EBF 200
Introduction to Energy and Earth Sciences Economics


Environmental Regulations and Coal-Fired Generation


Coal is a dirty fuel:

  • It contains sulfur, which forms sulfur dioxide (SO2) in the combustion process, which goes into the air where it mixes with water vapor and forms H2SO4, better known as sulfuric acid, a corrosive and toxic substance that was responsible for many lakes and rivers in the northeastern US becoming bereft of marine life in the 1950s and 60s. Sulfuric acid has also led to corrosion and damage of a large number of buildings, bridges, and other infrastructure.
  • As part of the combustion process, oxides of nitrogen, NO and NO2 (known collectively as NOx) are formed. These are precursors for the formation of tropospheric (low-level) ozone, which is a substance that causes asthma and other lung irritation. High concentrations of low-level ozone have been strongly linked to higher mortality rates.
  • The exhaust gases created from burning coal carry a lot of particulate matter into the environment, because as a form of sedimentary rock, coal contains lots of non-combustible inorganic matter (sand, for example). These minute particles are a precursor to photochemical smog, another soup of chemicals that has serious negative effects on the respiratory systems of human beings, especially the young, old, and infirm.
  • Coal contains many heavy metals and radioactive minerals, such as mercury, vanadium, and uranium. Upon burning, these can travel into the atmosphere, where they are ingested by human beings. Exposure of humans to heavy metals is linked to developmental disabilities, especially in children.
  • Coal emits more carbon dioxide per unit of energy than any other fossil fuel. This was discussed in more depth in Lesson 10. While many people believe that emissions of carbon dioxide from fossil-fuel combustion do not cause anthropogenic global warming, there is a great deal of evidence that temperatures have been warming due to the greenhouse effect, which is a broadly accepted scientific phenomenon.
  • Coal burning generates a lot of toxic ash, which must then be disposed of.

Because of these factors, there is a growing opposition to the use of coal as a fuel for electricity generation. This opposition is beginning to manifest itself in a set of regulations being developed and released by the US Environmental Protection Agency.

We will talk more about these regulations in a moment, but first, let us take a look at the role of coal in the US generation sector.

Currently, we mine about 900 million tons of coal per year in the United States (this is down about 20% since 2007). This equates to about 5,500 lbs per year for each of the 326 million people in this country. Almost all of this coal is burned to create electricity in the US. A small percentage goes to steel-making and other industrial processes, and a small amount is exported, but about 95% is burned to generate electricity. Thus, about 14.5 pounds of coal is burned per person, every day of the year to make electricity.

How much of our electricity comes from coal? The following chart gives the breakdown of generation by fuel source between 2001 and 2014.

Bar Graph of Energy sources by year. Over the years coal and petroleum uses have gone down and renewable energy has increased.
Figure 12.5 U.S. Electric Power Industry Net Generation by Fuel, 2002-2014
Credit:U.S. Energy Information Administrion

As you can see, coal supplies about 40% of the electricity we consume in this country, and until very recently, it was over half.

Looking back at the generation stack diagram in the previous section, you can see that coal also forms one of the lower-cost parts of the supply curve.

Thus, we have come to rely upon coal to provide a large chunk of comparatively cheap electricity for us. Many people would like to replace coal-fired generation with cleaner sources of generation, especially renewable energy, but, as you can see from the above graph, we would have to multiply the quantity of electricity coming from renewables by six times the current total to be able to replace coal.

Environmental Regulations Affecting Coal

The Clean Air Transport Rule

This is a regulation, which was released in July 2010, that sets new limits on SO2 and NOx emissions.

Reading Assignment

Please read this presentation from the EPA summarizing the new Air Transport Rule.

We spoke earlier in the course about the permit trading program that was enacted by the Clean Air Act Amendments of 1990, which was very successful in reducing the amount of these pollutants emitted by power plants. It was felt by many in the environmental field that the benefits of this program had hit a plateau, and for further reduction in emissions and improvements in air quality to occur, a newer, more stringent rule would be required. This is that rule. It limits the market for permit trading to within states, and not between states, meaning that plants within a state would have to collectively meet some firm emissions caps, and not buy permits from other generators out of state. There will also be fewer permits issued than under the old program.

Coal Ash Rule

As mentioned above, coal combustion generates a lot of solid waste, in the form of ash, that must be disposed of. Much of this ash is held in liquid form in holding ponds before final disposal, often in dedicated landfills, or in old coal mines, or as a component of cement. In December of 2008, a retaining wall in a holding pond at a TVA power plant in Kingston, Tennessee failed. Over a billion gallons of liquid ash spilt into a river and flooded over 300 acres of neighboring land.

In the wake of this event, the EPA decided to issue a rule concerning the handling and disposal of coal ash. In 2010, they released a proposed rule with two possible paths of action - either the ash will be classified as a hazardous waste, which would make it subject to stringent, and extremely expensive disposal procedures, or a less strict interpretation of the rule would classify the ash as a special waste, which would be much less expensive to deal with. The final form of the rule is yet to be announced, but it is likely that it will be the less stringent interpretation of the two.

Reading Assignment

The EPA has put together a PowerPoint presentation with a summary description of the proposed Coal Ash Rule. Please read this presentation. Reviewing this FAQ would also be useful.

