Renewable portfolio standards and other green energy rules put a price on environmental benefits. Calculating this price can help clarify the social value of GHG reductions.
Coal's Black Future
Turbulent politics and market trends cloud prospects for coal-fired power.
For a century, coal-fired power plants have generated most of the United States’ base-load electricity. At times along the way, alternatives emerged and flourished briefly—first oil-fired generation, then nuclear, and most recently natural gas. But these waves ended badly, often bringing financial ruin to the companies that had championed them too enthusiastically. Meanwhile, the more-cautious companies that kept on building coal-fired plants have survived and prospered.
Now, coal faces more uncertainty than any other base-load generating source. Two new factors, hitherto irrelevant to the U.S. industry, will shape future generation investment—imports of liquefied natural gas (LNG) and greenhouse-gas (GHG) restrictions. Taken together, they point to a bleak future for coal unless its technology advances dramatically … or a political consensus fails to emerge.
A decade ago, global warming was fodder for stand-up comics on late-night television. This year, both of the front runners in the Democratic campaign for president have endorsed draconian long-term restrictions on GHG emissions (reductions of 80 percent from 1990 levels by 2050). And the presumed Republican nominee, John McCain, has endorsed restrictions nearly as severe. Significant legislation seems more likely than not in the 2009 to 2010 time period, even if its exact shape is now unclear.
If GHG emissions are restricted, the burden of adjustment likely will fall on the nation’s fleet of coal-fired power plants. Other sectors of the economy would continue expanding their emissions as they grow, albeit at a slower rate due to CAFE limits, etc., while the coal-fired fleet brings down its emissions far enough and fast enough to offset capacity expansion and still meet economy-wide reduction targets.
The reason is economic. In most sectors, reducing the emissions from a stationary source requires separating out and sequestering the greenhouse gases from its flue-gas stream. The cost of doing that with today’s technology generally exceeds $90 to $100 per ton sequestered. (Note: All dollar quantities are expressed in 2007 dollars and all greenhouse gas quantities are expressed in tons of CO 2 equivalent.) However, the power-generation sector has another alternative available—replacing existing coal-fired plants with new-built plants using an alternative generation technology with much lower GHG emissions, such as natural-gas combined cycle.
At current prices, the all-in cost of doing so amounts to only $30 to $40 per ton of GHG emissions avoided. So regulators have strong incentives to meet their emissions targets by squeezing coal-fired plants nearly to extinction before significantly restricting other stationary sources.
That could happen fairly rapidly. If U.S. emissions merely are capped at 2006 levels with no actual reductions, then expansion elsewhere in the economy would cause about half of today’s coal-fired production to be replaced over the next 20 years (see Figure 1) . And more aggressive targets would lead