Brace yourself. New carbon rules are on their way. The Obama administration wants to curb carbon dioxide from existing facilities, not just new facilities as previously reported.
Frankly, it seems that the Environmental Protection Agency (EPA) does not understand the issue. If it did, it might consider smarter solutions. Let me explain.
The issue is carbon dioxide. In Washington, D.C., carbon dioxide is a "two-fer." First, carbon dioxide is a ground-hugging pollutant that has known public health consequences. As a pollutant, it may be regulated under Section 111, 42 U.S.C., Subsection 7411, of the Clean Air Act.
Carbon dioxide is also a greenhouse gas. As such, new sources of carbon dioxide will be regulated under a proposed rule. That proposed rule was recently published in the Federal Register.
If carbon dioxide emissions are limited, then policymakers logically conclude that ground pollution and greenhouse gases are reduced.
The U.S. generates between 5 trillion and 6 trillion metric tons of carbon dioxide per year. As shown in the graph, 70% of that carbon comes from utilities and transportation sectors. Less than 15% comes from industrial activities.
Government regulators seek to mow down sectors that have the highest profiles -- this is called the "tall poppy syndrome." The power industry is the tallest poppy, at least for now.
Consequently, the EPA is about to issue a new rule for power plants. The rule is focused on limiting new power plant construction. In theory, the rule is fuel-agnostic.
In reality, coal will be hit hard. Again, it is the tall poppy syndrome. Since 1990, coal has contributed more than 80% of the industry's carbon dioxide. Within the power industry, coal has been and remains the power industry's tallest poppy.
Notice that emissions from natural gas are climbing, as coal remains relatively flat. It would seem that natural gas could become the regulator's next target.
Everybody is in favor of cleaner air. In addition, there is certainly no risk in reducing greenhouse gases. However, there is risk in picking one sector at the expense of another. There is risk in micromanaging utility operations.
It appears that federal regulators ignored three opportunities. The first opportunity is about the power markets. By the end of 2015, tens of thousands of coal-fired megawatts will exit the markets. Duke Energy (DUK), American Electric Power (AEP), FirstEnergy (FE), Xcel Energy (XEL) and several other utilities have announced dozens of plant retirements.
Most coal plants are exiting for market reasons; they are old, inefficient and heavy polluters. Had the EPA had exhibited a little patience, it would have seen lower carbon levels without any new regulations.
The second opportunity was to focus regulations on the federal sector, not the power sector. The federal sector buys enormous amounts of power. According to the Department of Energy's Federal Energy Management Program, federal facilities consume more than $4 billion in electricity each year.
If the EPA had purchased renewable energy certificates with its electricity, federal procurement would have displaced tons of carbon. Better, had it purchased renewable energy certificates only from states that have the highest sources of carbon, even more carbon would have been displaced.
According to the EPA, the top ten carbon-emitting states are Texas, California, Pennsylvania, Ohio, Florida, Illinois, Louisiana, Indiana, Georgia and New York. Some of these states do not offer renewable energy credits, but that does not prevent the federal government from building and operating its own renewable energy facilities.
The third opportunity is the nation's capacity markets. If the Federal Energy Regulatory Commission had compensated base-loaded assets fairly, dozens of nuclear power plants would not be forced to retire early.
Nuclear power is an important asset for EPA's carbon program. Nuclear power plants emit no carbon dioxide. They also do not emit any other greenhouse gas. When a nuclear plant retires early, it is replaced with a gas turbine or some other carbon-emitting facility.
The fourth opportunity is a carbon tax. The New York Times' Thomas Friedman suggested this in a March 4, 2014, opinion piece: "I'd also raise our gasoline tax, put in place a carbon tax and a national renewable energy portfolio standard -- all of which would also help lower the global oil price (and make us stronger, with cleaner air, less oil dependence and more innovation)."
Notwithstanding these opportunities, it appears the Obama administration plans to go forward with its regulation strategy. The loser could be the grid's reliability. Other losers include any poppy that grows.
The winner could be the battery industry. Batteries could end up replacing carbon-producing peaking plants. As I previously reported, AES Corp. (AES) appears to be a leader in utility-grade batteries.
