a risky proposition report

7/27/2019 A Risky Proposition Report

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Barbara Freese

Steve Clemmer

Claudio Martinez

Alan Nogee

Union of Concerned Scientists

M A R C H 2 0 1 1

A RiskyProposition

The Financial Hazards ofNew Investments in Coal Plants


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ii U N I O N O F C O N C E R N E D S C I E N T I S T S

2011 Union of Concerned Scientists

All rights reserved

Barbara Freese is a senior policy analyst/advocate with the

UCS Climate and Energy Program.

Steve Clemmer is director of energy research and analysis for

the UCS Climate and Energy Program.

Claudio Martinez is a risk analyst with the UCS Climate and

Energy Program.

Alan Nogee is the director of climate and energy strategy and

policy for the UCS Climate and Energy Program.

The Union of Concerned Scientists (UCS) is the leading

science-based nonprot working for a healthy environment

and a safer world.

More information about UCS and the Climate and Energy

Program is available on the UCS website at www.ucsusa.org.

This report is available on the UCS website (www.ucsusa.org/

publications) or may be obtained from:

UCS Publications

2 Brattle Square

Cambridge, MA 02138-3780

Or, [email protected] or call (617) 547-5552.

Printed on recycled paper

Design: Mary Zyskowski

Front cover photo: iStockphoto.com/mbbirdy

Back cover photo: Zen Suther land Photography


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S iii

Contents

v FIGURES AND TABLES

vi ACKNOWLEDGMENTS

vii EXECUTIVE SUMMARY

PART ONE

1 Background: The Changing Outlook for Coal

1 TeNeedforUrgentActiontoAddressClimateChangeIsNowIndisputable

2 DeepEmissionsCutsAreRequiredfromtheCoalSector

2 FederalProjectionsofNewCoalPlantsPlummet

3 WidespreadRetirementsExpectedamongExistingPlants

6 ExcessGeneratingCapacityFacilitatesCoalPlantRetirements

7 GrowingOppositiontoCoal

PART TWO

8 Eroding Markets for Coal Power: The Impacts of Energy Eciency,Renewable Power, and Natural Gas

8 EnergyEciency

9 RenewablePower

11 CompetitionfromNaturalGas

PART THREE

13 Fuel Prices at Risk

13 TeTreattoU.S.CoalPricesfromVolatileGlobalMarkets

15 NewDoubtsabouttheSizesofU.S.andGlobalCoalReserves

18 OtherProduction-CostIncreasesAhead

PART FOUR

19 Carbon Risk: A Costly Problem in a Warming World

19 TeImpactofaCarbonCostonCoalGeneration

20 CarbonPricesStillontheHorizon

22 UncertaintiesaroundCarbon-CaptureRetrots


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S v

FIGURES

viii FigureES.1.U.S.CO2EmissionsfromEnergyUsebySource,2009

x FigureES.2.DecliningFederalProjectionsofNewCoalPlantsthrough2030

xi FigureES.3.WindPowerGrowingatRecordPace

xii FigureES.4.AverageWeeklyCoalSpotPrices

xiv FigureES.5.LevelizedCostofElectricityforVariousechnologies

3 Figure1.U.S.CO2EmissionsfromEnergyUsebySource,2009

4 Figure2.DecliningFederalProjectionsofNewCoalPlantsthrough2030

5 Figure3.U.S.ElectricGeneratingCapacitybyIn-ServiceYear

10 Figure4.WindPowerGrowingatRecordPace

14 Figure5.AverageWeeklyCoalSpotPrices

15 Figure6.U.S.CoalProduction

17 Figure7.ChangesinU.S.CoalMineLaborProductivity

22 Figure8.CO2AllowancePriceForecastsComparedwithPreviouslyModeledScenarios23 Figure9.RelativeCostIncreasesfromAddingCarbonCapturetoCoal-FiredPowerPlants

34 Figure10.PowerPlantConstructionCosts

35 Figure11.PulverizedCoalPlantCapitalCosts:ActualProjectsvs.Studies

40 Figure12.IncreasingLevelizedCostofElectricityfromNewPulverizedCoalin2015

41 Figure13.LevelizedCostofElectricityforVariousechnologies

43 Figure14.FuturePowerGenerationunderUCSBlueprint

44 Figure15.FuturePowerGenerationunderEPRIModel

TABLES

6 able1.CoalPlantRetirementProjections

27 able2.SelectedAirPollutionControlCosts


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vi UN I O N O F CO N CERN ED SCI EN T I ST S

Tisreportwasmadepossibleinpartthroughthegenerous

supportofOakFoundation.

Wewouldliketothankthefollowingindividualsfortheir

insightfulcommentsonourdraftreport:AbigailDillen,Lisa

Evans,LeslieGlustrom,LisaHamilton,RichardHeinberg,

LucyJohnston,NancyLange,BruceNilles,CarlPope,David

Schlissel,ReedSuper,andRobertUkeiley.

TeauthorswouldalsoliketothankUCSstamembersfor

theirhelpfulcontributionstothereport,includingRachel

Cleetus,JeDeyette,BrendaEkwurzel,ElizabethMartin,Lon

Peters,JulieRinger,JohnRogers,andLexiSchultz.Wegive

specialthankstoEthanDavisforhisworkonthereports

quantitativecostanalysesandgures.

WethankStevenMarcusformakingthereportmorereadable,

MaryZyskowskifortheattractivedesignandlayout,and

BryanWadsworthandHeatheruttleforoverseeingthe

reportsproduction.

Teopinionsandinformationexpressedhereinarethesole

responsibilityoftheauthors.

Acknowledgments


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S vii

childrensbraindevelopment;theycreatevastquantitiesof

toxicash,whichrequirecarefulhandlinginordertoprevent

leakage;andtheirhugecooling-waterwithdrawalsstrainour

increasinglyvulnerablewaterbodies.Expectedregulations

wouldreducemanyofthesecostlyharms,butasseveralrecent

nancialanalysespointout,muchofthenationscoaleetis

alreadyold,inecient,andripeforretirement.Ratherthan

retrotthem,itmakesgreatereconomicsensetoclosethem. Finally,thereistheunavoidablenancialriskassociated

withcoalscriticalroleindestabilizingtheglobalclimate.

Giventheincreasinglydirenatureofglobalwarming,climate

legislationisstillwidelyexpectedintheyearsahead,with

inevitablecostimplicationsforcoalplants.

Combined,thesetrendsanddevelopmentscreaterisksthat

nooneconsideringalong-terminvestmentinneworexisting

coalplantscanaordtoignore.Teyalsocreateuniqueoppor-

tunitiestoinvestinsteadinthecleanertechnologiesthatwill

beingrowingdemandaswetransitiontowardamoremodern,

exible,diversied,andsustainableenergysystem.

The need for urgent action to address climate change is now

indisputable. Tiswarningwaspartofa2009jointstatement

bytheU.S.NationalAcademyofSciencesanditscounterpart

academiesfrom12othernations,urgingworldleaderstotake

actiontoslowglobalwarming(NAS2009).Already,thecli-

mateischanging,bothfasterandinmoredangerouswaysthan

computermodelshadprojected,andmuchworseliesahead

ifwefailtomakedeepcutsinourglobalwarmingemissions

(NRC2010a).

Deep emissions cuts are needed from coal plants.Coalpoweris

thenationslargestsourceofCO2,emittingmorethanallofour

cars,trucks,andothermodesofsurfacetransportationcombined

(FigureES.1,p.viii).Asthesourceofone-thirdofenergy-related

CO2emissions,coalplantsmustbeaprimarysourceofthe

reductionsweneedtoprotecttheclimate.Indeed,reducingemis-

sionsfromcoalplantsisaparticularlycost-eectiveapproachto

climateprotection(Cleetus,Clemmer,andFriedman2010).

AcrosstheUnitedStates,theelectricpowersectoris

placingnewbetsonanoldtechnologycoal-red

powerplants.Utilitiesandotherelectricityproduc-

ersarepoisedtoinvestheavilyinretrottingtheir

oldplantsorinbuildingnewones.Eachmajorretrotornew

plantrepresentsanenormouslong-termnancialcommitment

tocoalpower.Butasdiscussedinthisreport,currenteconomic,

technological,andpolicytrendsmakesuchcommitmentsexceedinglyrisky.

Demandforcoalpowerisbeingsteadilyerodedbycompe-

titionfromenergyeciencyandrenewableenergy,whichare

benetingfromrisingpolicysupport,growingpublicinvest-

ment,advancingtechnologies,andoften-fallingprices.Coal

poweralsofacesmuchstrongercompetitionbothfromnew

andexisting(thoughunderutilized)naturalgasplants,which

cantakeadvantageoftodaysrelativelylowgasprices.

Coalprices,bycontrast,areontherise.Havingspiked

in2008inresponsetoglobalcoaldemand,theyareclimb-

ingagainwiththeglobaleconomicrecovery.Tereisgrowingconcern,moreover,thattheycouldbedrivenmuchhigherby

soaringdemandfromChinaandIndia,aswellasbyfalling

productivityacrossallU.S.coaleldsandbyshrinkingreserve

estimates.Constructioncostsforcoalplants,whichskyrocketed

intheyearspriorto2008,remainhigh,andalltheserisksmake

thenancingoflong-termcoalinvestmentsbothharderand

costlier.Coalplants,newandold,arelosingthecostadvantages

theyoncehad,andtheylacktheoperationalexibilitythatwill

beincreasinglyvaluableasthepowergridevolvestointegrate

moresourcesofcleanbutvariablerenewablepower.

Inadditiontotheseongoingstructuralchanges,whicharemakingcoalpowerincreasinglycostlyandlesscompetitive,coal

powerfacesthenancialrisksposedbyitsmanyenvironmental

impacts.Tecontinuingdamagesthatcoalpowerposestoour

air,land,andwaterandourhealthareamajornancial

liabilitythatremainsunresolved.Coalplantsemitairpollutants

thatstillkillthousandsofpeopleyearly,costingsocietyover

$100billionperyear,byoneestimate(CAF2010).Tese

plantsarealsoaleadingsourceofmercury,whichthreatens

Executive Summary


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viii UN I O N O F CO N CERN ED SCI EN T I ST S

arestillnocoal-redpowerplantsusingCCSonacommercial

scale.DesignestimatesindicatethatCCScouldincreasethe

costofenergyfromanewpulverizedcoalplantby78percent,

andcostswouldbeevengreaterifCCSwereaddedasaretrot(IFCCS2010).Itisalwayspossiblethatfutureadvances

inCCStechnologywilldrivesuchcostsdownsubstantially,

buttheCCSprojectsunderdevelopmenttodayhavefaced

seriouscostoverrunsanddelays.Moreover,thefallinnatural

gasprices,concernoverfuturecoalsuppliesandprices,and

thefailureofthe111thCongresstopassclimatelegislation

whichwouldhaveputapriceoncarbonandestablishedmas-

sivesubsidiesforCCSmayfurtherdelayCCSdevelopment.

