Obama Greenhouse-Gas Cuts Splits Power, Coal Industries

Bracing for greenhouse-gas rules from the Obama administration, two industries are staking out different positions. Coal companies are pledging to sue. Electric utilities are ready to talk.

That split may give U.S. President Barack Obama a chance to rally support -- or at least blunt resistance -- to his plan, which is due June 2.

Electric companies say they hope to convince Obama’s aides that cuts in carbon emissions already achieved should count toward the goals in his plan, which could call for reductions of as much as 25 percent over 15 years, according to two people familiar with the discussions on the proposal.

Greenhouse-gas emissions from power plants, the largest source, dropped 16 percent from 2005 to 2012, and companies such as American Electric Power Co. (AEP) and Xcel Energy Inc. (XEL) want the cuts included in any measure of progress.

“We want to make sure EPA gives credit to early action already achieved,” Frank Prager, Xcel’s vice president for policy and strategy, said in an interview.

Coal companies yesterday dug in, with officials saying the industry opposes the entire effort led by the Environmental Protection Agency and is lining up to fight it on legal grounds.

“This whole rulemaking process is flawed beginning with the fact that the Clean Air Act was never intended to be used to regulate carbon emissions from power plants,” Laura Sheehan, a spokeswoman for the American Coalition for Clean Coal Electricity, said in an e-mail. “Irrespective of the percentage of reduction or the number of years in which said reductions are slated to occur, this debate will be settled in the courts.”

Calculating Reductions

Demands from electric utilities for their cuts sets up what could be a fight over part of Obama’s effort to combat climate change: when to start calculating the overall reduction in emissions. Utilities also are seeking flexibility for state agencies and some guarantee that multimillion-dollar investments to clean other pollutants from coal-fired plants won’t be “stranded,” forcing the plants into an early grave.

“It needs to have the flexibility so it doesn’t force the closure of the coal plants that are being upgraded to be fully compliant” with the EPA’s current mercury rule, said Melissa McHenry, a spokeswoman for AEP.

It’s not clear what baseline, or starting point, the administration has selected.

The proposal is still under review at the White House, and could change before it’s released in two weeks. Company officials said they hadn’t been briefed on the plans.

Steep Cuts

The utilities signaled their demands on the greenhouse-gas rule as the contours of the administration’s proposals began to emerge. A plan under consideration would force cuts in carbon-dioxide emissions by as much as 25 percent, give states wide discretion in how to meet those goals and extend the compliance timeline for 15 years, according to two people familiar with the discussions.

An aging fleet of coal plants probably would be phased out before the rules take full effect, said Kit Konolige, an analyst with BGC Partners LP.

“Since coal plants are relatively old, another 10 or 15 years is probably as much as you would expect from most of these units,” Konolige said.

The administration declined to comment before an announcement.

“I’m sure there will be plenty of speculation between now and when the rule is released, but until that point, that’s all it is -- speculation,” said Tom Reynolds, an EPA spokesman.

Climate Change

The 15-year phase-in under consideration would be long enough to satisfy most power companies, according to two utility industry representatives.

Power plants release more than 2 billion tons of carbon dioxide in the U.S. a year, accounting for more than 40 percent of such emissions. The rules are anticipated by environmental groups pressing Obama to make good on a pledge to take bold steps in the effort to reduce the risks of climate change.

The rules could achieve steeper cuts at a lower cost if the targets are based on a more holistic view of an electrical system -- the generating units, power lines, opportunities for renewable energy, and even reductions in use by customers.

Environmental groups are pushing steeper, quicker cuts. The Natural Resources Defense Council said the EPA’s rules could be set up achieve a 30 percent reduction by 2020. And the group rejects giving power companies a long lead-in so that plants upgraded for the mercury rule can continue to operate.

“Whatever decisions they made or are making on compliance to the mercury rule, they have been on notice that the carbon rules are coming,” David Doniger, the NRDC chief climate lawyer, said in an interview. “They are grownups and they don’t get any guarantees that those assets are going to be protected.”

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann, Michael Shepard

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