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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Is The War On Coal Really Over?

Coal

“The war against coal is over.” That was the claim from EPA chief Scott Pruitt ahead of his announcement that he would rewrite a signature climate change program from the Obama era.

On Tuesday, Pruitt’s EPA proposed to withdraw the Clean Power Plan (CPP), a controversial step that seeks to roll back the clock on arguably the most important environmental achievement of President Obama. In fact, some argue that the CPP ranks up there along with the healthcare overhaul as one of Obama’s top domestic policy victories.

The Clean Power Plan puts limits on greenhouse gas emissions from power plants with the goal of lowering emissions by 32 percent below 2005 levels by 2030.

Here’s how it was supposed to work. The EPA would require states to lower greenhouse gas emissions from their power plants, but the agency would simply set a cap and let states figure out how to bring emissions down below that level. Certain coal plants could survive under the rule if its owner built renewable energy, for example, or if emission reductions were achieved elsewhere in the power plant fleet.

Under Scott Pruitt, the EPA now argues that the Obama administration overstepped its legal authority, and doesn’t have the power to regulate “outside the fence line” in this way. The EPA can only regulate individual sources of pollution—requiring coal plants to use more efficient equipment, for example. In other words, Pruitt is arguing the EPA can’t set fleetwide emissions caps. The theoretical result, if Pruitt is successful, is that coal-fired power plants might have to use more efficient technology, but may not have to limit their carbon pollution. Related: India’s Urban Explosion Boosts Oil Demand

Pruitt’s argument is complex and not entirely immune to legal challenges. Environmental groups and the New York attorney general, among others, have already promised lawsuits.

The problem for Pruitt and the current EPA is that he can’t simply scrap the rule. The EPA not only has the authority to regulate greenhouse gas emissions, but it is legally obligated to do so under a Supreme Court ruling dating back to 2007. That means that the EPA can’t simply throw the regulations in the trash and then do nothing—the agency has to come up with a different way to try to attack carbon pollution.

On one hand, some argue that trying to derail the CPP may not amount to much because the U.S. is on track to cut CO2 emissions with or without EPA regulation, the result of cheap natural gas and increasingly cheap renewable energy. Since 2005, U.S. emissions are down by roughly 25 percent—the direct result of fuel switch from coal to gas.

Coal used to account for more than half of the nation’s electricity generation, and that share is down to about a third. Because the CPP never even went into effect—the Supreme Court put it on hold last year. The energy transition has had much more to do with cheaper gas and cheaper renewable energy.

The CPP actually laid out rather lenient cuts to emissions, targets that many analysts see as achievable even without carbon regulations. Scrapping the CPP won’t derail the transition to cleaner energy that is already underway.

Indeed, the Wall Street Journal reports that major utilities are likely to continue investments in renewables and natural gas whether or not the EPA succeeds in repealing the climate regulations. American Electric Power Co., NRG Energy and Southern Co. all said that the repeal of the CPP would only have a “marginal effect” on their long-term investment plans, according to the WSJ.

American Electric Power is a perfect example of the shift underway. The company once used coal for 70 percent of its electricity generation, but that share is now less than half. AEP has stepped up billion-dollar investments into major renewable energy projects, a strategy that will continue with or without the repeal of the CPP. “That course will not change,” AEP’s CEO Nick Akins told the WSJ. “Clearly our shareholders and customers expect a clean-energy economy.”

More to the point, why would a utility invest a lot of money into a coal plant that is supposed to run for decades, with a payback period that lasts decades, when there is a decent chance that it will run afoul of future climate regulations? Even if the Trump administration succeeds in staving off carbon limits for the next few years, some future administration might not be as coal-friendly.

As a result, any practical utility executive is going to stay far away from new investments in coal.

In other words, coal isn’t coming back, even if the EPA has its way and scraps the CPP.

Related: This Key Data Points At Strong U.S. Oil Demand

But, that isn’t to say that Pruitt’s actions are meaningless. The pending repeal of the CPP offers "a glimmer of hope" for the coal industry, said William Nelson, a power analyst with Bloomberg New Energy Finance. Nelson pointed out that the CPP didn’t really spell the end of coal, but put a hard ceiling on its upside, preventing a switch back to more coal "in the event of an unforeseen, prolonged gas-price spike.” So while taking away the CPP may not bring the coal industry roaring back, "the cap on that upside is now washed away." Scrapping the CPP could prevent the closure of some old coal plants, at least for a period of time, facilities that could be called upon to run at higher levels without carbon constraints.

More importantly, the CPP was the legal framework that would lead to a steady tightening of emissions limits over time. In that context, a repeal or watering down of the CPP is much more significant. The CPP is the mechanism through which much more stringent carbon limits would be implemented.

Bottom line: Scott Pruitt won’t bring back coal, but he might preserve the status quo.

By Nick Cunningham of Oilprice.com

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