Securing a Future for Coal

Building a new coal-fired power plant is impossible in the United States today – or at least that’s what conventional wisdom says. New regulations from the Environmental Protection Agency (EPA), including proposed carbon emissions standards under Section 111(d) of the Clean Air Act, are rendering coal obsolete as a power generation fuel.

Those assertions, however, ignore some important facts. Namely, coal is no longer competitive in today’s gas-glutted markets. Irrespective of greenhouse gas (GHG) regulations, nobody is building a coal-fired plant in the U.S., because natural gas has usurped coal as king of the power fuels.

At some point, however, natural gas prices likely will rise. Increasingly overburdened pipeline and storage capacity expose consumers to the very real risk of price spikes and supply disruptions when the system breaks down. An explosion at a gas pipeline in Canada, for example, in January left customers in the Upper Midwest shivering in very cold weather as utilities called for emergency conservation measures. Similarly, gas shortages in the Northeast have led to electricity price spikes and forced some plants to switch to costly fuel oil, even during America’s gas boom; supply contracts can’t be fulfilled if consumption outstrips transportation capacity, and pipelines can’t be built fast enough to meet growing demand. It all portends rising prices.

Does this mean King Coal might return to its throne someday? It very well might, according to Howard Herzog, a senior research engineer at the MIT Energy Initiative, at Massachusetts Institute of Technology. He says a key enabling factor might carbon capture and sequestration (CCS) technology – and market mechanisms that allow it to compete. Herzog has been studying climate change mitigation technologies for the better part of 25 years.

FPP: What’s your perspective on the status and future of coal-fired power in the U.S.? 

Herzog: What’s happening today is one thing, and the future is another.

What we see happening today is a culling of the stock. In some ways, culling is good, in that it leaves you with a stronger herd. A lot of the plants that are closing are the older, less-efficient, dirtier plants.

There’s a lot of talk about EPA regulations, but the biggest driver in the culling of the stock has been the low natural gas price. It’s made it harder for older, inefficient plants to justify their existence. When you add on top of that criteria pollutant issues that will force the industry to make some investments in this old stock if they want to keep operating, the low price of natural gas it makes it harder to justify those investments. Those two things are driving power plant closures today.

The GHG proposed rule has a very minor effect on these decisions, if it’s there at all.

Going forward, GHG rules can have a major effect on how you build new power plants, but in the near-term future whether we have these regulations or not won’t affect the fact that almost no new coal-fired plants would be built, because with low-cost gas there’s too big of a risk regarding whether you’ll get payback on your capital investment. That’s the issue in the near-term future.

In the longer term, natural gas prices are more volatile. They could rise in the future, and there’s a disparity in natural gas prices throughout the U.S. So certain regions might feel the pinch more than others. Fuel diversity makes the system more robust and resilient. If we drive coal out of the system over the next 20 years, we might be OK as long as natural gas prices stay low, but there’s no reason to believe gas prices won’t again become volatile, and we’ll be vulnerable to shortages and price spikes. So there’s a strategic reason to have coal in the mix. It’s hard to predict when it might happen – whether 10 or 20 years – but we might build coal-fired plants again. At that point how we treat GHG regulations will become important.

FPP: How does CCS technology fit in?

Herzog: CCS does have a chance to succeed in the future, but it depends on how the technology develops, and also on how the regulations are written. If the regulations say coal needs CCS but gas-fired plants don’t, it will be a lot longer before coal gets back in the mix. But in the longer term, if natural gas generation also needs CCS, then it becomes a competition between fossil and nuclear. Fossil with CCS can compete effectively against nuclear. The same is true with large-scale renewables. If you try to achieve really high market penetration with renewables, cost becomes an issue, and fossil with CCS can compete with that. But that’s all in the long term.

FPP: Conventional wisdom says it’s impossible now to build a new coal-fired plant in the U.S.; EPA GHG standards effectively ban coal as a fuel for new plants. Is that wisdom accurate, or pessimistic?

