Study Projects More Coal Plant Retirements, But Are EPA Regulations To Blame?

Politics, Law and Policy Blog » Energy Policy 2012-11-27

By Andrew Shaw

Earlier this month, The Brattle Group released a discussion paper, which projects that approximately 59 GW to 77 GW of coal plant capacity is likely to be retired by 2016.  The report notes that these estimates are about 25 GW higher than the retirement levels Brattle estimated in its December 2010 analysis. These projections are likely to fuel the proverbial fire over the future of the coal industry in the U.S., but there are a couple points worth noting.

First, the Brattle report projects the retirement of 59 GW-77 GW of power “due mainly to lower expected gas prices.” Specifically, the report projects that the natural gas prices will only increase to $4-5/MMBtu by 2015 and $6-8/MMBtu by 2025. The report does acknowledge uncertainties relating to natural gas prices, specifically as they relate to the impact of U.S. LNG exports in the next several years. Even with this uncertainty and/or modest natural gas price increases, the report argues that market factors will continue to favor natural gas in the near-term over coal.

Second, the report suggests that EPA regulations are not playing as large of a role in the retirement of coal-fired power plants as suggested by critics of these rules. In particular, the report notes that coal-fired power plants face “less restrictive requirements on the compliance deadlines and equipment than previously predicted” under EPA’s Mercury and Air Toxics Standards (“MATS”) regulations. This is not to suggest that there are not substantial costs associated with complying with MATS and other air regulations. The Brattle report estimates that coal plants will spend $126-144 billion by 2016 on environmental upgrades. Nonetheless, the report emphasizes that market conditions – not EPA regulations – are driving decisions by operators to close coal-fired power plants.

Finally, the report comes amidst a considerable amount of regulatory uncertainty. The report acknowledges some of this uncertainty, citing the D.C. Circuit Court of Appeal’s recent decision vacating the Cross-State Air Pollution Rule (“CSAPR”). CSAPR would have established a cap-and-trade system for SOx and NOX emissions in 27 Eastern U.S. states. The Administration is requesting a rehearing of this decision, but in the interim, utilities will be deprived of certainty as to what their obligations may be with respect to cross-state SOx and NOx emissions. There is also significant uncertainty as to whether EPA, in the next several years, may require GHG emissions reductions at existing facilities.

EPA regulations will remain a hotly-debated issue in the waning weeks of the campaign, but irrespective of the election results, low natural gas prices will likely continue to play a significant role in decisions relating to the potential retirement of coal-fired power plants.