What do the EPA’s New CO2 Emissions Regulations Mean for Mississippi

On June 2, the EPA announced new regulations aimed at CO2 emissions from existing power plants.  In this unprecedented proposal, the EPA is attempting to use authority under the 111(d) section of the Clean Air Act to set a different emissions target and standard for each state.  Although much of the conversation questions whether or not the EPA can legally set these standards, the fact remains that, if passed, they would greatly affect availability and prices of all forms of energy for industrial and residential consumers alike.  The Mississippi Energy Institute is researching this matter and will keep you briefed on updates as they occur.  In the meantime, as this is proposed and then argued in the Courts, more uncertainty is added to the future of the U.S. economy, and investment and growth will likely be deterred. Read more about the EPA’s proposal here.

While the Obama Administration’s move to cut coal emissions still faces plenty of legal and political challenges, the real test will be whether the new standards have any effect on the rest of the world.Five countries dominate the global consumption of coal. China, the U.S., India, Russia and Japan are the world’s biggest coal burners.

The U.S. is the second largest consumer of coal in the world today, but China’s consumption dwarfs all others. Last year, while the U.S. consumed 925 million tons of coal, China is estimated to have consumed 4 billion tons. Each year China consumes almost as much coal as the rest of the world combined.  If the U.S. completely shut down the U.S. coal fleet tomorrow, the impact on global carbon emissions would be less than one percent.

Mississippi contains 5 billion tons of coal reserves, all in the form of lignite (a soft, brown, low quality coal with relatively high moisture content). This equates to about 13% of total U.S. lignite reserves. Lignite has the lowest energy content out of the four main types of coal, but it has low sulfur, carbon, and nitrogen content. The use of lignite in Mississippi provides a local fuel for use in electricity and syngas generation (which can also be a process for producing various chemicals) and helps to diversify the state’s energy portfolio leading to increased reliability of supply and insulation against price swings in individual fuels.

Summit Spotlight: Dr. Frank Clemente

Dr. Clemente is a Professor Emeritus of Social Science and Policy at Penn State and former Director of the University’s Environmental Policy Center. Dr. Clemente’s research specialization is the socioeconomic impact of energy policy- especially issues relating to electricity generation, reliability and cost. We were very honored to have Dr. Clemente speak on coal’s role in meeting global energy needs at our 2013 Governor’s Energy Summit. Below you will find short interviews, the full video of Dr. Clemente’s presentation and the link to download his powerpoint presentation.

Powerpoint Presentation:

Short Interiew with Dr. Clemente:

Short Interview with MEI President Patrick Sullivan following Mr. Clemente’s Presentation:

Full Length Speech:

Can We Talk About Carbon Capture Without Talking About Enhanced Oil Recovery?

In its recently released study, the Global CCS Institute covers in detail both the importance and challenges of carbon capture and sequestration. While carbon dioxide has successfully been used in parts of the U.S., including Mississippi, to stimulate oil flow out of old wells (enhanced oil recovery), the source of the CO2 has been natural geologic sources rather than captured CO2 from power plants or elsewhere. The technology for carbon capture on industrial emissions, like with power plants, remains in the development and commercialization phase, and the Kemper power plant in east Mississippi, once operating, will be an early commercial scale user of the technology.

Much of challenge ahead for carbon capture and sequestration is overcoming the technology expense. Therefore, places like Mississippi with an enhanced oil recovery industry and the accompanying CO2 pipeline infrastructure are logical starting places for technology deployment. Rather than CO2 being an expense and liability, enhanced oil recovery enables CO2 to be an asset valued in the marketplace. The benefit of CO2 sales, in turn, can go back to cover the technology costs.

Perhaps the bottom line for carbon capture and sequestration is, at least in the near term, the practice will probably require enhanced oil recovery to help make the economic case.

EPA Seeking to Take Coal Out of U.S. Electricity Mix

Last Friday, the EPA proposed the first-ever greenhouse gas regulations on new power plants. By putting significant limits on carbon dioxide emissions, the proposed regulations seem to be aimed at pricing coal out of the next generation of electricity production. They will effectively eliminate construction of new coal-fired power plants, currently providing almost 40% of U.S. electricity, as an electric power option going forward. Importantly, because of the global nature of carbon dioxide emissions, the proposed rule will have no significant impact on greenhouse gas reductions.

