In the absence of action by Congress, the Environmental Protection Agency (EPA) has taken dramatic and unprecedented steps to craft energy policy in this country by issuing new regulations regarding carbon-dioxide emissions. These proposed regulations represent a clear and present danger to the stability of energy costs, distribution and supply in the United States. It is time for Congress to assert its constitutional authority and restore common sense to our energy policy and end the EPA’s ability to legislate through regulation.
The energy landscape in the 21st century is changing in profound ways. Dramatic changes in environmental law and regulations, natural-gas supply at historically low prices and development and deployment of distributed generation each impact utilities, customers and suppliers.
In combination, the effect is multiplied. At the same time, in other ways the industry remains the same as it has been for more than a century. Customers seek reliable, low-cost power. Utilities seek to deliver power and make a reasonable profit while doing so. Grid authorities continue to manage supply across the grid and utilize transmission and generation resources to do so. Suppliers strive to deliver value to customers who choose their service.
In short, a broad set of changes are at hand that will profoundly alter the energy and utility world for generators, utilities, suppliers and customers alike.
One of the most profound changes will come as a result of the proposed U.S. EPA carbon-dioxide rules for both new and existing generators under Section 111 of the Clean Air Act. These rules enacted by executive fiat fundamentally alter the way in which utilities and power generators will be able to generate electricity.
First, the carbon-dioxide emissions limits set forth in the new rule make clear that there will be no new coal generation constructed in the United States. Specifically, the rule requires the use of carbon dioxide capture and sequestration, a technology that, despite EPA’s assertion to the contrary, is not commercially viable. Recent efforts to construct new generating facilities that comply with new emissions rules have resulted in dramatic cost overruns and the units are long delayed in starting operations. The costs to construct compliant facilities are staggering.
Second, the proposed rule restricts the amount of carbon dioxide that can be produced from existing power plants. These rules in combination could be the “knockout blow” to coal-fired generation in the United States. Today, coal-fired generation represents more than 40 percent of all power generated in the United States.
In real dollars, there are costs to generators, to grid operators and to consumers for compliance. At least two states have performed rate-impact studies, and the potential increases could be more than 60 percent for retail customers.
In addition to carbon dioxide, there are other EPA rules that are being developed and implemented that will also have an impact on the price and availability of electricity. While industry is certainly capable of responding to changing environmental regulations, at some point a limit is reached both financially and technically — and we are quickly approaching that limit.
Instead of the EPA’s current unilateral approach, we first need a realistic view of supply and demand. The laws of economics will not be evaded. Supply and demand curves will continue to intersect, just at different places on the price curve. Unfortunately, in this instance the intersection is certain to be at a higher cost to consumers.
Depending on the structure of the energy marketplace, state regulators will be faced with passing on the costs of environmental upgrades to existing power generators or dealing with higher prices as supply goes off-line. At the same time, new generation will be slow to replace the retired units or be a more costly resource.
In the end, the wish for cheap power with no environmental impact is truly that — a wish. Wind has bird-kill, flicker, ice-throws and other issues; hydro impacts fish habitat and natural river runs; and solar has critical variability — sunshine — storage limitations and life-cycle implications if you consider the environmental impact of the manufacture and fabrication of the solar panels themselves.
So what to do about this complicated issue? Congress must assert its constitutional authority and address the issue. The vacuum created by its inaction has empowered an environmental regulator and environmental advocates to create and implement a series of policies that should be dealt with by our elected representatives.
American manufacturing simply is neither willing nor able to rely exclusively on renewable energy. Steel mills, automobile assembly lines and refineries do not wait for the wind to blow or the sun to shine to do their work. For now at least, storage capacity is simply insufficient to supply the power needed at the time it is demanded and at the requisite level of reliability. Sufficient base-load capacity is required, and today, coal, natural gas, and nuclear provide nearly all of the base-load power.
Policymakers should let common sense carry the day. Everyone favors clean air and clean water — because we all live in the same environment. In the end, the answers to the key questions of “how?” “how much?” and “by when?” need to be answered honestly, fairly and without demagoguery to ensure that policymakers have the needed information, understand the critical issues and points of contention and fully recognize the ramifications of failing to exercise sound and reasonable judgment in setting energy policy.
Policymakers then must make sound decisions in the interest of the United States.
Congress can no longer afford to wait. The reckless policies of the EPA — enacted in the vacuum created by congressional inaction — threaten the very stability of our electricity grid. The time to act is now.
Todd Snitchler is a member of the Mc-Donald Hopkins business department counseling clients on energy policy and regulatory matters.