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Emissions rules for US power pose some difficult questions

New regulations for coal plants hit an industry already in decline. Limits for gas plants would affect a sector that is still growing

8 minute read

The Group of Seven leading industrial nations last week agreed that by 2035 they would close all their coal-fired power plants that do not have emissions reduction technology. At a meeting of G7 environment, energy and climate ministers in Turin, they pledged to phase out existing unabated coal power generation in the first half of the 2030s, “in a manner consistent with keeping a limit of 1.5 °C temperature rise within reach”.

European governments described the agreement as “historic”: this is the first time all the G7 countries have made a commitment to end coal power. An attempt to agree it at the COP28 climate talks in Dubai last year was unsuccessful, with the US and Japan holding out.

However, for most G7 countries, including the US, the pledge amounts to only a modest acceleration in trends that are already well under way. US power generation from coal is set to decline steeply over the next couple of decades, and any government action is likely to have only a marginal effect on that trend.

Coal is not really the hard issue for US climate policy any longer. The real question is what to do about gas.

The US Environmental Protection Agency last month published the final version of its new regulations for greenhouse gas emissions from power generation. The rules impose demanding restrictions on coal-fired power plants, requiring them to use carbon capture or other technologies to achieve a 90% reduction in emissions if they are to remain in service after 2039.

There is a good chance that the new rules will be blocked, by legal challenges or by a change of control in the White House following the November elections. But whatever happens, coal’s days are numbered as a fuel for power generation in the US.

The last wave of coal-fired power plant construction in the US was in the 1970s, and plants built then are approaching the end of their working lives. Elyse Steiner, Wood Mackenzie’s principal analyst for coal markets, says escalating maintenance costs mean that over the next two decades or so, most of those plants will become uneconomic to keep in service.

The coming upsurge in US electricity demand after 15 years of stagnation, driven by data centres, new manufacturing facilities and electric vehicles, will help keep some of those plants running for longer, but it cannot stop the clock. Some coal plant retirements will be delayed, Wood Mackenzie analysts say, but the long-term picture has not changed much. Coal is still on its way out, if at a slightly slower rate than previously seemed likely.

We have been updating our North America electricity demand forecasts, reflecting the latest information about plans for new data centres and factories, and the full details will be published soon. In 2024, we expect coal-fired power plants in the US to produce about 630 terawatt hours of power. By 2040, we expect that to drop to just 100 TWh, a decline of about 85%.

That outlook is slightly stronger for coal than in our previous forecast, when we projected that coal-fired generation in the US would disappear by 2040. But that is still a very steep decline.

The new EPA regulations will undoubtedly face legal challenges that could well end up in the Supreme Court. The Obama administration’s rules for power generation emissions, known as the Clean Power Plan, were struck down by a Supreme Court ruling in 2022.

The EPA has completely redesigned the regulations and believes its new rules are immune to the kind of challenge that doomed the Clean Power Plan. But they are still vulnerable to different angles of attack. One crucial issue will be whether carbon capture has been “adequately demonstrated”. Under the Clean Air Act, that is the test for whether it can be used in the regulations as a standard for emissions reductions required from power plants.

With carbon capture still a niche industry in the US, and only a small minority of proposed new projects around the world targeting emissions from power plants, it may be hard to persuade an unsympathetic court that the technology really is “adequately demonstrated”.

Yet even if the Supreme Court does reject these new regulations the way it struck down the Clean Power Plan, the decline in US coal generation seems inevitable.

The more contentious issue for the EPA will be what happens to gas-fired generation, both new builds and existing plants. Although the great majority of the new generation capacity planned for the US is wind and solar power, some companies also want to build gas-fired plants, to help meet rising demand and stabilise the grid.

For new gas generation, the EPA rules are complex, with emissions standards varying according to how much the plants are expected to run. “Base load” plants, with a capacity factor of over 40%, would be required to meet a standard similar to existing coal plants: a limit on emissions equivalent to 90% carbon capture, effective from 1 January 2032. New gas-fired generation with lower capacity factors, such as peaker plants, will have to meet less arduous standards.

For existing gas generation, meanwhile, the new rules are blank. Michael Regan, head of the EPA, said in February that the agency would need more time to work on the regulations, so it could take a “stronger, more durable approach” and achieve greater emissions reductions. Observers have noted that this means the new rules are not likely to emerge until after the election.

