Economic, Social, Governance Forces: Trends in CO2 Reductions in Power Plants, Despite Policy Shifts from Trump, Some United States and European Comparisons
Politics and the popular press rely on slogans and generalizations. One popular international viewpoint is that the United States has moved away from commitments to reduce carbon emissions. This is understandable in light of certain policy statements from the Trump administration, such as pulling out of the Paris accords and rescission of the Clean Power Plan, and other environmental regulations applicable in the United States.
Nevertheless, the United States continues to rapidly move from electricity generation from coal. Over all, the United States has and continues to reduce carbon in carbon emissions. This result is counter to the expectations for a complex set of reasons. However, with regard to use of coal for electricity generation, there are several identifiable factors. Some of these are: overabundance of natural gas production and record low natural gas prices relative to coal; corporate acceptance of “sustainability” as a corporate and social value; regional policies in different states in the United States on electricity pricing; local and federal subsidies for renewables; and state renewable energy portfolio standards. (Slide 3)
Record Low Natural Gas Prices.
The well-known fracking revolution has resulted in the United States being one of the world’s oil natural gas producers. This oversupply of natural gas has driven natural gas to record low prices, to such a point that gas-based generation of natural gas is competitive and sometimes cheaper than coal. (Slide 16) By 2050, electricity from natural gas will double the amount produced from coal. (Slide 35) While coal prices remain the same, several existing environmental regulations continue to impose large compliance costs for air emissions, such as emission of sulfur oxides, nitrogen oxides, and mercury. For instance, as shown in Slide 20, the recent regulation of mercury emission alone has imposed costs which caused the shutdown of thousands of megawatts in coal-fired power plants. Also, recent EPA regulations on coal ash disposal and wastewater discharge present economic challenges to coal plants. Despite the election of President Trump, only a few of these requirements have been changed.
Various state policies on the consumer price of electricity have made it uneconomical to sustain coal generation in some states. For instance, Slide 20 shows which states regulate electricity prices based on market forces, rather than state-set (regulated) prices. Some states allow electric companies to charge electric rates which are sufficient to guarantee a power company to earn a fair rate of return on all capital costs. These states allow a power company to pass charges for pollution control to the end user. Other states require electricity prices to be based on the cost of the lowest producer. In these states, coal-powered plants are unable to compete with low priced natural gas plants.
Of course the ability of any power company to pass true charges to its customers is based on many forces, such as subsidies (in the case of solar and wind), local taxes, transportation, labor, maintenance, and other costs; but the effect of low natural gas prices in the U.S. is one of the key factors resulting in coal plant closures and reduction of CO2 in the United States.
Corporate Policies on Sustainability.
Reflecting social change, most of the United States’ leading corporations have committed to the notion of environmental sustainability. These policies, in conjunction with low natural gas prices, have caused many of the leading U.S. electric utility companies to move from coal to natural gas and renewables. Almost every major United States electricity producer has adopted sustainability as a value and reportable item. For instance, Slide 7 reflects the commitment of DTE (one of the Midwest’s largest utilities) to switch from coal to gas and cut carbon emissions by 70 percent over the coming decades. These actions are being taken despite the repeal of the Obama Clean Power Plan. The corporate value on sustainability is and has been strong in Europe for even a longer period.
Regional Commitments to Renewables.
Some states, particularly in the Western U.S., are committed to reduce or eliminate fossil fuels in the 2040 timeframe. For instance, the state of California has recently enacted laws designed to eliminate reliance on fossil fuels by a total commitment on renewables. (Slide 13) Many individual states have passed laws requiring renewable portfolios for electric utility companies operating in those states. Those laws mandate that these companies must generate a certain percentage of electricity view renewables. (Slide 13) While these laws differ substantially from state to state and region, they are a reflection of individual and regional policy differences, much in the same way as among member EU states. Depending on future natural gas prices, electricity from renewable energy sources could double that produced from coal in 2050. (Slide 35)
The situation in Europe is more complicated, perhaps because of different national values, economic status, and available natural resources among the member states. For instance, France already generates over 80% of its electricity from nuclear plants. Germany has moved away from nuclear; nevertheless it still has a relatively high percent of coal generation. (Slides 25, 26) Low cost natural gas prices are not the norm in Europe as in the United States. (Slide 27) And most natural gas used in Europe is imported (Slide 29). European clean energy subsidies are changing, and are being phased out in some places—the continued sustainability of clean energy subsidies will depend in large measure on the Gross Domestic Product of individual nations and the EU, their debt rations, and capital spending priorities.
Asia is far more complex. Asia will see the largest growth in energy production in the next decades, and fossil fuels appear to be part of filling that demand. (Slide 33) This is clearly depicted in the large amount of CO2 which comes from Asia. (Slide 24)
The past has demonstrated that many of the predictions for the future of energy policy and carbon emission were wrong. Just a few years ago, “peak oil” was a given fact and the basis for national energy policy. Not so any more in the United States, with the fracking revolution. Renewable prices have fallen, as predicted, but new challenges face renewables, such as the end of subsidies, land use issues, and local opposition. Battery storage is a predicted antidote for the fact that the sun doesn’t always shine, but that story is still unknown. What can be expected is that technologies will emerge that will change the landscape of energy generation, and likely for the better.
Louis E. Tosi
Shumaker, Loop & Kendrick, LLP
1000 Jackson Street
Toledo, OH 43604-5573 USA