Last Friday, the EPA proposed the first-ever greenhouse gas regulations on new power plants. By putting significant limits on carbon dioxide emissions, the proposed regulations seem to be aimed at pricing coal out of the next generation of electricity production. They will effectively eliminate construction of new coal-fired power plants, currently providing almost 40% of U.S. electricity, as an electric power option going forward. Importantly, because of the global nature of carbon dioxide emissions, the proposed rule will have no significant impact on greenhouse gas reductions.
We have written about the importance of diversity in electric power, and diversity should remain a policy principle of electric power for the sake of reliability and cost stability. Because of the extraordinarily long life of these expensive assets, fuel cost risk is lowest when spread out over the fuels that provide most of our electricity – natural gas, coal, and nuclear. However, in the U.S., we are trending away from fuel diversity and towards heavy reliance on one fuel, natural gas. Let’s see what the data says:
Since 1990, of all new electric generating capacity added, 72.8% is natural gas powered, 13% is wind capacity (which can be intermittent and less reliable than power plants), 7.7% is from coal, and 1.3% from nuclear. Further, since the rule would essentially outlaw new coal plants and with the federal brakes on nuclear power replacement and expansion, the existing coal and nuclear fleets in the U.S. will continue to age and decline if not replaced with new technology. The average age of U.S. nuclear commercial reactors is currently 33 years old with the majority scheduled to go offline by 2036. As of today, 74% of all coal-fired capacity is 30 years old or older. Continuing to both meet new electricity demand (which comes with economic growth) and replacing aging coal and nuclear power plants only with natural gas power plants is a risky trend for the U.S. economy. Absent new policy that embraces coal and nuclear for the next generation, this trend will continue.
While the shale gas and oil revolution is one of the most dynamic events in U.S. energy history and has positively changed the economic picture in the U.S., especially in manufacturing, it is important to consider the versatility in natural gas. Not only is natural gas a good fuel for electric power generation but also in manufacturing and industrial processes, more and more in transportation, residential and commercial heating, and now for exporting to improve the U.S. trade balance. Large supplies of natural gas will hopefully mean affordable prices and less price volatility, but because we use natural gas in the U.S. for so many activities and because diversity remains the right policy, we should avoid putting all the electric power eggs in the natural gas basket.
Because of shale technology development, the U.S. is now the most energy rich country in the world, but only when counting vast coal deposits along with oil and natural gas reserves and the ability to produce nuclear and renewable energy. To take coal off the table hurts U.S. competitiveness long-term.
To meet growing world energy demand, all energy sources along with new technology will be required. Because of coal’s abundance around the world and affordability, coal will be a growing energy resource globally. The scale of energy required for world growth over the next several decades is almost incomprehensible. Taking energy options off the table is foolish.
You can find more information on the rule here.