Many of the nations coal plants are old, inecient, and ripe

for retirement. Seventy-twopercentofpresentU.S.coalcapac-ityisalreadyolderthan30yearstheoperatinglifetimefor

whichcoalplantsweretypicallydesignedand34percentof

thenationscoalcapacityismorethan40yearsold(Bradley

etal.2010).Olderplantsbecomeincreasinglyinecientand

unreliable,andtheyfacehighmaintenanceandcapitalcostsif

theyaretocontinueoperatingeconomically.Andbecausethey

werebuiltbeforemodernpollutioncontrolswererequiredand

overthedecadesmanyhaveavoidedaddingthosecontrols,

A future price on carbon still threatens coal investments.

Te111thCongressfailedtopassacomprehensiveclimate

bill,andthe112thCongressisevenmoredeeplydividedon

theissue,therebyperpetuatinguncertaintyoverthetimingandnatureoffutureclimatepoliciesandtheirimpactsoncoal

plants.However,thegrowingurgencyofglobalwarmingmeans

thatCongresswillfacesustainedpressuretotackletheprob-

lemagain,perhapsrepeatedlyovertheyears,untilthenation

isothedangerouspathitiscurrentlytraveling(unlessother

factors,suchasasteepdeclineincoalusedrivenbytheother

risksdiscussedinthisreport,succeedinslashingourcarbon

emissions).Becauseapriceoncarbonwouldhelptostimulate

private-sectorinnovation,itremainsalikelyelementofsuch

futureclimatepolicies;andasthesourceofpowerthathasthe

highestcarbonemissions,coalwouldtherebybedisadvantagedcomparedwithcleanertechnologies.

Carbon-capture retrots cannot be counted on to cut emis-

sions aordably.Whileprojectstodemonstratethepotentialof

carboncaptureandstorage(CCS)areimportant,itwouldbe

nanciallyrecklesstomakecoal-plantinvestmentsbasedonthe

assumptionthatCCSretrotswillprovideanaordableway

forthoseplantstoavoidafuturepriceonCO2emissions.Tere

Figure ES.1. U.S. CO2

EMISSIONS FROM ENERGY USE BY SOURCE, 2009

Coal Plants

33.2%

Other Electricity Generation 5. 0%

Residential 6.2%

Commercial 3.9%

Industrial 15.4%

Surface Transportation 32.9%

Aviation3.3%

More CO2

is emitted from coal plants than from any

other technology or sector, including all modes

of surface transportation combined (EIA 2011a).

(Power plant emissions are presented under coal

plants and other electricity generation, rather than

under the residential, commercial, and industrial

sectors where the power is consumed.)


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S ix

costs,butitisstartingtoreecttheeconomicrealitiesthathave

alreadyledtotherecentcancellationorrejectionofabout150coalplantproposalsnationwideandthatthreatentheremaining

coalplantproposalsaswell.

Demand for coal power will continue to fall as the nation turns to

cleaner options.Coalprovidedalmost53percentofU.S.power

demandin1997,butmarketsharedroppedtolessthan46per-

centinthersthalfof2010.Giventhestronggrowthofcompet-

ingcleanertechnologies,thisdecreaseislikelytocontinue.

Energy eciencyhasenormouspotentialtocutpower

demandby23percentbelowprojectedlevelsby2020and byevenmoreifthetechnologyisassumedtoadvance

(Goldstein2010;Granadeetal.2009).Tatpotentialis

beginningtoberealized,as27statesatpresentdouble

thenumberin2006haveadoptedorhavependingenergy

eciencyresourcestandardsthatovertimecangreatly

reduceelectricdemand(ACEEE2010a).Statespendingon

ratepayer-fundedelectricity-andgas-eciencyprograms

nearlydoubledbetween2007and2009,risingfrom

$2.5billionto$4.3billion(ACEEE2010a).Andnewfederal

appliancestandardsformorethan20consumerproducts

willhelpreduceconsumerdemandforyearstocome.

Renewable poweriscapturingagrowingshareofthe

marketfromcoal,andithasthepotentialtogomuch

further.Whilenon-hydrorenewablepowerprovided

3.6percentofU.S.generationin2009,theEIAprojects

thatitwillincreaseto11.7percentby2030,primarily

becauseofexistingstatepoliciesandfederalincentives(EIA

2010a).Federalresearchalsoconcludesthatwecouldmeet

nearlyaquarterofourpowerneedswithrenewablepower

by2025withnosignicantimpactonconsumerprices

atthenationallevel(Sullivanetal.2009).Windalone couldmeet20percentofdemandby2030(EERE2008),

olderplantsaregenerallyfarmorepollutingthannewonesand

facesignicantretrotcostsasaresult.

Coalplantoperatorsinvariouspartsofthecountry

includingColorado,Delaware,Georgia,Illinois,Indiana,

Minnesota,NorthCarolina,Ohio,andPennsylvaniahave

alreadyannouncedtheretirementofdozensoftheiroldest

plants(Bradleyetal.2010).ByDecember2010,12gigawatts(GW)ofcoalplantretirementshadalreadybeenannounced

(Salisburyetal.2010).Financialandindustryanalystsexpect

thewaveofretirementstogrow.InthewordsofaCredit

Suisseanalyst,alargechunkoftheU.S.coaleetisvulner-

abletoclosuresimplyduetocrummyeconomics(Eggerset

al.2010).Inannouncingtheclosureofthreeofitsoldercoal

units,ExelonCorp.noted,theseagingunitsarenolonger

ecientenoughtocompetewithnewresources(Power-Gen

Worldwide2009).

Excess generating capacity in the United States will facilitatecoal retirements. Tenationcurrentlyhasamplegenerat-

ingcapacity,whichcanhelpitaccommodatetheprojected

coalplantretirementsandstillmaintainthereliabilityofthe

powersystem(Bradleyetal.2010;ShavelandGibbs2010).

Onerecentanalysisfoundthatthepowersectorisexpected

tohaveover100GWofsurplusgeneratingcapacityin2013

(Bradleyetal.2010).

New coal plants are not economic, even under current policies.

Teeconomicoutlookfornewcoalplantsisverydierent

fromwhatitwasjustafewyearsago.1Whenmostnewplantprojectsinthepipelinetodaywereannounced,theU.S.Energy

InformationAdministration(EIA)computermodelpredicteda

largeamountofnewcoalplantconstructionintheyearsahead

(FigureES.2,p.x).Butnowthesamemodelnolongerprojects

anynewcoalplantswithoutCCScomingonlinethrough2030

(apartfrom11.5GWofnewcoalplantsthattheEIAcounts

asalreadyunderconstructionandassumeswillbecompleted).

TeEIAsmodelinghashistoricallyunderestimatedcoalplant

1 While many of the new coal plants announced over the last few years were

subsequently cancelled or blocked (largely as a result of the economic and policy

trends discussed in this report), dozens of proposals are still on the table. The

Sierra Club maintains a database of coal-red power plant proposals around

the country. As of January 2011, it lists 149 coal projects as recently cancelled or

rejected, 50 plants as active or upcoming, 26 plants as progressing (some of which

have been completed), and 18 plants with uncertain status (Sierra Club 2011).

Coal is no longer a reliably low-cost fuel, in

part because it is increasingly vulnerable to

volatile global markets.


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S xi

arecurrentlylessexposedtoglobalmarkets,butthepricefor

aone-monthcontractforPowderRiverBasincoalstillrose

67percentbetweenOctober2009andOctober2010(Jae

2010).Moreover,PowderRiverBasincoalproducersareseek-

ingtobuildtransportationinfrastructuretoexpandtheirreach

toAsianmarkets,potentiallysubjectingWesterncoaltoprice

spikessimilartothoseexperiencedintheeasternUnitedStates.

Chineseocialshaveannouncedplanstocaptheirowncoal

production,puttingevengreaterupwardpressureonglobal

andU.S.coalprices(Reuters2010a).

Newquestionsarealsobeingraisedaboutjusthowmucheconomicallyrecoverablecoalexists,bothintheUnited

Statesandelsewhere.Ocialreserveestimatesarebasedon

decades-olddataandmethods.Moremodernassessmentsare

ndinglesseconomicallyrecoverablecoalthanwascommonly

thought,includinginWyomingsimportantGillettecoaleld

(Luppensetal.2008).TefactthatproductivityatU.S.mines

hasbeendroppingforyears,notonlyinthemorematureand

depletedeasterncoaleldsbutalsointhenewerminesofthe

gasplantscouldbebuiltatarelativelylowcostandexisting

coalplantscouldberepoweredtoburnnaturalgas.While

environmentalconcernsorotherfactorsmaydrivegas

pricesbackup,would-becoalinvestorscannotignorethe

competitivethreatfromgas.Coalislosingitsadvantage

incrementallytogas,agasanalystwithBarclaysCapital

recentlytoldtheNew York Times,andanenergyanalyst

withCreditSuissesaidthattheshiftfromcoaltogashas

thepotentialtoreshapeenergyconsumptionintheUnited

Statessignicantlyandpermanently(Krauss2010).

U.S. coal prices are rising and could be driven much higher

by soaring global demand and shrinking reserves. Coalisno

longerareliablylow-costfuel,inpartbecauseitisincreasingly

vulnerabletovolatileglobalmarkets.EasternU.S.coalspot

pricesspikedin2008(FigureES.4,p.xii),mainlyinresponse

totherisingpriceofcoalininternationaltrade,andprices

areclimbingagainasrapidlyrisingcoaldemandinChina

pushesglobalcoalpriceshigher.WesternU.S.coalproducers

Figure ES.3. WIND POWE R GROWING AT RECORD PACE

U.S. wind power capacity expanded by over 50 percent in 2008 alone and continued to expand in 2009 despite the recession (Wiser and

Bolinger 2010).

40

35

30

25

20

15

10

5

0

ANNUALC

APACITY

(GW)

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

CUMULATIVE

CAPACITY

(GW)

12

10

8

6

4

2

0

Annual U.S. Capacity

Cumulative U.S. Capacity


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xii UN I O N O F CO N CERN ED SCI EN T I ST S

courtordersrequiringittoimplementexistingstatutorystan-

dards).Plantsfacecostsassociatedwith:

Preventing thousands of deaths from heart and lung disease.

Coalpowerisamajorsourceofsulfurdioxide(SO2)and

nitrogenoxide(NOX)emissions,whicharetransported

downwindandcauseozoneandparticulatepollutionthat

shortenthelivesofthousandsofAmericansyearly;these

emissionshavebeenestimatedtoimposeannualcostson

societyofmorethan$100billion(CAF2010).TeEPAs

proposedCleanAirransportRulewouldpreventmanyof

theseprematuredeaths,asoldanduncontrolledplants

wouldnallyberequiredtoinstallcontrolsonSO2andNOX.

Protecting childrens brains from impairment.Coalpower

isthesourceofatleasthalfofU.S.emissionsofmercury,a

west,pointstolikelyhighercoalproductioncostsaheadin

contrasttothelowerproductioncostsexpectedfornaturalgas.Newstudiesthatprojectfuturecoalproduction,includ-

ingsomethatmakeprojectionsbyttingabellcurvetopast

productionlevels(ananalyticmethodthatremainscontrover-

sial),predictthatwearemuchnearertopeakcoalproduction

thantraditionalreserveestimatessuggest(HeinbergandFridley

2010;PatzekandCroft2010;Rutledge2010;EWG2007).

