Obama's New Proposed Regulations On Coal Energy Production Met With Ire Through Kentucky's Coal Country

The US EPA recently unveiled its Clean Power Plan. This time it proposes carbon pollution emission guidelines for existing stationary sources; namely, electric utility generating units (EGUs). Owners or operators of fossil fuel-fired EGUs will be subject to carbon emission limits if the rule is implemented as currently proposed. It appears this plan constitutes the centerpiece of the Obama administration’s climate agenda in the run up to the 2015 global climate conference in Paris. Obviously, the administration’s rationale was to improve the chances of getting a global climate agreement done after the failed Copenhagen global climate conference in 2009.

What do the proposed rules suggest to China, India and other emerging economic powerhouses around the world? At this stage, most of those countries can ill afford nor are willing to unnecessarily constrain their growth trajectories. Sure, they are willing to talk the ‘environmental talk’ and incorporate more renewables into their respective energy mix understanding the costs of pollution (e.g. China) but are unlikely to turn the switch completely from fossil-fuel fired power generation to European-style renewable power generation or US-style natural gas-fired power generation. This may change once those countries catch up economically – i.e. on a GDP per capita basis. On this road, however, higher electricity prices are detrimental. Also note, natural gas-fired power generation is ‘cleaner’ than other options but not entirely “clean” from a greenhouse gas emissions perspective. The issue here is methane emissions. Methane is explicitly mentioned only seven times on 645 pages. It would be hard to argue against the appearance that the ‘methane issue’ was de-emphasized.

The EPA proposed a regulatory framework that mandates US power plants to reduce GHG emissions 30 per cent by 2030 relative to their 2005 baseline. At the center are individual states, which are given significant flexibility in meeting the set carbon emission targets. They will have to submit a plan by 2016 that reduces GHG emission by 30 per cent in 2030. This framework is clearly devised to wean the nation further off coal and, instead, favor natural gas and renewables. Simply put, these regulations make the use of coal more expensive. The Clean Power Plan lays out “Building Blocks for the Best System of Emission Reduction” that states can use to reduce carbon pollution. Improvements in individual EGUs’ emission rates could include measures such as “improving the efficiency with which EGUs convert fuel heat input to electricity output (i.e., heat rate improvements), applying carbon capture and storage (CCS) technology, and substituting lower-carbon fuels such as natural gas for higher-carbon fuels such as coal (i.e., natural gas co-firing or conversion).”

In sum, it is the flexibility for states in the EPA carbon emission rules that actually could give countries like China or India ammunition against a global climate agreement and, therefore, may actually turn out to be counterproductive for the Obama administration’s apparent objective. The argument would be pretty straightforward: ‘Why should we – i.e. China and other emerging economies – bear the brunt of responsibility and costs for climate change given our low level of historical responsibility for this phenomenon to begin with? How can you – i.e. the US – ask us to sign on to a binding global climate agreement, which could curtail our growth at this stage while you cannot even reach a federally-binding climate agreement in your country – effectively bypassing Congress?’

It is important to remember that without China, India and other emerging economies, no real progress on the climate front can be achieved. These countries have been served a perfect argument, which improves their bargaining position significantly; namely, if the US is not willing and/or able to pass federally binding carbon emission standards in a top-down approach but, instead, actually acknowledges that giving significant flexibility to states in meeting carbon emission reduction targets is the better approach, this flexibility on a country-by-country basis is even more called for on the international level. This, however, would not help the global climate agreement cause. A good indication is that many environmental organizations are not too happy with the currently proposed ‘Clean Power Plan’.

Consequently, a global climate agreement in 2015 is illusive and will at best consist of a plethora of watered down, voluntary, and, above all, flexible carbon emission reduction targets and strategies. Emerging market countries will strive to adopt strategies to avoid public international shaming while making sure not to hurt their own growing economies and their international competitiveness. In contrast, the current US administration seems to go down the road of regulating the coal industry into an uncompetitive situation with collateral damage to be determined later. Maybe, it would be a good idea to show some flexibility in regard to the coal industry too. To be clear, it is this administration’s prerogative to outline its vision for a sound domestic energy policy. However, the administration should not be allowed by Congress to not only reduce the use of coal in US power generation but turning US coal reserves and infrastructure into effectively ‘stranded assets’ by indirectly preventing the further expansion of US coal export facilities. The US coal industry is still the workhorse of US power generation and will be for the foreseeable future. Without the fossil-fuel sector the US would probably still be emerging…

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