We have written about the importance of diversity in electric power, and diversity should remain a policy principle of electric power for the sake of reliability and cost stability. Because of the extraordinarily long life of these expensive assets, fuel cost risk is lowest when spread out over the fuels that provide most of our electricity – natural gas, coal, and nuclear. However, in the U.S., we are trending away from fuel diversity and towards heavy reliance on one fuel, natural gas. Let’s see what the data says:

Since 1990, of all new electric generating capacity added, 72.8% is natural gas powered, 13% is wind capacity (which can be intermittent and less reliable than power plants), 7.7% is from coal, and 1.3% from nuclear. Further, since the rule would essentially outlaw new coal plants and with the federal brakes on nuclear power replacement and expansion, the existing coal and nuclear fleets in the U.S. will continue to age and decline if not replaced with new technology. The average age of U.S. nuclear commercial reactors is currently 33 years old with the majority scheduled to go offline by 2036. As of today, 74% of all coal-fired capacity is 30 years old or older. Continuing to both meet new electricity demand (which comes with economic growth) and replacing aging coal and nuclear power plants only with natural gas power plants is a risky trend for the U.S. economy. Absent new policy that embraces coal and nuclear for the next generation, this trend will continue.

While the shale gas and oil revolution is one of the most dynamic events in U.S. energy history and has positively changed the economic picture in the U.S., especially in manufacturing, it is important to consider the versatility in natural gas. Not only is natural gas a good fuel for electric power generation but also in manufacturing and industrial processes, more and more in transportation, residential and commercial heating, and now for exporting to improve the U.S. trade balance. Large supplies of natural gas will hopefully mean affordable prices and less price volatility, but because we use natural gas in the U.S. for so many activities and because diversity remains the right policy, we should avoid putting all the electric power eggs in the natural gas basket.

Because of shale technology development, the U.S. is now the most energy rich country in the world, but only when counting vast coal deposits along with oil and natural gas reserves and the ability to produce nuclear and renewable energy. To take coal off the table hurts U.S. competitiveness long-term.

To meet growing world energy demand, all energy sources along with new technology will be required. Because of coal’s abundance around the world and affordability, coal will be a growing energy resource globally. The scale of energy required for world growth over the next several decades is almost incomprehensible. Taking energy options off the table is foolish.

You can find more information on the rule here.

A Plan for Energy Scarcity

The Obama Administration this week unveiled its agenda aimed at combating climate change. The problem is, if we take the President at his word that carbon-based energy (which provides around 80% of all energy used in the U.S. and the world) is damaging the planet, then his plan to regulate energy use in the U.S. will have no significant impact on global carbon dioxide levels.

We can all agree that reducing emissions is a good thing, but  methods for emissions reductions should be considered in the context of the economy and U.S. competitiveness.  Policy actions that increase the cost of energy will have a direct negative impact on the U.S. economy at a time when jobs and household incomes are the overriding quality of life issues in America.

President Obama mentions that U.S. CO2 emissions are down to where they were 20 years ago. Total U.S. carbon emissions for this year are about 5.2 billion, while the 1990 figure was about 5 billion.

And while he does mention the U.S.’s steady decline of carbon emissions, he fails to mention that China and India will continue to be big emitters and therefore cause global CO2 levels to rise. By hindering U.S. development of a new generation of coal technologies, these overseas emitters will continue to burn coal in the traditional manner and will render U.S. government initiatives moot in terms of the overall global picture.

It is worth noting that in this sweeping proposal there is not  serious consideration of nuclear power, the one truly scalable and reliable source of carbon free energy. President Obama mentions the resource once, and that is merely to announce that we are building our first reactors in more than 30 years in Georgia and South Carolina. If the Administration was truly concerned about carbon dioxide levels in the environment, one would think it would be a strong advocate for aggressive expansion in nuclear power.  Instead it didn’t have much to say about America’s nuclear future.

The American public should understand that the Administration’s intention is to regulate energy from coal, America’s largest source of electricity, to the point that it’s priced out of the market.  In other words, electricity costs will increase, and domestic fuel options, a key U.S. competitive advantage, will decrease.   A U.S. economy that has always thrived on abundant, affordable energy could soon be an economy facing energy scarcity, and a sector that has been a foundation of our country and produces numerous high quality jobs will soon be scaled back severely all because we continue to further restrict ourselves while the rest of the world burns on.


