April 2014

Platts Energy Week with Bill Loveless: On yesterday morning’s Platts Energy Week with Bill Loveless, Platts Associate Editor Bobby McMahon reported that utility industry sources are claiming that “80% of the [coal-fired power] plants that were relied upon in the winter months will be shut down next year” due to the EPA’s Mercury and Air Toxics Standards, a.k.a. the “utility MACT.” If true, this is a big deal.

Up to twenty-five perfect of the nation’s coal-fired power plant fleet is set to retire rather than comply with the Utility MACT. Because these power plants are all subject to the same deadline, we’re talking about a wholesale shift in the electricity industry, occurring literally overnight. Somewhat troublingly, we don’t really know what to expect when the rule kicks in. EPA performed a reliability analysis of the Utility MACT, but the agency’s work was shredded by an informal analysis conducted by the Federal Energy Regulatory Commission.

McMahon’s interview, reposted below, is eye-opening, insofar as it demonstrates the looming uncertainty that now plagues the electric industry as a result of the Utility MACT. As McMahon tells Platts Energy Week, the pipeline network for natural gas is limited in many markets, particularly in the northeast. These logistical constraints, in turn, engendered natural gas scarcity during last winter’s ‘polar vortex’ events, which precipitated price spikes. In the face of exorbitantly priced (or even unavailable) natural gas, utilities turned to coal. Next year, that might not be an option.

Perhaps EPA could justify such a threat to electric reliability, if the agency was actually protecting public health. Alas, this is not the case. The direct justification for the Utility MACT is the protection of a population—pregnant, subsistence fisherwomen—that does not exist. Aware that this original rationale for the Utility MACT is extremely weak, EPA suggests that the regulation’s “co-benefits” render it cost-effective, but this data also is dubious.

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Read all about it at The Reflector.

As we’ve noted before, demand for electric vehicles is supported by a $7,500 tax credit. Because EVs tend to be green status symbols for the wealthy, these tax breaks are, in practice, regressive.

Evidence is mounting that the EPA’s greenhouse gas regulations for coal-fired power plants are in disarray.

The agency is working on two separate rules: (1) the Carbon Pollution Standard for new coal-fired power plants and (2) Clean Air Act section 111(d) “guidelines” for existing coal-fired power plants.

The Carbon Pollution Standard was proposed in January, and would effectively ban the construction of new coal-fired power plants. This gives you an idea of what EPA Administrator Gina McCarthy means when she talks about “flexibility.” Energy developers can either spend 500% more on a coal plant, by installing carbon capture and sequestration, or they can build a gas plant. The “choice” is theirs alone.

The Carbon Pollution Standard was announced in September, yet it wasn’t until January that the rule was published in the Federal Register. In between, it was subject to an interagency review coordinated by the Office of Management and Budget. During this review, OMB asked EPA a very simple question: What is the rationale for promulgating the Carbon Pollution Standard?

Here’s EPA’s answer,

On June 25, 2013 President Obama issued the “Presidential Memorandum — Power Sector Carbon Pollution Standards” directing the EPA to issue a new proposal by no later than September 20, 2013 and to issue proposed carbon pollution standards, regulations or guidelines, as appropriate, for modified, reconstructed and existing power plants by no later than June 1, 2014. By statute, in order to issue emission standards for existing sources, the Agency must first propose standards of performance for new sources.

This is an amazing response. EPA basically concedes that the only reason it issued the Carbon Pollution Standard (for new power plants) was so that it could get to regulating existing power plants, in accordance with the President’s climate policy. That is, the Carbon Pollution Standard is merely a means to an end. And because there is no genuine purpose for the rule, other than to beget a subsequent rule, EPA had to fabricate a rationale out of whole cloth, which is really hard to do. I detailed the rule’s many mortal flaws in a post earlier this week, “The Top 6 Reasons EPA’s Carbon Pollution Standard Is Illegal.”

Yet there has also been a spate of news raising doubts about the implementation of the agency’s 111(d) guidelines to regulate greenhouse gases from existing coal-fired power plants. Yesterday, for example, Politico’s Morning Energy reported that there’s confusion regarding the rule’s timing at the highest ranks of the Agency.

Per Politico,

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Former President Jimmy Carter and nine other Nobel Peace Prize winners this week called upon President Barack Obama and Secretary of State John Kerry to “do the right thing” and “reject” the Keystone XL Pipeline. The Nobel Laureates’ open letter, published in Politico, is worth reading because it epitomizes the intellectual poverty of the anti-Keystone faction.

