Coal is in decline, and contrary to what conservatives would have you believe, it has little to do with President Barack Obama's alleged War on Coal. Consumers have cut back on energy usage, and market forces have driven down the cost of competing sources like natural gas. For these reasons—not last September's EPA regulations—energy companies aren’t planning on opening any new coal plants. But rest assured, when Obama on Monday announces still more regulations for carbon emissions, conservatives will denounce them as the latest offensive in the War on Coal.
In fact, the cries have already begun. The Chamber of Commerce released a report Wednesday estimating that these latest regulations will cost consumers $51 billion and kill 224,000 jobs per year through 2030. As New York Magazine’s Jonathan Chait documented on Thursday, the Chamber used wild assumptions and a distorted time frame to get their results. Of course, progressives have their own set of numbers: Natural Resources Defense Council, an environmental think-tank, released a report Thursday that the new regulations would cut consumer costs by $37.4 billion and create 274,000 new jobs by 2020.
Never mind that this is largely speculative, as Obama has yet to deliver his speech and the EPA won’t release the final regulations until June 2015. But this much is known: While Democrats and Republicans try to spin the impact of the regulations, the real fight—the one that matters to consumers—will play out not on the national stage in the coming weeks, but on the state level in the coming years.
Conservatives often argue that the EPA’s regulations on new coal-fired power plants have effectively prevented the creation of any new ones. Coal-fired plants, they protest, are unable to meet the standards without installing separate controls to capture and store parts of its CO2 production—controls that many in the industry say are not yet available. The EPA disagrees, but ultimately it doesn’t matter. Coal has already declined as an energy source without any interference from the EPA.
“Just like the typewriter, coal served the power sector extraordinarily well for a century. It was the workhorse of our power sector,” said Tyson Slocum, the energy director of Public Citizen, a consumer advocacy group in Washington, D.C. “But technology changes and solar, renewables, investments in energy efficiency—partially enabled though the smart grid—and affordable natural gas prices render coal obsolete. It’s going to die a slow death.”
Even without the rules, no new coal-fired plants would have been built, according to a Congressional Research Service report. Republicans can protest that the regulations have made it even costlier to open a new plant, but zero minus zero is still zero. “The coal industry is unhappy with this, and has tended to place the blame for its current difficulties on EPA; but, actually, the market is the key factor in coal’s recent decline,” the report concluded.
The same market dynamics affect existing coal-fired plants, which are 40 years old on average. Many of these plants are nearing their natural retirement. A Goldman Sachs report on the new regulations notes that “since 2011, owners of roughly 15% of the nation’s coal generating capacity announced plans to retire these units—we expect another 7%-8% to shut going forward, before factoring in the impact of GHG or carbon regulations.”
In other words, nearly a quarter of coal-fired plants will close—and their workers will lose their jobs—even if the EPA doesn't absolutely nothing.
More realistic estimates of the projected costs depend on two yet-to-be-announced rules: the baseline year for emission reductions and the latitude the EPA gives states to make those reductions. As The New Republic's Jon Cohn explained, the administration will require states to cut emissions by a certain percent relative to a certain year. Given the reduction in carbon output that has already occurred, a 20 percent cut in emissions relative to 2013 is much larger than a 20 percent cut relative to 2008. That, in turn, will have a major impact on the economic costs. Achieving the goals that Obama outlined in 2009 before international meetings in Copenhagen would require an approximately 25 percent reduction from 2012 levels.
As for state flexibility, Coral Davenport reported in the New York Times on Thursday that the EPA will give states wide authority to achieve these reductions: they can join or create regional cap-and-trade systems to lower their emissions, increase their use of nuclear energy and renewables, or make investments in energy efficiency. This system-wide approach, as it is known, offers states the ability to reduce their emissions in the most efficient manner, instead of limiting them to changes within the actual power plants (the so-called fence-wide approach).
The NRDC believes that the flexibility will allow states to design system-wide changes that improve efficiency and save consumers money. Even if energy rates increase, they argue, consumers will use less energy, lowering their overall energy bill. That’s how the NRDC devised its estimates that the new regulations would save $37.4 billion and create 274,000 new jobs. On a conference call, the NRDC specified that those new jobs are only those created through energy-efficiency improvements, but that based on preliminary estimates, the overall number would be even larger. A separate environmental think-tank, Resources for the Future, found almost no costs to the regulations across three different models.
These estimates hinge on the assumption that states will adopt policies that benefit consumers. Since the EPA is giving states so much flexibility in achieving these goals, they are also entrusting public utility and energy commissions to look out for consumers. That’s partly why many regulated electric companies aren't worried about the regulations. For instance, in Davenport’s article, multiple coal industry officials welcomed the new rules. “We view cap and trade as having a lot of benefits,” John McManus, the vice president of environmental services at American Electric Power, told Davenport. “There’s important design considerations that would have to be factored in, to consider each state’s circumstances. But we think it’s definitely worth looking at. It could keep the cost down. It would allow us to keep coal units running for a more extended period. There are a lot of advantages.” Many other coal officials have made similar comments.
“Regulated utilities also have typically very good relationships with their state legislators and with their governors,” Slocum, the energy director at Public Citizen, said. “When [EPA Administrator] Gina McCarthy has been running around for the last year and meeting with all these folks, she’s been saying, ‘You already work well with your state officials. We’re going to set some broad guide posts. The state officials are going to march you down the field.’ The utilities are comfortable with that.”
How those state officials create the rules will dictate how much consumers see their energy costs rise or fall. “It’s all going to be how you structure rates. You can structure rates through a very aggressive decoupling program that pays the utility back a lot to manage this program,” Slocum said. “Or you control those costs and make sure more of the savings flows back to consumers. That’s the difference between a consumer paying higher rates and using less energy, but still paying more for that energy, because the rates are higher, or the consumer breaking even or even saving money. That’s going to be the big fight.”