On those regulations for existing gas-fired plants, Regan and his colleagues have some real decisions to make. Carbon dioxide emissions from US gas-fired power plants have been rising, and now exceed emissions from US coal-fired plants. Any pathway to net zero emissions will have to include action on gas-fired plants. And there are technologies that can cut those emissions significantly, including carbon capture, hydrogen, and renewable natural gas (RNG).

There are also technologies that could substitute for gas, providing dispatchable generation or grid services with low emissions. Nuclear and virtual power plants – networks of distributed resources that can be used to balance the grid – are available today. Enhanced geothermal and long-duration battery storage should be available soon.

But all these options come with their own drawbacks and challenges. At a time when concern over energy bills is rising, the EPA will have to take a view on how aggressive it wants to be in forcing unabated gas-fired generation off the grid, potentially driving up costs and jeopardising reliability.

Its decision may well turn out to be moot, at least for the next few years. Any future Trump administration would be expected to scrap these new regulations as quickly as it could. And the Supreme Court is likely to have the final say. But the EPA’s position will be well worth studying, nonetheless, for pointers towards the direction of energy policy in future Democratic administrations.

The difficulty of securing the G7 agreement on coal is a telling indication of the challenges involved in making international progress on climate. Swimming with the tide, as was the case with coal-fired power, is hard enough. Swimming against it, which would be the case with gas-fired power, is even harder.

In brief

Tesla has fired the entire team working on its Supercharger network, several news outlets reported. The move has surprised observers because charging was seen as one of Tesla’s great successes. Last year Ford and General Motors announced that they would adopt Tesla’s NACS technology in their vehicles from 2025, effectively entrenching it as the industry standard for North America. Electrek reported that Tesla was already pulling back from some investments in new Supercharger stations following the sackings.

Microsoft has signed the largest corporate renewable energy deal on record, to underpin the development of 10.5 gigawatts of new low-carbon generation capacity around the world. Under a five-year global framework agreement with Brookfield, Microsoft will get access to a pipeline of new renewables to help cover its growing data centre capacity while making progress towards its 2030 goal of having 100% of its electricity consumption, 100% of the time, matched by zero-carbon energy purchases. The agreement will cover not only wind and solar, but also other carbon-free technologies. The total planned new capacity of 10.5 GW is almost eight times larger than the largest single corporate power purchase agreement ever signed until now.

Oil prices have been drifting downwards on concerns over a possible slowdown in the global economy. Brent crude was trading at about US$83 a barrel on Friday, down from a recent peak of over US$91 a barrel last month.

Other views

Delaying deepwater decommissioning – Simon Flowers, Luiz Hayum, Amanda Bandeira and Gavin Thompson

World heading for a 3-degree C warming trajectory, if political headwinds slow the energy transition

Oil refining in the energy transition: key questions answered – Amrit Naresh

The challenge of growing electricity demand in the US and the shortage of critical electrical equipment – Benjamin Boucher

US residential solar: cloudy skies will lead to a market reset in 2024 – Zoe Gaston

BHP’s all-share offer for Anglo American: Creating a copper, iron ore and metallurgical coal mining supermajor – James Whiteside and Nick Pickens

How to address congestion risk in US power markets – Brian McIntosh  

How to address risk from extreme weather in power markets – Brian McIntosh

Climate is the problem – Matthew Yglesias

The social feedback loops that constrain climate science – Patrick Brown

Quote of the week

“Data centres are going to be very different… They could be 1 gigawatt to 2 gigawatts, potentially. All of the requirements I’ve been discussing are 1 gigawatt and 2 gigawatts. The sheer size of what we’re talking about is unprecedented, with a much bigger physical footprint.”

Ali Fenn, president of the data centre developer Lancium, explained the fundamental shift in the industry resulting from the recent advances in artificial intelligence.

Chart of the week

This comes from a recent Wood Mackenzie report on the global wind turbine market, and shows the top 15 manufacturers by capacity installed last year. For the first time, four of the top five slots were taken by Chinese manufacturers: Goldwind, Envision, Windey and MingYang. Vestas is the only non-Chinese company in the top five. Endri Lico, principal analyst at Wood Mackenzie, said China’s first batch of massive clean energy bases, combined with a mature supply chain and ambitious provincial targets, had driven the country’s wind deployment to new record highs.

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