Asserting that Obama and Kerry’s stand on Keystone XL will “define” their “legacy” on climate change, the Nobels claim that rejection of the pipeline would (1) “have meaningful and significant impacts in reducing carbon pollution,” (2) “pivot our societies away from fossil fuels and towards smarter, safer and cleaner energy,” and (3) “signal a new course for the world’s largest economy.” Wrong on all counts.

As Cato Institute scientist Chip Knappenberger shows, using an EPA climate model, even under the totally unrealistic scenario that all Keystone crude is additional petroleum that would otherwise not be extracted from Canada’s oil sands, running the pipeline at full capacity for 1,000 years would add less than 1/10th of a degree Celsius to global warming. Climatologically, Keystone XL is irrelevant.

The Nobels might reply that the pipeline’s emissions are not the issue. According to them, Keystone XL is the “linchpin for tar sands [oil] expansion,” hence approving the pipeline would commit the world to a “dangerous” development path while rejecting it would move the world towards a new, cleaner path. Okay, time for a restatement of the obvious.

The U.S. economy is in the midst of a revolution in unconventional oil and gas, and the global appetite for oil and gas is growing by leaps and bounds. These trends are determined by basic economic and technological realities, not by a political decision about one infrastructure project. The Nobels’ conceit that Keystone XL is a “pivot” for the global economy and, thus, for the climate system is a reversion to the magical thinking of children.

The Nobels assert that, “The myth that tar sands development is inevitable and will find its way to market by rail if not pipeline is a red herring.” But alternate delivery via rail is not a myth, it’s a massive and growing reality. Maybe before writing to Secy. Kerry, the Nobels should read the State Department’s Final Supplemental Environmental Impact Statement (FSEIS) on Keystone XL, especially Chapter 4: Market Analysis.

As in the 2011 Final EIS and 2013 Draft Supplemental EIS, State again concludes that “the proposed Project is unlikely to significantly affect the rate of extraction in oil sands areas (based on expected oil prices, oil-sands supply costs, transport costs, and supply-demand scenario).” A big difference, though, is that whereas the 2011 and 2013 reports “discussed the transportation of Canadian crude by rail as a future possibility,” the FSEIS “notes that the transportation of Canadian crude by rail is already occurring in substantial volumes.” Indeed, from January 2011 through November 2013, rail transport of Canadian crude to U.S. refineries increased from practically zero barrels per day (bpd) to 180,000 bpd.

The completed Keystone XL Pipeline is estimated to have a capacity to deliver 830,000 bpd of crude oil. According to the FSEIS, rail-loading facilities in the Western Canadian Sedimentary Basin (WCSB) are already “estimated to have a capacity of approximately 700,000 bpd of crude oil, and by the end of 2014, this will likely increase to more than 1.1 million bpd.”  [click to continue…]

According to Paul Krugman’s column in today’s New York Times, there’s been a “technological revolution” in the energy industry, one that “many people don’t know about.” This unnoticed upheaval in the electricity market, per Krugman, was prompted by “the incredible recent decline in the cost of renewable energy, solar power in particular.”

Here’s his proof:

The [IPCC] notes that “many RE [renewable energy] technologies have demonstrated substantial performance improvements and cost reductions” since it released its last assessment, back in 2007. The Department of Energy is willing to display a bit more open enthusiasm; it titled a report on clean energy released last year “Revolution Now.” That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.

I readily understand why no one knows about this “revolution,” because it exists only in Krugman’s mind. His evidence is a single Energy Department talking point and an imprecise statement from a recent IPCC report, neither of which tells us anything about the relative cost of renewables compared to conventional energy. There is, moreover, no mention of any countervailing facts, like the bankruptcies of rooftop solar power manufacturers Solyndra and Abound. And he utters nary a peep about the astronomical costs of utility-scale solar like the Ivanpah project in the California desert. Krugman also maintains total radio silence about the intermittent nature of solar energy, which renders it non-dispatchable, and therefore virtually worthless from a reliability standpoint. Perhaps most telling of all, the inequality crusader ignores the fact that solar is the energy of choice for the 1 percent; taxpayer and ratepayer solar subsidies are regressive.

In any case, Krugman is demonstrably wrong. Solar panels remain expensive relative to conventional energy, which is why the industry’s fate is wholly dependent on political favoritism. More to the point, it is absolutely incorrect to compare solar, a non-dispatchable electricity source, to conventional energy sources that can be relied on 24/7 at a moment’s notice. It’s apples to oranges.

