Two Views on the EPA Clean Power Plan

WVU Law’s Center for Energy and Sustainable Development (CESD), in partnership with Downstream Strategies, a Morgantown-based environmental consulting firm, has been analyzing the new rules.

Their conclusion is that the EPA’s emissions standards are attainable but will have a disproportionate impact on coal-dependent regions of the country, such as West Virginia. CESD is now working with Downstream Strategies to update their analysis to reflect the impact of the final rules on West Virginia. 

In March 2015, Senator Shelley Moore Capito (R-WV) chaired a U.S. Senate Environment and Public Works Committee Field Hearing on the EPA Clean Power Plan in Beckley, West Virginia. Testifying at the hearing were Jamie Van Nostrand, CESD director, and Gene Trisko, attorney for the United Mine Workers of America AFL-CIO.  The following are excerpts from Van Nostrand’s and Trisko’s testimony.

Regional Impacts of EPA Carbon Regulations: The Case for West Virginia

  

Developing a compliance strategy for the Clean Power Plan will require tapping into these other energy resources and crafting a comprehensive energy plan that will build upon the state’s coal resources — through co-firing natural gas with coal, for example — while stimulating investments in energy efficiency that will help West Virginians manage their energy costs in addition to reducing CO2 emissions.

Climate Change and the Regulation of Greenhouse Gases under the Clean Air Act

Climate change, largely attributable to increasing concentrations of greenhouse gases (GHGs) in the atmosphere,is the most serious threat facing the planet. The National Climate Assessment, for example, presents compelling evidence of long-term climate trends, and the likely future for the remainder of the 21st century, if we fail to take action to reduce GHG emissions. Within the state of West Virginia, we are already seeing some of the impacts of climate change.

At the same time, the Clean Air Act is a blunt instrument with which to regulate GHG emissions from power plants. The tools available to the EPA under the Clean Air Act to regulate GHGs do not provide a great fit for dealing with climate change;the regulation of GHGs would be better addressed through comprehensive energy and climate legislation, given the broad and disparate impacts on the economy and the ability through the legislative process to craft a solution that addresses the disparate impacts.

Coal producing states like West Virginia will be especially hard hit, and the EPA lacks the statutory authority and financial resources to help the disproportionately impacted regions to attract new investments, or diversify their economy to minimize the economic and social impacts of the decline in demand for coal.

There is no question that the EPA has the legal authority to regulate GHGs as a pollutant under the Clean Air Act, following the decision of the U.S. Supreme Court in Massachusetts v. EPA(2007) and the subsequent endangerment finding by the EPA in 2009. The EPA has moved beyond its endangerment finding to issue final rules under 111(b) of the Clean Air Act to regulate GHGs from new power plants and under 111(d) for existing power plants.

The practical effect of the proposed rules under 111(b) was to preclude the construction of a new coal plant in the U.S.,given that the target emission rates for coal-fired plants could be achieved only with carbon capture and sequestration (CCS),which is a very costly process.

[NOTE: In the final rule issued in August, the EPA eased the target emission rate for new power plants considerably, and the new standard can be met with a highly efficient, supercritical pulverized coal plant with partial CCS.]

The unlikelihood of new coal plant construction in the future has serious implications for the coal-producing regions of the country, including West Virginia. [NOTE: The final rule no longer requires CCS technology and does not necessarily preclude construction of a new coal plant.]

The future domestic demand for coal, simply stated, is being curtailed, thereby leading to the push for new coal export terminals on the coasts to serve foreign markets for U.S. coal. There is a legitimate question as to whether CCS technology is commercially available, and whether it is lawful for the EPA to effectively preclude a particular electric generation technology (i.e., coal) on the basis of an assumed remedy that does not exist (or, alternatively, that is so expensive as to render coal uncompetitive with other fuels).

At the same time, it is not clear that the EPA proposed rule under 111(b) is the major deterrent for new coal plants in the U.S. If the EPA estimates of the regulatory impact of the proposed rule are true, no new coal-fired plants would have been built anyway, given the significant cost advantage that natural gas has over coal, both currently and based on longterm projections.

Impact on Energy Production

Coal fired power plants generated 39 percent of U.S. electricity in 2013, down from over 50 percent in 2005. West Virginia generated approximately 96 percent of its electricity from 16 major coal fired power plants in 2012, with the remaining four percent coming(largely) from hydropower and wind.

Across the U.S., over 60 gigawatts of coal fired power plant capacity is scheduled to retire by 2016. In West Virginia, six of the 16 coal plants operating in 2012, representing approximately 17 percent of the state’s generating capacity, have either deactivated or are scheduled to deactivate by 2015. At the time of deactivation, those plants will be on average over 60 years old.

