This past June, the US EPA revised its views on power plant emissions, particularly of coal-fired plants. In short, EPA is now in favor of emissions. OK, we’re kidding, but not by much. The agency proposed to rollback: 1) the Clean Air and Water Act, section 111, and 2) MATS, the Mercury and Air Toxics Standards for power plants, back levels established in 2012. (Both rules, the Biden administration strengthened in 2024, to the dismay of coal-fired power plant owners.)
The proposed revisions to the CAA are based on two statements of regulatory purpose. First, since the regulated pollutants are a global problem, the EPA should not be obligated to regulate emissions unless there’s definitive proof that a specific power plant caused the alleged environmental harm. Second, greenhouse gas emissions from fossil-fired fuel plants do not result in harmful emissions under the meaning of the revised CAA statutes. These two regulatory revisions make clear that the government no longer has an interest in regulating greenhouse gas emissions from US power plants.
By contrast, the MATS revisions are specific. They canceled all new power plant pollution remediation requirements issued by the Biden administration in 2024: the particulate matter standard for coal-fired plants, the tighter mercury standard for lignite-fired plants, and they would eliminate the new requirement for particulate matter continuous emissions monitoring systems. The EPA stated that these revisions would alleviate “regulatory uncertainty” in twelve states with coal plants and save $120 million a year starting in 2028. (The total bill for coal fuel is less than $15 billion, so the new rules will lop less than 1% off the fuel bill for coal.)
Although coal accounts for about 15% of the nation’s overall power generating mix, the percentage of coal-fired generation in coal-producing states remains large: West Virginia (91%), Missouri (75%), Wyoming (74%), Kentucky (71%), Utah (62%), and Indiana (57%). And the nation’s coal fleet, however, is aging out. Power plants built in the 1970s and 1980s are approaching retirement (the average age of a retiring coal plant in 2024 was 54 years).
There is nothing unique about politicians providing regulatory relief for a legacy industry in decline like coal. But there is also a clear message here for the owners and builders of natural gas fired power plants—the EPA is not interested in regulating your emissions either. No utility has built a large coal-fired power-generating station in a long time. But there are about 19 gigawatts of new gas fired capacity expected to come on line between now and 2028, according to the EIA, and possible data center growth would only add to this number.
As utility investors, our initial conclusion is that these EPA proposals substantially mitigates the risk of environmental penalties for fossil fired power plants. Given coal’s declining role in the energy landscape, these rule changes may have little economic impact. However, EPA head Zeldin made two comments worth noting. First, he said that “affordable, reliable, electricity is the key to the American dream and a natural byproduct of national energy dominance.“ But in justifying the policy changes, he stated that “the primary purpose of the Biden-Harris administration regulations was to destroy industries that didn’t align with their narrow-minded climate change zealotry.“ And that’s the problem. The Democrats can simply rewrite that statement when they assume power (“The primary purpose of the Trump administration regulations….”). By politicizing this issue in strong partisan terms, this raises the possibility of a political reversal by a future administration, one with greater concerns over environmental issues. If so, do we now face the overhang of stranded asset risk for all new gas-fired power generation? We doubt this is being priced into stock prices at the moment.
The government is in effect telling power plant owners not to worry about particulate emissions and greenhouse gases. This is the same government that denies the efficacy of vaccines and freely attacks established expertise in science and medicine. So where’s the risk for utilities if our government chooses to ignore the adverse effects of greenhouse gas emissions? We’re not sure. It could be the insurance industry refusing to insure plants, like they bailed on nuclear plants ages ago. Or maybe it’s pollution/climate harm lawsuits that gain traction in the courts, like the successful lawsuits against tobacco companies. All we can say is that this government’s denial of big issues like climate change comes to resemble a game of whack-a-mole. The government has managed to somewhat suppress the business risk for coal and gas-fired power plants, at least in the near term, but we think the financial risks will keep reasserting themselves in new forms, which is neither helpful to planners trying to allocate billions for energy capex nor to the investors who will be asked to put up the money.
By Leonard Hyman and William Tilles for Oilprice.com
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