Herzog: You won’t build a nuclear plant today either. There are a lot of regulations on nuclear plants, but they’re not banned. It’s the same for coal. Coal isn’t banned.

Also, building a plant with CCS that’s going to be used for enhanced oil recovery makes it a lot easier than plants that have to get a Class VI permit from EPA [for carbon sequestration]. EPA hasn’t yet worked out the bugs in the Class VI permit process, and that makes pure CCS very difficult.

The Class VI regulations could be a bigger threat to CCS than the proposed rule limiting emissions to 1,100 lbs per MWh. I think the emissions standards can be met at a reasonable cost if the other regulatory requirements are sensible, including those involving permitting sequestration facilities. But if the permitting process for these reservoirs are too burdensome, which I think they might be now, then it makes it really difficult.

It’s a subtle point. The concept of coal with CCS isn’t impossible, but given the current state of everything today, implementation might be. It doesn’t have to be that way.

FPP: What do you see as the most important steps for commercializing CCS?

Herzog: The most important thing for commercialization of CCS is to create markets. That’s true for commercialization of anything; you need markets. CCS is a low-carbon technology for producing electricity from fossil fuels. If you allow people to burn fossil fuels and emit the CO₂ into the atmosphere, then there’s no market for CCS. The only way to get this technology onto the market is to reduce the amount of CO₂ you’re allowing the electric power industry to emit.

Second, if you subsidize one technology over another, such as with production tax credits for renewables, it creates unfair markets. If your goal is to have low-carbon electricity, then you should have a level playing field. You should have regulation that won’t let generators emit freely, whether that’s by putting a price on carbon, or a cap-and-trade system, or some other form.

I believe market mechanisms are the best way, but Europe tried to do that and then undercut the market by requiring renewables. By the time they met their renewable requirements, they didn’t need other technologies. That’s not an efficient way to do it, either economically or technically.

FPP: What R&D investments are needed to make CCS more cost-competitive?

Herzog: Today, CCS costs are in the range of $50 to $100 per ton of CO₂ avoided. To make CCS more cost-competitive, we need to remove first-mover costs, and invest in long-term R&D.

The costs that we can immediately reduce are first-mover costs. The first few times you do anything, you learn a lot. That’s the purpose of doing demonstration projects. At the Boundary Dam project, Sask Power retrofitted a little over 100 MW of the plant’s capacity with CCS. They say they’re thinking about doing it at other units in the plant, and they expect to the cost to be 20 or 30 percent lower the on these subsequent units because of what they learned in the first project.

In the longer term, fundamental technology R&D can really help, but there won’t be a magic bullet that will cut costs by 90 percent. The U.S. is spending a couple hundred million dollars a year on R&D for CCS, but creating markets will really encourage technology development. What the government spends is peanuts compared to the size of markets.

FPP: Many utility executives perceive CCS as a pipedream – not that the technology doesn't work, but that it isn’t practical for industry-scale use because storage sites aren’t conveniently located. What’s your opinion?

Herzog: That’s not an unreasonable conclusion to reach, but I think things are changing. In today’s frame of reference, it’s easy to say CCS is a pipedream. But you have to look at the frame of reference 20 to 30 years down the road. If you don’t think we’ll be doing anything about GHGs, then it won’t happen. But CO₂ already is an issue, and it’s not going away. Climate science is clear. The data are growing and making it more of an issue. Concerns are growing about methane emissions and fracking. Financial institutions are questioning fossil fuel companies’ estimates of what their resources are worth.

The question is how do you handle it?

Rather than banning things, we should let markets help decide how we meet environmental goals. That’s worked in the past. There are challenges but also rewards if you come up with good technologies. Some companies in the fossil world aren’t afraid of this. They see opportunities, but they won’t invest in these technologies without some certainty about the future.

