President Barack Obama’s plan to reduce greenhouse-gas emissions left coal with a future even as the industry accuses him of trying to make the fuel obsolete.
The proposal, released yesterday by the Environmental Protection Agency, calls for reductions in carbon dioxide pollutants of 30 percent by 2030 from 2005 levels to stem climate change. Coal still will be used to generate 30 percent of U.S. electricity by 2030 compared with 39 percent in 2013, according to the EPA.
While it stifles increases in demand, the blow isn’t fatal as has been portrayed by industry advocates, including Senator Mitch McConnell, the U.S. Senate minority leader from Kentucky, who has equated Obama’s rules with a “war on coal.” Utilities are seen by analysts as boosting consumption of the fuel at their most efficient plants to ensure power-grid reliability.
“If anything, it’s a little bit better than expected,” Jeremy Sussman, an analyst at Clarkson Capital Markets in New York, said yesterday by phone. “There’s no change to coal burn for at least the next six or seven years and that’s not talking about legislation or any litigation that will come from this.”
Even before yesterday’s proposal, utilities were planning to shut enough coal-fired generation in the next six years to supply a city five times the size of New York to comply with existing environmental laws.
The U.S. had 1,308 coal power plants at the end of 2012. To ensure a reliable supply, utilities will have to increase the output of the coal-fed units that survive the shakeout, analysts say.
Under the new rules, the U.S. will still burn between 616 million and 636 million tons of coal for power in 2020, compared with 844 million if the curbs don’t go through, according to an analysis accompanying the EPA proposal. That’s a reduction of 25 to 27 percent.
Coal’s share of the country’s power generation will fall to about 33 percent in 2020 and 30 to 31 percent in 2030 under the proposed curbs, compared with an increase to 41 percent under existing rules, the EPA’s figures show.
Most coal boilers -- from 176 to 179 gigawatts of existing capacity -- will improve efficiency to make more power with less fuel, the EPA said. Coal plants had the capacity to generate 336.3 gigawatts in 2012, according to the report.
Declining demand will drive down coal prices, the EPA said. The power sector will pay $2.18 to $2.19 per million British thermal units in 2020, about 16 percent less than if the rules don’t take effect, the EPA’s model predicts. In 2030, prices will recover to $2.44, still less than the $2.98 without the proposed rules, according to the report. Natural gas for January 2020 delivery closed at $5.121 per million Btu yesterday on the New York Mercantile Exchange. The front-month contract settled today at $4.629 per million Btu.
Coal fell 88 cents, or 1.5 percent, to $60 a ton yesterday on the Nymex. Futures have increased 4.5 percent so far this year.
The fuel was used to generate 1,585,998 gigawatt-hours of electricity in 2013, according to the Energy Information Administration, the Energy Department’s statistical arm.
The EPA’s analysis shows that under the more stringent of two options, coal would be used to generate 1,216,000 GWh in 2030, or 30 percent of U.S. power production. Coal-fired generation would drop by about 370,000 GWh or 23 percent.
The average age of a U.S. coal plant is 42 years, while 11 percent of the units have been operating for more than 60 years and are nearing retirement, according to the EPA. The agency has given states two years to submit plans on how they will meet the target reductions in emissions.
“Rumors of coal’s demise are greatly exaggerated,” Sherry Orton, senior analyst at Doyle Trading Consultants, a Grand Junction, Colorado-based research firm, said yesterday in a telephone interview. “Overall carbon dioxide emissions are down because plants have closed, but for those that remain, those are probably going to run more and emit more.”
If an average coal plant is currently operating at about 50 percent of capacity, once the older plants retire, the remaining units may increase capacity to about 55 percent, Brandon Blossman, an analyst at Houston-based Tudor Pickering Holt & Co., said yesterday by phone.
“You’ll run the balance of the fleet harder,” he said.
Power-plant consumption of coal was at or near 1 billion tons, annually, from 1996 through 2011, EIA data show. About 901 million tons will be fed to generators this year, falling to 871 million in 2015, it forecasts.
Murray Energy Corp. in a March lawsuit against the EPA, accused the Obama administration of waging a “war on coal.”
On the heels of the recession, EPA “is introducing sweeping coal plant regulations that will drive up the cost of power,” Peabody Energy Corp. (BTU:US), the largest U.S. coal producer, said on its website.
The National Mining Association, whose members include Peabody, said the proposal could increase power prices and threaten energy grid reliability.
“These regulations, if finalized, would be a loss for American consumers, manufacturers and businesses nationwide, but especially for those in states that rely on low cost electricity from coal,” the Washington-based trade group said.
The rule threatens to increase electricity bills, result in job losses and possible blackouts, the American Coalition for Clean Coal Electricity said in a statement yesterday.
Still, the measures aren’t as devastating as a blow as they could have been to the coal industry, said Jim Thompson, a Knoxville, Tennessee-based director of Americas coal at IHS Inc., an analytics company in Englewood, Colorado.
“I can’t say that they’re pleased,” he said. “The most difficult stuff to do is going to be well down the road.”
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