The Biden administration aims to accelerate the decarbonisation of US power

Critics of the US Supreme Court often describe its nine justices as “politicians in robes”, alleging that they make decisions based not on impartial interpretation of the law, but on ideologies, alliances and interests. Whether or not you accept that critique, it is undeniable that the Court wields huge influence over Americans’ lives. It will soon have to make decisions that will have a significant impact on US climate and energy policy.

The Biden administration’s Environmental Protection Agency last week published the proposed new regulations for the power generation industry, intended to curb greenhouse gas emissions and accelerate the shift towards a lower-carbon system. The Supreme Court is likely ultimately to decide whether or not these rules can take effect.

What is most notable about the proposals, however, is that even if they are implemented, they are not expected to make a transformational difference to US power sector emissions. Estimates presented by the EPA suggest that if the regulations go into effect, they will reduce carbon emissions from power generation in the US in 2030 by 9%, relative to the level without the new rules.

For comparison, the EPA expects a 37% drop in carbon dioxide emissions from power generation between 2030 and 2035, even in its “baseline” case without the regulations. To put it another way, without the rules the EPA expects US power generation emissions to drop by 67% over 2028-45. With the rules, it expects a decline of 68%.

Competition from renewables and natural gas, along with corporate sustainability goals, the incentives created in the Inflation Reduction Act, and energy policies in many states, are driving the US power industry away from coal and towards a lower-carbon future. That will remain true whatever the fate of the Biden administration’s proposals.

The proposed new regulations have been drawn up to work within the limits set by a Supreme Court ruling in June last year. After legislation to introduce a carbon cap-and-trade system for the US failed to pass in 2009, President Barack Obama shifted to trying to use regulations to curb emissions, an approach that gives the courts a key role in deciding whether the administration is implementing the law correctly or not.

The Obama administration’s Clean Power Plan, its set of proposals for regulating emissions from the electricity sector, used a “generation shifting” approach. It set emissions standards for states that they could meet by changing their generation mix, closing coal-fired plants and using gas, renewables and nuclear power to replace them.

On a 6-3 vote, the Supreme Court justices ruled that that approach was illegal, representing an attempt by the EPA to grant itself “unprecedented” powers over the electricity system as a whole, rather than specific plants.

The Biden administration is trying again with the regulatory route, but with a redesigned plan that aims to avoid falling foul of the Court’s previous objection. The new regulations operate at the level of individual plants — “inside the fenceline”, as it is sometimes called — rather than at the level of the grid as a whole.

The proposed rules set emissions limits for new gas-fired plants and existing coal, oil and gas-fired plants, and would over time force changes at most of them. Peaking plants with capacity factors of less than 20%, which burn gas or distillate oil, would be largely unaffected, but would have limits on the carbon intensity of the fuels they can use.

Other plants would have to shift to co-firing with low-emissions hydrogen or add carbon capture technology, in phases over the course of the 2030s. Existing coal-fired plants could also be compelled to co-fire with natural gas, depending on when they are scheduled to be retired. The EPA says it has not bothered to draft rules for new coal-fired plants because “we anticipate no further new units.”

The administration says these new rules — which have not yet been given a catchy name — are “consistent with EPA’s traditional approach to establishing pollution standards under the Clean Air Act”. That does not mean they are bound to sail smoothly through the courts.

The Clean Air Act mandates the EPA to require the “best system of emission reduction” that is “adequately demonstrated”. That raises some big questions about whether hydrogen co-firing and carbon capture have been adequately demonstrated yet, or will have been by the 2030s.

The administration argues that carbon capture and storage “is adequately demonstrated, achieves significant reductions in GHG emissions, and is highly cost-effective.” That contention could be a critical issue in the legal action over the new rules, which is very likely to end up back in the Supreme Court again.

As the political and legal battles over the regulations gather momentum, though, it is worth taking a step back to look at the bigger picture of emissions from the US power industry. Wood Mackenzie was already forecasting a decline of about 70% in the carbon dioxide emissions of the US power sector over the next two decades, as coal-fired plants and even some gas-fired plants are shut down, to be replaced primarily by renewable generation.

The EPA’s new standards, if they do come into force, might accelerate that decline slightly. But they would not be the decisive factor in decarbonising the industry.

