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Natural Gas Takes Back Seat to Renewables Under Final Clean Power Plan

The Obama administration unveiled the final version of its Clean Power Plan (CPP) on Monday, establishing for the first time federal limits on carbon emissions for the nation's power plants, but apparently through the embrace of renewables, solar and wind power, rather than natural gas.

"I am convinced that no challenge poses a greater threat to our future, and future generations, than a changing climate," President Obama said at a White House press conference Monday. He added that the CPP was "the single most important step America has ever taken in the fight against global climate change."

The plan calls for the states to reduce emissions by 32% below 2005 levels by 2030.

Coal, of course, took the greatest beating. In a related development on the same day the revised plan was issued by the Environmental Protection Agency (EPA), one of the world's largest coal producers -- Alpha Natural Resources Inc., which operates in the Appalachian and Powder River basins -- announced it was voluntarily filing for bankruptcy protection.

Supporters of natural gas power also were not happy.

Numerous promised lawsuits from states and organizations were expected to start raining down in attempts to delay or vacate the landmark rule, and U.S. Sen. Lisa Murkowski (R-AK) claimed Alaska would be exempt from the CPP.

The president made only one passing reference to natural gas, but mentioned renewables, solar and wind power several times. He said he would discuss energy issues during a visit to Nevada at the end of the month. He also said he plans to visit the Alaskan Arctic, becoming the first sitting president to do so.

Under the CPP, which is authorized under Section 111(d) of the federal Clean Air Act, the EPA would establish the federal limits for carbon emissions from power plants. It establishes a partnership between the EPA, states, tribes and U.S. territories -- with the EPA setting emissions goals and the states and tribes deciding how to meet them.

"Right now our power plants are the source of about a third of America's carbon pollution," Obama said. "That's more pollution than our cars, our airplanes and homes generate combined... but there have never have been federal limits on the amount of carbon that power plants can dump into the air...existing power plants can still dump unlimited amounts of harmful carbon pollution into the air.

"For the sake of our kids, and the health and safety of all Americans, that has to change. For the sake of the planet, that has to change."

The CPP has evolved over the last two years. In 2013, Obama announced a sweeping climate change initiative that analysts at the time predicted would lead to the incremental retirement of about 70 GW of coal-fired capacity by 2020 (see Daily GPIJune 27, 2013). One year later, the EPA issued proposed rules that would cut carbon emissions from the power generation sector by 30% below 2005 levels by 2030 (see Daily GPIJune 2, 2014). The latest version raised the ante to 32%.

The details

Under the CPP, states will be required to submit a final plan to reduce their emissions by September 2016, but may request a two-year extension. The compliance averaging period was revised and will begin in 2022, instead of 2020, and emission reductions are to be phased in through a so-called "glide path" toward 2030. The states must develop and implement plans that ensure power plants in their state -- either as single plants or as a collective group -- achieve goals for reducing carbon dioxide (CO2) emissions between 2022 and 2029, and final CO2 emission performance rates by 2030.

The CPP gives states the option of choosing between two types of plans to reduce emissions. An emissions standards plan would include source-specific requirements designed to ensure all applicable power plants within a state meet their required goals. Meanwhile, a state measures plan would include a mix of strategies, including renewable energy standards and residential efficiency programs, both of which are not federally enforceable parts of the plan.

States will also have the option of trading emission rate credits with other states.

"Over the next few years each state will have the chance to put together its own plan for reducing emissions," Obama said. "Every state has a different energy mix. Some generate more of their power from renewables, some from natural gas or nuclear or coal. This plan reflects the fact that not everybody is starting in the same place. So we're giving states the time and the flexibility they need to cut pollution in a way that works for them, and we'll reward the states that take action sooner instead of later, because time is not on our side here."

Obama gave a nod to the power generation sector, pointing out that several power companies have already started the process of modernizing their plants -- some of which have opted for natural gas-fired units instead of coal-fired units. The White House said all 50 states have demand-side energy efficiency programs, while 37 states have renewable portfolio standards or goals, 10 states have market-based programs to reduce carbon pollution, and 25 states have energy efficiency targets.

A statement by the EPA on Monday explaining the CPP made only one reference to natural gas. The agency said it would establish interim and final CO2 emission performance rates for two subcategories of fossil fuel-fired electric generation units (EGUs): those fired by coal and oil, and those combined cycle generating units fired by natural gas. EPA Administrator Gina McCarthy did not mention natural gas in a blog post on Monday. The effect was expected to hold the natural gas share of power production at current levels.

"There will be critics of what we're trying to do," Obama said. "There will be cynics that say it cannot be done. Long before the details of this CPP were even decided, the special interests and their allies in Congress were already mobilizing to oppose it with everything they've got.

"They'll claim we need to slash our investments in clean energy [and say] it's a waste of money, even though they're happy to spend billions of dollars a year in subsidizing oil companies. They'll claim this plan is a 'war on coal' to scare up votes, even if they ignore my plan to actually invest in revitalizing coal country and supporting health care and retirement for coal miners and their families, and retraining those workers for better paying and healthier jobs."

Industry reaction

"While we will need to review the final CPP rule in its entirety when it is released, initial reports indicate that the White House is ignoring market realities and discounting the ability of natural gas to achieve the objective of emissions reductions more quickly and reliably while powering growth and helping consumers," said Marty Durbin, CEO of America's Natural Gas Alliance (ANGA).