Freedom to Use U.S. Energy Resources Thwarted by U.S. Policy

Since technology development in oil and natural gas production has unleashed new domestic energy supplies and dramatically increased known domestic energy reserves, the U.S. has claimed the title as the most energy rich country in the world. However, the key to this title is counting all energy reserves, including coal. In addition to having more nuclear power plants than any other country, the U.S. has the most combined oil, natural gas, and coal reserves.

The question is, “Will U.S. policy allow the freedom to use all energy resources, namely coal?”

Coal-fired power plants have historically generated the largest share of electric power in the United States, and although natural gas has gained a much larger share, coal continues to be the top source of generation, as you will see in the graph below.

(Click to enlarge.)

So what is the problem? There are 1,400 coal-fired power plants operating in the U.S. today. Of these 1,400, only 90 have been built in the last 20 years. 82% of these plants are greater than 30 years old, and 64% of these plants are greater than 40 years old. Therefore, if U.S. ratepayers are to continue benefitting from its abundance of coal, new plants will be required.

But in a not-so-obscure way, the federal government is doing its best to price coal out of the marketplace, through onerous regulation, thus eroding American wealth of energy resources. With the EPA’s persistently debilitating regulations, coal plants look as though to have a bleak future. Rules like Utility MACT and Boiler MACT place unreasonable and unachieveable emissions limits on current coal plants. Companies are required to use Maximum Achievable Control Technology (MACT), as determined by regulators, to curb the emissions coming from coal plants.

While this may sound good, this requires companies to go far beyond a rational approach for emissions reductions. The cost to install this new technology is so high that instead of installing the technology, companies will be forced to close plants, which will likely cost ratepayers more in some other form and diminish the American energy portfolio. The likely result of these policies will be little, if any, building of new coal plants.

Because of the very long-term operating life of power plants, diversity in power production remains the right policy. Natural gas is a very good and versatile fuel, useful for many purposes in our economy – power, manufacturing, transportation, heating, and now exporting. However, relying too heavily on natural gas brings much exposure. Policy should support the construction of nuclear and coal as a way to provide stability to U.S. power production for the next generation.

Other countries, such as China, are building coal-fired and nuclear power plants at a staggering rate. With unreasonable rules in place, the US will begin to lose one of its greatest advantages in power generation, which is its diversity. Emissions reductions can be achieved without giving up on an abundant American source of energy.

Did You Know?

e1360943351.0China consumes nearly as much coal as the rest of the world combined. Coal consumption in China grew more than 9% in 2011, continuing its upward trend for the 12th consecutive year, according to newly released international data. China’s coal use grew by 325 million tons in 2011, accounting for 87% of the 374 million ton global increase in coal use.

Europe Experiencing Energy Woes

Energy policy in Europe has resulted in high energy costs and unreliable delivery of electric power. As Mississippi seeks economic development opportunities, targets should include manufacturers in Europe and other places around the globe with high energy costs and little to no reserve capacity. Lance Brown writes, “In the United Kingdom, the nation’s official energy agency is warning that the UK could run out of generating capacity in the winter of 2015-2016. The culprit? Reserve power capacity in the UK will drop from a robust 14% to just 4% in the next three years because of the closure of coal-fired power plants. Investing in less reliable sources of energy will not only mean possible outages on the island, but an increased reliance on imported natural gas.” Read more here.

Fuel diversity is the key

The New York Times recently published an article about New England’s over-reliance on natural gas for electric power generation and, consequently, the precipitous price spike after a surge in demand.

What does this event in New England teach us? It teaches us diversity is critical to both reliability and stability of supply and cost in electric power generation. This microcosm shows the fallacy in allowing short term market conditions to over-influence decisions best made in long term perspective. This New England event also shows us the critical importance of infrastructure and delivery in energy. Along with adequate production and fuel supply, robust infrastructure and regular upgrades are the key components to what the public expects – electricity and energy available on the spot at a fair price.

The shale gas revolution has dynamically changed the economic picture in the U.S., especially in manufacturing. If not for the explosion in energy production over the past 5 years, who knows where our the U.S. economy would be? But all of these gains do not mean we should make ourselves over-reliant on natural gas. A diverse energy portfolio is the right answer.

Well over half of Mississippi’s electricity is generated using natural gas. Coal and nuclear account for the remainder of electricity generated in Mississippi, so while Mississippi does have some balance, the state as a whole is already heavily leveraged on natural gas (see graph below.)