There is a parallel here with the Clean Power Plan, which was put on hold by a Supreme Court ruling in 2016 and then never implemented. After that plan was blocked, US power sector emissions declined even faster than had been expected by the EPA if it had gone into effect.

The Supreme Court may be important, but market forces, corporate goals, state policies and investor pressure turned out to be the decisive factors that shaped the industry. And they are the forces that are likely to continue to shape it in the future.

In brief

Devastating wildfires have come early to Alberta this year. More than 90 fires are active, more than 25 of them classified as “out of control”, and thousands of residents have been evacuated. The fires are having an impact on oil and gas production, with over 300,000 barrels of oil equivalent per day currently shut in. The situation is changing rapidly, with some facilities able to return to service, while other new areas come at risk as winds shift. The region is home to many productive formations, and the Cardium, Deep Basin, Duvernay and Montney basins have all been affected. Officials have warned that the fires could drag on all summer.

Global temperatures over the next five years are very likely to reach their highest levels since records were first compiled in 1880, according to the World Meteorological Organization. The WMO said there was a 66% likelihood that the annual average near-surface global temperature over 2023-27 would be more than 1.5 °C above pre-industrial levels for at least one year, and a 98% likelihood that at least one of the next five years, and the five-year period as a whole, would be the warmest on record. Professor Petteri Taalas, the WMO’s secretary general, said: “This report does not mean that we will permanently exceed the 1.5° C level specified in the Paris Agreement which refers to long-term warming over many years. However, WMO is sounding the alarm that we will breach the 1.5° C level on a temporary basis with increasing frequency.”

Frontier, the organisation backed by Stripe, Alphabet, Meta and thousands of other businesses to fund carbon removal, has signed its biggest deal yet. It has agreed a contract worth US$53 million with Charm, a carbon storage company, to remove 112,000 tons of carbon dioxide between 2024 and 2030. The price works out at about US$473 a ton.

Remember the huge excitement last December, when the US Department of Energy announced that the Lawrence Livermore National Laboratory had “made history” by achieving fusion ignition? The laboratory has since run five similar experiments and not been able to replicate the results, Bloomberg reported. Kim Budil, the laboratory’s director, said: “We’ve learned a lot through those experiments, and we’re very confident we’ll get back above that [ignition] threshold…  But it’s still very much an R&D project at this point.”

And finally: the first trailer has been released for Martin Scorsese’s new film, Killers of the Flower Moon, set in the boom years of the oil industry in Osage County, Oklahoma. The film looks terrific; the book it is based on, a true story, is said to be outstanding. One for the summer reading list.

Other views

Dalia Salem — Drilling down into the UAE’s exploration renaissance

North American gas market to expand by 25 percent over the next decade, despite headwinds

Brent-linked long-term LNG contracts are back in vogue

Australian operators need to collaborate to create super basins

Gregory Allen — China’s new strategy for waging the microchip tech war

Sophia Kalantzakos and Kunda Dixit — The global climate system’s Himalayan hotspot

Jesse Jenkins — Enhanced geothermal: a new tool for deep decarbonization

Quote of the week

“I’m a big believer that people are more productive when they are in person… The whole notion of work from home is a bit like the fake Marie Antoinette quote: ’Let them eat cake’… It’s a productivity issue, but it’s also a moral issue.” — Elon Musk, chief executive of Tesla, argued that it was “messed up” that some people could work from home, while others in industries such as manufacturing, construction and food service could not.

Chart of the week

This is a slide from a presentation given in New York recently by analysts from Wood Mackenzie’s metals and mining team. It was shown by Natalie Biggs, our global head of thermal coal markets research, to underline a key point: the shift to more inelastic supply for both thermal and metallurgical coal. The upswing in prices of 2011 led to a boom in capital spending for new coal mines. In the current cycle, prices have risen to record-breaking levels, but have not resulted in anything like the same surge in investment. That is particularly true for thermal coal, shown on the left: we expect capital spending to stay at around current levels for the rest of the decade. For met coal, we do expect some growth in capital spending, but in real terms it is likely to remain well below its 2011-14 peak. Instead of increasing investment in future production, the major coal exporting companies have been using record profits to pay down debt, ramp up dividend payments, and in the case of diversified miners, fund non-coal projects. Biggs notes that the world is not quite ready to be done with coal yet, as we saw last year. Underinvestment in the sector could lead to significant supply gaps in the next decade as reserves deplete at existing operations.