The Clean Power Plan, recently announced by President Obama, is one of the most far-reaching regulations in the energy sector to date. For the first time, there’s a carbon emission ceiling for power plans, back by the federal government.
This limit will have an impact on every aspect of the industry – from miners and drillers to consumers – and the country’s overall economy.
The reaction to the new regulations has been swift and loud.
Energy and Commerce Committee Chairman Fred Upton called the rule “unilateral regulatory overreach.”
Utilities and other stakeholders in the industry are arguing over whether the 32% reduction in greenhouse gas emissions by 2030 compared to 2005 is even achievable without completely collapsing the industry or raising the price of energy to unaffordable levels.
Many republican senators are urging states to not comply with the new standards, which put the onus on state and territorial governments to create and implement plans to comply to the new regulations.
There are already murmurs that many states and utilities will sue the federal government. Experts have predicted as many as 25 states will join together for a lawsuit.
Bearing the Brunt
Undoubtedly, the industry that will be hit the hardest by the new regulations is coal – the leading source of carbon dioxide emissions.
Coal-fired power plants provides 39% of the energy supply in the United States and employ around 80,000 workers.
According to a report by BB&T Capital Markets Inc., the emissions ceiling will mean that the coal industry will only have 650 million tons of annual demand. This isn’t much compared to the one billion the industry was used to.
The fact that there’s so much controversy over the plan, the details of which will be hashed out in legal battles, makes is difficult for coal utilities to plan for the future.
Both Walter Energy, Inc. (WLT) and Alpha Natural Resources, Inc. (ANR) have already filed for bankruptcy. Alpha’s CEO, Kevin Crutchfield, warned that the struggling industry may see even more bankruptcies soon.
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“The U.S. coal industry as currently structured is unsustainable,” said Crutchfield.
Getting a Boost
On the other hand, natural gas and nuclear power should benefit from the new regulations, according to a recent report from Bloomberg.
Natural gas is more efficient than and twice as clean as coal in terms of emissions. Utility consumption of natural gas is predicted to rise by 32%. But, switching from coal to natural gas will require billions in infrastructure investments, a cost that could get passed on to consumers.
The increase in natural gas consumption will also likely lead to increased public attention on fracking and its hazards and regulations.
The new regulations will also help out the struggling domestic nuclear power industry. According to the Clean Power Plan, states will get more credit for new nuclear power plants than existing ones. The idea being to encourage the latest in efficiency and safety for the nuclear sector.
Still, operating a nuclear power plant is expensive, and some utilities worry they won’t be able to compete with cheap natural gas and renewable energy sources.
The plan is a step in the right direction for addressing one of the world’s most pressing problems on the domestic level. But transitioning away from carbon-emitting energy sources won’t be without its difficulties – a concerning fact as the world’s economy gingerly moves across thin ice.
I’ll finish up this series with a look at how the renewable energy industry is reacting to the Clean Power Plan.