Trump May Dismantle the EPA Clean Power Plan But Its Targets Look Resilient
In 2015, the Obama administration finalized the EPA Clean Power Plan (CPP), which aims to reduce carbon dioxide emissions from the electricity sector in 2030 by 32 percent compared with 2005 levels. The CPP was a major component of the U.S. pledge to reduce greenhouse gas emissions as part of the global 2016 Paris Agreement.
Following the election of Donald Trump, the future of both the CPP and the Paris Agreement is highly uncertain. One indication of the new administration’s views on the CPP is that Trump has tapped historian and self-proclaimed climate skeptic Myron Ebell to lead the EPA transition team. During the campaign, Trump also advocated for canceling the U.S. contribution to the Paris Agreement.
Tied up in the courts, the CPP has not yet come into force. But even though its future is at risk, one thing is clear: Market forces are already largely achieving the CO2 emissions cuts targeted with the regulation.
We’re already underway
The U.S. Energy Information Administration estimates that 2015 CO2 emissions in the electricity sector were 21 percent lower than 2005 levels – about two-thirds toward the CPP goal. This is without any national CPP implementation outside of expectations of future enforcement and with little effect on real electricity retail prices.
CO2 emissions in the U.S. have fallen in large part because cleaner fuels are being used to generate power. Natural gas produces roughly half of the emissions as coal power, while several renewable technologies – notably, solar and wind – produce little or no emissions in generation.
The reduction in coal generation, and thus CO2 emissions, is due to three main trends: inexpensive natural gas following the shale boom, growth in renewable technologies and decreasing overall electricity demand. These trends all suggest that the recent fall in electricity sector emissions may not only be resilient to federal policy (or lack thereof) but may even continue to fall throughout the new administration.
Battle between gas and coal
The drilling technique known as fracking kicked off a natural gas production boom around 2008. The price of gas dropped significantly and has remained low since, which has had a direct impact on electricity production as power plant operators shift to natural gas because it’s cheaper. Gas is likely to surpass coal’s market share as a fuel for power generation this year.
A recent study I coauthored shows that inexpensive gas is having a one-two punch on coal power. First, gas is cheaper, so existing gas plants are being used more often throughout the year than coal plants. Second, as these natural gas plants are used more often, they earn their owners more money, further favoring them over coal.
These two factors are primarily responsible for coal’s decline despite the “war on coal” political rhetoric. Because gas power produces roughly half the CO2 emissions compared to coal power, our study suggests that if gas prices remain low, gas will continue to displace coal beyond 2030, and the 32 percent reduction targeted by the CPP may be met regardless of implementation.
Will natural gas continue to be cheap in the years ahead? That’s appearing to be more and more likely for a couple reasons.
First, the cost and time to start new wells for fracking are declining to the order of days, compared with years for conventional drilling methods. This means natural gas producers can supply gas to the market quickly, suggesting that it’s unlikely that a scarcity of gas will drive up prices. Second, threats against fracking, such as moratoriums or increased regulation, do not appear to be major barriers to expanded production under the new administration.
But dramatically expanding natural gas use for power has a downside from an emissions point of view. While cheap gas can help drive CO2 emissions to the CPP’s original target, the newly constructed gas plants, which have technological lifetimes of 40-60 years, may prevent deeper emissions from lower emitting technologies, such as wind and solar, in the future.
Renewables are increasingly competitive
In contrast to the longstanding technology of burning fossil fuel to generate power, wind, solar and batteries are simultaneously becoming more efficient and cheaper very quickly. While these new technologies have a relatively small current market share, their adoption is increasing at a rapid clip.
Part of this growth has been helped by federal investment and production tax credits, but wind and solar are less and less reliant on these subsidies. Even if the new administration and Congress elect to remove or reduce these tax credits, it is not likely to reduce the momentum too much. Clean energy investment worldwide attracts twice the global funding as fossil fuels and has maintained this share despite the low-cost-of-oil environment. Economies of scales of existing technologies and continued rapid advance will make these low-emitting sources even more competitive.
Electricity demand seems to be slowing
Electricity demand has slowed in recent years. Part of the appearance of slow growth can be attributed to the Great Recession (energy demand is highly correlated with GDP), but this relationship is weakening because of efficiency. There have been large gains in energy efficiency in both commercial buildings and households, which lowers demand for power.
Slow electricity growth directly translates to slower growth in emissions, but it also means there is less room for new power generation capacity. If the new administration really does try to reverse the decline of coal generation, any new coal capacity will be competing in a smaller total market for power.
What’s more, coal plants are competing with natural gas plants, which can operate more flexibly and at higher utilization rates than coal plants, as well as with the rapidly declining costs of renewables. All this means that any significant comeback for coal will be difficult because of economic forces alone.
Deeper cuts may be compromised
What may be of concern to environmentalists is that the original 32 percent reduction goal of the CPP will likely consist of a gas-heavy future. Adding more natural gas plants, instead of expanding wind and solar, might lock in CO2-emitting gas assets and prevent deeper reductions in the future.
However, one presidential term with slow electricity demand growth might limit the penetration of gas. Furthermore, natural gas plants could help renewables: Because their power production can be ramped up and down relatively easily, they could complement intermittent renewables and help wind and solar penetrate more seamlessly in the near- to midterm.
The real ‘war on coal’
When it comes to reducing emissions (and other pollutants that cause haze and smog), removing coal is top concern.
While Trump campaigned with hopes of reigniting the coal industry by stopping the “war on coal,” it does not appear likely in the face of the multi-flank assault by inexpensive gas, increasingly efficient and inexpensive renewables, and end-use efficiency. All these trends are largely outside the ability and interest of the commander-in-chief – even if climate change mitigation is not a primary concern.
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