The national trend away from coal fired generation, and production declines in the Appalachian coal mining industry over the long-term, suggest that the broader socio-economic challenge for coal producing states is to prepare for a future that is less dependent upon coal — irrespective of the impact of more stringent environmental regulation. And while coal mining will continue to be an important part of West Virginia’s economy for the foreseeable future, the state must look for additional drivers of economic development to mitigate the impacts of the decades long decline in the coal industry.

West Virginia is a leading energy state that is uniquely positioned to mitigate the impacts flowing from the proposed Clean Power Plan and stimulate new economic opportunity throughout the state.

In addition to its coal resources, West Virginia sits atop abundant natural gas resources in the Marcellus Shale, has significant renewable energy and biomass potential, and virtually untapped energy efficiency resources.

Despite the significant challenges facing West Virginia, the Clean Power Plan provides a framework through which West Virginia can align its energy policies to meet the carbon emission reductions required under the proposed rule. Doing so will stimulate new economic activity in regions of the state hit hard by declining coal production and ensure that its utilities are making investments that provide consumers clean, reliable and reasonably priced electricity.

Developing a compliance strategy for the Clean Power Plan will require drawing upon all of West Virginia’s energy resources,including natural gas, renewable energy and energy efficiency.

Impact on Electricity Generation and Cost

With the passage of a statute in the 2013 West Virginia legislative session requiring integrated resource planning, the utilities in the state will soon be undertaking a more thorough energy planning process. In the short-term, however, the state is not well-positioned to cope with the consequences of the Clean Power Plan.

West Virginia’s rate-regulated utilities have increased their dependence on coal-fired generation, by acquiring coal-fired generating facilities from affiliated companies during the past few years.

As a result of these investments, West Virginia ratepayers will likely bear higher compliance costs under the proposed Clean Power Plan, given the inability to avoid the costs of owning these plants while at the same time bearing the increased costs of pursuing opportunities under the third and fourth building blocks of the proposed Clean Power Plan (i.e., renewable energy and energy efficiency).

Natural Gas

The Clean Power Plan recognizes the emission benefits of natural gas relative to coal. West Virginia has significant natural gas resources in the Marcellus Shale. Developing West Virginia’s natural gas resources and investing in natural gas-based electricity generation will help the state comply with the Clean Power plan and grow the state’s energy economy.

Pennsylvania and West Virginia are the largest producers of Marcellus Shale natural gas, and West Virginia has enormous opportunity to capitalize on expanded use of its natural gas resources.

The construction of new natural gas combined cycle plants,co-firing existing coal plants with natural gas and building new CHP facilities would stimulate demand for West Virginia-produced natural gas, deliver consumers low-cost natural gas-fired electric generation and provide emission-reduction benefits under the Clean Power Plan.

Renewable Energy

In the EPA’s calculation of Best System of Emissions Reduction for West Virginia under the proposed rule, it estimated that non-hydro renewable energy can produce 14 percent of West Virginia’s total generation by 2030, contributing over 60 percent of the state’s emission reduction goal.

West Virginia generated approximately 4 percent of total electricity produced in the state from wind and hydropower in 2012, but has significant potential for new wind, solar, biomass, geothermal, and hydropower development. Developing West Virginia’s renewable energy resources will contribute to the state’s ability to comply with the Clean Power Plan, diversify the state’s energy portfolio, grow the state economy,and create new jobs.

Energy Efficiency

Coal has long been the state’s near-exclusive source of electricity and historically, West Virginia’s coal plants have provided West Virginia consumers some of the lowest electricity rates in the country.

While our rates may be low, however, West Virginia is among the top 10 states in the country with the highest residential electricity expenditures as a percent of median income; and it has the highest residential energy consumption per household among the 13 Appalachian states.

The energy efficiency programs currently offered by the First Energy and American Electric Power subsidiaries operating in West Virginia, however, are minimal, compared to the programs offered by these same companies’ subsidiaries in surrounding states.

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The Clean Power Plan (CPP) is a neutron bomb aimed directly at the heart of West Virginia’s economy and the coal miners,communities, electric generators and allied industries that depend on coal for their livelihoods.

EPA’s final carbon rule issued on August 3 calls for a CO2 reduction equivalent to a 32 percent cut from 2005 emissions,with reductions measured against each state’s 2012 emission rate in pounds of CO2 per Megawatt-hour (MWh) of fossil-based electric generation. EPA’s rule also provides for mass-based CO2 reduction targets measured in tons of CO2 emitted.