Figure 5, graph 1

“It is certainly true that a region like New England that relies on a single fuel source like natural gas for the bulk of its power does leave itself open for more disruptions than a region with a more diverse fuel mix,” said Jay Apt, executive director of the Electricity Industry Center at Carnegie Mellon University in Pittsburgh. “It’s not a knock against natural gas; it’s a knock against a single fuel source.”

With Mississippi Power’s Kemper plant one of the latest targets of the anti-build-anything-in-America coalition, it is important for us, ratepayers, in Mississippi to take heed of Mr. Apt’s words. These opponents saying we should be adding natural gas generation are missing the fundamental point about the importance of a diverse fuel portfolio in electric power generation. It cannot be stressed enough that diversity in fuel options is critical to stability and reliability coupled with the infrastructure capacity to meet demand. We must understand that electric power generation investments have very long lifespans of 40 years or more, so making decisions on today’s fuel costs make no sense. That’s why diversity will always be the best policy.

As discussed in the Times’ article, when New England experienced an early cold snap over Thanksgiving, there was an overreliance on gas- an overreliance that could not be met because of shortage of pipeline capacity. The demand was outpacing the delivery capacity of gas infrastructure. Thankfully, Indian Point, a twin-unit nuclear plant on the Hudson River, was able to contribute 1,400 megawatts.

New England’s near crisis is an excellent case study for not only Mississippi, but the nation. When an area relies heavily on one energy source (one that is delivered only as needed and requires an abundant infrastructure of pipelines) that area is susceptible to a volatile price market and shortage of energy.

Diversity, Stability Key to State’s Energy Future

The following opinion article was written by Patrick Sullivan and published in the 2/9/13 edition of the Clarion Ledger.

One year ago, I wrote about the difficulty of building large infrastructure projects and developing energy in America today. At the time, the Keystone Pipeline project, which would supply our country with more oil, as well as offshore energy expansion in Mississippi waters, was the subject of debate.

If we want our economy to grow, infrastructure expansion and energy development are absolutely necessary, and many of these projects like power plants, ports, pipelines, sewer systems and highways are rather large and capital-intensive. They are projects that require a great deal of coordination and broad support from the people and their elected officials. That is why it is so discouraging to see organizations with no real answers for energy in our state attempt to block important projects, thereby hurting our competitiveness, raising expenses and potentially costing jobs. Mississippi Power’s lignite gasification electric power plant in Kemper County is the latest target of this build-nothing-anywhere movement in America.

For those confused by the arguments for or against this project, looking at a previous example may help. In the mid-1970s, Entergy set out with plans to construct a large-scale nuclear power plant at Grand Gulf in Claiborne County. The debate then was quite similar to today’s debate on the Kemper County plant. Opponents said the Grand Gulf plant would cost too much, while proponents said it was the right long-term decision. We now have the benefit of 30 years of experience to judge the performance of that project. The opponents were wrong, just as they are today.

Were the initial capital costs for construction high, requiring rate increases in the 1980s? Of course, but the guiding policy principle then is still the same 30 years later. That is, in electric power generation, avoiding over-reliance on one energy resource is too risky. It is better to diversify.

The capital cost of power generation projects is high, and that cost of capital is critically important to Mississippi ratepayers. Therefore, when investors in energy projects are able to look at Mississippi as a more predictable and safer place to invest, rates will be lower and large projects will cost Mississippi energy consumers less.

Having diversity in energy and producing more of our own energy should be major guiding policy principles. It makes sense both financially and from an energy security perspective. Innovative financing and, importantly, certainty to encourage investment are key components to keeping rates down when we have to build a new power plant. Experts and public officials agree that a new base load power plant is needed by 2014.

Getting down to it, we have three main fuel options for base load power production today — natural gas, nuclear and coal. Natural gas is abundantly available and favorably priced, and natural gas power plants are relatively inexpensive. However, about 65 percent of electricity in Mississippi is made with natural gas, meaning that the future for Mississippi energy consumers is already heavily leveraged on the future of natural gas prices, and the price of fuel makes up the biggest part of power bills. Both coal and nuclear are considerably more costly during construction but have lower and more stable fuel costs over the decades of operations. A healthy mix of all three energy sources is in the best interest of reliability and risk management, and that’s exactly what a coal gasification plant helps achieve. By approving the Kemper County project, the Mississippi Public Service Commission has taken an important step toward long-term energy security for our state.