule locks in place standards that will persist if the market changes.

Environmentalists’ Goal

“The consequences will be more job losses and a weaker economy,” Upton, the Michigan lawmaker, said in an e-mail. “These stringent standards will actually discourage investment and the development of innovative new technologies.”

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in an e-mail, “The president is leading a war on coal and what that really means for Kentucky families is a war on jobs.”

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.

The EPA proposed a limit of 1,100 pounds of carbon dioxide per megawatt hour for new coal-fired plants, which would require them to capture and store a portion of the carbon dioxide they produce. Traditional coal plants issue 1,800 pounds, according to the EPA. Large natural-gas plants would have a lower standard, 1,000 pounds, which they can meet without a capture technology.

Comment Period

McCarthy said the law gives the agency a year to finalize the rule and she vowed to consider all the comments the agency will receive on the proposal. Any new plants built during that period would still need to comply with the standard.

Stock prices of coal producers fell on the news.

The stock of Peabody Energy Corp. (BTU), the biggest U.S. producer, fell from more than $70 a share in April 2011 to less than $19 a share. It fell 58 cents yesterday, to $18.16. Arch Coal Inc. (ACI)’s stock fell from $35 a share in April 2011 to less than $5. It closed down 25 cents yesterday at $4.74.

Not Available

“We believe that coal plants with near-zero greenhouse gas emissions will be achievable in time, but such technology is simply not available today,” Deck Slone, Arch’s director of public policy, said in a statement.

In recent weeks two federal coal auctions in Wyoming were failures: One attracted no bidders and the second resulted in such a low bid that the Bureau of Land Management rejected it.

While the rule is unlikely to have an immediate impact on utilities, “we believe that the EPA’s cumulative regulations are making it harder to build coal generation, and this will affect power supply diversification,” Standard & Poor’s credit analyst Jeffrey Panger said in a research note.

Utilities in the U.S. are shuttering old coal plants, and switching to gas for base load power production.

“We’re witnessing the death of the coal era and the birth of the natural gas era in America,” Chris Faulkner, chief executive of the Dallas-based Breitling Oil and Gas Corp., which uses carbon dioxide in oil production, said in an e-mail. “I think Obama’s new carbon limits make a statement that natural gas is in fact the bridge fuel for America’s future.”

Mixed Results

The rules were also embraced by some utilities, such as the Public Service Enterprise Group Inc. (PEG), and by environmental groups who have been urging Obama to tackle climate change, with mixed results.

“Big polluters have been getting a free ride for decades, while Americans foot the bill in the form of asthma attacks, respiratory illness, floods, wildfires, and superstorms,” said Michael Brune, the head of the Sierra Club.

The rules issued today set a limit on carbon-dioxide emissions from coal plants that can only be met with technology to capture that gas, and then inject it underground for storage. That technology, called CCS, isn’t yet being used on a commercial scale as the first large-scale plant is under construction by Southern Co. (SO) in Kemper County, Mississippi. The plant, which received $270 million in subsidies from the federal government, is facing local opposition and $1 billion in cost overruns.

It’s also selling the carbon dioxide to nearby oil drillers, who will use it to spur production in old fields. That creates a ready revenue source that doesn’t exist nationwide, and the company itself argues it’s a mistake to base a nationwide standard on this project.

Kemper “should not serve as a primary basis for new emissions standards impacting all new coal-fired power plants,” Tim Leljedal, a spokesman for Southern, said in an e-mail.

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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