In its initial proposal, EPA assigned West Virginia a 20 percent reduction target by 2030. The final rule raised West Virginia’s rate-based reduction target to 29 percent. Compared to its 2020 projected base case emissions, West Virginia must achieve a 37 percent reduction of CO2 tons emitted by 2030, or a 35 percent reduction of its emissions in pounds of CO2 per MWh.

U.S. EPA data indicate that West Virginia’s electric utilities and independent power producers achieved a 20 percent reduction of CO2 tons emitted between 2005 and 2012. EPA’s final rule gives no credit for these reductions because it uses a 2012 baseline for determining required emissions reductions.

EPA’s Regulatory Impact Analysis for the final CPP shows total U.S. coal-generating capacity declining from 336 GW in 2012 to 174 GW in 2030, an overall reduction of 162 GW. Of this total, EPA projects that 34 GW of coal capacity will retire due to the CPP. The balance of retirements are due to compliance with the 2011 Mercury and Air Toxics Standards (MATS) rule, lower natural gas prices and other factors.

EPA projects that the CPP would reduce U.S. coal production for electric generation by 123 million tons in 2025 relative to the base case in 2025, to a level of 606 million tons. Production for the overall Appalachian region, stretching from Pennsylvania to Alabama, is projected to decline to 69 million tons in 2025. West Virginia alone traditionally produces more than 100 million tons of coal annually.

The fundamental problems that the EPA carbon rule poses for West Virginia are two-fold: first, the majority of West Virginia’s coal production is shipped to other states that have even larger emission reduction requirements than West Virginia; and second, the majority of the coal-based electricity generated in West Virginia is exported to other states affected by the rule.

In 2013, West Virginia produced 116 million tons of coal. West Virginia’s electric utilities and independent power producers consumed 30 million tons of coal from all sources in 2013, equivalent to just 26 percent of total production (DOE/EIA Annual Coal Report 2013).

In 2014, West Virginia power plants generated 88,047 GWh of electricity, with total in-state retail electricity sales of 28,919 GWh, equivalent to one-third of total generation (DOE/EIA,Electric Power Monthly, March 2015).

In short, there is no compliance option for West Virginia — including potential interstate agreements or emissions “cap-and-trade” programs — that can effectively mitigate the adverse impacts of the EPA rule attributable to the compliance actions of other states.

The UMWA has long advocated increased investment in carbon capture and sequestration (CCS) technologies as a means to reduce carbon emissions while preserving coal as a mainstay of U.S. electric generation. Unfortunately, government funding and regulatory support for CCS projects have been disappointing, leaving natural gas as the principal option for future electric generation.

The stakes for West Virginia’s economy and jobs are very high. Coal mining in West Virginia generates more than $15 billion of gross state output, nearly $4 billion of house hold income and 75,000 direct and indirect jobs.

Our estimates of the national job impacts of the Clean Power rule, as initially proposed, indicated the potential loss of 52,000 permanent direct jobs by 2020 in the utility, rail and coal sectors due to power plant retirements, and the loss of 167,000 total direct and indirect jobs. The impacts of the final rule are likely to be similar.

These direct jobs are all high-paying jobs, typically in rural communities such as those in West Virginia, without opportunities for comparable employment. These impacts do not consider any of the plant closures and job losses expected over the next few years due to the MATS rule and other factors, or the impacts of higher electricity and natural gas prices on other industries.

EPA’s proposals for major expansions of state renewable energy programs interfere with traditional state authority in energy planning and appear to be well beyond the agency’s authority under the Clean Air Act. West Virginia recently repealed its state renewable energy standard legislation.

In UMWA’s meetings with EPA prior to the August 2015 final rule, we urged EPA to focus the rule on options for reducing emissions within the plant fence line, such as heat rate efficiency improvements. This is consistent with our legal understanding of the scope of Section 111(d).

The agency has taken a much broader view of its authority. We are mindful in this regard of the cautions recently raised by the Supreme Court in UARG v. EPA (2014) of an overly expansive interpretation of the authority to regulate greenhouse gases under the Clean Air Act.

UMWA does not oppose efforts to reduce carbon emissions under the Clean Air Act. Our concerns are about the overall design and job impacts of the Clean Power Plan and its expansive reach into regulatory and policy arenas that traditionally are the province of state legislatures and regulators.

Finally, we do not know the extent to which other nations,particularly large developing countries, will be willing to commit to a truly global program of greenhouse gas reductions. Our actions will have negligible climate impacts in a world economy that is using more coal and other fossil fuels every day.

All indications from the UN climate negotiation process point to extreme difficulty in reaching an agreement in Paris in December 2015 that would lead to meaningful — or enforceable — emission reduction commitments by the developing countries that are now the world’s largest emitters of greenhouse gases.