Coalpricesinsomemarketsmayalsoriseinresponsetoeorts

toreducethedamagecausedbymountaintop-removalmining.

Coal plants also face costs associated with reducing their non-

climate environmental impacts.Becausecoalplants,especiallyolderones,causegraveharmtotheenvironmentandpublic

health,theU.S.EnvironmentalProtectionAgency(EPA)is

developingmoreprotectiveregulations(largelyinresponseto

Figure ES.4. AVERAGE WEEKLY COAL SPOT PRI CES

Coal prices spiked dramatically in 2008, largely in response to the inuence of global coal demand on U.S. coal markets, particularly in

Appalachia (EIA 2010e). Prices in most basins are rising again with the economic recovery.

$160

$150

$140

$130

$120

$110

$100

$90

$80

$70

$60

$50

$40

$30

$20

$10

$0

D

OLLARSPER

SHORTTON

30Mar07

10Jun07

21Aug07

1Nov07

12Jan08

24Mar08

4Jun08

15Aug08

6Jan09

19Mar09

30May09

10Aug09

21Oct09

1Jan10

14Mar10

25May10

5Aug10

15Oct10

27Dec10

nCentral Appalachia

nNorthern Appalachia

n Illinois Basin

nPowder River Basin

nUinta Basin


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S xiii

reboundedquickly,andexpertsprojectthattheywillremain

highbyhistoricalstandards(IMF2010).

Coal project nancing may be harder to obtain and may cost

more. Tetrendsdiscussedaboveincreasetheriskthatcoal

investmentprojectswillfailtoobtainthenancingtheyneed

orthattheywillhavetopaymoreforitthanplanned.Te

nancialcommunityisbecomingincreasinglywaryoftherisks

associatedwithnewinvestmentsincoal.Aseriesofutilities

andotherpowerproducershaveseentheircreditratingsand

outlooksdowngraded,inpartbecauseoftheratingsagencies

concernsaboutcoalconstructionorretrotcosts.

New coal plants cost more than cleaner options. Tetradi-

tionalcostadvantagethatcoalpowerenjoyedovercleaner

energyhaslargelydisappearedwithrespecttonewplants.

FigureES.5(p.xiv)comparesthelevelizedcostsofelectric-

ity2fromnewcoalplantstothoseofothernewsourcesof

power,bothwithandwithoutincentivesandusingarangeof

assumptionsdescribedinPart8(andinAppendixA,which

isavailableonline).Powerfromnewcoalplantsclearlycosts

morethanpowerfromnewgasplants,windfacilities,and

thebestgeothermalsites,andmuchmorethaninvestingin

energyeciency.Wheneithercarbonpricesorincentivesarefactoredin,powerfromnewcoalplants(withorwith-

outCCS)becomesevenlesscompetitive,costingmorethan

powerfrombiomassfacilitiesorfromthebestsolarthermal

andsolarphotovoltaicsites.Tesecomparisonsreectarange

ofcoalprices(butdonotfullyrepresenttheriskthatcoal

pricescouldrisesteeplyduetovolatileglobalmarketsand

othercauses)andtheyincorporateconservativeassumptions

aboutfallingpricesofrenewabletechnology.

Inadditiontolosingtheircostadvantage,coalplantsrela-

tivelackofoperationalexibilitymakesthempoorlysuitedfor

thegridoftomorrow,whichwillsurelyincludegreaterquanti-tiesofvariablesourceswindandsolarpower,forexample

andplaceapremiumonotherpowersources,suchasnatural

gas,thatcanrampupordownquicklyasneeded.

potentneurotoxinthatthreatensfetalandinfantbrain

development.TeEPAsforthcomingAiroxicsRule, limitingmercuryandothertoxicemissions,wouldrequire

uncontrolledplantstoinstallcontrolsonthesepollutants.

Keeping toxic coal ash from contaminating the water. Coal

ashcontainsmanytoxiccomponentsandiscurrentlystored

inwaysthatcanresultbothincatastrophicreleases(such

astheKingston,N,ashspillof2008)andinslowleakage

intogroundandsurfacewaters.ProposedEPAruleswould

requiresaferashhandlingandpotentiallyobligemany

plantstoconvertfromwethandlinginsurfaceimpound-

mentstodryhandlinginlinedlandlls;plantscouldalso berequiredtoaddnewwatertreatmentsystemsinorderto

keeptoxinsoutofourwatersuppliesandecosystems.

Reducing sh kills and protecting water bodies. Coalplants

usevastquantitiesofwaterfromadjacentrivers,lakes,and

bays,takingaheavytollonaquaticlifeasaresult.TeEPA

isconsideringnewrulesthatwouldrequiremorecoal(and

otherthermalpower)plantstoinstallcoolingtowersthat

wouldgreatlyreducetheamountofwatertheywithdraw

andthethermalpollutiontheydischarge.

Retrottingcoalplantswithpollutioncontrolsandother

technologiescouldgreatlyreducetheseenvironmentaland

healthdamages,andtheretrotswouldcostmuchlessthan

whatthedamagescurrentlycostsociety.However,theretrot

costswouldbesubstantialformanyplants,particularlythe

oldestanddirtiest.Telimitedremainingusefullifeofmany

oldercoalplantswouldmakesuchinvestmentsdicult,

ifnotimpossible,torecover,makingretirementthebetter

nancialoption.

Major coal projects face high and unpredictable construc-tion costs.Coalplantconstructioncostsroseatarapidratein

theyearsleadingupto2008,contributingtothecancellation

ofmanyproposedfacilities.Despitethesubsequentrecession,

constructioncostshaveremainedhigh(IHSCERA2010),and

somecoalplantprojectswerestillannouncingsubstantialcost

increasesin2010.Muchoftheconstruction-costincreasewas

drivenbyrisingglobalcommoditycosts.Whilethesecommod-

itypriceswentbackdownwiththeglobaleconomiccrisis,they

2 Levelized cost of electricity (LCOE) is an economic assessment of the cost of

energy generation of a particular system. LCOE includes all of the costs over the

systems lifetime, such as capital expenditures, operations and maintenance, fuel

cost, and cost of capital, discounted to a net present value. The LCOE is the price at

which energy must be sold for the project to break even.


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xiv U N I O N O F C O N C E R N E D S C I E N T I S T S

A costly history threatens to repeat itself.Whenconsidering

long-terminvestmentsincoaltoday,itishelpfultoremember

anearliereraofpower-sectorinvestmentsthatdidnotend

well.Inthe1970s,utilitiesinvestedmassivelyinbothcoaland

nuclearplantswhileignoringthesweepingchangesthatwere

increasingthecostsof,anddecreasingthedemandfor,suchplants.Teresultwasstaggeringnanciallossesaroundthe

countryasscoresofplantswerecancelledafteryearsofspend-

ing.Wecanavoidrepeatingthatcostlyhistorybyrecognizing

thatchangesunderwaytodayaremakinglong-terminvest-

mentsincoalpoweranunacceptablyriskyproposition.

We can dramatically reduce our dependence on coal power.

Long-terminvestmentsincoalwouldbelessriskyifthenation

hadnochoicebuttocontinuewithitscurrentlevelofcoaluse,

nomatterhowhighthecosts.Butthatisnotthecase.Studies

bytheUnionofConcernedScientistsandothersshowthatwe

couldinfactreplacemostofourcoalpowerusingrenewableenergy,demandreduction,andnaturalgaswithinthenext

15to20years,withadditionalreductionsincoalpowerafter-

ward(Keithetal.2010;Specker2010;Cleetus,Clemmer,and

Friedman2009).Andtheoverallbenetsoftransitioningtoa

cleanerenergysystemsavinglives,protectingairandwater,

andhelpingusavoidsevereclimatechangeswhilestimulating

technologicalinnovationandbuildingnewclean-energyindus-

trieswouldbetremendous.

Figure ES.5. LEVELIZED COST OF ELECTRICITY FOR VARIOUS TECHNOLOGIES

All projections assume newly built installations coming online in 2015 and represent levelized costs over a 20-year period. A range of capital

costs is assumed for all technologies; a range of fuel costs is assumed for coal, natural gas, and biomass; and a range of capacity factors is

assumed for wind, solar, natural gas, and nuclear power. A range of CO2

prices is taken from Synapse projections (discussed in Part 4).

Current tax incentives for wind and biomass are assumed to be extended to 2015.

nTotal Cos ts with Incent ives

nTotal Cos ts without Incentives

nLow CO2

Costs

nMid CO2

Costs

nHigh CO2

Costs

Coal IGCC-CCS

Nuclear

Coal IGCC

Pulverized Coal

Solar Thermal

Large Solar PV

Biomass

Geothermal

Wind (Onshore)

Natural Gas CC

Eciency

0 50 100 150 200 250 300 350

$ / M W h


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A RI SKY P RO P O SI T I O N : T H E F I N AN CI AL H AZ ARDS O F N EW I N VEST MEN T S I N CO AL P LAN T S 1

P A R T O N E

BackgroundThe Changing Outlook for Coal

Scienticconcernoverglobalwarmingcontinuestogrow,

andtheneedforsteepreductionsincarbonemissionsis

nowwidelyrecognizedwithinthesciencecommunity.

Whilethe111thCongressfailedtopassalawlimiting

heat-trappingemissions,thefactthattheclimatethreatisboth

graveandgrowingmeansthatCongresswillbeundersustained

pressuretotackletheproblemagain,perhapsseveraltimes,dur-

ingtheoperatinglifetimeofalong-terminvestmentincoal.Coal

plants,asthenationslargestsourceofglobalwarmingemissions,

wouldsurelybetargetedbyanyfutureclimatelaws.

Meanwhile,evenwithoutapriceoncarbon,theeconomicoutlookfornewcoalplantshasalreadychangeddramatically

underU.S.EnergyInformationAdministrationprojections.

Asforexistingcoalplants,manyareseveraldecadesold,highly

polluting,andfacingtheprospectofnallyhavingtoinstall

technologiestoreducethesubstantialdamagetheydototheair,

water,land,andpublichealth.Industryanalystsaretherefore

projectingawaveofcoalplantretirementsaheadindeed,such

awavehasalreadybegunmadepossiblebythefactthatthe

nationselectricgridhassubstantialsurplusgeneratingcapacity.

The Need for Urgent Action to Address ClimateChange Is Now Indisputable

Nooneplanningalong-terminvestmentincoalcanaordto

beunawareofthescienticevidencethatshowshowurgently

anddeeplyweneedtoreduceourcarbonemissions.Basedon

itsmostcomprehensivesurveyofclimateresearchtodate,the

NationalAcademyofSciences(NAS)releasedinMay2010a

seriesofcongressionallyrequestedreportsthatconcludedyet

againthattheearthiswarming,thatemissionsfromtheburn-

ingoffossilfuelsarelargelytoblame,thatthiswarmingposes

awiderangeofseriousriskstosocietyandnaturalsystems,

andthatthereisanurgentneedforU.S.actiontoreduce

[greenhousegas]emissions(NRC2010aand2010b).3Tis

conclusionrearmedtheNationalAcademys2009joint

statement,withitscounterpartscienticacademiesof12

othernations,bluntlystating,theneedforurgentactionto

addressclimatechangeisnowindisputable(NAS2009).

