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Don’t Overreact to US Supreme Court Ruling

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Whatever the larger ramifications of the US Supreme Court’s overthrow of Obama-era regulations of power-plant carbon dioxide emissions, its impact on the transition to renewable generation is likely to be less immediate and dramatic than many are suggesting. The US record on reducing power-sector carbon emissions has been relatively strong, despite more than a dozen years without new federal regulation in this area, due to the litigation the Supreme Court just resolved. Markets, aided by state and system operator-level regulations, have done much of what the stymied federal plan was designed to do: Shut down coal-fired plants. Critically, the Supreme Court ruling did not challenge states’ right to regulate greenhouse gas emissions (GHG), and this layer of regulation will remain. In any case, unless renewables or electric vehicles unexpectedly lose momentum very quickly, the US transition will soon be too firmly established economically and competitively to be turned aside -- or even slowed markedly.

Looking at in the practicality of here and now, the Supreme Court decision in West Virginia versus the Environmental Protection Agency (EPA) doesn’t change much. The Obama Administration’s Clean Power Plan — the regulation that was designed to eliminate coal-fired generation — never took effect before it was struck down by the Supreme Court late last month. Nonetheless, coal-fired power generation hit a 42-year low in 2019, the last year of coal-loving President Donald Trump’s administration. Hard as Trump tried, he was never able to even slow a slide that roughly halved US coal-fired generation since the early years of this century, retired around one-third of coal generation capacity, and cut utilization factors for the remaining coal-fired capacity from around two-thirds to less than 50%. All the big US coal mining with stock market listings have been through bankruptcy at least once.

As is well known, the biggest blow against coal came from the arrival of cheap shale gas, which made natural gas-fired power cheaper than its coal equivalent most of the time. The expense of scrubbers and other pollution-control equipment required under EPA regulations unrelated to climate change or the Clean Power Plan struck down by the Supreme Court helped push the fossil fuel dial further in favor of gas, while plummeting costs for wind and solar meant most of the new capacity built over recent years has been wind and solar, plus some gas — and virtually no coal.

None of those market-related factors is changed by the Supreme Court decision on the Clean Power Plan. Nor are markets themselves likely to shift in favor of coal in the US.

Market Pressures Remain  

At one point this spring, it looked as if soaring gas prices might push the dial back towards coal. But since a Jun. 8 fire closed the Freeport LNG export facility for a period likely to be longer than three months, the US benchmark gas price has reversed course, and instead of a run up towards $10 per million Btu, has been falling back towards $6/Btu, with the lower level reinforced by a strong inventory build. This should prevent any turn back to coal in the US this year equivalent to that in Europe, thus keeping coal-fired generating plant closures on a downward track — regardless of the Supreme Court decision.

Price increases for components in solar and wind generation equipment also seemed to offer some potential for slowing coal’s demise. In fact, though, the fundamental cost advantage renewables enjoy over coal and, increasingly, gas-fired power remains intact, as fossil fuel prices have risen more than the components in solar and wind generating equipment. Also, it looked this spring as if US movement toward solar might be seriously slowed by an investigation into the potential imposition of high tariffs on solar panels imported from Southeast Asia. Amid reports that two-thirds of utility-scale solar projects faced delay or derailment, the Biden Administration announced a two-year tariff exemption for the four countries under investigation and launched a project to encourage domestic manufacturing of solar modules under the Defense Production Act.

With solar panel imports gearing up again and renewables equipment costs expected to resume their decline soon, solar and wind generation should see accelerated growth ahead, especially if fossil fuel prices remain elevated. Energy Intelligence calculations currently show the cost of power generated for newbuild plants currently near $37 per megawatt hour for solar, $41/MWh for onshore wind, $58 for combined-cycle natural gas facilities, and $73 for coal. Even relatively conservative Energy Information Administration projections show renewables capturing 2 percentage points more of total generation over the next two years, coal losing an equivalent 2 percent of generated power, and gas holding steady. The Supreme Court decision will not affect this.

States Still Trying

Like market pressures, state regulations that underpin this move away from coal-fired power will remain in place. “This ruling makes clear that the actions of governors and state legislatures are more important than ever before. Thankfully, state authority to curb GHG emissions has not changed. Today, we reaffirm our commitment to decarbonizing the power sector using our authority at the state level.” So read a statement issued immediately after the Supreme Court decision came out by the governors of 24 states that are members of the Climate Alliance, a group of states committed to the emissions reduction goals of the Paris Agreement, formed when Trump launched moves to withdraw from that accord.

Indeed, there were sighs of relief from some environmentalist circles in California and elsewhere at the decision, because the ruling did not negate the federal EPA’s right to regulate carbon emissions per se, as some feared it might. Instead, it was narrowly focused on the fact that the Obama Administration’s Clean Power Plan relied on a systemwide shift away from coal-fired power to gas and renewables that Congress had never explicitly authorized. Concern has been expressed among supporters of the transition to renewable energy that the Supreme Court may soon overturn the EPA’s 2022-26 clean car standards, as well, which in turn would threaten the legal basis for California’s even tougher auto emissions rules.

Unless this happens soon, however, auto emission regulations may become a moot question — just as it seems to be happening with the Clean Power Act. The transition is moving quickly. The auto industry is increasingly committed to electric vehicles, just as power generators are to solar and wind. The momentum is becoming strong enough, supported by competitive economics, that a reversal becomes virtually inconceivable. When that point of no return will arrive is unclear, just as it is unclear whether the transition will be fast enough to keep the global climate within livable bounds. But the no-return point is not far off — if, indeed, it hasn’t been reached already.

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass.

Topics:
Renewable Electricity , Coal, Low-Carbon Policy
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