Energy Alert: Big Impacts Of Obama’s Broad Climate Plan

by Stinson Leonard Street
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The main goals for President Obama’s “Climate Action Plan” are to cut carbon emissions (and cut greenhouse gas emissions in general to 17% below 2005 levels by 2020), prepare the country for the impacts of climate change and lead international efforts to address climate change. The cornerstone of the plan is limiting carbon dioxide emissions from power plants—meaning largely fossil-fueled plants, and chiefly coal-fired ones.

LEGISLATION THROUGH REGULATION? 

The plan puts carbon dioxide and greenhouse gas emission limits squarely into the regulatory realm without new legislative input (which, it’s fair to say, has been sorely lacking in Washington, anyway). The plan has an ambitious initial timeline, too, as far as the coal, natural gas and electricity sectors are concerned—the president will direct the Environmental Protection Agency to set carbon emissions standards for both new and existing power plants and propose a rule by June 2014, with a final rule in 2015.

SOME IMPACTS

Speed up actions by utilities with coal-fired generation to retire, retrofit or repower their fleet. In 2007, coal-fired plants generated 48.6% of electricity in the United States—the 2012 portion was 37.4%. Natural gas generated 21.6% in 2007 and 30.4% in 2012. This transformation was due to low gas prices, the difficulty in building new coal-fired generation and the expense of environmental retrofits (in addition to pressure on coal-fired generation from other EPA actions). New carbon limits on power plants ought to accelerate both coal-fired plant retirements and gas-fired generation construction. The questions remain about compliance limits and deadlines.

Raise potential problems regarding state renewable and efficiency goals. Electric utilities and other generators will want to know that they will receive credit for actions already taken and that federal and state timelines do not clash.

See expanded renewable generation construction on public lands. In 2012, the Department of Interior permitted 10 gigawatts of new generation on public lands. President Obama has directed the department to permit another 10 gigawatts by 2020.

Help utilities and grid operators streamline transmission projects. The president directed federal agencies to streamline siting/permitting/review for interstate transmission projects (particularly for renewable access). Such support should have a positive impact on interstate transmission, though it is unclear how great the benefit will be for this important industry sector.

Get new support for advanced fossil energy projects. The president will make available up to $8 billion under the Department of Energy’s Section 1703 loan guarantee program to support investments in technologies limiting anthropogenic carbon emissions.

See a boost in energy efficiency. The goal is to double energy productivity by 2030 relative to 2010 levels by raising appliance and building standards. Also, the Rural Utilities Service will update its Energy Efficiency and Conservation Loan Program to provide up to $250 million for rural utilities to finance customer efficiency investments.

Face the necessity of hardening infrastructure. While the plan mentions only a few infrastructures by name, it looks to support “climate-resilient investment,” particularly in light of Superstorm Sandy. For all infrastructure sectors, the amount of hardening investment will be a question.

Finally, with the investment lost in the shuttering of coal-fired plants and the investment required for building new generation (nuclear, gas and renewables) and for hardening infrastructure, company financial health is an issue. This is an ambitious, regulation-based plan, with all the consequent complications of regulation (inflexibility, lawsuits and so on) and without the clarity of legislation, which might have provided for cap-and-trade markets or a carbon tax—at the very least, legislation would have provided the certainty that executives, investors and rating agencies crave.

INDUSTRY LEADERS COMMENTING ON THE PRESIDENT’S PLAN

“The president’s plan puts our country on a path toward the elimination of fossil fuels from our energy mix that is wholly inconsistent with his promotion of an “all-of-the-above” energy plan just a few months ago. Even if your sector is not directly affected… you soon will be. The EPA is not going to stop with today’s announcement. First, it will be coal. Then it will be natural gas. Ultimately, this plan will make the United States less energy secure, less affordable, and [less able] to meet our future energy needs.”
--Jay Timmons, president and CEO, National Association of Manufacturers

“The nation's shareholder-owned electric companies will want to ensure that any new policies or regulations to curb carbon emissions from existing power plants contain achievable compliance limits and deadlines, minimize costs to customers, and are consistent with the industry’s ongoing investments to transition to a cleaner generating fleet and enhanced electric grid. It is also critical that fuel diversity and support for clean energy technologies be maintained, not hindered.”
--Tom Kuhn, president, Edison Electric Institute

“We are pleased to see that President Obama’s climate action plan recognizes natural gas as a key component of America’s clean energy future. Like the president, we agree that the United States cannot make meaningful greenhouse gas emission reductions without employing our nation’s abundant natural gas.”
--Don Santa, president and CEO, Interstate Natural Gas Association of America

“The president’s proposal would be, in effect, a regressive new climate tax on America’s most economically vulnerable citizens. [The National Rural Electric Cooperative Association] and America’s electric coopertives will fight this proposal at the agency level and in the courts if necessary. If the president doesn’t recognize the need to keep electric bills affordable, we promise to bring it to his attention.”
--Jo Ann Emerson, CEO, NRECA

“Americans are looking for jobs and economic security. Coal power plants generate more electricity and create and sustain more jobs than any other energy source. So policies that shut off coal energy damage the nation's job and economic engine, while also raising costs to American consumers…. New coal plants are best-in-class global leaders in generating efficient, clean, reliable and affordable electricity. Existing coal plants are being upgraded to be cleaner than ever before to supply reliable electricity that keeps our country growing and competitive.
--Hal Quinn, president and CEO, National Mining Association

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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