Inthisspirit,theNAShasspecicallyrecommendedthat

theUnitedStatesacceleratetheretirement,retrotting,or

replacementof[greenhousegas]emission-intensiveinfrastruc-ture(NRC2010b).

Ourclimateisalreadychangingindangerousways,with

morefrequentandseveredroughts,heatwaves,anddown-

pours,amongothermanifestations.Andclimatechange

posesbothdirectandindirectthreatstopublichealth,such

asthroughheat-andweather-relatedstresses,respiratoryill-

nesses,insect-bornediseases,andcontaminationoffoodand

water(APHA2010;NIH2010;EPA2009e).Inrecognition

ofthesethreats,thenationsleadingpublichealthgroupshave

recentlyaddedtheirvoicestothecallforlawsthatwouldlimit

3 In 2009, allegations of scientic misconduct were made against certain U.S. and

U.K. climate scientists, based on stolen and misinterpreted email correspondence.

These allegations, which were given broad media coverage, created confusion in

some nonscientic circles about the certainty of the science behind researchers

global warming conclusions. Subsequent investigations that exonerated these

scientists of misconduct, and rearmed the strength of the underlying climate

science, received far less coverage (Oxburgh et al. 2010; Penn State 2010; Russell et

al. 2010). In actuality, the fundamental science underlying climate concerns, based

on multiple independent lines of evidence and the work of thousands of scientists,

is robust and was never in doubt.


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2 U N I O N O F C O N C E R N E D S C I E N T I S T S

heat-trappingemissions(APHA2010).Manyofthechanges

totheworldaroundusareunfoldingfasterthanscientists

projectedjustafewyearsago(NAS2009;Rosenzweigetal.

2008;Rahmstorfetal.2007;Stroeveetal.2007).Inaddi-

tion,thedatashowthatmuchworseliesaheadifwedonot

changecourse(Meinshausenetal.2009;Solomonetal.2009).

Indeed,wemaybeveryclosealreadytotriggeringnatural

amplicationmechanismsthatcouldcauseirreversiblechanges

withcatastrophicconsequences(NRC2010a).

Deep Emissions Cuts Are Required from the

Coal Sector

Mostclimateexpertsagreethatinordertohaveareasonablechanceofavoidingthemostsevereimpactsofglobalwarm-

ing,wemustpreventaverageglobaltemperaturesfromrising

morethantwodegreesCelsius4abovepreindustriallevels(UCS

2008;ClimateChangeResearchCentre2007).TeCopenha-

genAccord,negotiatedatameetingofworldleadersinDecem-

ber2009,formallyembodiesthisgoal(UNFCCC2009).

However,thereisnoguaranteethatatwo-degreewarming

wouldbesafe,andsomeprominentscientistsnowthinkthat

allowingeventhatmuchwarmingwouldbearecipeforglobal

disaster(Hansen2008).TeCopenhagenAccordexplicitly

callsforreassessmentofthetwo-degreetargetandconsiderationofa1.5-degreetargetby2015(UNFCCC2009).

Eventhetwo-degreelimitwouldrequireambitious

reductionsinheat-trappingemissionsby2020andbeyond.

Teabove-mentionedNationalAcademyofSciencesjoint

statementnotesthat,limitingglobalwarmingto2degreesC

wouldrequireaveryrapidworldwideimplementationofall

currentlyavailablelow-carbontechnologies(NAS2009).o

haveareasonablechanceofachievingthatlimit,industrialized

nationstakencollectivelywouldhavetoreduceemissionsto

25to40percentbelow1990levels(or35to48percentbelow

2005levels)inthenext10years(IPCC2007).TeUnionofConcernedScientistsrecommendsthattheUnitedStates

reduceemissionsbyat least35percentbelow2005levelsby

2020,basedontheworkoftheIntergovernmentalPanelon

ClimateChange(IPCC)andotherstudies(Baeretal.2008;

denElzenetal.2008).UndertheCopenhagenAccordthe

Obamaadministrationsetalesserbutstillambitioustargetof

reducingU.S.emissionsintherangeof17percentby2020

(pendinglegislativeaction)(Stern2010).

Evendeeperemissionscutsbeyond35percentareneeded

intheyearsfollowing2020intherangeofatleast80percent

by2050(NRC2010b;Luersetal.2007).TeUnitedStates

andotherdevelopedeconomiesagreedforthersttime,atthe

2009G8Summit,thatdevelopedcountriesshouldcuttheir

heat-trappingemissionsby80percentormorefrom1990

levelsby2050(G82009).

Teselonger-termreductionsarepossiblebutrequirean

immediateandsustainednationalcampaigntomoveawayfrom

high-carbon-emittingenergy.Becausecoalplantsaloneaccount

formorethanathirdofallU.S.CO2emissionsfromenergy

usetheyemitmorethanallofthenationscars,trucks,and

trainscombined(Figure1)wecannotachievethereductions

weneedwithoutslashingcarbonemissionsfromcoalpowerin

theyearsahead.Evenifthecoalpowersectoronlymadeitspro-

portionalshareofreductions,itwouldfacereductionsofatleast

17percentinthenextdecadeandmorethan80percentover

fourdecades.Butasmanystudieshaveshown(someofwhich

arediscussedinParts4and8),ifsocietyfollowsanythingresem-

blingaleast-costpath,adisproportionateshareoftheemissions

reductionswillbeachievedbyshiftingawayfromcoalpower.

Tesescienticrealities,whicharedrivingpolicyresponses

elsewhereintheworld,willkeepfuelingdemandsforstronger

policiesintheUnitedStatesaswellincludingalawthatputs

apriceoncarbon,whichwouldhavenancialimplicationsfor

coalthatwediscussinPart4.Butevenwithoutsuchaprice

inplace,theeconomicprospectsbothofoldcoalplantsand

proposednewplantshavealreadychangedprofoundly.

Federal Projections of New Coal Plants Plummet

Oneofthemostcommonlycitedsourcesofinformation

aboutthenationsenergysectoristheEnergyInformation

4 This is equivalent to about 3.6 degrees Fahrenheit. We have already warmed

by 1.7 degrees Fahrenheit above preindustrial levels (Arndt, Baringer, and

Johnson 2009).

Apart from plants already under construction,

the EIAs model no longer projects the

construction ofanynew coal plants through

2030 without carbon capture and storage (CCS).


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Administration(EIA)anindependentagency,withinthe

U.S.DepartmentofEnergy,thatisthesourceofocialfederal

energystatisticsandanalyses.TeEIApublishesanAnnual

EnergyOutlook(AEO)thatmakeslong-termforecasts,basedonhighlydetailedcomputer-basedeconometricmodeling,

aboutU.S.energymarkets.Asamatterofmethodology,the

AEOreference-caseforecastassumesimplementationofexist-

inglawsandregulationsonly.Teseannualforecaststherefore

donotfactorinafuturepriceoncarbon(discussedinPart4),

nordotheyreectmanyofthepollutioncontrolupgradesthat

existingplantsface(discussedinPart5).

Justafewyearsago,whenmanyplantsinthepipeline

todaywererstannounced,theEIAforesawarobustfuture

fornewcoalplants.IntheAEO2006,theEIAsmodelpro-

jectedtheconstructionof145gigawatts(GW)ofunplannednewcoalcapacityby2030,ortheequivalentofabout240

newcoalplantsof600MWinsize(inadditiontothe9.3

GWofplannedcapacity,whichtheEIAputintothemodel

toreectnewcoalprojectsthatitunderstoodtobeunder

constructionandthatitassumedwouldbecompleted)(EIA

2006).Whilecritics,includingtheUnionofConcerned

Scientists,pointedoutthattheseforecastswerebasedoninap-

propriatelylowcoal-plantconstruction-costassumptions,and

thattheydidnotreectcarbonregulatoryrisk,backersofnew

coalplantspointedtothesefederalprojectionsasevidenceof

theeconomicwisdomofbuildingmorecoalcapacity.

ButintheEIAsAEO2011(EarlyRelease),thosehundredsofprojectedcoalplantshavevanished,areectionofthe

profoundeconomicchangesthathaveoccurredsince2006.

Apartfrom11.5GWofplantsalreadyunderconstruction,the

EIAsmodelnolongerprojectstheconstructionofanynewcoal

plantsthrough2030withoutcarboncaptureandstorage(CCS)

(EIA2011a)(seeFigure2,p.4).Only2GWofcoalpower

withCCSareprojectedby2030,whichreectnewplantsthat

theEIAassumedwouldbestimulatedbyexistinggovernment

subsidies(EIA2011a).

Widespread Retirements Expected amongExisting Plants

AlargepercentageofU.S.coalplantcapacityhasreachedor

exceededitsoriginallyassumedusefullifetime.Seventy-twopercent

ofU.S.coalplants(bycapacity)areolderthan30years,34percent

areolderthan40years,and14percentareolderthan50years

(Bradleyetal.2010).Only1percentare10yearsoldorless,and

onlyafewnewplantsarenowinthepipeline.AsFigure3(p.5)

shows,however,thenationdoeshavesubstantialnewlybuilt

Figure 1. U.S. CO2

EMISSIONS FROM ENERGY USE BY SOURCE, 2009

More CO2

is emitted from coal plants than from any

other technology or sector, including all modes

of surface transportation combined. (Power plant

emissions are presented under coal plants and

other electricity generation, rather than under

the residential, commercial, and industrial sectors

where the power is consumed.)

Coal Plants

33.2%

Other Electricity Generation 5. 0%

Residential 6.2%

Commercial 3.9%

Industrial 15.4%

Surface Transportation 32.9%

Aviation3.3%


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energycapacityintheformofnaturalgasplants(which

havebeengreatlyunderutilizedinrecentyears,asdiscussedinPart2)and,increasingly,windpowerandotherrenewablesources.

Teadvancedageofsomanycoalplantspresentstwoprob-

lems.First,theyrequireadditionalinvestmentsjusttokeeprun-

ning.After30yearsofoperation,theavailabilityofacoal-red

boilerdeclinessharplyandtheplantfaceshigherratesofforced

outages;largecapital-improvementprojects,whichoverhaulor

replacekeyplantcomponents,aretypicallyneededtoextendthe

plantsoperatinglife.5Suchprojectsarenotonlycostlybutcan

alsorequireextendedplantshutdowns(Slat2010).

Second,manyolderplantslackmodernpollutioncontrol

technologies,sotheytypicallyposemuchgreaterthreatstoair,

water,land,andpublichealth(andsomewhatgreaterclimate

impacts,giventheirlesserfueleciency)thandonewplants.Tesehighlypollutingplantsfacetheprospectofnewand

moreprotectiveregulatorystandards(discussedinPart5),

whichwouldforcetheirownerstodecidewhethertoretire

themornallyinvestinpollutionreductiontechnologies.

