Market News

 September 13, 2013
Coal Industry Cries Foul Over Obama Emission Rules

 Representatives of coal-intensive utilities and coal-producing regions said that President Barack Obama would effectively outlaw construction of new power plants using the fuel with pending environmental rules.

The Environmental Protection Agency is revising proposed rules from last year in response to opposition by utilities and mining companies. The new version, under review by White House officials and scheduled for release next week, will be structured differently though it offers little solace to the industry, according to people who have been briefed on the measure and asked not to be identified before its release.

The agency brushed aside a vigorous lobbying campaign by industry and is pushing rules that would require new coal plants to install expensive carbon-capture technology, according to the people briefed on the plans. Alisha Johnson, a spokeswoman for the EPA, declined to comment.

Low-cost natural gas is leading utilities to build new plants using that fuel and shutter coal-fired plants. The effect of the new standard would lock out coal over the long term, said Scott Segal, a lobbyist for utilities.

"Once you set something in stone, you discourage investment in that sector, and you take a flexible market and ossify it," Segal, a lawyer at Bracewell & Giuliani LLP in Washington, said in an interview. "The market price of natural gas can change" but regulations don't, he said.

Global Warming

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.

To deal with the threat, Obama directed the EPA to cap carbon dioxide from power plants, which account for 40 percent of U.S. emissions. The first step is to issue rules for new plants, a proposal set to be released next week. The more contentious rules would govern emissions from existing plants, and those aren't scheduled to be issued until next year. The rules will be the first of their kind.

"The Obama administration has been waging a war on coal and Kentucky jobs ever since the president was elected," Senate Minority Leader Mitch McConnell, a Kentucky Republican, said yesterday in an e-mail. "If these reports are accurate, his latest proposal is not only an open war on coal jobs, but on all the residents, jobs, and businesses across the commonwealth that rely on this vital industry."

Limited Impact

The practical impact of the rule is likely to be limited. In 2012, the EPA forecast that no utilities would build traditional coal plants over the next eight years.

"The companies themselves are documenting the fact that it is the widespread availability of low-cost natural gas, and to some degree wind power, that is eroding the viability of coal," Megan Ceronsky, an attorney at the Environmental Defense Fund, said in an interview.

An analysis submitted to the White House by the Clean Air Task Force, which supports the EPA plan, said that the cost of building a new coal plant with carbon capture is 24 percent more than that of a traditional coal plant, and more than double that of a natural gas plant. Flexibilities in the EPA's initial proposal could lower that cost, it said.

The administration was forced to rework the first rules on greenhouse-gases after legal specialists questioned its approach in setting a single standard for coal and natural-gas plants. Coal emits about twice the amount of carbon dioxide as natural gas when burned to make power.

Gas Plant

The proposal for new plants was issued by the EPA in 2012. It set the same standard for coal and natural gas plants of 1,000 pounds of carbon-dioxide per megawatt hour. A new, efficient natural gas plant can meet that standard, according to the EPA. A coal plant's emissions are at least 1,800 pounds per megawatt hour, and so would need to capture the carbon.

The EPA initially gave plants the option to average emissions over 30 years, so that they wouldn't have to employ the expensive capture process for the first decade of operation.

Lobbyists for coal producers such as Peabody Energy Corp. (BTU) and Arch Coal Inc. (ACI), and utilities such as American Electric Power Co. (AEP), have visited the Office of Management and Budget, which is reviewing the EPA proposal, and made their case that requiring carbon capture, knowns as CCS, is a mistake.

"By prohibiting the use of coal without CCS, demand for electricity would be met with natural gas or other cost competitive available options, but not coal with CCS, which will remain significantly more expensive," the Coal Utilization Research Council said in a filing to the White House.

Eight Years

The American Public Power Association, in a meeting with White House officials on Sept. 4, urged it to set the standard for coal at 1,900 pounds, and revisit the commercial availability of carbon capture in eight years.

Segal's group, the Electric Reliability Coordinating Council, is set to meet with White House officials this week to make their plea for an easier standard. If they don't win now, that doesn't mean the issue is dead.

"I am going to go out on a limb and predict there are going to be legal challenges," said Jeff Holmstead, a former EPA official who's now a lawyer at Bracewell.