"We are confident about the role that natural gas can and will play in America’s clean power future. With the reported shift in the plan, we believe the White House is perpetuating the false choice between renewables and natural gas. We don't have to slow the trend toward gas in order to effectively and economically use renewables.

"States' ability to incorporate more wind and solar energy into their power mix is dependent on natural gas combined cycle turbines that will quickly and cost-effectively pick up the slack when the sun doesn't shine or the wind doesn't blow."

States and some utilities that already have committed to replacing coal-fired plants with natural gas to comply with environmental standards had yet to weigh in.

Frank Maisano, senior principal with the law firm Bracewell & Giuliani LLP, said that according to colleague Scott Segal, "the assumptions behind the actual required reductions in the final rule have gotten worse, not better.

"They have made a proposed plan which strains the power system even more restrictively, calling for reliable and cost effective energy sources to be replaced by intermittent, costly sources largely incapable of meeting base load power needs in the U.S.," Segal said.

"While the additional time to prepare plans and begin compliance [is] welcome -- and a tacit acknowledgment of how unreasonable the original timelines were -- the resulting federal mandate is dangerous. It still presents significant intrusions into state affairs, endangering consumers, manufacturers, hospitals, schools, and the very reliability of the system." 

Other industry reaction was mixed. "Although we saw no need to delay the start of compliance by two years...we are pleased with the increased commitment to renewable energy and energy efficiency in the final rule," said Malcolm Woolf, senior vice president for policy and government affairs at Advanced Energy Economy (AEE), a national business association.

"That said, we are disappointed that there is no credit for action taken between now and 2020, and that not all energy efficiency is eligible for credit between 2020 and 2022. These are missed opportunities in the short run. But in the long run, the final CPP will drive improvement in the electric power system."

Woolf added that "high efficiency natural gas and wind are currently the cheapest forms of electricity generation, the cost of solar is plummeting, and energy efficiency is almost always the lowest cost way to meet new electricity needs. With these and other advanced energy options that also reduce emissions, there is every reason to believe that states can achieve compliance at low cost."

Power generators voice support

Ben Fowke, CEO of Xcel Energy, the nation’s top provider of wind energy, also touched on the credit issue.

“While we expect the CPP does not provide everything we hoped for in terms of fully recognizing the early actions of proactive states and utilities, Xcel Energy is ready to move ahead,” Fowke said Monday. “We look forward to working with our states in the best interest of our customers, ensuring we continue to meet their expectations for clean, reliable and affordable power.”

National Grid plc, which supplies electricity and natural gas to nearly seven million customers in the Northeast, also supported the administration’s efforts.

“We support EPA's CPP in the absence of federal legislation,” said National Grid US President Dean Seavers. “National Grid will be actively collaborating with the states and other stakeholders as they develop their implementation plans to ensure the reduction of greenhouse gas emissions from the energy sector and advance America’s efficient and clean energy future.”

Alaska exempt, but hearings possible

Lawmakers on Capitol Hill had varied reactions to the CPP. U.S. Sen. Ron Wyden (D-OR), who also serves on the Senate Energy and Natural Resources Committee, said Monday, "I've said it before: Inaction on climate change is not an option.

"It's long past time to move the United States toward a renewable, low-carbon economy, which is why I applaud the action the administration has taken today. But the most comprehensive plan will have to come from Congress, which can offer broader, market-based solutions to address climate change on the global scale that this problem requires."

Murkowski, who chairs the aforementioned committee, said separately Monday that she had spoken to McCarthy earlier in the day, and was assured that Alaska would be exempt from the CPP. Nevertheless, Murkowski hinted her powerful committee could hold hearings on the rule.

"This is by far the best possible outcome for our state and therefore a significant victory," Murkowski said. "I appreciate the EPA's recognition of the facts -- that Alaska has unique needs, limited options for cost-effective compliance, and is not interconnected. We simply should not be bound by this sweeping regulation."

But Murkowski added that she continues "to have very strong concerns about the national impacts of this rule. In the days ahead, I will be reviewing it closely to determine its impacts on electricity prices, the reliability of our electric grid, and many other related factors. While it is a positive for Alaska to be exempt, I am mindful of the fact that nearly every other state will be forced to comply, and of the burdens that will impose across the country."

Alpha files for Chapter 11

In a statement Monday, Alpha said it and some subsidiaries had voluntarily filed petitions with the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond, with the intent to reorganize under the provisions of Chapter 11.

"While a difficult decision, this voluntary Chapter 11 filing is the right strategy at the right time for the future of our business," CEO Kevin Crutchfield said. "It will enable us to build on the significant steps we have taken over the past several years to restructure our debt and protect our operations."

Crutchfield said that while the U.S. coal industry was under enormous stress -- citing, among other things, increased competition from natural gas and increasing government regulation -- he emphasized, according to a paraphrase from Alpha, that "neither Alpha nor the U.S. coal industry should be thought of in the past tense -- while the sector will likely get smaller, coal will continue to play a critical role in providing affordable and reliable electricity and in the production of steel for infrastructure."

Alpha, which is based in Bristol, VA, operates more than 50 underground and surface mines and more than 20 coal preparation plants throughout the central and northern parts of the Appalachian Basin and the Powder River Basin. It has operations in five states -- Kentucky, Pennsylvania, Virginia, West Virginia and Wyoming.

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