Severalclosuresofoldcoalplantsaroundthecountryhave

Figure 2. DECLINING FEDERAL PROJECTIONS OF NEW COAL PLANTS THROUGH 2030

In its Annual Energy Outlooks (AEOs), the EIAs projections of unplanned coal capacity coming into service by 2020, 2025, and 2030 have

dropped dramatically. In 2006 the EIA projected 145 GW of new coal by 2030 (the equivalent of about 240 new plants of 600 megawatts). But

the agency now projects only 2 GW by 2030, consisting entirely of advanced plants with CCS technology that are inputs to the model based on

the assumed response to federal subsidies. Planned capacity additionsplants that the EIA understands to be under construction already

are not reected.

5 Much of the litigation under the Clean Air Acts New Source Review program

has involved coal plant operators that failed to obtain preconstruction permits

before replacing major plant components. Among the plant components that

required upgrading have been economizers, reheaters, primary and secondary

superheaters, waterwalls, cold end air heaters, and boiler oors. See U.S. v. Ohio

Edison Co., 276 F. Supp. 2d. 829 (S.D. OH 2003).

160

140

120

100

80

60

40

20

0

CUMULATIVENEWC

OALCAPACITY

(GW)

AEO 06 AEO 07 AEO 08 AEO 09 AEO 10 AEO 11(ER)

n2020

n2025

n2030

E I A P R O J E C T I O N S B Y Y E A R

Sources: EIA 2006, 2007, 2008a, 2009a, 2010a, 2011a


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gaswhenadjustingonanelectricityequivalentbasis.

Awfulenergymarginssuggesttousthatownersshouldbereevaluatingtheircoaleetsduetopureenergyeconomics

beforeeventakingontheburdenofa[capitalexpenditure]for

environmentalcontrolequipment(Eggersetal.2010).Coal

plantretirementsareprojectedtohaveapositiveeconomic

eectonmanypowerproducers.TeCreditSuisseanalysis,

entitledGrowthfromSubtraction,predictsthatamong

theseproducersthenewEPAregulationswillproducemostly

winnersandbiggerwinnersandhavetheeectofcullingthe

herdofbadplants(Eggersetal.2010).

Excess Generating Capacity Facilitates CoalPlant Retirements

Fortunately,withprojectionsofextrageneratingcapacityon

thegridforyearstocome,theUnitedStatesisnowinarela-

tivelygoodpositiontohandleawaveofcoalplantretirements.

Eachregionofthecountrymustmaintainenoughelectric

generatingcapacitytomeetexpecteddemand,plusanaddi-

tionalreservemargintodealwithplantoutages,transmis-

sionfailures,unexpecteddemand,andotherfactors.Inmost

regions,theminimumtargetreservemarginis15percent

orless,butinrecentyearsactualreservemarginsaroundthe

countryhavebeenwellabovethatthreshold,andin2013

reservemarginsareexpectedtorangefrom22to46percent,

dependingontheregion.Accordingtoarecentanalysisby

M.J.BradleyandAssociates,inaggregatetheelectricsectorisexpectedtohaveover100GWofsurplusgeneratingcapacity

in2013(Bradleyetal.2010).

TeNorthAmericanElectricReliabilityCorporation

(NERC)issuedanassessmentinlate2010oftheimpactof

fourdierentforthcomingEPAregulationsonreliability;it

foundpotentialforanimpact,dependingonwhethersuf-

cientreplacementcapacitycanbeaddedinatimelymanner

Table 1. COA L PL A NT RETI REMENT PROJECTI ONS

A recent series of reports and presentations has attempted to predict the scale of coal plant retirements over the next few years.

The reports vary in the factors they considered and the type of analysis, but all agreed that the aging U.S. coal eet faces signicant

retirements ahead.

S O U R C E O F A N A L Y S I S

Black and Veatch (Grith 2010)

Brattle Group (Celebi et al. 2010)

Charles River Associates (Shavel and Gibbs 2010)

Credit Suisse (Eggers et al. 2010)

Deutsche Bank Climate Change Advisors

(Mellquist et al. 2010)

FBR Capital Markets (Salisbury et al. 2010)

ICF International (Fine Maron 2011)

Wood Mackenzie (Snyder 2010)

P R O J E C T I O N S

54 GW (in response to pending environmental regulations)

5066 GW vulnerable to retirement by 2020

39 GW retired by 2015

60 GW assumed retired in base case by 2017

35 GW and 103 GW retirements considered on other scenarios

60 GW expected to retire by 2020

92 additional GW inecient and ripe for retirement

45 GW retired in base case by 2018

(3070 GW range)

20% decline in coal eet by 2020

12% decline in coal generation by 2020

Nearly 50 GW by 2020

A large chunk of the U.S. coal eet is vulnerable

to closure simply due to crummy economics.

C R E D I T S U I S S E


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BankshowsapathwaythatwouldreducepowersectorCO2

emissionsby44percentby2030. Inthelongerterm,theUnitedStatescanretireafarlarger

shareofitscoaleetthanthoseprojectedintheseanalyses;

indeed,doingsowouldbeacentralfeatureofmakingthedeep

cutsinglobalwarmingemissionsthatweneed.Forexample,in

amultiyearmodelinganalysisreleasedin2009,theUnionof

ConcernedScientistsshowedhowwecouldreducecoaluseby

84percentby2030,replacingitmainlywitheciencysav-

ingsandmorerenewablepowerwhilesavingenergyconsumers

money(Cleetus,Clemmer,andFriedman2009).Wediscussthis

studyfurtherinPart8,alongwithotherresearchshowingthat

theUnitedStatescouldretireitsoldcoalplantsatarapidpaceandstillmeetitsenergyneeds(Keithetal.2010;Specker2010).

Growing Opposition to Coal

Amongtheveryrealbuthard-to-quantifyrisksfacedbythose

investingincoalisthelikelihoodthatpublicoppositionto

coalwillkeepbuilding,particularlyastemperaturesclimbin

theyearsahead.Manynewcoalplantproposalshavealready

beenstoppedbypublicopposition,drivenatleastinpartby

climateconcerns.Andbecauseslashingthecarbonemissions

ofexistingplantsiscriticaltoclimateprotection,activists

alreadymobilizedtoopposenewplantscanbeexpectedtoincreasinglyturntheirattentiontoclosingexistingplants.Te

failuretopassacomprehensiveclimatebillduringthe111th

Congressmayjustsharpenclimateactivistsfocusoncoal

plants,giventhattheyarethebiggestcarbonpollutersandthe

mostobvioustargets.

Butrisingoppositiontocoaluseisbasednotjuston

climateconcerns.Mountaintop-removalminingincreasingly

drawsprotestsandactsofcivildisobedience,includingatthe

WhiteHouseinSeptember2010,when1,000protestorsdem-

onstratedand100werearrested(Reis2010).Andthethreats

posedbycoalash,madeevidentbythe2008ashspillinKingston,N,havealsopromptedprotestsandheavycitizen

turnoutatEPAhearingsaroundthecountrytocallforstricter

ashregulation.

Inshort,thoseplanningtomakelong-terminvestmentsin

coalpowershouldexpectgreaterscrutiny,morecontroversy,

andstrongerlegalandpoliticaloppositionintheyearsahead.

Tisoppositionposestheriskthatprojectsmaybedelayedor

stoppedaltogether.

(NERC2010).TeNERCanalysisassumed33to70GWofplantretirements,buttheseguresincluded30GWofsmall,

oldoilandgasunitsretiredinresponsetotheEPAsas-yet-

unproposedcooling-waterrule.However,asthesubsequent

CharlesRiverAssociates(CRAInternational)analysispointed

out,thenumberofprojectedcoalplantretirementsnationwide

issmallcomparedwiththerateatwhichtheUnitedStateshas

addedgeneratingcapacityinthepast.CRAInternationalalso

foundthatafterthe39GWofcoalretirementsitprojected,

alloftheregionaltransmissionorganizationswouldstillhave

sucientresourcestomeetreservemarginrequirementsevenif

newadditionsintheplanningandsitepreparationstageswerenotincludedintheanalysis(ShavelandGibbs2010).

Teseamplereservemarginsresultinnosmallpartfromthe

manynewnaturalgasplantsthatcameonlineinthelastdecade

(Figure3)butthathavebeenoperatingatjustafractionoftheir

capacity.Teseplantscouldreplacethepowerlostfromsubstan-

tialnumbersofretiringcoalplants,andlowerprojectednatural

gaspricesmakethisprospectevenmorelikely(seePart2).In

addition,demanddroppedsubstantiallywiththerecession,with

powersalesin2009about5percentbelowtheir2007levels

(EIA2010h).Whilethedemandforpowerbegantorebound

in2010,surplusgenerationcapacityisstilllikelytopersistforlongerthanwasexpectedbeforetherecession.Accordingto

theDeutscheBanksanalysis,thereisamplecapacity,stranded

fromthe19982003dashtogasoverbuild[,]andtherecession

hasincreasedreservemargins,reducingpressureonaddingnew

plantsinmanyregions(Mellquistetal.2010).Teseanalysts

assumethatatleasttwo-thirdsofthecoal-to-gasswitchthey

projectcouldoccurbyincreasingtheuseofexistinggasplants;

combinedwithgrowingrelianceonrenewablepower,Deutsche

ZenSutherlandPhotography


23/74


24/74


ingavoidedfuturecarboncosts)(EERE2008).Despiteits

variableoutput,severalU.S.andEuropeanutilitystudieshave

shownthatwindpowercouldprovideupto25percentoftotal

generationonutilityandregionalsystemsatmodestintegra-tioncosts(oflessthan$10/MWh,orroughly5to10percent

ofwindpowerswholesalecost)(WiserandBolinger2009;

Holttinenetal.2007).

Teinstallationofwindandsolarenergytechnologieshas

expandedatastrikingpace,withwindgrowingatanaver-

ageannualrateof39percentbetween2004and2009and

solargrowingatanannualaveragerateof41percentoverthat

period.In2007,forthersttime,theUnitedStatesadded

morerenewablecapacity,mainlywind,thanitdidnonrenew-

ablecapacity(EIA2009c).From2008to2009,morewind

capacitywasaddedtotheU.S.powersupplythaninthepreviousthreedecadescombined(Figure4,p.10)(Wiserand

Bolinger2009).In2010,however,windinstallationsdropped

oconsiderablyfromtherecentrecordpace,dueinlargepart

totherecessionaswellastoincreasedcompetitionfromlow-

pricednaturalgas(AWEA2010a;AWEA2010b).

Temarketshareofsolarphotovoltaic(PV)powerisalso

growingrapidly,andthisoptionhasthepotentialtotransform

theenergygridassolarpanelpricescontinuetofall.PVinstal-

lationsduringthersthalfof2010were55percenthigher

thanin2009onanannualizedbasis(SEIA2010b).California

nowhas600MWofPVcapacityonline,aspartofapushtoinstall3,000MW(CPUC2010),andNewJerseyhas120

MWunderdevelopment(Belson2009).Unlikemostother

spendingonratepayer-fundedgasandelectriceciency

programsnearlydoubledbetween2007and2009,risingfrom$2.5billionto$4.3billion(ACEEE2010a).Suchaggressive

andsustainedinvestmentsinenergyeciencycouldnotonly

greatlyreducetheneedfornewsourcesofgeneration(includ-

ingcoal)butalsocutdemandforexistingpowerplants.