CCS can become a mainstream technology, given the right circumstances. Some of those circumstances are political and not technical. For example, we could say that it doesn’t matter what we do in the United States, because we’ll have countries like China and India belching out CO₂. That’s an important issue; we shouldn’t act unilaterally, but what we do makes a difference. It’s important to show leadership.

FPP: From a practical perspective, is it fair to say that sites for geologic sequestration aren’t suitably located for industrial-scale CCS?

Herzog: Geologic sites for sequestration are finite, but they are big – and they are growing as the technologies improve. Thirty years ago, the idea of getting oil or gas from shale or deep water reserves was a pipedream, but it’s routine today. It’s the same with sequestration; there are reservoirs today that can give us at least 100 years of capacity, and over that 100 years we’ll develop technologies that will give us access to more reservoirs. CCS will be cheaper in some places than it is in others, but that’s true of many things. We have coal plants in New England, for example, but no coal reserves; we get the coal shipped in, and that comes with a cost. In some places it will be cost-effective to transport CO₂ for sequestration. Note that CO₂ pipelines wouldn’t be nearly as expensive as natural gas pipelines, for example.

FPP: EPA’s new Section 111(d) regulations have sparked a renewed battle over U.S. climate policy. What do you see as the likely outcomes?

Herzog: We aren’t having a reasonable dialogue on how best to deal with GHG problems. Instead it’s happening in a series of skirmishes. A certain segment of the population is worried about GHGs, and they’re fighting on a project-by-project basis. That’s the worst way to go.

There are sensible ways to deal with GHGs if you realize it’s a long-term problem. We don’t have to solve the whole problem today, but at least we have to start walking in the right direction. We’re not doing it that way. Instead the EPA issues regulations that make people feel good, but they’re not a sustainable long-term path to get us where we need to go, because that approach will always depend on the political will of one party when it gets elected.

A sustainable path could be found with bipartisan support and market mechanisms. Until we get that in the U.S., we’ll be thrashing around – doing some good things, but definitely also doing dumb things, and not putting resources in the right direction for the long term. The problem is, by the time we reach the point where we can do the right thing, it might be too late. It’s a large world, and you can’t turn the climate around on a dime.

Politically we can’t change overnight either. People on the right and the left have done a disservice – on the right by denying climate change, burying their heads, and on the left by saying the sky is falling, we have to get rid of fossil fuels immediately. The real answer is that fossil fuels are very important, climate change is a bad thing, and we need to adapt our energy system to provide cheap, reliable energy without leading to a world that we really don’t want. We can deal with it sensibly if we start early enough, but the more time we waste, the harder it will get.

FPP: Recently a lot of people have been saying geoengineering could be the answer. What do you think?

Herzog: I have three things to say about that. First, geoengineering isn’t new. The idea has been around for more than 20 years. Second, the more I hear about it, the more it scares me. At first I was receptive to the idea, but even if it works there are at least two major problems – ocean acidification and non-uniform effects. You could exacerbate climate issues by creating more droughts and storms. Third, there are real questions about whether it can work. You’re taking big chances by relying on geoengineering. What would be the unintended consequences?

I hope we don’t force ourselves down that path. It’s like a Hail Mary pass in football. How many times does the Hail Mary work? Coaches sometimes might work on the Hail Mary in practice, but they work a lot more on other plays that have better chances of succeeding. That should be our strategy too.

ABOUT THE SOURCE: Howard J. Herzog is a senior research engineer in the MIT Energy Initiative. Since 1989, much of his work at MIT has focused on greenhouse gas mitigation technologies. He was a coordinating lead author for the IPCC Special Report on Carbon Dioxide Capture and Storage (2005); a co-author of the MIT Future of Coal Study (2007); and a U.S. delegate to the Carbon Sequestration Leadership Forum Technical Group (2003 through 2007).

ABOUT THE AUTHOR: Michael T. Burr is Fortnightly’s Editor-in-Chief. Email him at burr@pur.com