The consensus is that the new rules proposed Monday by the Environmental Protection Agency (EPA) will limit coal-fired power generation in coming decades, providing a boost to power sector use of natural gas -- but how much more gas will be used is less clear.
EPA's 645-page Clean Power Plan Proposed Rule would cut carbon emissions from the power generation sector 30% below 2005 levels by 2030, resulting in coal and gas each supplying nearly one-third of the sector's fuel, but the flexibility of the proposal, which allows each state the ability to map out its own path toward reduced emissions, makes it impossible to precisely predict how much coal, gas, nuclear or other fuel source will be in use (see Daily GPI, June 2).
EPA estimated that natural gas demand in the power sector could increase by 3.3 Bcf/d by 2025, but that would depend on decisions made in each state; alternately, states could choose to bring more nuclear or renewable generation to their mix, or to focus their efforts on energy efficiency, EPA said.
The proposed guidelines build on trends already underway in states and the power sector to cut carbon pollution from existing power plants, and would be implemented "through a state-federal partnership under which states identify a path forward using either current or new electricity production and pollution control policies to meet the goals of the proposed program," EPA said. "The proposal provides guidelines for states to develop plans to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design a program that makes the most sense for their unique situation.
“States can choose the right mix of generation using diverse fuels, energy efficiency and demand-side management to meet the goals and their own needs. It allows them to work alone to develop individual plans or to work together with other states to develop multi-state plans."
Those state-by-state targets are "likely to be heavily litigated," according to analysts at Tudor, Pickering, Holt & Co. "First deadline is for states to submit action plans mid-2016; we'd expect that to slip," the analysts said in a note to clients Tuesday.
Emissions have already been on the decline for several years in most of the country, according to the Energy Information Administration (EIA).
"Between 2005 and 2011, all four Census regions -- West, South, Midwest and Northeast -- experienced emissions declines, with the Northeast experiencing larger emissions reductions than the other regions, EIA said. "Underlying state-level emissions changes spanned an even wider range, from a 20% emissions increase in Nebraska (Midwest) to a 33% decrease in Nevada (West). Regional and subregional spreads reflect differences in local energy economics, population distribution, and other factors."
Analysts at Barclays Capital Inc. estimate that 36 GW of coal-fired power plants would be shuttered as a result of implementation of the Clean Power Plan, in addition to 48 GW of power plants to be shut due to EPA's mercury and air toxics standards (MATS) rule in 2015. Prior to the release of EPA's proposal, EIA projected 60 GW of coal-fired plant retirements by 2020 (see Daily GPI, March 20).
"If the rules in the Clean Power Plan become implemented before the end of the decade, then there are marginal upside risks for our natural gas power demand estimates for the second half of the decade," Barclays said. "However, we believe any implementation of the rule will likely not materialize until 2020, at the earliest. The proposed rule will have to go through a prolonged finalization and implementation process...
"Our analysis for longer-term natural gas demand for 2014-20 has assumed an environment that natural gas power demand will be affected by only the Mercury and Air Toxics Rule. According to the base case scenario from our North American Utilities Equities Research Team, the rule will shutter about 48 GW post-2013. This implies about an incremental of 2 Bcf/d of natural gas power demand growth in 2015-17 above the 2013 levels. This data point considers an incremental growth in wind generation, which will take power demand away from both gas and coal."
But the real effect on natural gas demand in the long term remains "highly uncertain" and has several variables, according to Barclays, including the possibility of wind generation taking a larger part of the post-MATS market.
Moody's Investors Service believes litigation will delay implementation of EPA's proposal, but coal-fired generation is headed into stormy waters in any case. The future looks brighter for natural gas, it said.
"Natural gas related market forces will play a more impactful role than regulation in reducing greenhouse gases, in our view," Moody's said. "We think persistently low natural gas prices have contributed heavily to emissions reductions to date. Low natural gas prices have pushed down power prices and cut into unregulated power company profits. Combined, we think low natural gas prices and increasingly stringent environmental mandates will contribute to the retirement of approximately 60,000 MW of coal-fired generating capacity between 2010 and 2017."
Coal-heavy states have been sharp in their criticism of EPA's proposal.
"President Obama has finally kept one of his promises," said Texas Railroad Commissioner David Porter. "During his 2008 presidential campaign, Obama said electricity prices would 'necessarily skyrocket,' and his latest policy direction to the EPA will make good on that promise. These new carbon emission regulations are yet another example of his administration's war on fossil fuels and will undoubtedly cause Texas electricity rates to 'skyrocket.'"
Senate Republican Leader Mitch McConnell (R-KY) on Tuesday said he would introduce legislation "that would push back against the President's extreme anti-coal scheme." The Coal Country Protection Act will require the administration to certify that implementation of the Clean Power Plan would not generate loss of employment, result in any loss in American gross domestic product, increase electricity rates or have a negative impact on electricity reliability.
EPA's plan, McConnell said, "is not going to do a thing to meaningfully control global carbon emissions. This is really about growing government. It's really about making left-wing elitists feel better about themselves. And it's really about helping political supporters in places like California and New York while inflicting serious pain on people in places like Kentucky."
EPA will accept comment on the proposal for 120 days after publication in the Federal Register and will hold public hearings on the proposed Clean Power Plan during the week of July 28 in Denver, Atlanta, Pittsburgh and Washington, DC. EPA expects to finalize the standards next June.