Carbon emission limits on coal-fired power plants require flexibility

The US government can overcome industry resistance to planned carbon emissions limits on coal-fired power plants only by offering a wide range of options to comply, from buying credits to making renewable energy or efficiency improvements.

Even then, it faces an environmental battle to rival the fight over the Keystone pipeline serving Canadian oil sands development.

Green groups regard regulation of existing power plants as the best route to major emissions cuts in the president Barack Obama's second term, given that it would bypass Congressional approval by using the Environmental Protection Agency (EPA) instead.

Economy-wide climate legislation including national carbon caps wilted under Republican opposition previously and bipartisan prospects look no better now.

The EPA has already proposed rules limiting new coal plants, after the US Supreme Court 2007 allowed regulation of carbon dioxide as a pollutant under the Clean Air Act (CAA), but they will have little impact since no one is building coal plants in an era of cheap gas.

Far more significant will be a constraint on the existing coal fleet that accounts for 37 per cent of US power generation.

The EPA committed to finalise emissions standards for existing power plants by last May, as authorised by Section 111 of the CAA, but has failed to meet that schedule.

One immediate problem is that the only available technology option for eliminating carbon from fossil fuel power plants - carbon capture and storage (CCS) - is expensive and unproven at commercial scale.

Any new standard would therefore have to be phased in gradually and applied sector-wide, and be flexible, for example using crediting schemes that allowed polluters to meet emissions limits by investing in various low-carbon alternatives or else buy reduction credits.

It would still face a backlash in federal courts with coal groups arguing for a Congressional mandate.

Britain, the United States and Canada have already shown varying flexibility in proposed emissions limits on new coal-fired power plants.

They have proposed thresholds of 0.42 to 0.45 tonnes of carbon dioxide (CO2) per megawatt hour (MWh), which would force new coal-fired power to fit CCS, but exempt less polluting natural gas.

Plants could delay fitting CCS for up to 10 years, although they would still have to meet the latest efficiency standards in the meantime.

The Canadian scheme allows operators to defer compliance until 2025 provided they can show they are taking steps to meet them by then.

The British scheme softens the rules for CCS demonstration plants to account for uncertain costs.

Proposals for existing US power plants will have to be far more flexible, however, to head off an industry backlash.

In December, the Natural Resources Defense Council (NRDC) proposed a state-specific scheme that capped fossil fuel emissions based on a coal benchmark that would force emissions cuts, ratcheted over time.

Operators could retrofit CCS, but more likely invest in low-carbon alternatives including renewables and efficiency, or co-fire coal with biomass, or tweak dispatch decisions to burn more natural gas.

Alternatively they could acquire tradable emissions reduction credits per tonne of avoided carbon dioxide.

The World Resources Institute think-tank last week chipped in with similar proposals, where a "middle of the road scenario" envisaged near 20 per cent emissions cuts from coal by 2021, compared with the NRDC scheme which implied a 27 per cent cut in coal carbon.

Whatever choice the EPA makes, there will still be a backlash from some in the industry and conservatives who already oppose the proposed limits on new coal plants.

The eventual outcome could affect investment choices between coal, natural gas and renewables not only in the US but farther afield, as the European Union casts around for ways to meet its own long-term emissions targets, possibly through emissions performance standards.

* Reuters