Toxics Rule

In the Clean Air Act Amendments of 1990, two general classes of pollutants were created. One classification is that of "criteria pollutants." This is a list of six pollutants that are allowed at certain concentrations. These are:

  • Ozone
  • Particulate matter
  • Carbon monoxide
  • Oxides of nitrogen
  • Sulfur dioxide
  • Lead

These are pollutants which have an accepted allowable background concentration. It is not technically or economically feasible to attempt to eliminate all traces of these pollutants from the environment, but, instead, we seek to control them to an acceptable, albeit low, level. The general standard mechanism for attacking these pollutants is what is called "best available control technology", or BACT, which allows some consideration of economics into the definition of "best".

Recommended Reading

More on these at this EPA page: Six Common Air Pollutants

The other set of pollutants are what are known as Hazardous Air Pollutants, or HAPs. This is a specific list of 187 chemical compounds, sometimes known simply as "toxics".

Recommended Reading

Here is the EPA site on this issue: Pollutants and Sources.

For these compounds, the law prescribes the use of "maximum available control technology", or MACT. This is sort of a zero-tolerance approach, meaning that emitters of these chemicals must use the most effective method of reducing the emissions, without consideration to the cost. For coal-burning power plants, the most important toxic pollutant is mercury. In April 2011, the EPA released a new toxics rule for coal-burning power plants.

Reading Assignment

The EPA has not yet released a simple summary of the rule, but a good summary has been put out by the Natural Resources Defense Council. Please read.

Clean Water Act Rules

Coal-fired power-plants burn the coal to boil water. The steam then drives turbines, which are connected to electricity generators not unlike the alternator in your car (except in scale!) The steam is then recycled back to the boiler, but in order to be pumped back to the boiler, it has to be condensed to liquid water, so as not to damage the water pumps. For this, power plants generally use rivers or streams as sources of cooling water. In the process of sucking hundreds of thousands of gallons per hour into the plants, a lot of fish get killed, either by impinging on the filter screens on the water intakes, or by being sucked through the screens and sent through the heat exchangers. Furthermore, the warming of rivers and streams by discharged power-plant cooling water can cause serious distress to marine life by upsetting their natural habitat.

Reading Assignment

In order to minimize the negative effects on marine life, the EPA is in the process of issuing rules under the authority of the Clean Water Act. The proposed rule is here. Please read.

Carbon Rules

In 2007, several states sued the EPA, demanding that the EPA regulate emissions of carbon dioxide under the authority of the Clean Air Act. This case went to the Supreme Court, which found for the states. Therefore, the Supreme Court of the United States ordered the EPA to issue regulations concerning the emissions of carbon dioxide, both from stationary sources (power plants, steel mills, and so on) and mobile sources - cars and trucks.

I should make it clear that the EPA did not, and does not want to regulate carbon under the Clean Air Act. This is not the appropriate law; it was not written with carbon in mind, and using it as a pathway to carbon regulation would be extremely burdensome on society. The EPA would like Congress to create a law written specifically for the purpose of addressing carbon emissions and their role in climate change. The House of Representatives passed such a law, the Waxman-Markey Bill in 2009, but many of the people who voted for this law were defeated in the 2010 mid-term elections, and it was never brought to the Senate for a vote. The bill died with the previous session of Congress. It is highly unlikely that Congress will address this issue any time in the foreseeable future. In the meantime, the EPA is attempting to follow the orders of the Supreme Court and regulate carbon emissions under the auspices of the Clean Air Act.

I will warn you that the NRDC is an unapologetic pro-environment group, and their writings will be in clear support of these environmental regulations. There are plenty of other public-policy advocacy organizations that take a different view, such as the Heritage Foundation, the American Enterprise Institute and the Cato Foundation. I do not wish to present any particular political point of view - I am an economist, not a political analyst - I only wish to give you the clearest explanation of these often cumbersome and legalistic rules, and that is often found at the NRDC site.

So, we have five current or proposed rules that will affect the operation of coal-fired power plants:

  1. The Air Transport Rule.
  2. The Coal Ash Rule.
  3. The Toxics Rule.
  4. The Clean Water Act impingement rule.
  5. The Carbon Rule.

This set of rules is viewed by many in the coal business as a "death of a thousand cuts". What will be the likely economic effects? There are two possibilities. The first is that a great many coal-fired power plants will retire, as they will not be able to afford the cost of installing all of the necessary equipment for scrubbing and controlling these emissions.

There are about 300 GW of coal-fired power plants in the US. There have been many analyses done, and it is very likely that between 20 GW and 80 GW of these plants will be forced out of business by 2015. This will "shorten up" the coal part of the stack, meaning that more of the time, power will have to be served by higher-priced gas units. This is akin to moving the supply curve to the left.

The second effect will be to raise the cost of coal-fired generation. By requiring more equipment, more permits, more scrubbers, and such, these plants will cost more to operate. This will raise up the coal part of the stack, making many of these plants more expensive than gas. This will have the effect of moving the supply curve upwards.

We should remember from Lesson 4 what this will do. We know that moving the supply curve to the left is functionally the same as moving it upwards. Moving the supply curve upwards results in a lower quantity of consumption, and at a higher price. I will also remind you about the notion of internalizing externalities: when we do this, we strive to include the "social costs" into the economic transaction, and effectively, what we are striving to do is to move the supply curve up, and to the left, so that we move from the "private" equilibrium to the socially optimal equilibrium.

That is the goal of these regulations: to internalize the external costs on the environment that come from burning coal. It remains to be seen whether the general public is willing to pay the price of this action, in the form of higher electricity costs.