We made the claim in our Fall 2013 Issue: The War on Coal isn’t about killing coal, it’s about taxing it - heavily. It seems we were right.
In June of 2013, President Obama announced plans for sweeping reforms in coal fired power generation. His Climate Action Plan included a call for the EPA to draft carbon emission standards aimed at putting “an end to the limitless dumping of carbon pollution” from power plants. The President’s words appeared to be the death knell for the coal industry.
The debate over the potential impact of such standards began immediately after the President’s announcement. Conservatives and industry officials alike assumed that the standards would be unattainable with current technology, leading to a de facto mandate to shutter every coal plant in the nation.
A little under a year later, those EPA (Environmental Protection Agency) standards have now been revealed in a 645 page document dubbed the “Clean Power Plan.”
Despite the endless speculation as to just how damaging the anticipated standards would be, the new rules aren’t nearly as destructive as feared. The rules will result in a significant financial burden for the industry, but the burden is seen by many analysts as being survivable. As reported by the Wall Street Journal just hours after the EPA revealed the plan, Scott Segal of Bracewell & Giuliani, an industry lobbyist, stated that the rules “could have been a whole lot worse.”
The biggest relief seen in the “Clean Power Plan”, which requires reductions in carbon emissions of 30 percent by 2030, is the established baseline year of 2005 for the standards. In other words, the EPA is allowing states to reduce emissions by 30 percent from their measured levels in 2005, not 2015.
Due to state led carbon dioxide reduction efforts which began with the state RPS phenomenon (see article page 16), total carbon output has already been reduced nationally by 15 percent according to the EIA (Energy Information Administration). This means that the EPA rules are in fact only requiring a further 15 percent reduction within the next 16 years. Another coal lobbyist was quoted in the same WSJ article as saying: “We aren’t sure how that happened, but it’s a big relief.”
The Administration stated that allowing for the 2005 baseline is an effort to reward states and suppliers for their efforts at past reductions.
Debate over the draft rules on both sides of the political aisle will most certainly be heated during and after the 120 day comment period. The President has told the EPA to issue the final rule by June 2015 according the New York Times.
But it seems the Administration has prepared a proposal that may be politically, and legally, easier to defend. A great level of flexibility has been built into the new standards in that they allow each state to meet the requirements based on their individual needs rather than meeting a set national standard.
Though this ensures a more daunting reduction task for states which rely heavily on coal power, some thirty-seven states have already created Renewable Portfolio Standards aimed at reducing greenhouse gas emissions according to EIA.
In fact, ten states have already achieved over 30 percent reductions from their 2005 Electric Power CO2 emissions levels compared to their 2011 emissions as seen in the most recent EIA data released in February of 2014. Conversely, nine states whose emissions increased from 2005 have a far wider gap to close by 2030.
Additionally, an array of policy options are being offered in the rules to states in achieving cuts. Such options include the addition of renewable power to reduce total carbon output and the establishment of regional cap and trade style policies. Just as the “Ink” predicted.
Further, as described on page 332 of the EPA proposal, state by state goals can come in the form of emission rates reductions (rate based; CO2 per Megawatt hour) or by capping the sheer tonnage of CO2 emissions (mass based). This flexibility allows states to essentially use the calculation method that can best result in a 30 percent reduction.
Despite the comparably lenient new rules, conservatives and industry officials alike argue that they will result in dramatic energy cost increases passed on to consumers. Labor Unions are equally concerned at the rules. The President of the American Iron and Steel Institute stated to the Wall Street Journal that the proposed rules could damage electrical supply reliability for industrial consumers and have a negative cascading effect on workers and jobs.
Forbes Magazine reported that the U.S. Chamber of Commerce issued a warning that the rule could negatively impact gross domestic product by $50 billion annually. The Chamber also assumes a loss of over $550 billion a year in disposable household income.
The Administration denies such claims in stating the new standards will cost utilities $8.8 billion annually. They additionally claim in a summary version of the Clean Power Plan that “climate and health benefits worth $55 billion to $93 billion in 2030” will be generated. Reuters further reported that the President stated “Americans’ electricity bills would shrink, not rise, as the rules spur investment in new technologies.”
Regardless of the actual annual financial impact to both industry and consumer alike, it is apparent that the rules will test the nation’s industrial future as states and utilities grapple with how best to meet the new standards.