A Red State/Blue State Breakdown of the New EPA Power Plant Rules

Published June 3, 2014

The new EPA rule is being presented as “anti-coal,” but when you read through the details it’s really more “pro-wind.” If adopted, I doubt that it will force any more coal-fired plant shutdowns than are already planned.

A flood of previous EPA rules and actions going after coal, directly and indirectly, have resulted in the retirement of older, less efficient coal fleet assets, with more planned. The slack has largely been taken up by natural gas. Although not as cheap as coal, it’s still pretty cheap these days, so power prices haven’t suffered greatly.

I’m sure that both the EPA and the administration are aware of all of the coal asset retirements (past and future) and there’s nothing in this rule – at least in my humble opinion – that will change that. Old, inefficient coal plants go away and (relatively) newer, more efficient coal plants will stick around.

In addition to all of the previous anti-coal rules and actions, state Renewable Portfolio Standards (RPS) also play a part. Thirty odd states have RPS, while a few others have “Alternative Energy Standards” or “Renewable Power Goals” (the latter two generally being less stringent and less binding than RPS are). To review, states with RPS mandate that a certain percentage of power used in the state come from so-called renewable sources by such-and-such year. What is “renewable” and the percentage required (and when) varies, but in general by 2020 most of the state RPS programs will be in full effect. Some of the programs also include demand-side energy efficiency goals as well.

As a result of anti-coal rules and RPS programs, GHG emissions from electric generation dropped from a peak of 2,402 million metric tons in 2005 to 2,023 million metric tons in 2012 (the last year for which we have verifiable data). This was part of an overall drop in national net GHG emissions from 6,223 million metric tons in 2005 to 5,546 million metric tons in 2012. This reduction in GHG emissions will continue with or without the proposed new rule. I haven’t done the math, but I suspect when you total up the planned coal retirements and the effect of RPS fully kicking in we would meet the target of the proposed new rule: GHG “reductions” of between 368 to 555 million metric tons by 2030.

I put “reductions” in quotes because these are not reductions off a baseline, but are rather reductions that include projected growth in demand. So it’s really a “reduction” of what EPA has decided emissions would be in the future.

So if they were going to get to the target anyway, why the new rule? To figure that out, we have to delve a little deeper into what EPA is proposing and how they are justifying it. We start with the RPS piece of the puzzle.

While many states have RPS programs, some don’t, and some RPS programs are less ambitious than others and a few are really just window-dressing. In general, if you live in blue state, you’ll probably have a very aggressive RPS program, while if you live in a red state you won’t have one, or if you do it’ll be much more reasonable.

In designing this rule, EPA took a look at the states with the most aggressive RPS programs and said: “if they can do it, everybody can do it.” So, first they look at each state, see how many pounds of GHG is produced per megawatt hour of electricity generated. Then they pretend that the state has an aggressive RPS in place. (The target percentage is unique to regions that EPA divided the country up into for purposes of this rule-making). Applying that theoretic RPS gets them to the final target number, which is expressed in terms of average lbs of GHG emitted per megawatt hour of power produced.

There will be winners and losers if this rule is adopted. If you live in Washington, where the vast majority of power comes from hydro and a nuke, hitting their target of 215 lbs/MWh by 2030 won’t be a big deal. If you live in California, which has a very aggressive RPS is place, the rule will be basically meaningless, because they will be well below the target goal anyway.

However, if you live in a state like North Dakota, which has a pretty conservative RPS goal, or a state like Alabama, which has no RPS program, this rule is going to force you to build windmills – lots and lots of windmills. Moreover, when and if Congress ever ends the Production Tax Credits for wind, this rule will ensure that wind sticks around, no matter how expensive it becomes.

Yeah, there will be some solar, but solar is so expensive and so inefficient that it won’t contribute much. Solar is fine for your roof, but it stinks for electrical generation. And yeah, there will be some bio-mass, but the enviro NGOs are starting to push back against bio-mass (which is extra-stupid, even for them) so I don’t think you’ll see much more of that either. Wind is and will continue to be the only practical way to add enough renewables to hit these targets.

But wind, as we know, can’t provide base-load power, because it’s not reliable enough. And though it can be, and is, used to provide mid and peaking power, it has its limits in that role too, particularly if you are in a region of the country where the wind profile isn’t particularly good. So, in adding new wind assets, you have to retain back-up generation capacity as well. And, inevitably, that back-up power will be fossil fuel fired.

As you pile on more wind, it also increases reserve requirements. The utility has to have more power available than is actually in use at any given moment to handle sudden increases in demand. The difference between what you can generate at a given moment and what is being used is the reserve. When you have wind, there is the possibility of the wind suddenly dying at any given moment, so the amount of reserve you need goes up lest you risk taking down the grid. (This almost happened in 2008 in Texas, when they lost over 1,000 megawatts of wind all at once). And, like back up, reserve power is usually fossil-fuel fired.

Anyway, I haven’t run the numbers, but I bet the states that get hurt the most by this rule are red states for the most part, if not entirely. Most blue states won’t feel a thing. And – boy oh boy – those windmill manufacturers must be dancing in the streets!

Finally let’s put this proposed rule in context. It’s touted as a 30% reduction in power plant GHG emissions. Based on EPA’s own data, it’s actually a reduction of 18% (368 tons per year) or 27% (555 tons per year) compared to 2012, depending on which of two versions of the rule is adopted. Compared to all US GHG emissions, it’s a reduction of 7% or 10%. Compared to world wide emissions, it’s a reduction of 1.2% or 1.8%. And consider, that by the time we hit this target, the world’s biggest GHG emitter, the People’s Republic of China, is projected to increase their GHG emissions from around 8,000 million metric tons per year to over 10,000 metric tons per year.

If you’re a global warming zealot, this rule will do absolutely nothing to ease your fears. But if you’ve invested in GE or any other windmill producer, you’ve got to love this rule.