Ohio faces a two headed hydra when it comes to the impact of the proposed cap-and-trade bill in Congress- the American Clean Energy and Security Act of 2009 (ACES):
- Ohio generates almost 90% of its energy from coal;
- Manufacturing represents one the largest employment sectors in Ohio (ranking 3rd nationally with 1.1 million workers as of 2006)
These two factors combine to raise the stakes significantly if a price is placed on carbon as a result of the cap-and-trade ACES proposal. Coal-fired power plants are the largest source of greenhouse gases (GHGs). Any regulatory approach that puts a price on GHGs will result in higher energy prices.
Most manufacturers are not even covered under ACES because only the largest industrial sources are capped (25,000 metric tons or more). However, the secondary effect of ACES- rising energy prices-could mean significant job losses in the manufacturing sector which is heavy user of power
Potential Job Loses from Cap-and-Trade
A report released last week by the National Association of Manufacturers (NAM) projected that Ohio could lose from 80,000 to 108,000 jobs by 2030 if ACES passes. The job losses are directly attributable to rising energy prices. The NAM cap-and-trade report projects the following increases in commodities or electricity:
- 26% increase in gasoline prices
- 60% increase in electricity prices
- 79% increase in natural gas prices
The 60% increase is actually conservative when compared to other studies. Some have said total increases could be as high as 112% by 2030. Such large price increases raise operating costs for many small and medium manufacturers. Those cost increases will make many business unprofitable forcing them to close their doors, so the argument goes.
Is this really a complete analysis? Also, is opposition to ACES really the correct strategy?
A Call to Action- Diversity in Generation Key for Coal Dependent States
Based on my last two posts you may be expecting me argue that growth in green jobs attributable renewable energy development will significantly offset the manufacturing job loses. For example, in 2008 there was a 70% increase in wind turbine related jobs nationally.
While green jobs are important, a more fundamental issue presents itself- When it comes to preserving manufacturing jobs, reliance on coal power is unsustainable.
The cost of energy produced from coal is going to dramatically increase regardless of whether climate change legislation passes. A complex web of regulatory forces are at work driving coal energy prices higher over the next decade and into the future. A honest assessment of these factors should serve as call to action- diversification.
An honest assessment of the forces at play demonstrates that coal reliant states are fighting a losing battle against energy price increases. States must diversify their generation portfolios in order to become less sensitive to these forthcoming price shocks. This means development of biomass, nuclear, wind, solar and other forms of electric generation.
Analysis of Five Factors Driving Future Coal Power Energy Prices Higher
- New Source Review Enforcement Cases
- The fix for the Clean Air Interstate Rule or Multi-Pollutant Legislation
- Mercury controls
- Ever tightening ozone and fine particle federal air standards (NAAQS)
- Massachusetts v. U.S. = regulation of greenhouse gases in some fashion
New Source Review (NSR) Enforcement Cases
Manufacturers and other businesses in the Ohio and throughout the Midwest have yet to see the full impact of the NSR enforcement cases on the price of energy. The settlement with American Electric Power impacts sixteen (16) coal plants and is estimated to cost $4.6 billion. Ohio Edison, subsidiary of FirstEnergy Corp., settled its NSR case in 2005. The settlement is projected to cost $1.1 billion to retrofit the Sammis Station. The litigation has yet to fully conclude in the Duke Energy case and while the verdict was mixed, the case will still result in significant compliance costs.
Also, a New Source Review regulatory fix seems unrealistic in the near term. Therefore, future projects that could improve plant efficiency may be avoided out of fear of triggering NSR.
Bottom line: Billions in new compliance costs for coal fired power plants over the next several years and an uncertain regulatory structure.
CAIR or Multi-Pollutant Legislation
The Clean Air Interstate Rule (CAIR) was a cap-and-trade regulation directed at coal-fired power plant emission of SO2 and NOx. On July 11, 2008, a federal court found CAIR to be inconsistent with the Clean Air Act. While the rule remains in place while U.S. EPA develops a fix, U.S. EPA has put a CAIR-fix on the fast track. It is uncertain what the "new-CAIR" program will look like, but there is little doubt it will result in a more expensive regulation.
As an alternative to CAIR, members of Congress have proposed multi-pollutant cap-and-trade legislation for coal fired power plants. Regardless of whether CAIR remains as regulatory based or converts to legislation the consensus among Democrats was the Bush Administration rule did not require steep enough cuts from coal-fired power plants.
Bottom line: Either the CAIR fix or multi-pollutant legislation will raise compliance costs for coal-fired utilities
Based upon cost concerns, the Bush Administration rejected facility specific regulation of mercury emissions from coal-fired power plants. Instead, the Administration proposed a new cap-and-trade program called the Clean Air Mercury Rule (CAMR). A federal court ruled that mercury as a pollutant could not be regulated through a cap-and-trade mechanism. On February 6, 2009, the Department of Justice (on behalf of the Obama Administration) dismissed its appeal to the U.S. Supreme Court. U.S. EPA is currently developing regulations under Section 112 of the Clean Air Act that will require every coal-fired power plant to control mercury emissions.
Bottom line: All facilities may be required to reduce mercury emissions through carbon absorption or implementation of other technologies. Under CAMR, utilities were hoping to avoid controls on some of the older less efficient plants. The rejection of CAMR will drive compliance costs higher.
Ozone and Fine Particle Air Quality Standards
Coal-fired power plant contribute roughly one-third (1/3) of ozone causing pollutants and particulate matter pollution. As U.S. EPA tightens the ozone and fine particle National Ambient Air Quality Standards (NAAQS), coal-fired power plants will remain a major target of tighter regulation.
Bottom line: States pass new regulations to meet tighter federal air quality standards. There is lag time between development of new federal standards and implementation of these new state regulations. States will be forced to contemplate even stricter regulation of coal-fired power plants as a result of tighter federal standards.
Massachusetts v. EPA- Greenhouse Regulation is Inevitable
In 2007, the U.S. Supreme Court declared CO2 and other greenhouse gases a "pollutant" under the Clean Air Act. This landmark decision has set in motion a series of proposed actions by U.S. EPA to regulate greenhouse gases under the existing framework of the Clean Air Act. Regulation under the Act will be much more costly than the proposed cap-and-trade legislation.
Bottom line: The debate cannot be framed as pass cap-and-trade or have no climate change regulations. Regulation is inevitable and most agree cap-and-trade is much more cost effective than regulation under the Clean Air Act.