Will the old days return to the coal companies or is it just a passing chimera? When the Supreme Court suggested earlier this week that the Environmental Protection Agency (“EPA”) will review its Mercury and Air Toxics Standards (“MATS”), it brought a glimmer of hope for some coal and utility companies in the U.S.
In a 5 to 4 majority, the Supreme Court deduced that the EPA did not properly consider the cost before crafting the mercury emission standards for the power companies.
Finalized in 2012, this rule requires coal-fired electric companies to shell out about $9.6 billion per year to install scrubbers and other pollution control equipments to clean up mercury and other toxic air pollutants whereas the quantifiable benefit can be valued at only $4–$6 million. However, the EPA argued that looking from a different perspective, the estimated yearly benefit of this regulation is $26–89 billion considering that it would also reduce other pollutants which are lung damaging and fatal.
While the regulation will remain in place for now, the EPA has to do a further cost-benefit analysis to “decide within limits of reasonable interpretation” how to account for costs. The final decision of the matter rests with the DC Circuit Court.
MATS Background
An amendment under the 1990 Clean Air Act in 2012, this rule was set for coal and oil-fired power plants with a capacity of 25 megawatts or greater to reduce hazardous air pollutants. The companies were given a time period of three years to achieve compliance.
EPA’s analysis demonstrated that this was sufficient time for most, if not all, sources to comply.
Useful as a Chocolate Teapot?
Since the regulation came into force three years back, a number of power companies have either shut their old coal-fired units or converted their facilities to natural gas based plants. These companies have already installed scrubbers and spent millions of dollars on other technologies to comply with the standards. For instance, Xcel Energy Inc. XEL has already reduced carbon dioxide emissions during power generation by around 22% since 2005 and American Electric Power Co., Inc. AEP has eliminated over 5,500 megawatt of coal-fired capacity.
However, some of the companies who received a grace period for coming into compliance may benefit if the rule is reviewed. But then, they only account for maybe 1 or 2% of the entire U.S. power industry.
Respite for the Coal Industry?
Since coal units have historically been the major polluters, acts like MATS and Clean Power Plan were introduced especially keeping in mind the environmental damage caused by this fossil fuel.
Obama’s Clean Power Plan proposal to bring down overall carbon emission from power plants was the first-ever major measure taken in the U.S. with respect to climate change. However, this painted a grim picture for the coal companies as many of them had to idle their mines, lay off employees and resort to other cost cutting measures to survive. The use of clean burning and cheaper natural gas for power production further added to the severity of their struggle.
As more and more utilities started retiring their coal units, the major U.S. coal companies like Peabody Energy Corporation BTU and Arch Coal Inc. ACI, to name only a few, started drawing losses in almost every quarter. Share prices of these companies have sunk a minimum of 85% in the past two years.
Per a U.S. Energy Information Administration report, if the Clean Power Plan goes into effect as it is, coal would account for only 25% of the total electricity generation in 2030 in the U.S. as against 45% in 2010. Coal productions in major basins will receive a hard blow with the western basin suffering the most. However, with the favorable Supreme Court ruling, coal companies still have some hope to cling onto.
To Sum Up
If the MATS rule is implemented without any major revision by EPA, a major concern is that who will bear the burden of such a large sum of investment. As is the case in the utility industry, all major investments are reimbursed from the rate payers through a rate increase mechanism. This cost aspect of the MATS rule should also be given due importance.
It is yet to be seen what the DC Circuit Court has in mind for EPA’s MATS. Most utilities who have made all the preparations for the enactment of the standards will hardly be affected if the rule is struck down. On the other hand, coal players who have become the proverbial whipping boy since the fossil fuel turned out of favor will have some reasons to celebrate.
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