Arenewedcommitmenttoenergyeciencyatthefederal

levelwillhelptodrivedemandreductionsnationwide.For

example,theAmericanRecoveryandReinvestmentActof

2009(ARRA)providedapproximately$17billioninincentives

forhomesandbusinessestoinvestinenergyeciency(ACEEE

2010b).Moreover,sinceJanuary2009theU.S.Departmentof

Energyhasnalizedneweciencystandards,formorethan20householdandcommercialproducts,estimatedtocumulatively

saveconsumers$250billionto$300billionby2030(DOE

2010).Tesearebillionsofdollarsthatwillnolongerneedto

bespentoncoalpoweroranyotherkindofelectricitysupply.

Renewable Power

Tepotentialofrenewablesourcestomeetafargreatershareof

ourelectricityneedsiswelldocumented.Temajorrenewable

energytechnologieswind,solar,geothermal,bioenergy,and

small-scalehydropowerhavethepotentialtoproducemany

timesthecurrentU.S.powerdemand(Cleetus,Clemmer,andFriedman2009).Ofcourse,notallofthatpotentialispracti-

callyrealizable,butnumerousstudieshaveconsistentlyfound

thattheUnitedStatescouldsignicantlyincreaserenewable

energygenerationinanaordableandreliableway(ASES2007;

Nogee,Deyette,andClemmer2007).ANationalRenewable

EnergyLaboratory(NREL)studyrecentlyconcludedthatby

2025theUnitedStatescouldmeet22percentofitselectric-

ityneedsusingnon-hydrorenewablepowerupfromabout

3.6percentin2009withnosignicantimpactonconsumer

pricesatthenationallevel(EIA2010b;Sullivanetal.2009).8

Inaddition,a2009EIAstudyprojectedthatincreasingtheshareofrenewableelectricityto25percentnationallyby2025

wouldlowerconsumernaturalgasbillsslightlycomparedwith

businessasusual,therebyosettingslightlyhigherelectricity

bills(EIA2009g).

Accordingtoalandmark2008analysisbytheU.S.Depart-

mentofEnergy,windpoweralonecouldmeet20percentof

ourelectricityneedsby2030withoutcompromisingreliability

orraisingelectricratesbymorethan2percent(notconsider-

The next decade may see a dramatic and

sustained increase in overall [energy

eciency] funding levels, and a fundamental

redrawing of the energy eciency map.

L A W R E N C E B E R K E L E Y N A T I O N A L L A B O R A T O RY

8 The NREL analysis examined three proposed renewable energy standards,

the most stringent of which would require 25 percent of retail power sales to

derive from renewable power by 2025. However, because smaller utilities were

exempted from this standard, the eective renewable requirement was only

22 percent by 2025.


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50percentinthelasttwoyears,partlyduetonewlow-cost

manufacturingfacilitiesinChina(Bradsher2010).Analystsat

DeutscheBankreport,lookingatlearningcurves,weexpect

manyrenewabletechnologieswilllikelybeascheapasfossil

fuel-redpowergenerationon[alevelizedcostofelectric-

ity]basiswithinthenext510years(Mellquistetal.2010).

Whiletheseanalystsfocusparticularlyonrapidlyfallingsolar

PVprices,theynotethateventherelativelymatureonshore

windindustrysawturbinepricesfallin2010andthatprices

areprojectedtobe20percentlowerin2011thanin2009

(Mellquistetal.2010). Evenwithoutsuchfallingprices,renewablepowerwould

seecontinuinggrowthdrivenbyfederaltaxcreditsandstate-

levelrenewableelectricitystandards,whichrequireelectricity

supplierstoprovideaminimumpercentageoftheirelectricity

fromrenewablesources.Already,29statesandtheDistrict

ofColumbiahaveenactedsuchstandards,anumberthathas

morethandoubledsince2004.Arecentanalysisprojectedthat

iffullcompliancewiththesestatestandardswereachieved,it

powersources,onsitesolarPVprojectsbecomecompetitive

whencostsfallbelowretailratherthanwholesalepowerprices.

Netmeteringpoliciesandinnovativenancingmechanisms

(suchasproperty-assessedcleanenergy,orPACE,nancing),

whichhelpreducethebarrierstowideruseofPV,arespreading

quickly(Rose2010;SEIA2010a).

Otherrenewabletechnologiesarealsoseeingimpressive

growth.Concentratedsolarpower(CSP)canfunctionaround

theclockwhenpairedwithnewheat-storagetechnologies.Tis

optionistakingoparticularlyinCalifornia,wherestateregu-

latorsapprovedninenewprojectstotalingover4,000MWoverafour-monthperiodinlate2010(Kraemer2010).Onesuch

project,at1,000MW,willbethelargestintheworld(Hsu

2010).Onanotherfront,in2009geothermalpowergrew26

percentinnewprojectsunderdevelopment,with7,875MWof

projectsunderwayin15states(GEA2010).

Renewablepowercontinuestobecomemorecompetitive

withfossilfuelsbecauseoftechnologicaladvances,economies

ofscale,andotherfactors.Solarpanelpriceshavedroppedby

Figure 4. WIND POWE R GROWING AT RECORD PACE

U.S. wind power capacity expanded by over 50 percent in 2008 alone and continued to expand in 2009 despite the recession.

40

35

30

25

20

15

10

5

0

ANNU

ALCAPACITY

(GW)

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

CUMULA

TIVECAPACITY

(GW)

12

10

8

6

4

2

0

Annual U.S. Capacity

Cumulative U.S. Capacity

Source: Wiser and Bolinger 2010


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ensstandardsforthesepollutants,aswellasunderanyfuture

carbon-costscenario.Naturalgasplantsalsohavethecapability

toincreaseorreducetheiroutputasmarketdemanductuates,

whichcoalplantscannotecientlydo.Tisexibilitymakes

gasplantsinherentlybetteradaptedtoagridontowhichagrowingnumberofvariablerenewableenergysourcesarebeing

added,pursuanttostatepoliciesandshiftingeconomics.

Teprospectsforallpowersources,includingcoal,are

greatlyaectedbynaturalgasprices.Whenpriceswerelow,in

the1990sandearly2000s,thepowersectorbuiltagreatmany

ecientnaturalgascombined-cyclepowerplantsdesigned

tooperateasaround-the-clockbaseloadcapacity.10Whengas

wouldresultinsome76GWofnewrenewableenergycapacity

by2025orasmuchas97GWifthenewlyenhancedCalifor-

niastandardandthevoluntarygoalsadoptedinsevenaddi-

tionalstateswereincluded(Wiser2010).Federalsupporthas

alsobeenimportant,withextendedtaxcreditsforrenewablegenerationextendedthrough2012aspartofthe2009ARRA

legislation.TeEIAprojectsthatthesetaxcredits,combined

withexistingstate-levelstandards,willincreaserenewable

energysshareofelectricitygenerationto12.3percentby2020

(EIA2010a).

Inshort,whilecoalpowerisshrinkingandfacesnew

regulatoryhurdlesandrisingcosts,renewablepowerisexpand-

ingwithgrowingpolicysupport;moreover,costsarefallingfor

manyofthesetechnologies.Renewablepowersmarketshare

willthuscontinuetoincreasetoasubstantialfractionofthe

U.S.powermarket,meetingelectricitydemandthatmightotherwisebelledbycoal.

Competition from Natural Gas

Naturalgasplantsholdimportantadvantagesovercoalplants.

Teyburncleaner,producinglessthanhalfthecarbonemis-

sions,aboutone-tenththenitrogenoxides,andnegligible

amountsofsulfurdioxide,mercury,andparticulates.9Tus

naturalgaswillhaveanaddededgeovercoalastheEPAtight-

9 A federal analysis of power plant performance found that a new natural gas

combined-cycle plant emitted 58 percent less CO2

per megawatt-hour than a

new coal plant using subcritical technology and 55 percent less CO2

than a new

coal plant using the more ecient supercritical technology (NETL 2007).

10 Baseload power is the term used for those sources of electricity that are run

most of the time and at a steady rate. This is in contrast to peaking or interme-

diate plants, which are turned on when demand reaches a certain point and

ramped up and down as demand shifts, and in contrast with intermittent sources

such as wind, which provide power only when available. Traditionally, coal,

nuclear, hydroelectric (except in drought years), biomass, and geothermal plants

have provided the baseload power, though lately natural gas combined-cycle

plants have also been a source of signicant amounts of baseload power in some

parts of the country.

MartinD.Vonka,S

hutte

rstock.com


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priceslaterincreased,muchofthenewnaturalgascapacitywas

leftunderutilizedandthepowersectorlaunchedacoalplantbuildingspree,withannouncementsofover150proposed

newcoalplantsatitsheight.Sincethen,naturalgasprices

havefallen,contributingtothecancellationofsomeofthose

newcoalplantsandpromptingtheownersofseveraloldcoal

plantstoannounceplanstoreplacethemwithnaturalgasunits

(Smith2010).

Naturalgaspricesareparticularlyhardtoforecast,butit

isworthnotingthatwhileestimatedcoalreservesarebeing

reducedandcoalpricesarerising(seePart3),theoppositeis

happeningwithnaturalgas.Industryexpertsrecentlyexpanded

theirestimatesofU.S.domesticgasresourcesbyadramatic39percentsincethelastestimatein2006,announcinganexcep-

tionallystrongandoptimisticgassupplypictureforthenation

(PotentialGasCommittee2009).Tiscondenceresulted

fromadvancesindrillingtechnologyhorizontaldrillingand

hydraulicfracturingthatletdrillersreachtheformerlyinac-

cessibleshalegassupplieslocatedinmanystates.

Terearemanyunresolvedconcernsovertheimpactthat

hydraulicfracturingcanhaveonwaterqualityandsupply,

however.Andtherearequestionsastowhethertheglobal

warmingimpactofmethaneleakedduringtheproductionof

naturalgasmoregenerallyhasbeenfullycounted(LustgartenandProPublica2011).Teseissues,andthepublicopposition

toexpandeddrillinginsomeareas,coulddampenexpectations

aboutfuturegasproduction.Still,shalegasisviewedbymany

ascausingadramaticimprovementintheoutlookfordomestic

naturalgasproduction.Tisincreaseinnaturalgasavailability

couldhavesignicantimplicationsforcoalpower,especially

whencombinedwithclimate-protectionpolicies.A2010

The threat to coal from natural gas is particularly

great at present, given the many natural gas

plants built in the last decade that have been

operating at far below capacity.

analysisbyResourcesfortheFuturefoundthatexpandedpro-

ductionofshalegas,combinedwithacap-and-tradeprogram,

wouldreducecoalgenerationin2030bymorethan

halfcomparedwithbusiness-as-usuallevels(Brownand

Krupnick2010). Tethreattocoalfromnaturalgasisparticularlygreat

atpresent,giventhemanynaturalgasplantsbuiltinthelast

decadethathavebeenoperatingatfarbelowcapacity.For

example,combined-cyclenaturalgasplantswereoperatingat

42percentin2007(Kaplan2010)andatonly33percentin

2008(Bradleyetal.2010).ACongressionalResearchService

reportestimatedthatbringingutilizationofthoseplantsto85

percent,asistechnicallyfeasible,wouldbesucienttocutcoal

generationbynearlyathirdandreduceCO2emissionsby19

percent(Kaplan2010).Anotherassessmentconcludedthat

almost70percentofthecoaleetcouldbeidledbyfullyutiliz-ingthenaturalgascombined-cyclepotential(Casten2009).

