EPA and Power Generation in the US 2011

On Friday, December 30th 2011 the U.S. Court of Appeals District of Columbia Circuit granted a stay to the implementation of the EPA’s Cross-State Air Pollution Rule, CSAPR, pending resolution of the legal challenges brought by 30 parties consisting of states, utilities, unions and others that have been consolidated into a single legal challenge to this rule. The CSAPR was made final in July (and modified in October), and affects about 1,000 power plants in the eastern half of the United States. In 23 states coal fired utilities will be required to reduce annual SO2 emissions in order to reduce downwind pollution. In 25 states utilities will be required to reduce ozone season NOX emissions. The October version of CSAPR made what EPA characterized as a technical correction, but served to reduce the reduction requirements in the first two years. Nonetheless, all the impacted states were required to reduce SO2 emissions beginning in 2012. The stay prevents the implementation of these requirements today and delays these changes. The CSAPR was to replace EPA's 2005 Clean Air Interstate Rule (CAIR). The 2005 CAIR will remain in effect pending the legal resolution of the issue.

The Cross-State Air Pollution Rule (CSAPR) should not be confused with the recently finalized mercury, arsenic, and acid gas regulations, the Mercury and Air Toxics Standards (MATS). MATS regulates mercury, arsenic, acid gas, nickel, selenium, and cyanide and was finalized on December 21. 2011. That standard slashes emissions of those pollutants primarily from coal fired electrical generation plants. The Cross-State rule was also aimed at coal fired electrical generation plants, but was designed to slash smokestack emissions of SO2 and NOX that can travel into neighboring states. These pollutants react in the atmosphere to form fine particles and ground-level ozone and are transported long distances, making it difficult for other states to achieve their particle requirements under the National Ambient Air Quality Standards (NAAQS).

According to the EPA the final CSAPR rule yields $120 to $280 billion in annual health and environmental benefits, including avoiding 13,000 to 34,000 premature deaths. At an annual projected annual cost of $800 million in addition to the estimated $1.6 billion per year in capital investments already required under the 2005 CAIR. For a total annual cost of $2.4 billion dollars 240 million Americans with have cleaner air. Had the rule proceeded on schedule, EPA estimates that by 2014 CSAPR would have reduced SO2 emissions by 73% from 2005 levels and NOx emissions by 54%.

The primary impact of the new rules will be on coal-fired plants more than 40 years old that have not yet installed state-of-the-art pollution controls. Many of these plants are inefficient and will be replaced by more efficient and cleaner burning plants, probably combined cycle natural gas plants. The Edison Electric Institute, an industry trade group, claims the combined new rules will cost utilities up to $129 billion not $2.4 billion per year that the EPA estimates and eliminate one-fifth of America's coal fired electrical capacity though it is unclear what portion of that cost is associated with each rule.

Most of the electricity in the United States is produced using steam turbines. Coal is the most common fuel for generating electricity in the United States. In 2010 Coal produced 45% of electricity used in the United States, nuclear power generated 20%, natural gas generated 24%, hydroelectric generated 6%, wind 1% and oil, wood, biomass, geothermal solar and other generated the rest. If the Edison Institute is correct, 20% of the coal fired electrical capacity will be eliminated. Because 92% of coal mined in the United States is used to generate electricity, this will impact the coal mining industry. In 2010 1,085 million short tons of coal were produced in the United States, about 7.5% was exported, almost all of the rest was used to generate electricity. If the number of coal fired electrical plants is decreased by 20%, the demand for coal to produce electricity is reduced, the amount of coal mined in the United States will decrease by about 200 million short tons, the number of coal miners and employees of coal companies will decrease, fewer trains to transport the coal will be necessary, and the cost of electricity will increase (as reported by the EPA) as the electrical power industry builds new generation plants burning other fuels.

The Mercury and Air Toxics Standards and the Cross-State Air Pollution Rule appear designed to reshape the power generation industry reducing coal fired plants, but some fuel will need to be used to spin the turbines that produce electricity. The electric power sector has seen large changes in the fuel mix over the years, so this is not new. A half a century ago, nuclear energy played no role in electric power generation, but in 2010, nuclear energy provided 21% of the energy used to generate U.S. electricity. Oil provided 18% of the fuel for electric generation in 1973, but its share has declined to 1% in 2010. In the past the changes in fuel mix were accomplished often by adding, not replacing plants as the economy grew. With much slower growth in the demand for electricity, the change in fuel mix will have to be accomplished almost entirely by replacing plants.

There will be economic impacts to the reduction in demand for coal in the United States, the cost to convert, replace and upgrade power plants, and increasing the demand for natural gas. The costs for these changes will be born in the present while the benefits occur in the future with lower health care costs and higher quality of life. If the plan is to eliminate the use of coal to generate electricity, be upfront and clear about the goal, the benefits and the costs. You cannot eliminate coal without replacing that fuel with another. Natural gas from shale hydro fracking is the obvious substitute, but EPA has barely begun studying the environmental impacts from fracking. As a nation we need to decide if we intend to abandon coal and embrace fracking without fully understanding the risks associated with fracking.