US coal groups welcome CO2 rule change: Update

Adds detail from EPA on expected coal capacity starting in the 10th paragraph

The US Environmental Protection Agency's (EPA) proposal today to replace the Clean Power Plan will help steady the coal industry, but more is needed, groups said.

The proposed rule would rely on on-site heat-rate improvements to cut CO2 emissions from coal-fired power plants, rather than the broader suite of measures, such as fuel switching and emissions trading, envisioned in the Clean Power Plan. It will give states up to three years to develop their own plans, quadruple the amount of time outlined in the previous rule, and modify standards for its New Source Review program to allow for an hourly emissions increase test.

The changes are largely in line with what members of the coal and electricity industries have identified as hurdles to upgrading aging, existing facilities. And they could protect a number of power plants from premature retirement once the rulemaking process is completed and litigation is resolved. This includes four of the five largest CO2 emitters in the US in 2016 according to EPA's database of facility level greenhouse gas emissions — the James H Miller, Scherer and Bowen plants, which Southern Company owns all or part of, as well as DTE's Monroe plant — none of which have near-term retirement plans.

"It certainly appears to be a step in the right direction," said Michelle Bloodworth, president of the American Coalition for Clean Coal Electricity. "But it is also insufficient."

The administration and regional transmission operators need to follow through on plans to restructure wholesale electricity markets to better support coal generation, Bloodworth and others said. "If those are not addressed we are going to see more retirements."

Energy secretary Rick Perry has repeatedly pushed for measures to support fuel secure facilities in wholesale markets, including a proposal to use the so-called "section 202(c)" emergency authority and a 1950s-era defense law to help the plants compete against low-cost natural gas and renewables. The PJM Interconnection already is considering restructuring its capacity auction and in April said it will start to evaluate fuel security within its grid. PJM has also been ordered by the Federal Energy Regulatory Commission to find a way by the end of this summer to prevent state subsidies for renewable energy and nuclear power plants from affecting prices in the grid's annual auction.

Bloodworth and others did not immediately have an estimate for how many more plants would retire if market changes are not enacted. US generators have 38.8GW of coal-fired capacity scheduled to retire between this year and 2030, according to a database kept by Argus.

Those plants will likely go off line as expected even if the new rule is implemented as currently written.

"The retirements are mostly market driven," said Josiah Neeley, energy policy director for the R Street Institute, a research group based in Washington, DC. "The market is not pricing CO2 so the retirements are going to be driven probably not by emissions but by competition from natural gas and things like that."

EPA expects 600 units at 300 coal-fired power plants to be covered by the new rule. That is roughly 60pc of the existing US coal fleet when including power plants scheduled for retirement before 2025.

The agency is estimating coal will make up as much as 13pc more of the total US generation mix than it would if the Clean Power Plan were in place. Even so, actual coal capacity will be, at most, 3pc higher than it would have been under the Obama administration's rule.

The agency's models of three proposed heat rate improvement and cost scenarios had coal capacity in 2035 at 171GW-177GW, compared with 173GW if the Clean Power Plan were in place. The coal sector had 266.6GW of net summer capacity in place in 2016, EPA said.

But the changes would be enough to make coal production for electric power sector use as much as 10pc higher than it would be under the Clean Power Plan, the agency said. It estimated output could be as much as 465mn short tons (421.8mn metric tonnes) in 2035 under its proposals, compared with 424mn st if the previous plan were in place.

The proposed rule is "a fulfillment to the president's promises" to end the "war on coal," the White House said today.

The rule will help the industry avoid as much as $6.4bn in compliance costs that would have been incurred had the Clean Power Plan gone into effect, the agency said.

"We recognize that markets have changed and will continue to change," said Kirk Johnson, senior vice president for government relations of the National Rural Electric Cooperative Association. "But there would have been for us electric coops significant assets that would have been placed in a really negative situation" had the Clean Power Plan been enforced.

The proposed rule is a "more achievable" plan for electric cooperatives that could help prevent premature power plant closings, the group said.

Others in the industry agree, but market conditions will continue to be the driving factor.