EPA’s historic GHG rules make natural gas the ‘gold standard’ for emissions

Source: Tiffany Stecker, E&E reporter • Posted: Thursday, March 29, 2012

After more than a year of anticipation and two missed deadlines, U.S. EPA released the nation’s first standards for greenhouse gas emissions for new power plants yesterday.

EPA has set a rate of 1,000 pounds of carbon dioxide equivalent per megawatt-hour — roughly the level at which combined cycle natural gas plants expel carbon, but one that would ask the average coal plant today to lose about 800 pounds per megawatt-hour to fit into the New Source Performance Standards (NSPS).

The proposed standards, which now face a 60-day comment period before becoming final, are a logical reflection of today’s markets and the future of electricity generation, explained EPA Administrator Lisa Jackson as she announced the standards yesterday.

The action is consistent with a move to cleaner-burning natural gas, “already the technology of choice,” said Jackson. The standards are the outcome of a court settlement reached between the agency and various environmental groups and states in 2010, which also mandates greenhouse gas standards from oil refineries.

The proposed standards are based on the performance of natural gas-burning combined cycle units, “likely to be the predominant fossil fuel-fired technology for new generation in the future,” as stated in the rule. The standards will only apply to new plants, not existing ones, which currently emit about 2.3 billion metric tons of CO2 per year.

“The option of building new, efficient natural gas plants remains a viable alternative for companies that want to construct,” said Jason Schwartz, legal director for the Institute for Policy Integrity at New York University. “They’re allowed to look into the future and use their best judgment and set standards in anticipation of the growth of technology.”

Spot prices for natural gas are near 10-year lows, according to the U.S. Energy Information Administration. The price of natural gas would have to rise dramatically, added Jackson, for the drive toward natural gas to lose traction.

On average, coal supplies about 40 percent of electricity needs in the United States, but EIA recently announced that the percentage of coal-based electricity in the country dropped below the 40 percent mark last December and January for the first time since 1978.

Natural gas is ‘first step to low carbon’

The standard reflects regulations that have been in place in states like California, Oregon, Washington and New Mexico for several years that require a threshold of 1,100 pounds of carbon per megawatt-hour. It gives natural gas the distinction of the gold standard, said Rick Smead, a director in the energy practice for Navigant, an international consulting firm, and justifies its role as a “transition fuel” to low-carbon energy sources.

“The affirmation of the role natural gas plays as a natural partner for renewable energy is very positive,” he said.

Smead agrees with Jackson that long-term, stable-price gas would still beat coal with carbon capture.

“Every expectation of where gas prices are going to go says this will be the first step toward low carbon,” he said. Since 2006, about 95 percent of new capacity in the country has been natural gas and wind, he said.

But the future of coal is not over, said Smead. High-value metallurgical coal, used for steel making, is going to China, and energy-dense bituminous coal is being exported to India for heat and power.

“We’re still seeing a strong demand for metallurgical coal around the world,” said Luke Popovich, spokesman for the National Mining Association. Nevertheless, the amount is not enough to maintain industry.

“We’re not at all pleased to see U.S. demand decline, even in the short term,” Popovich said, alluding to the recent unusually warm winter.

Electric utility American Electric Power Co. Inc. will close 4,600 megawatts of power this year, due to recently finalized EPA regulations for air pollution like nitrogen oxides, sulfur oxides, mercury and particulate matter. While it is true that demand is lower and natural gas generation is less expensive today, the needs for electricity fluctuate. During last year’s July heat wave, every unit scheduled for retirement was running to meet the increased demand, along with natural gas and wind in the market, said Pat Hemlepp, director of corporate media relations for AEP.

While a 1,000-pound standard makes sense given the current given market conditions, Paul Bledsoe, a senior adviser with the Bipartisan Policy Center, is hesitant to assume that it will continue.

“With natural gas prices so low, [1,000 pounds per megawatt-hour] is the preferred baseline, but in the long run, market conditions could change,” Bledsoe said. “We have to acknowledge that.”

Another significant factor, said Bledsoe, is the drop in demand for electricity — a nearly 10 percent decline per capita from now to 2035, according to EIA.

“There’s going to be very few new plants of any type, part of it [because of] a relatively slow economy, but also because of improved efficiency,” Bledsoe said.

CCS: a still-distant promise

The 1,000-pound standard is an average over 30 years. In the first 10 years, fossil-fuel-burning plants would be allowed to release 1,800 pounds of carbon dioxide. In the 11th year, the limit would be lowered to 600 pounds of carbon dioxide. Over 30 years, this would lead to an average of 1,000 pounds per year.

To lose that excess in year 11, coal would need to invest in carbon capture and sequestration (CCS), a relatively nascent technology that captures CO2 and places it underground. Carbon capture can also be used to collect gas to facilitate enhanced oil recovery, which pushes up stubborn oil deposits from older reservoirs.

“Pipelines in North America today are carrying massive volumes of carbon dioxide thousands of miles for enhanced oil recovery and other industrial purposes,” said Conrad Schneider, advocacy director for the Clean Air Task Force. Carbon capture will be imperative to achieve an 80 percent reduction in greenhouse gas emissions by 2050, said Susan Tierney, managing principal of Analysis Group — a goal espoused by President Obama in the early months of his presidency.

But many still have doubts about the maturity and viability of carbon capture. At an event last December, John Quinn, director of environmental affairs at Constellation Energy, said he did not trust there would be reductions in greenhouse gases because of carbon capture technology in the near term.

“I kind of see a holding pattern on greenhouse gases and NSPS,” he said. “We just have to get a national policy that makes sense and not a technology that’s unit-to-unit specific.”

Thomas Kuhn, president of the Edison Electric Institute, also thinks the technology is not ripe.

“We want to work with the administration and Congress to accelerate the development and deployment of carbon capture and storage (CCS) technologies,” he said in a statement. “However, we are deeply concerned that requiring CCS on new coal plants before it is commercially viable could actually harm its development while, at the same time, deprive us of an important source of new generation.”