What Do EPA Carbon Emission Caps Mean for the Energy Transition?

A proposal by the U.S. Environmental Protection Agency (EPA) floated standards to set caps on carbon dioxide (CO₂) emissions at coal- and gas-fired power plants. The proposal also calls for plants to install new control technologies such as hydrogen and carbon capture/sequestration and storage to curb pollution further. 

 

Plant Scherer in Georgia is one of the largest coal power plants in the U.S., with four units totaling 3.7 gigawatts. Image used courtesy of Georgia Power

 

The new standards would apply to the nation’s largest stationary source of greenhouse gas emissions, with power plants accounting for one-fourth of the domestic footprint.

The EPA estimates the proposed limits on emissions from new gas-fired combustion turbines and existing coal-, oil-, and gas-fired steam generating units would cut 617 million metric tons of CO2 through 2042—roughly at scale with the annual emissions of 137 million passenger cars. Plus, tens of thousands of tons of fine particles, sulfur dioxide, and other pollutants would be avoided. Another set of limits for existing gas-fired combustion turbines would avoid 214 to 407 million metric tons of CO₂ by 2042. 

Several industry groups have pushed back on the new standards, arguing they’ll hasten the pace of coal plant retirements and bring additional direct and indirect consequences to growth and investment. The regulations come as roughly half of the U.S. coal fleet is expected to close by 2030. Coal and gas plant retirements are occurring faster than replacement power sources—such as wind and solar projects—are being built and connected to the grid. 

The EPA argues the proposal gives utilities adequate lead time to plan and invest in compliance. It also considers the cost of installing control technologies and adds phase-in standards based on units’ capacity factor, years of operation, and frequency (base, intermediate, or low loads). Depending on these factors, the rules would become tighter for high-emitting facilities starting in 2030.

 

Emissions and Capacity Additions

Nearly two-thirds of the U.S.’s electricity generation in 2022 came from natural gas (39%) and coal (20%), according to the U.S. Energy Information Administration (EIA). Renewables’ share is growing, exceeding coal and nuclear to claim 21% of electricity generation today, including wind, solar, hydropower, and biomass/geothermal sources. 

 

Average carbon emissions per power grid region in the United States. Image used courtesy of the EPA

 

Power plants have steadily reduced their carbon footprints over the last few decades. Per EPA data, CO2 emissions from power plants declined by 22% from 1995 to 2022, while emissions from sulfur dioxide dropped by 93% and nitrogen oxide by 87%. At the same time, electricity demand has risen substantially amid increased industrialization and the electrification of several facets of the economy, from buildings to transportation to industrial equipment. 

Meanwhile: State-based renewable portfolio standards requiring suppliers to shift to carbon-free resources have spurred an uptick in renewable energy systems nationwide. The EIA estimates wind, solar, and battery storage will account for 82% of new utility-scale generating capacity added to the grid this year. Solar power claims over half that total, the most capacity added in one year. 

 

Yearly electric-generating capacity additions from 2000 to 2023 (as of January 2023). Image used courtesy of the EIA

 

However, since solar and wind are intermittent sources of electricity generation, reliant on sun and wind patterns, projects are often paired with battery storage systems to pick up the slack in supply to meet demand. But even the 8.6 gigawatts (GW) of battery storage power capacity expected to be added to the grid this year won’t be enough to offset the role of traditional power plants in maintaining grid reliability through the ongoing energy transition. 

 

Coal Plant Retirements

The EPA’s announcement ignited some industry backlash, with critics arguing the rules will worsen already-strained grid reliability and cause coal plants and other dispatchable electricity resources to retire early. According to EPA data, 305 coal and natural gas units are planned for retirement from 2023 to 2030, totaling 65 GW of generating capacity. Another 357 units totaling 53 GW retired between 2019 and 2022. 

 

Coal and gas unit retirements by year, capacity, and fuel type. Image used courtesy of the EPA

 

These concerns aren’t unfounded. In fact, several regional transmission organizations overseeing the nation’s power grid have warned about retirements outpacing new grid capacity additions. 

Pennsylvania-based PJM, which controls the northeastern part of the U.S., has said its interconnection queue mainly comprises intermittent and limited-duration resources, with 94% renewables and 6% gas. Renewables totaling 290 GW await interconnection to the grid, but the historical completion rate for such projects is only about 5%. As such, PJM projects the current pace is insufficient to keep up with expected retirements and demand growth by 2030 unless the completion rates recover significantly. 

The Midcontinent Independent System Operator (MISO), representing the Midwest and some southern states, has modeled a continued near-term capacity risk as overall installed capacity rises amid the decline of accredited capacity (how much energy a resource will produce after accounting for past performance). Projections for the latter fall below current levels because MISO’s members are mostly building wind and solar projects, which have lower accredited values than retiring thermal resources.

The North American Electric Reliability Corporation, a Georgia-based nonprofit overseeing all U.S. regional interconnected power systems, has warned about reliability risks driven by conventional generation retirements and changes in peak demand tied to heat waves. The organization projected that two-thirds of North America would face energy shortfalls this summer as heat events prompt a rise in demand. 

 

Industry Concerns

One of the largest industry trade groups with 14,000 member companies, the National Association of Manufacturers, released a statement saying the emissions caps could push some plants to shut down. The organization also contends the proposal would require deploying “still-nascent” technologies at an impractical pace. 

The latter point refers to carbon capture and sequestration, an emerging market yet to shift from demonstration to widespread commercialization. According to the International Energy Agency, only 35 commercial facilities worldwide apply carbon capture, utilization, and storage (CCUS) technologies to industrial processes, power generation, and fuel transformation. 

The Electric Power Supply Association (EPSA), whose members own/operate 150 GW of generation capacity, also warned that the proposed rules could accelerate power plant retirements in a looming reliability crisis, emphasizing the lack of interchangeable resources to resupply the gap. The situation differs from previous regulatory overhauls. When the Obama-era Clean Power Plan introduced the nation’s first limits on power plant emissions, natural gas was available to ensure reliability. Today, EPSA warns the rule changes would drive natural gas resources off the system, leaving less flexibility.