- One is that costly federal environmental air, water, and waste regulations are accelerating the retirement of older and smaller electrical power plants and clouding prospects that new coal-fired plants will be built.
- A second is that the currently diminishing price of natural gas and the expectation that natural gas supplies will continue to increase because of innovative production technologies are causing many utility companies to view natural gas as the preferred fuel in their future plans.
- Third, there were still nearly 1,400 coal-fired electricity units in the U.S. in 2011, generating 42 percent of the nation’s electricity. Even with the 174 retirements an industry consulting firm projects will occur by 2020, coal will remain a top energy source.
- A fourth factor, which is not yet a reality but which still casts the longest shadow over the future of coal, is the possibility of tough nationwide limits on the generation of CO2 from existing coal-fired plants. According to the Department of Energy’s Energy Information Administration (EIA), federal regulations that decrease CO2 emissions from the electricity sector by 46 percent and 76 percent would result in coal’s share of U.S. electricity generation falling to 16 percent and 4 percent, respectively, by 2035.
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Other Factors
There are multiple other factors playing key roles in the future of coal. For example, the once dominating role of eastern coal in the energy market has been weakened by the increasing production of low-sulfur western coal. Some utilities also operate in restructured markets where they may not be able to recover the cost of retrofitting older units with pollution control equipment or otherwise improving a unit’s efficiency. In addition, there are uncertainties about the actual demand for electricity. For example, there have been significant strides in improving the efficiency of both domestic and industrial equipment, which, if coupled with flat economic growth, would have a negative impact on the use of coal in energy generation. U.S. export of coal will also affect coal production, although that avenue will not nearly compensate for reduced production and use brought about by the other factors noted above.
These are among the main topics discussed in a recent report by the Government Accountability Office (GAO) on the varying prospects for coal in the nation’s energy profile. Few dispute that coal is in a major transitional phase, but the foundation of coal as the country’s main energy source is deep, and changes are occurring slowly even as the availability and desirability of natural gas grows. Nuclear and renewable energy have also intruded on coal’s dominance but not nearly as much as natural gas. In addition, at least 30 states now require that utilities rely increasingly on renewable sources of energy, and legislation to launch a national renewable energy standard is regularly introduced on Capitol Hill. These policies are also chipping away at the position of coal as an energy source.
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World’s Largest Reserves
Following are some of GAO’s main findings. A draft of the report was reviewed by both the EIA and EPA, neither of which objected to its substance.
- The United States has the largest recoverable coal reserves in the world. In 2011, about 86,200 workers around the country produced more than 1 billion tons of coal; more than 90 percent of this coal was used to generate electricity. Also in 2011, the nation’s 1,387 coal-fueled electricity generating units had 317,469 megawatts (MW) of capacity, about 30 percent of the total generating capacity in the United States. After decades of growth–peaking in 2008 –U.S. coal production has fallen, primarily due to declines in the use of coal to generate electricity.
- There are varying opinions on which of two factors–environmental regulation or the ascendency of natural gas and its decreasing cost–is most affecting the decline of coal as an energy source. The coal mining industry prefers to blame it on environmental regulations, starting with EPA’s efforts under President Obama to slow the issuance of permits to conduct mountaintop mining, a process that has greatly simplified and accelerated access to coal seams in Appalachia.
- But the larger focus is on air regulations directly affecting fossil-fuel power plants. There is little argument that coal-fired power plants without air pollution controls–the case with most plants in the U.S.–are sources of spectacular amounts of pollution. For example, annually a typical uncontrolled plant emits 14,000 tons of SO2 (about half that with controls); 10,000 tons of NOx (3,300 with controls); 500 tons of particulate matter (reduced by 99 percent with baghouses); 170 tons of mercury (a 90 percent reduction can be achieved with a combination of technologies); and 3.5 million tons of CO2. Hundreds of tons of other hazardous air pollutants are also released each year.
- Since 2010, the EPA has addressed these emissions aggressively through regulation and plans to continue to do so. In terms of EPA’s estimated benefits and costs, one of the most significant rules is the Agency’s Mercury and Air Toxics Standard (MATS), which establishes emissions limitations on mercury and other toxic pollutants. Also, the Agency’s Cross-State Air Pollution Rule (CSAPR) would have a profound effect on utilities that contribute to air pollution problems in other states; this action has been stayed by the court, but the EPA is seeking to reinstate it. Major nonair actions that would directly affect coal-burning power plants include the proposed rule to regulate cooling water intake structures at existing power plants and a proposal to federally regulate the disposal of coal combustion residuals such as coal ash in landfills or surface impoundments. Also, on April 13, 2012, the EPA proposed New Source Performance Standards for GHG emissions from certain new fossil-fuel electricity generating units, including coal-fueled units. These standards would not apply to existing units.
Collectively, these regulations constitute what industry and its advocates in government refer to as the administration’s “war on coal.” But the EPA argues that coal use in power plants would be declining even without these major actions because of the major inroads achieved by natural gas. The EIA seems to agree. In July 2012, the EIA predicted that 27 gigawatts of coal-fired capacity would be retired over the next 5 years, and one of the top reasons was natural gas. “Relative prices of natural gas and coal as sources of energy have moved in favor of natural gas with the boom in shale gas production,” stated the EIA. “The variable costs of operating natural gas-fired capacity have fallen relative to those of coal-fired plants.” The EIA also noted the impact of environmental compliance costs, but mainly on older, smaller units that are not heavily used. The rise in state renewable energy portfolio standards was also cited.
See tomorrow’s Advisor to find out what the GAO report says about impact of natural gas on coal’s future as an energy resource.