Clean Power Plan 2.0: Sequel is Worse Than First

Recently, the Environmental Protection Agency (EPA) took another stab at revising a key Obama-era rulemaking - the Clean Power Plan 2.0. This major rule would force power plants to curb their emissions by nearly 90 percent by 2040. Last year, the original plan was struck down by the Supreme Court for regulatory overreach, and this new rule suffers from many of the same flaws as the first one.

The EPA claims that this rule will provide societal benefits that outweigh the costs of compliance. However, a closer look at the proposal reveals that it would have major negative consequences for taxpayers, the stability of the energy grid, and consumers’ wallets.

The EPA’s proposal would set emission standards for new, modified, and reconstructed power plants based on technologies such as carbon capture and sequestration (CCS), low-greenhouse gas (GHG) hydrogen co-firing, and natural gas co-firing. These technologies are supposed to reduce the amount of carbon dioxide (CO2) that power plants release into the atmosphere. However, these technologies are not adequately proven at national scale, and would impose significant costs and challenges on the power sector as well as consumers.

First, CCS is a process that involves capturing CO2 from power plant exhaust, compressing it, transporting it by pipeline, and injecting it underground for permanent storage. CCS is not commercially viable at this time, and has many technical, economic, and environmental uncertainties. Currently, the United States only has one coal-fired power plant that meaningfully utilizes CCS to reduce their emissions of CO2. The EPA’s own Regulatory Impact Analysis (RIA) points to a handful of coal-fired and natural gas examples in the United States as “adequate demonstration.” These examples would not come close to meeting the ambitious standards proposed in the new rule. 

In practical terms, CCS would require a massive infrastructure of pipelines and injection wells, which would entail high capital and operating costs, as well as potential risks of leaks, explosions, and groundwater contamination. CCS would also reduce the efficiency of power plants, meaning that more fuel would be needed to produce the same amount of electricity. According to a study by the Department of Energy, CCS would increase the cost of electricity by 50 percent, by 70 to 80 percent for coal plants, and by 20 to 30 percent for gas plants.

Second, hydrogen co-firing is a process that involves blending low-GHG hydrogen with natural gas or coal in power plant turbines. Hydrogen can be produced from various sources, such as natural gas reforming, electrolysis of water, or biomass gasification. However, hydrogen co-firing is not widely practiced in the power sector, and has many technical and economic barriers. Hydrogen has lower energy density than natural gas or coal, meaning that more fuel would be needed to produce the same amount of electricity. Hydrogen also has different combustion characteristics than natural gas or coal, which could affect the performance and safety of power plant turbines. Hydrogen co-firing would also require modifications to existing power plants and fuel delivery systems, which would entail additional costs and complexities.

Third, natural gas co-firing is a process that involves replacing some of the coal in power plant boilers with natural gas. Natural gas has lower CO2 emissions than coal per unit of energy, but it

 also has higher prices and volatility than coal, which could increase the cost and uncertainty of electricity generation. Natural gas co-firing would also require changes to existing power plants and fuel supply infrastructure, which could pose technical and economic challenges.

The EPA’s proposal would be a de-facto ban on coal-fired power generator units. By their own estimates the EPA says that only 1 gW of power would remain coal-fired by 2035. This would force many existing coal-fired power plants to retire or switch to natural gas or other fuels, reducing the diversity and reliability of the electricity grid. Coal-fired power plants provide baseload power that can operate continuously and flexibly to meet demand fluctuations. They also have large fuel stockpiles on site that can ensure uninterrupted operation in case of supply disruptions or extreme weather events. Replacing coal with other energy sources still requires patient investment and market innovations to avoid increasing the vulnerability of the grid to price spikes, fuel shortages, or intermittent output. The EPA’s proposal would result in the loss of nearly all coal-fired power generation which would be difficult to replace, especially given permitting restraints at the federal and state levels. 

The EPA regulation is likely unconstitutional because it exceeds the scope of the agency’s authority under the Clean Air Act. The Clean Air Act is a federal law that authorizes the EPA to regulate air pollution from stationary and mobile sources. However, the EPA regulation goes beyond regulating emissions from individual power plants, and instead seeks to transform the entire electricity sector by requiring states to shift their power generation from legacy systems to new technologies, some of which have uneven stability. This is a major policy decision that affects the economy, the environment, and the energy security of the nation, and it should be made by Congress, not by an unelected administrative agency. The Supreme Court has recently ruled that the EPA cannot use its regulatory power to make such sweeping changes without clear congressional authorization. Therefore, the EPA regulation likely violates the separation of powers principle and infringes on the rights of states and private entities. The EPA regulation also fails to satisfy several burdens of regulatory restrictions demonstrated in the West Virginia v. EPA Supreme Court decision. EPA has again failed to “adequately demonstrate” the new technologies’ use and has failed to consider several important impacts of the rule, including on consumers, and the cost of compliance. 

The EPA’s proposal would also raise electricity prices for consumers across the country. Higher electricity prices would hurt households and businesses that rely on affordable and reliable power for their daily needs and activities. Higher electricity prices would also have negative impacts on economic growth, employment, competitiveness, and living standards. The EPA’s own very conservative analysis in their regulatory impact analysis pegs retail electricity prices as increasing by 2 percent by 2030. In a similar analysis of the cost impacts of CCS in a 2019 rule, the EPA estimated that the cost for all users would increase by 44 percent. The actual impact would likely be much higher especially given that the EPA’s analysis ignores other major regulations affecting electricity demand - namely the emissions rules that will essentially ban combustion vehicles in the United States. Estimates suggest that domestic energy demand will increase by around 38 percent by 2035 from 2022 figures. This demand increase would certainly cause a major increase in consumer energy prices that the EPA is not accounting for. 

The nation’s taxpayers, who are NTU’s first and foremost concern, could stand to lose a great deal under this scheme. For one, governments themselves would likely have to pay more for the energy they consume. Furthermore, government-owned utilities that serve private customers could be forced to cope with less reliable or costlier generation activities. In both instances, the expense would be passed along to taxpayers. A different set of burdens could arise if policymakers further succumb to the temptation to manipulate the evolution of technology and markets with additional government subsidies. Whether in the form of loans, direct grants, tariffs, or refundable credits, tens or even hundreds of billions in additional taxpayer liabilities could be on the horizon. 

The EPA’s proposal to limit greenhouse gas emissions from fossil fuel-fired power plants is not a sensible or feasible way to address climate change. The proposal would rely on unproven and costly technologies that would impose burdens on the power sector and jeopardize the stability of the electricity grid. The proposal would also increase electricity prices for consumers and severely damage a key sector at a time of economic uncertainty. The EPA should withdraw its proposed rule and pursue more balanced and realistic solutions.