Power Forward

The administration’s new coal rules hit the trifecta: They’ll limit pollution, stymie Republicans, and win over industry.

CORRECTS TO REPLACE 3RD SENTENCE WITH INFO RELATED TO POWER PLANT SHOWN - FILE - In this Sept. 4, 2011 file photo shows the main plant facility at the Navajo Generating Station, from Lake Powell, in Page, Ariz.  The U.S. Environmental Protection Agency is slated to release rules aimed at reducing mercury pollution from large coal-fired power plants.  The operator of Navajo Generating Station said the 2,250-megawatt plant will run as long as the owners are convinced there isn't a better alternative. But spokesman Scott Harelson said the plant is facing some challenges, the most pressing of which are EPA regulations, and negotiating coal supply agreements and a site lease ó "any of which could put the plant at risk of closure." (AP Photo/Ross D. Franklin, Fle)
National Journal
Add to Briefcase
Coral Davenport
Feb. 2, 2012, 1 p.m.

Pres­id­ent Obama has had a string of rot­ten luck on en­ergy. In the spring of 2010, he offered a grand bar­gain in an at­tempt to pass a huge cli­mate-change bill: com­bin­ing the cap-and-trade plan that lib­er­al Demo­crats want with the new off­shore drilling that Re­pub­lic­ans crave. It might even have worked — un­til the Deep­wa­ter Ho­ri­zon rig ex­ploded in the Gulf of Mex­ico, fry­ing its polit­ic­al pro­spects. A year later, Obama tried again, back­ing a deal to tie pro­duc­tion of wind and sol­ar en­ergy to an ex­pan­sion of nuc­le­ar power. Just a few months later, Ja­pan’s Fukushi­ma Daii­chi nuc­le­ar plant va­por­ized the pres­id­ent’s hopes. And, of course, new clean-en­ergy ini­ti­at­ives were knee­capped when Solyn­dra, the fed­er­ally backed sol­ar man­u­fac­turer, went bank­rupt.

Now Obama may have fi­nally caught a break. Thanks to the plum­met­ing price of nat­ur­al gas — a fuel that pro­duces only half the car­bon pol­lu­tion of coal — en­ergy com­pan­ies say that it will be cheap, easy, and nearly pain­less to com­ply with the con­tro­ver­sial cli­mate-change reg­u­la­tions that the En­vir­on­ment­al Pro­tec­tion Agency is ex­pec­ted to roll out in the com­ing weeks.

The rules, ex­pec­ted for more than a year, will make a big eco­nom­ic, en­vir­on­ment­al, and polit­ic­al im­pact: They will likely re­strict pol­lu­tion from coal-fired power plants, which pro­duce about half the na­tion’s elec­tri­city and about a third of its car­bon pol­lu­tion. But the ad­min­is­tra­tion’s in­geni­ous move piggy­backs on preex­ist­ing mar­ket forces that have made nat­ur­al gas so cheap. In­stead of for­cing com­pan­ies to ret­ro­fit dirty old fa­cil­it­ies, the EPA reg­u­la­tions will af­fect only new plants, steer­ing power com­pan­ies to­ward the nat­ur­al-gas fu­ture they had already de­vised for them­selves.

Re­pub­lic­ans (and a slew of con­ser­vat­ive in­terest groups and su­per PACs) had been plot­ting an as­sault on the rules, both on Cap­it­ol Hill and on the cam­paign trail. GOP ads are still ex­pec­ted to call them “job-killing reg­u­la­tions” that will force en­ergy com­pan­ies to close plants, lay off work­ers, and boost elec­tri­city bills. But the in­dustry says it shouldn’t have a prob­lem com­ply­ing with the ex­pec­ted rules. The vast new re­serves and fall­ing prices mean that power com­pan­ies forced by the reg­u­la­tions to cut their car­bon foot­print have an easy sub­sti­tute for coal in nat­ur­al gas, which can pro­duce the same amount of elec­tri­city as coal with half the car­bon pol­lu­tion.

The rules won’t hurt power plants, lift prices, or cause lay­offs — at least be­fore the gen­er­al elec­tion. (Green groups say they ex­pect Obama to reg­u­late ex­ist­ing pol­luters after Novem­ber.) “The new cli­mate rule is in line with mar­ket forces any­way,” says Jim Ro­gers, CEO of Duke En­ergy, which provides elec­tri­city to the Car­o­li­nas, In­di­ana, Ken­tucky, and Ohio. “We’re not go­ing to build any coal plants in any event. You’re go­ing to choose to build gas plants every time, re­gard­less of what the rule is.”

Un­til re­cently, that wasn’t the case. Do­mest­ic nat­ur­al gas was thought to be in short sup­ply; the fuel, al­though clean, had a his­tory of price volat­il­ity. But now, thanks to ad­vances in the con­tro­ver­sial drilling tech­nique known as hy­dro­frack­ing, en­ergy ana­lysts pre­dict that the United States will have abund­ant nat­ur­al gas for dec­ades — enough for en­ergy com­pan­ies to re­verse the dom­in­ance of heav­ily pol­lut­ing coal for eco­nom­ic reas­ons, rather than en­vir­on­ment­al ones.

To be sure, there’s no guar­an­tee that nat­ur­al gas will stay quite so cheap. Once the eco­nomy im­proves, so will en­ergy prices — even for gas. And like oil and nuc­le­ar en­ergy, nat­ur­al gas comes with its own risks: En­vir­on­ment­al­ists fear that hy­dro­frack­ing could con­tam­in­ate drink­ing-wa­ter sup­plies. One ma­jor frack­ing ac­ci­dent could freeze Obama’s em­brace of nat­ur­al gas the way the BP spill froze off­shore oil drilling and Fukushi­ma froze a nuc­le­ar renais­sance. But if en­ergy com­pan­ies sour on gas in the fu­ture, the new cli­mate rules will pre­vent them from re­turn­ing to the old ways of burn­ing coal. They’ll have to choose re­new­ables, nuc­le­ar power, or new coal tech­no­lo­gies such as car­bon cap­ture and se­quest­ra­tion, ex­perts say.

If things con­tin­ue as they are now, the En­ergy De­part­ment pro­jects that by 2035, thanks to the low price of nat­ur­al gas, the share of elec­tri­city gen­er­ated from coal will fall from nearly 50 per­cent today to 39 per­cent; the share from nat­ur­al gas will grow from 24 to 27 per­cent; and the share from re­new­able will grow from 10 to 16 per­cent. Frank O’Don­nell, pres­id­ent of the en­vir­on­ment­al group Clean Air Watch, said, “Nat­ur­al-gas prices make it easi­er and cheap­er for com­pan­ies to steer away from the biggest green­house-gas pol­luter. The Obama ad­min­is­tra­tion has had its share of bad luck on en­ergy, but they were due for at least some good luck.” 


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.