Teseandotherreportshaveacknowledgedthemanypracti-

calbarrierstoawidespreadsubstitutionofgasforcoal(Aspen

EnvironmentalGroup2010).Still,theexistenceofsomany

underusedgasplantswhengaspricesareprojectedtoremain

relativelylowrepresentsyetanotherpotentiallysignicant

threattocoalpowersmarketshare.


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years,evenwhilethesizeoftheU.S.coaleetshrinksbecause

ofplantretirements.

U.S.coalplantsdependentonPRBcoalmustalsocontend

withtherisksassociatedwithlong-distancerailtransporta-

tionandthebottlenecksthatcanthreatenreliabledelivery.

In2005,heavyrainandsnow,twoderailments,andresulting

trackdamagereduceddeliveriesofPRBcoaltopowerplants

formonthsandcausedPRBspotpricestomorethandouble(NRC2007).Onelong-contemplatedrailprojectdesignedto

expandPRBdeliveries(theDakota,Minnesota,andEastern

Railroadexpansion)haseectivelybeenputonhold,inpart

becauseofuncertaintyoverfutureU.S.coalpolicy(Dowd

2010).Inaddition,thecostoflong-distancecoaldeliveries

canbesignicantlyaectedbythepriceofdiesel,whichrose

steadilyin2010.

upwardtrajectorysincemid-2009(Figure5).Eveninthewest-

ernUnitedStates,whichhistoricallyhasbeenlessexposedto

globalmarkets,thepriceforaone-monthcontractforPowder

RiverBasin(PRB)coalrose67percentbetweenOctober2009

andOctober2010(Jae2010).

Currently,limitedamountsofPRBcoalareshippedtoAsia

viaCanada,butPeabodyEnergy,thelargestU.S.coalproducer,

admitsitisplanningtosendlargerandlargeramountsofcoaltoChina(Rosenthal2010).PeabodyisseekingtobuildaWest

Coastterminalforthispurpose,andanAustraliancoalcom-

panyisseparatelyexploringthepurchaseofasiteinWashing-

tonStateforabulkcoalexportterminal(Learn2010).Ifsuch

plansarerealized,thecoalplantsinthe34U.S.statesthatcur-

rentlygettheircoalfromWyomingwillincreasinglybeforced

tocompetefortheirfuelwithChinaandIndia.Itisplausible

thatdemandgrowthinAsiacoulddriveupU.S.coalpricesfor

Figure 5. AVERAGE WEEKLY COAL SPOT PRI CES

Coal prices spiked dramatically in 2008, largely in response to the inuence of global coal demand on U.S. coal markets, particularly in

Appalachia. Prices in most basins are rising again with the economic recovery.

Source: EIA 2010e

$160

$150

$140

$130

$120

$110

$100

$90

$80

$70

$60

$50

$40

$30

$20

$10

$0

DOLLARSP

ER

SHORTTON

30Mar07

10Jun07

21Aug07

1Nov07

12Jan08

24Mar08

4Jun08

15Aug08

6Jan09

19Mar09

30May09

10Aug09

21Oct09

1Jan10

14Mar10

25May10

5Aug10

15Oct10

27Dec10

nCentral Appalachia

nNorthern Appalachia

nIllinois Basin

nPowder River Basin

nUinta Basin


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Chinascoaldemandweretogrowinstepwithitseconomic

growth,thenationsreserveswouldlastonly19years(Hein-bergandFridley2010).ArecentWall Street Journalarticle,

ChinasCoalCrisis,citedaHongKong-basedbrokeragerm

asestimatingthatevenifthegrowthinChinascoaldemand

werehalved,to5percentyearly,thecountrywouldrunoutof

coalin21to28years(dependingonwhichreserveestimateis

used)(Winning2010).TeChinesegovernmentsannounced

capondomesticcoalproduction,discussedearlier,will

slowthedepletionofChinesereserves,butthecapwillalso

shrinkingeventhough,withhighercoalprices,theyshouldbe

rising(HeinbergandFridley2010;EWG2007). Chinascoalreserveestimatesareofparticularinterest,given

itsenormousandacceleratingcoalconsumption.Aseriesof

recentarticlesraisedtheprospectthatChinacoulddepleteits

reservesfarsoonerthanearlierestimateshadsuggested(Rudolf

2010).Forexample,intheirNaturearticleTeEndofCheap

Coal,authorsRichardHeinberg,ofthePostCarbonInstitute,

andDavidFridley,deputyleaderoftheLawrenceBerkeley

NationalLaboratorysChinaEnergyGroup,notedthatif

Figure 7. C H A N G E S I N U . S . C O A L M I N E L A B O R P R O D U C T I V I T Y

After decades of greatly increasing labor productivity, U.S. coal mines have experienced signicantly declining productivity since about 2000.

This trend suggests that technological changes are no longer compensating for the depletion of the easiest-to-mine coal, even at the

relatively new coal mines of the Powder River Basin (PRB). (Note that the graph shows Wyoming mine productivity, rather than

PRB productivity in particular, for the sake of continuity across the years, but PRB mines dominate Wyoming production.)

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

200

180

160

140

120

100

80

60

40

20

0

%C

HANGE(SHORTTON

/MINER)

nWyoming

nU.S. Total

nWestern Total

n Interior Total

nAppalachian Total

Sources: EIA Annual Coal Reports, 20012009; Coal Industry Annuals, 19942000


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Virginialeadingtocallsforstrongerregulationofminesafety

(Wald2010b). Surfacemining,especiallythepracticeofmountaintop-

removalmininginAppalachia,isalsogettingmuchcloser

scrutinythaninpreviousyears(McIlmoilandHanson2010).

Asitsnameimplies,thetechniqueinvolvesblastingawaythe

topsofmountainsandthendisposingofthewastesinadjacent

valleys(apracticeknownasvalleyll).TeEPAestimates

thatalmost2,000milesofAppalachianheadwaterstreams

havebeenburiedbythesevalleylls(EPA2010h).Agrowing

bodyofscienticevidenceshowsthatmountaintopremoval

andvalleyllshaveimpactsthatarepervasiveandirrevers-

ible,withahighpotentialforharminghumanhealth(Palmeretal.2010).

InJanuary2011theEPAvetoedthewaterpermitforwhat

wouldhavebeenoneofthelargestmountaintop-removaloper-

ationsever(Ward2011).Earlier,in2010,theagencyhadalso

issuednewguidancetobetterprotectAppalachianwatersheds

fromtheimpactsofmountaintopremoval.EPAAdministrator

LisaJacksontoldreporters,noorveryfewvalleyllsare

goingtobeabletomeetstandardslikethis(Ward2010).And

afederalcourtdealtwhatcouldbeasignicantblowtomoun-

taintopminingwithadecisioninSeptember2010.Underthe

ruling,anAppalachiancoalcompanywouldhavetoinstallatreatmentsystemtoreducedischargesofthewaterpollutant

seleniumfromtwoofitsmountaintop-removalmines(Schoof

2010).Evenifmountaintopminingwereallowedtocontinue,

suchdecisionscouldincreasethepriceofAppalachiancoal.

acceleratethedepletionofreservesinothernationswhiledriv-

ingupglobalcoalprices. Teseprojectionsusethetraditionalmethodofestimating

coalreserves,basedongeologicdataandassumptionsabout

howmuchoftheundergroundresourcecanbeeconomically

mined.Teestimatedamountisthentypicallydividedbya

givenproductionratetodeterminehowmanyyearsofcoal

isleftatthatrate.Butthisapproachfailstoreectthepat-

ternofrisingcostsandfallingproductionthatcharacterizethe

depletionofnonrenewableresources.Inmanyways,themore

importantquestionfromaneconomicorplanningstandpoint

isthetimeatwhichproductionofcoalwillpeakandthen

beginitsdecline,therebyputtingsustainedupwardpressureonprices.Someanalystsattempttopredicttheseproductionpeaks

usinghistoricalproductionratesandthenprojectingfuture

ratesthroughtheuseofabellcurve.Tisapproachhasbeen

describedasamathematicalwayofmodelingthefactthatwe

tendtondandproducethemostaccessibleportionofthe

[nonrenewable]resourcerst,sothatproductionrequiresmore

eortovertime(Heinberg2009).

Tecurve-ttingapproachcanleadtomuchsmaller

estimatesoffutureproductionthanthetraditionalapproach

(Rutledge2010;Kerr2009).Onerecentanalysisusingthe

curve-ttingmethodconcludedthatthepeakinglobalcoalproductionfromexistingcoaleldswouldbecloseto2011

(Inman2010;PatzekandCroft2010).Whileestimatesusing

thisapproacharestillcontroversial,theydeservegreateratten-

tion,particularlyinlightoftheirmajorimplicationsandthe

poorqualityofthedataonwhichcurrentU.S.andglobalcoal

reserveestimatesarebased.

Other ProductionCost Increases Ahead

Otherupwardpressuresoncoalproductioncostsarisefrom

issuessuchasunderground-safetyrequirementsandthe

potentialdicultyofobtainingpermitsfornewsurfacemines(EIA2009e).Teaveragecostofcoalfromlow-costproduc-

ersincentralAppalachiahasmorethandoubledsince2003,

andthischangemaybeattributableinparttoagreaterfocus

inrecentyearsonminesafety(Mellquistetal.2010).Evenso,

coalminingremainsdangerous,havingcaused29fatalinjuries

and4,760nonfatalinjuriesin2008,mostlyinunderground

mines(NRC2010c).In2010,29minerswerekilledinasingle

accidentatMasseyEnergysUpperBigBranchmineinWest


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receivedbroadsupportfromCaliforniavoterswhenthey

decidedlyrejectedareferendumattempttorollbackthestates

emission-reductionlawsinNovember2010),andthereis

alreadyafuturesmarketdevelopinginCaliforniacarbon

allowances(PointCarbon2011).

AmongthetopenergyrecommendationsofaNovember

2010conferenceofcorporateleaderssponsoredbytheWall

Street Journalwasacallforacomprehensiveenergypolicythatprovidesconsistencyandpredictabilityforinvestment,includ-

ingclearerpolicyoncarbonconstraintstoavoidapatchwork

ofstaterules(Ball2010).Terewasarecognitionthatsome

typeofcarbonpricingwillbeneeded,saidoneoftheCEOs

indescribingtheconference;anotherCEO,aftersimilarly

notingthat,weregoingtoneedsomekindofasignalon

carbon,highlightedthehundredsofbillionsofdollarsthat

companiesarereadytoinvestiftheuncertaintyovercarbon

wereclearedup(Ball2010).Ithinktheprospectofnocarbon

[regulation]isputtingblinderson,saidtheauthorofanew

reportbyconsultinggroupICFInternational,whichpredictedthatcoalplantownerswillstillfactorclimateregulationsinto

theirdecisions(FineMaron2011).

evenwithsuchcoal-friendlyassumptions,themodelsresults

showthatgenerationfromcoalplantswithoutCCSdeclinessteadilyandoftensteeply.

