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September 20, 2011Blog

Is the United States Implementing a De Facto Carbon Reduction Program to Help Renewable Energy?

Renewable Energy World

In 2009, Congress effectively abandoned efforts to pass climate change legislation.  International efforts to address climate change have also stalled. These events have been a major set back for the development of renewable energy which would have greatly benefited from the financial and regulatory incentives that would be an integral component of any comprehensive energy policy. Despite these set backs we have seen efforts to nonetheless create a regulatory and legal atmosphere that will improve the competitiveness of renewable energy by increasing the cost and difficulty of operating traditional fossil fuel generated energy.

 

The EPA has aggressively interpreted its executive powers under existing environmental statutes to implement what some have described as a surrogate carbon reduction program.  Over the last two years, EPA has promulgated or proposed a suite of environmental regulations which each seem to share a common characteristic – increasing the regulation and cost of coal generated energy. Among these EPA regulations are: coal ash storage/disposal standards; more stringent hazardous emission limitations; carbon dioxide emission regulation under the Clean Air Act; more stringent new source performance standards; very stringent ambient air quality standards (PM2.5, NOx and SO2); regional visibility limitations; interstate emission reduction programs (CSAPR); and cooling water intake structure regulation. 

 

EPA has also accelerated its “Coal-Fired Power Plant Enforcement Initiative” focusing Clean Air Act enforcement authority on coal boilers to force their shutdown, control or repowering. These lawsuits often cite decades old projects as having been illegally undertaken – even though many projects had been completed with the knowledge (and often approval) of state and federal regulators. 

 

The Sierra Club has also aggressively pursued the reduction and elimination of coal combustion. The organization’s “Beyond Coal Campaign” seeks to effectively retire one-third of the country’s coal plants by 2020 and has claimed credit for preventing 150 coal plants from having been built. The philanthropic organization of New York Mayor Michael Bloomberg has recently committed $50 million to this campaign which will help expand these efforts into 46 states.  

 

From the perspective of renewable energy, these efforts should help the industry. Coal plant retirements will reduce the available dispatch capacity in many regions.  This, in turn, will create opportunities to replace this lost generation using alternative, lower carbon generation assets.  Attempts to replace lost capacity with new coal generation will face well funded legal opposition, making investment uncertain and unattractive. This should favor renewable power.

 

For coal plants that remain in operation, the regulatory and litigation costs of continued operation will continue to increase. This too will make renewable energy more competitive as the costs of traditional generation rise.

 

One interesting development has been the increased supply of natural gas from shale deposits using hydraulic fracturing production technology. This has substantially lowered the cost of natural gas to a point that new and replacement natural gas generation is very competitive with all forms of energy production. Given the measured success against coal plants, we may see increased efforts from the EPA and private interest groups targeting natural gas shale production as well.  For example, on July 28, 2011, EPA released 604 pages of proposed air regulations for the “fracking” process which will cost an estimated $750 million by 2015.  ENGOs have also begun organizing opposition to the fracking industry with litigation pending in numerous venues. 

 

Government often does indirectly through agency action or inaction what it is unable or unwilling to do directly through legislation. Whether or not this type of agency activity is appropriate is not a subject I cover today. However, I believe it is important to recognize when these activities are occurring so the regulated sector can appropriately plan its response. 

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