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EPA’s Clean Power Plan Tougher Than Expected

EPA’s Clean Power Plan Tougher Than Expected

The Obama administration unveiled a much-anticipated, controversial rule on the regulation of greenhouse gases from power plants on August 3.

The first-of-their-kind limits on carbon pollution from existing power plants will actually require slightly tougher cuts than the original proposal. The EPA is calling for a 32 percent reduction in greenhouse gas emissions from power plants below 2005 levels by 2030. That is up from the 30 percent target as part of last year’s proposal.

However, the EPA did throw the industry, and its opponents in Congress, a bone.

In the final rule, the Obama administration will allow for two extra years for utilities to hit their interim targets of achieving a 25 percent reduction in greenhouse gases, with a deadline of 2022 instead of 2020. The EPA also offered up a “reliability safety valve,” which would allow states more leniency with deadlines in the event that the reliability of the electric grid came into question.

Under the final rule, the administration also decided to give new nuclear power plants credit towards the federal emissions target, as nuclear generates electricity without carbon emissions. That probably won’t be an avenue that many states pursue outside of a handful of nuclear power plants under construction in Georgia, Tennessee, and South Carolina. Related: Top 6 Myths Driving Oil Prices Down

The EPA estimates that the so-called “Clean Power Plan” will cost $8.4 billion annually by 2030 when implemented, but yield public-health and other benefits of $34 to $54 billion, including avoiding thousands of premature deaths each year.

The plan will accelerate a trend towards cleaner sources of electricity. The plan expects renewable energy to more than double its share of the electricity market, jumping from 13 percent in 2014 to 28 percent by 2030.

Of course, the rising share for renewables will need to come from other sources, and coal – already reeling from depressed market conditions – is expected to get hammered from here on out. Coal’s market share will decline to 27 percent in 2030, a significant (although not fatal) fall from 38 percent in 2014. The EIA estimates that the plan could force 90 gigawatts of capacity to close down, more than double the baseline case of 40 gigawatts. The way things have been going for the coal industry as of late, that is probably still a conservative estimate. Related: Former Exxon President On Mission To Clean Up Oil Sands

That is why many states representing the coal industry are strongly opposed to any attempts to regulate carbon. Several states, led by Republicans that steadfastly oppose EPA regulation, may not even submit plans to meet the EPA targets as they are required to do. Republican Senate Majority Leader Mitch McConnell has called for a boycott of the regulation.

But while coal producers will find no silver lining in the rule, there is evidence that states that have opposed regulations may find the targets easier to comply with than they may have thought. As a result of a coal to gas switch that is already well underway, even coal states like Sen. McConnell’s Kentucky are finding greenhouse gas reductions relatively straightforward to achieve.

Falling costs of renewable energy will also make compliance easier, as renewables increasingly become the preferred option on economics alone. Renewables have consistently surprised estimates with the rapid pace of cost declines, and it wouldn’t be inconceivable that by 2030 renewables will be the dominant source of electricity in the United States. In fact, the IEA has already predicted that would be the case for the world as a whole over the next 15 years. Related: Why A Carbon Tax Would Be The Ultimate Energy Game-Changer

But it won’t be all smooth sailing for solar and wind. As an increasing volume of solar and wind come online, they will depress peak power prices. That is normally seen as a good thing as it shaves off price spikes. However, after a certain point, renewables start to cannibalize their own source of revenue, making further renewable penetration difficult. These obstacles can be resolved with better battery storage, allowing solar and wind power to be used when the sun isn’t shining and the wind isn’t blowing. Still, that is a barrier that must be overcome.

In any case, the trajectory is clear: coal will cede its market to renewables over the coming years and there is probably not much that can stop that from happening.

By Nick Cunningham of Oilprice.com

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