…”What an Energy Revolution Doesn’t Look Like,” a recent post by The Atlantic’s Alex Madrigal. It begins thusly,

When I started writing about energy in 2007, it seemed like a revolution was on the way! Concern about climate change seemed to be growing and the cost of wind and solar power were declining.

Fast forward six years, and no revolution has come. Instead, the US energy system looks remarkably like it did in 2008.

To recap: An energy beat reporter for The Atlantic wrote a story about the American energy industry over the last 6 years, and his thesis was that there have been no changes in the American energy industry over the last 6 years.

This is, quite obviously, ludicrous. Anyone with a pulse knows that the last six years have witnessed an American energy boom, one that was galvanized by technological breakthroughs in oil and gas drilling, collectively known as hydraulic fracturing, or “fracking.” Yet there’s no mention of this most conspicuous of revolutions, in a piece titled, “What an Energy Revolution Doesn’t Look Like.”  I understand that the author’s lodestar is Al Gore’s ridiculous promise to convert the electricity generating sector to 100% renewables within 10 years, but even so, Mr. Madrigal must accept the fact that a revolution in the “energy system” did occur. To say otherwise is to have one’s head in the sand, which is a most disagreeable posture for a reporter.

Yesterday, the D.C. Circuit Court of Appeals ruled 2-1 to uphold the EPA’s nonsensical Mercury Air Toxics Standards (MATS) Rule. The MATS Rule requires electric utilities to install maximum achievable control technology (MACT) to reduce emissions of mercury and other hazardous air pollutants (HAPs) from coal-fired power plants.

The rule is nonsensical because, as explained below, although one of the most expensive regulations in history (officially estimated at $9.6 billion in 2016), its health benefits are illusory.

In the case, titled White Stallion Energy Center LLC et al. v. EPA et al., Judge Brett Kavanaugh wrote a powerful dissenting opinion, as my colleague William Yeatman noted yesterday. Kavanaugh agreed with industry petitioners that EPA unreasonably excluded cost considerations (economic impacts) when determining whether MACT regulation of power plant HAPs is “appropriate and necessary.”

The two-judge majority partly based their opinion on the Supreme Court’s ruling in Whitman v. American Trucking Ass’ns (2001) that EPA may not take costs into consideration when setting national ambient air quality standards (NAAQS).

Kavanaugh argues the majority ‘misreads’ or ‘over-reads’ Whitman by ignoring a key difference between the Clean Air Act provisions governing NAAQS rulemakings — §108(a) and §109(b) — and the provision addressing potential MACT regulation of power plant HAPs — §112(n)(1)(A).

The NAAQS provisions clearly allow no room for cost considerations. If an air pollutant is emitted by numerous or diverse mobile or stationary sources and the associated air pollution is reasonably anticipated to endanger public health or welfare, then, pursuant to §108(a), EPA must establish NAAQS for those pollutants, and, pursuant to §109(b), the standards must be requisite to protect public health with an adequate margin of safety. Period. End of story.

In contrast, §112(n)(1)(A) requires EPA to study and issue a report on the public health hazards anticipated to occur as a result of power plant HAP emissions, and then apply MACT regulation “if” the Administrator “finds such regulation is appropriate and necessary.” The provision does not define the terms “appropriate” and “necessary.” Common sense suggests that a regulation is “appropriate” if the benefits justify the costs.

Perhaps more importantly, §112 tasks EPA to determine whether MACT regulation of HAPs is “appropriate and necessary” only for “electric steam generating units.” For all other major sources of HAP emissions, EPA has no discretion and is simply required to promulgate MACT regulations. The statute thus seems to contemplate that, in the special case of coal power plants, MACT regulation may not be appropriate even if the associated HAP emissions pose public health hazards. In other words, a less stringent form of Clean Air Act regulation (such as new source performance standards) or state-level regulation might be “appropriate.”

Yeatman opines that Kavanaugh’s dissent may persuade the Supreme Court to review the case. If so, the Court might rule that EPA is allowed or even required to consider costs when determining what is “appropriate” when regulating HAP emissions from power plants. That, in turn, could set the stage for litigation on whether the MATS Rule is too costly to be “appropriate” within the meaning of the statute.

Of course, EPA contends the MATS Rule is a bargain at almost any price, delivering $33 billion to $89 billion in annual health benefits. Litigation reviving public debate on such claims could be a great teaching moment.

Our June 2012 study, All Pain and No Gain, provides a detailed critique of EPA’s MATS Rule health benefit estimates. Below is a summary of key points. [click to continue…]