Coal, Generation, Renewable Energy

From the Clean Power Plan to ACE: Why not much has changed

Has the environment for electricity generation changed dramatically since the Obama administration’s Clean Power Plan began its slow exit from public and regulatory consciousness several months ago? Not really!

In the CPP’s place, the EPA has introduced the Affordable Clean Energy (ACE) rule. ACE was in part designed to address the concern among some states that the EPA was overreaching its legal jurisdictions by trying to enforce the CPP. ACE has not been fully approved and implemented yet (then again neither was the CPP once it was stayed by the United States Supreme Court). Though the ACE proposals are public domain, guidelines have not yet been finalized and the path to full implementation may be as long and riddled with delays as the one the CPP endured.

That said, the ACE is unlikely to create much of a ripple in the long term for what fuels are used for power generation. Why? For two main reasons:

  1. Much of the country is already far along with plans to reduce carbon emissions; and
  2. In de-regulated power markets, coal plant closures are mostly a function of economics, not the CPP.

Even with the CPP’s expected demise, many states are already on pace to achieve many of the CPP’s emission reduction targets. Chief among them was a reduction of carbon emissions by 30% percent from 2005 levels by the year 2030. The ACE rule, by contrast, is much less prescriptive in its plans for cleaner air. The EPA estimates ACE will cut carbon emissions by at most 1 ½% percent to decade-ago levels by the year 2030.

Methods of achieving cleaner air are also quite disparate between both plans. The CPP gave states three options to reduce the carbon footprint throughout the country:

  1. Improve the efficiency of thermal plants;
  2. Reduce emissions at thermal plants; or
  3. Increase the generation of renewable energy.

The ACE rule focuses much more exclusively on option #1 (in which many describe as the Trump administration’s plan to save the coal industry), emphasizing improved heat rates for coal plants. ACE also does not set any tangible standards or targets for cleaner energy for the country. 

States’ reactions to the ACE rule have also run the gamut. California has been marching to the beat of its own drum in reducing carbon emissions with the goal of going 100% percent renewable by the year 2045 and ACE is not likely to sway them from their path. The Northeastern United States already has a carbon emissions trading program in place where gas and coal plants are actually paying for emissions allowances to reduce the climate change impact of thermal power plants. Additionally, states like Rhode Island and Massachusetts already have large solar programs up and running while New York State has heartily embraced renewable energy.

Related: Western States Proceed with Climate Legislation Regardless of Trump’s “ACE” Rule

Conversely, ACE is likely music to the ears of those states that still generate the largest share of their electricity using coal and were most resistant to the CPP like West Virginia and Kentucky. Repeal of the CPP and a watered down ACE are still a win for coal intensive regulated states.  

This brings us to the second reason why we feel ACE will not have much of an impact on the country’s generation mix. The reason coal plants are shutting down is not due to potential implementation of the CPP. It’s purely a function of economics in competitive power markets. Coal plants that are not owned by regulated utilities and can recover operating costs simply cannot compete with low cost gas plants. Even nuclear plants, which have no emissions, are getting shut down in favor of lower cost gas plants in de-regulated power markets. The ACE plan may help delay retirement of some marginally economic coal plants. But it is not likely to stem plant closures to any great degree.

This is not to say coal generation will no longer be a significant source of U.S. energy generation. It will simply provide relatively less energy as a proportion of total electricity generation going forward. Whereas coal represented over 50% percent of total power generation as little as 10 years ago, that percentage has dwindled to roughly 30% percent. The Energy Information Agency estimates that coal generation will continue to encompass roughly 20-25% percent of energy generation through the first half of this century.

Conclusion

While coal plants are not going away anytime soon, fuel diversity is important at the end of the day and overreliance on any one type of power generation would prove to be problematic over time. Nonetheless, existing emissions regulations, relative economics, and state programs to increase renewable energy capacity  have set in motion changes in how we generate energy throughout the United States that the ACE is not likely to reverse. Meanwhile, the ACE rule may help allow coal generation to remain a part of that equation for the next few decades.