Itishardlysurprisingthatalawdesignedtosqueezecarbon

pollutionoutoftheeconomyascost-eectivelyaspossible

woulddrivethenationawayfromcoal.Coalpowerisour

largestsourceofCO2emissionsandthemostcarbon-intensive

sourceofpower,andtherearemanywaysinwhichwecancost-

eectivelyreplaceit.Indeed,anypathtowardcarbonreduction

thatdidnotgreatlyreduceourdependenceoncoalgeneration

wouldalmostsurelybestrayingfromtheleast-cost(andmost

benecial)pathwhileimposinggreateroverallcostsonsociety.

obesure,politicalpressuresmaycontinuetodelayormitigatetheimpactsofclimateprotectionpoliciesoncoalgeneration.

Butthefactthatshiftingfromcoalisthemostobviouswayto

reducecarbonemissionsmeansthatthecoalpowersectorwill

remainunderpressuretoshrinkastheworldwarmsandas

societyseeksthebestwaytocutemissions.

Carbon Prices Still on the Horizon

Tereisnowasubstantialliterature,largelyderivedfromthe

computermodelinganalysesconductedbythefederalgovern-

mentandothers,thatforecastspossiblefutureCO2allowance

prices.12

Mostofthestudiesaretiedtooneoftheclimatebillsthathavebeenproposedinrecentyears,particularlythe

ACESbillthatpassedtheU.S.Housein2009,andthey

generallylookatmultiplescenariosthatvarykeyassumptions

suchasthefeaturesofthefederalprogramandthecostsof

availabletechnologies.

Tebillsinquestiondidnotpass,butseveralfactorsensure

thatCongresswillbeundercontinualandgrowingpressure

toputcomprehensivecarbonrestrictionsinplaceoverthe

nextfewyears.Amongthesefactorsistheincreasinglyurgent

needtoreducecarbonemissions,whichwillbecomeeven

moreapparentasconcentrationsofglobalwarminggasesrise,pushingtheplanettowardhighertemperatures,moreextreme

weatherevents,andothernegativeclimaticconsequences.

Anotherfactorisindustrysdesiretoforestalltheemerging

patchworkofstateclimatepoliciesinfavoroftheuniformity

andgreatercertaintyoffederallegislation.Tepowersectoris

alreadysubjecttoacap-and-tradeprogramintheNortheast

undertheRegionalGreenhouseGasInitiative,Californiais

movingaheadwithitsowncap-and-tradeprogram(which

12 Under various climate bills that have been considered by Congress in recent

years, a limited and declining number of allowances would be issued by the

government that grant the right to emit one ton of carbon dioxide. The allow-

ances would be tradable and their prices set by market forces.

PhotoDisc


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Whilemanyofthecomponenttechnologiesthatwould

likelybeusedtocapture,transport,andstoretheCO2ingeologicformationshavebeenusedinotherindustrialapplica-

tions,therehasnotyetbeenacommercial-scaledemonstration

ofCCSatacoal-redpowerplant.Withthisneedinmind,

theUnionofConcernedScientistspublishedareportin2008

thatdescribedCCStechnology,revieweditsstatus,potential,

andcosts,andcalledforthefederalgovernmenttosubsidize

5to10full-scaledemonstrationprojects(Freese,Clemmer,

andNogee2008).However,despitesupportforsuchprojects

Uncertainties around CarbonCapture Retrots

SomeproponentsofnewcoalplantinvestmentspointtoCCStechnologyassomethingtheycouldeventuallyaddtothose

plants.Afterall,totheextentthatCO2emissionscouldbe

capturedandstoredundergroundratherthanemitted,the

plantsownerswouldnotberequiredtobuyCO2allowances.

However,thistechnologymustovercomenumeroushurdles

beforeitiscommerciallyviable,includingveryhighcostsand

eciencylossesundercurrentdesigns,particularlywhenadded

asaretrottoanexistingcoalplant.

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

$180

$160

$140

$120

$100

$80

$60

$40

$20

$0

ALLOWANCEPRICE(2010$/SHORTTON)

Source: Synapse Energy Economics (Johnston et al. 2011)

Figure 8. CO2

A L L OWA NCE PRI CE F ORECA STS COMPA RED WI TH PREVI OU SL Y MODEL ED SCENA RI OS

Recent forecasts by Synapse Energy Economics of high-, mid- and low-cost CO2

prices are contrasted with the CO2

prices projected under

multiple scenarios by federal modeling of climate bills considered by the last Congress.

EIA HR 2454 EIA APA EPA HR 2454 EPA HR 2454 Supp

EPA APA Synapse Low Synapse Mid Synapse High


38/74


plantwouldincreaseitslevelizedcostofenergybyasmuchas

330percent,thoughthisestimateisrelativetoamuchlower

assumedlevelizedcostthanthoseofnewplants(Figure9).

AsCCStechnologynallymovesintothephaseof

commercial-scaledemonstrationprojectsandasweincorporate

thelessonsfromsuchprojectsintoplantdesign,thesehigh

costsmaywellcomedown(Al-JuaiedandWhitmore2009).

Also,anumberofinnovativeapproachestocarboncapture

arebeingresearched,someofwhichmayhavepotentialfor

breakthroughsincostreduction.Butsubstantialresearchanddevelopmentwillberequiredbeforeweknowifanyofthese

approachescanbesuccessfullycommercialized.

withinthepowersectorandthefederalgovernment,progress

towardcommercialdemonstrationtodatehasbeenslow.

AddingCCStoacoalplantisestimatedtogreatlyincrease

thecostofelectricityfromthatplant,particularlyiftheCCS

wereaddedasaretrot(Figure9).Almostallcoalplantsin

operationtodayusepulverizedcoaltechnology,13andthey

couldemployeitherapost-combustion captureprocessoravari-

ationcalled oxy-combustion(inwhichthecoalisburnedusing

pureoxygenratherthanair).woplantscurrentlyinoperation

intheUnitedStatesusethealternativeintegratedgasicationcombined-cycle(IGCC)technology,14whichcouldemploya

pre-combustion captureprocess.Accordingtofederalestimates

basedoncurrenttechnologicaldesigns,addingCCStoa

newpulverizedcoalplantwouldincreaseitslevelizedcostof

electricityby65percentor78percent(usingoxy-combustion

orpost-combustion,respectively);andaddingpre-combustion

capturetoanewIGCCplantwouldincreaseitslevelizedcosts

by36percent.AddingCCSasaretrottoapulverizedcoal

Figure 9. REL A TI VE COST I NCREA SES F ROM A DDI NG CA RBON CA PTU RE TO COA L -F I RED POWER PL A NTS

Adding CCS to coal plants is projected

to add substantially to the levelized

cost of electricity from those plants.

A recent federal study projected that

costs would increase 36 percent if

adding pre-combustion capture to a

new IGCC plant, 78 percent if adding

post-combustion capture to a new pul-

verized coal plant, 65 percent if adding

oxy-combustion to a new pulverizedcoal plant, and 330 percent if adding

post-combustion capture to an existing

pulverized coal plant. The much greater

relative cost increase for the existing

plant is largely because it is assumed to

start with much lower levelized costs.%I

NCREASEIN

TOTALCOSTOFELECTRICITY

350

300

250

200

150

100

50

0

36%

NEW IGCC NEW POST NEW OXY RETROFIT POSTCOMBUSTION COMBUSTION COMBUSTION

78% 65%

330%

13 Some plants use a variation on pulverized coal combustion called circulating

uidized bed (CFB) combustion.

14 One additional IGCC plant is under construction and several others have

been announced.


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aremoreviablethanpastexpectationsaroundCongressional

actiononclimatechange(carbon)orrenewablessincethis

EPAeventismostlyaboutenforcementofexistinglawswhere

thehealthandsocietalgoodbenetsareoflimiteddebateat

thispoint(Eggersetal.2010).

Teexactcompliancecostsfacedbyanygivenplantwould

depend,amongotherthings,onwhatthefuturerulesactually

requiredandwhatpollutioncontrolsandotherequipmentthe

plantalreadyhadinplace.Butcoalplantsareclearlyatriskof

majornewcosts,especiallytheoldestplantsthatinmanycases

havemanagedfordecadestoentirelyavoidinstallingmoderncontrols,thusexternalizingtheassociatedcostsofhealthand

environmentaldamageontoothers.

Teregulatoryeortslikelytoimposethemostsignicant

costsarediscussedbelow.

Transport Rule: Preventing Thousands of Deaths

from PollutionRelated Diseases

Publichealthexpertsandgovernmentalregulatorshavelong

recognizedthatairpollutantemissionsfromU.S.coalplants

killthousandsofpeopleyearlyandcausemanymorenon-

fatalhealtheects.Anextensivebodyofresearchshows,forexample,thatneparticulatesintheairincreasethedeathrates

fromheartandlungconditionsandstrokes(CAF2010;EPA

Quiteapartfromtheirimpactonclimate,coal

plantscauseastaggeringarrayofotherharmsto

theenvironmentandhumanhealth.Coalplants

contributetotheprematuredeathsofthousandsof

Americanseachyearfromheartandlungdisease,forexample.

Teyarethesourceofmorethanhalfofthenationsatmo-

sphericemissionsofmercury,apotentneurotoxinthateach

yearthreatensthousandsofnewbornswithlifelongreduction

inbrainfunction.Coalplantsgeneratemillionsoftonsoftoxic

ashandothersolidwastesknowntoleakintogroundand

surfacewaters.Andcoalplantsrequireenormousquantitiesofwaterforcooling,therebyputtingstressonwatersuppliesand

takingaheavytollonaquaticlife.

Coalplantsfacetheprospectofhavingtomorethoroughly

reducetheseandotherenvironmentalandpublichealth

impactsoverthenextfewyears.TeEPAiscurrentlyworking

throughabacklogofstandardstoaddresssuchthreatsaback-

logthatdevelopedlargelyunderthepreviousadministration,

whentheEPAinsomeinstancesadoptedrulesthatthecourts

struckdownasinsucientlyprotectiveandinotherinstances

failedtoactaltogether.

InadditiontotriggeringtheseriesofnancialanalysesthatprojectedthecoalplantretirementsdiscussedinPart1,these

pendingrulemakingshaveprovokedpoliticaloppositionand

promptedcallsforlegislationthatwouldbartheiradoption.

However,itwouldberecklessforthoseinvestingincoalplants

tocountonsuchlegislationbeingpassed,giventhatthehealth

andenvironmentalbenetsoftheruleswouldgreatlyoutweigh

theirprojectedcompliancecosts.15Oneoftherecentanalyses

offorthcomingairqualityrulesconcluded,theEPAactions

P A R T F I V E

Coals Damagesto Air, Water, Land, and Public Health

and the Costs of Reducing Them

15 The Clean Air Act has been particularly successful in delivering benets far

in excess of compliance costs. The EPA estimates that the total benets of the

Clean Air Actin lives saved, reduced heart disease, fewer asthma attacks, and

other positive eectsamount to more than 40 times the costs of regulation

(Jackson 2010).


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andparticul

a risky proposition report

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