Tuesday, March 27, 2012

The EPA's coal mandate: An opportunity for nuclear, a giveaway for natural gas

Today the EPA issued its first-ever regulation on carbon dioxide emissions from new power plants, limiting emissions to 1000 pounds of CO2 per megawatt-hour of electricity produced. Given the fact that the average coal plant vastly exceeds this limit (weighing in around 1,768 lbs CO2 per megawatt-hour), the implications of the move seem rather obvious - essentially banning new coal plants without carbon capture and sequestration (CCS) technology (and thus greatly increasing the cost of new coal plants), thereby making good on President (then-candidate) Obama's promise to "bankrupt" anyone who still desired to build new power plants fueled by coal.

Naturally, the move is producing howls of protest from the predictable corners - despite the fact that the move only applies to new construction (with an exception for those already permitted and begin construction within one year of the rule change taking effect. And of course, despite the fact that there exists a reliable, baseload alternative for producing energy, one which incidentally has the lowest marginal generating costs and has proven more than capable of delivering electricity safely and reliably. More to the point, given that the chief opposition to the rule is from Republicans, who ostensibly support nuclear energy, why the doom and gloom about an economic catastrophe? If anything, the move should be an opportunity to hammering the case for why nuclear is needed now more than ever. Again though - one wonders if nuclear's support is wide but shallow compared to support for conventional fossil sources among these groups.

Overall however, the EPA mandate has a marginal but positive impact on new nuclear, namely by formalizing the winnowing down of new baseload capacity to a race between nuclear and natural gas, the latter of which has of course been buoyed by low prices from the recent boom in shale gas production.

Meanwhile, if the EPA's mandate is a glimmer of opportunity for the nuclear industry, it's an outright giveaway for natural gas. The average natural gas plant emits roughly half the CO2 of a standard coal plant (about 850 pounds per MWh), and meanwhile the EPA estimates that 95% of current natural gas power capacity would pass muster under the new rules. Thus, the choice of a convenient round number of 1000 pounds per MWh seems all the less arbitrary - in fact it seems almost entirely designed to benefit natural gas at the expense of coal. (I was pleased to see that I am not the only one who noticed this distinction - the fine folks at NEI Nuclear Notes have also taken notice .)

There are perhaps any number of reasons to complain about the EPA rule, even if one does believe (as do I) that tackling carbon emissions is of the utmost importance. For one, a more economically efficient proposal would of course be a carbon tax. Logically, if the rule is designed to minimize the social ill caused by carbon emissions, then natural gas plants (as a function of capacity) all produce half the harm of coal plants, while nuclear produces none. More economically efficient policies - like a carbon tax - would more readily reflect this than the current approach, which almost seems designed to simply promote natural gas.

Indeed, MIT's "Future of Nuclear Power" report found that even a modest carbon tax of $25/tCO2 would raise the price of new coal to 8.3 cents per kWh, comparable to that of new nuclear (8.4 cents/kWh), while that of natural gas would rise to 7.4 cents per kWh - still cheaper, although hardly the clear favorite, especially given scenarios under which the capital costs of nuclear were controlled to the level of other fossil sources (at which point, new nuclear drops to 6.6 cents per kWh - well below coal and slightly cheaper than natural gas.)

One can only guess then as to why EPA choose to ignore the advice of both numerous environmentalists and scores of economists, all of whom have advocated either a carbon tax (or its lesser cousin, a cap-and-trade carbon credit market) as an economically efficient solution in favor of a suspiciously non-arbitrary cap.

7 comments:

  1. Actually natural gas doesn't do so well in lifecycle CO2 emissions, when the methane leakage is included. For example a 4% leak rate of natural gas doubles the CO2 emissions, making it similar to coal. The EPA should investigate to measure the real lifecycle methane emissions. We could be in for a shock (4% is perfectly plausible as a chain leak rate).

    http://europe.theoildrum.com/node/6638

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    1. @Cyril R: Interesting analysis. Of course, to my knowledge, the EPA's mandate only applies only to the generation units alone, and doesn't apply a lifecycle emission criteria. However, it's perhaps more interesting in the sense that methane is so often touted as a "bridge" fuel - a bridge from what, exactly?

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  2. So, looking at the graph, if natural gas lifecycle leakage is more than 1-2% it won't be allowed per the new EPA rule

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    1. @Cyril R: Well, again - I'm pretty sure the EPA rule applies exclusively to emissions at the plant itself, rather than the entire lifecycle. Were it to apply to the lifecycle, you would of course be correct. But I'm pretty sure it doesn't (even though a good case could be made that it should).

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  3. Hi Steve. Well, okay. Though even the powerplant itself also leaks gas - some of it goes through uncombusted. Then there's also NOx emissions, an even more potent GhG than methane. Add those up and the single cycle gas turbines are all in trouble; only combined cycles, with their lower CO2 emissions due to improved efficiency, would comply with the new EPA rule, with NOx and methane powerplant emissions included as CO2 equivalents.

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  4. I checked the Engineering Toolbox for natural gas CO2 intensity. It is 230 grams per kWh thermal. 1000 pounds/MWh is 453 grams/kWh. It follows that the powerplant efficiency would have to be higher than 50% to beat the new EPA rule. That would mean all the single cycle units have to close down!

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  5. "One can only guess then as to why EPA choose to ignore the advice"

    Probably because the EPA lacks the authority to levy a tax. A CO2 emissions cap was the only thing available in their bag of authorizations.

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