TE: Obama’s Green Gamble
Climate Policy and the Future of Coal: Obama’s Green Gamble
The president’s new climate rule will change America. He hopes it will change China and India, too.
With a metallic gasp, the chute opens its metal jaws and deposits precisely 230,000 pounds of coal into the railway car. The pour is carefully calibrated to create an aerodynamically efficient heap; sealant is sprayed evenly across the coal’s surface to limit dust release. Fully loaded, the car moves along to be replaced by another; it takes two-and-a-half hours to load the two-mile-long train. Four trains, each carrying 15,000 tonnes of coal, leave the Spring Creek mine in Montana every day, often destined for midwestern power plants, where the fuel is burned to light the homes and power the kettles of Minnesotans and Michiganders. Some goes elsewhere, including to a Canadian port, bound for China or South Korea.
Coal mining in the Powder River Basin, which straddles Montana and Wyoming, has been economical only since the Environmental Protection Agency (EPA) began regulating sulphur dioxide in 1990; coal from eastern states is far more sulphurous. But a new rule from the EPA may be less well received here; on June 2nd it unveiled a proposal to cut emissions of carbon dioxide from power plants, which account for 39% of overall emissions, by 30% from their 2005 level by 2030. To reach that goal, each state (bar Vermont, which has no fossil-fuel plants and is therefore exempt) has been handed its own target. These vary widely: Washington must cut the carbon intensity of its energy production by 72%; North Dakota by only 11%. Comments will be solicited before the rule is finalised next year. Lawsuits are inevitable.
A national carbon price would have been the cheapest way for America to meet its goals. But that would require action from Congress, which has looked impossible since a Democratic-backed cap-and-trade bill died in the Senate in 2010. The EPA’s approach, although it involves dictating terms to states, probably provides the next-best level of flexibility.
Inspired by Nixon
Acting under an obscure provision of the Clean Air Act, signed by Richard Nixon in 1970, long before politicians recognised a threat from carbon dioxide, the EPA has told the 49 states to produce plans to meet their respective targets. The agency proposes four “building blocks” that the states may (but are not obliged to) choose to reduce emissions: make fossil-fuel plants more efficient; shift to power sources that emit less (such as natural gas); boost zero-emission sources (renewables and nuclear); and reduce electricity demand by, for example, insulating buildings.
States are encouraged to team up to find efficiencies and economies of scale; the rule may thus goose sleepy regional carbon markets in California and the north-east, or spur the creation of others. Plans must be submitted by 2016; those involving more than one state have two more years. Some Republican states have already pledged not to co-operate; the EPA will create its own plans for them.
Advocates and industry groups attached wildly varying price tags to the rule, some before it had been issued. The EPA admits electricity bills will rise, but projects net benefits worth between $48 billion and $82 billion by 2030, thanks to better health and slightly less global warming. In calculating the benefits of curbing climate change, the EPA applied a novel methodology: it included the benefits to foreigners. That is unusual, and dramatically changes the results, unless other big emitters follow America’s example.
All long-term forecasts about energy involve guesswork, but one thing is clear: America’s 500-odd coal-fired power plants, which produce 39% of electricity and 74% of plant emissions, will be hardest hit. Some, particularly older ones, will close earlier than they otherwise would have; the average plant is 42 years old. But more detailed predictions are hard: estimates of state-level production under the rule, says David Hawkins at the Natural Resources Defence Council, a lobby group, are like “consulting the ouija board”.
Still, the burden may not be equally shared. The old, inefficient underground mines of states like West Virginia and Kentucky may, for example, lose out to the more productive surface mines of the Powder River Basin. Cloud Peak Energy, which operates Spring Creek and two mines in Wyoming, says it does not expect domestic demand for its coal to decline, but acknowledges that the sources of that demand may change. Powder River is already America’s coal heartland, mining 40% of the national total. Nonetheless, Cloud Peak and other local producers hope to boost exports to Asia—if they can convince Oregon and Washington to allow export terminals to be built along their coastlines.
The EPA reckons coal will still account for around 31% of electricity production by 2030; far more than renewables, at 9%. But previous forecasts have often been wrong. In 2007, 39% of America’s electricity came from coal. It has since been squeezed by pollution rules and the growth of natural gas. The Energy Information Administration reckons 60 gigawatts of coal-fired capacity will retire by 2020. Still, says Richard Morse of SuperCritical Capital, a consultancy, it is hard to see coal’s share of the mix dropping below one-quarter by 2030.
Environmentalists used to fret that Barack Obama had let climate policy slip behind other priorities, such as health care. But the president has repeatedly signalled his intention to act. In 2009 he pledged to cut greenhouse-gas emissions by 17% by 2020 from their 2005 level. More recently, in successive state-of-the-union addresses he first threatened, then promised, to use his executive authority to meet that goal if Congress would not act.
Emissions from power plants were notably high in 2005. By 2012 they had fallen by around 16%, thanks largely to the recession and the fracking revolution—which has hugely increased the share of relatively clean natural gas in the energy mix. America is therefore halfway to meeting the EPA’s stated goal already; indeed, the decision to use 2005 as a baseline year smells political, allowing the administration to trumpet a dramatic-sounding 30% cut.
Yet this week’s ruling is not Mr Obama’s first big effort to curb climate change. In 2011 he announced strict fuel-efficiency standards for new vehicles (together with the new EPA rule, that should get the country close to his 2020 goal). Last year the EPA declared that new coal-fired plants may not emit more than 1,100 pounds of carbon dioxide per megawatt-hour generated; that in effect bars their construction, unless it becomes far cheaper to capture and store carbon emissions.
Such new rules have revived accusations that Mr Obama is waging a “war on coal”—which he is. It is not only Republicans who are upset; several members of Mr Obama’s own party facing tight elections in coal states will surely be regretting the president’s timing (see map). Alison Lundergan Grimes, a Kentucky Democrat seeking a Senate seat, ran ads showing a miner holding up a lump of coal and griping that “President Obama [doesn’t] get it”. Nick Rahall, a Democratic congressman from neighbouring West Virginia, joined forces with a Republican to craft a bill that would overturn the EPA rule.
Yet as his presidency enters its twilight, Mr Obama may be more concerned with China and India than with the fortunes of his party. America cannot halt climate change alone: at best the EPA rule will reduce global emissions by 1-2%. Climate diplomats hope to forge an agreement on global emissions, to be signed in Paris in late 2015. Last week Mr Obama said America should lead by example. On June 3rd it did the opposite, slapping tariffs on Chinese solar panels. But still, on the same day an adviser to the Chinese government said China may place a cap on carbon emissions from 2016. That would be a start.