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The Environmental Protection Agency’s Clean Power Plan was first introduced in June 2014. Our findings indicate that the impacts for coal and natural gas are important especially for Arizona, as the Clean Power Plan would require the state to reduce their carbon emissions (as of 2012 levels) by 52% by 2030 using four ‘building blocks.’ This is one of the most ambitious goals in the nation and can lead to the state suing EPA over perceived unfairness. This blog summarizes the challenges for Arizona to meet EPA’s goal, with a particular focus on potential impacts on the coal and natural gas industry.
There are great implications for the natural gas industry as the building block that offers the largest reduction of carbon emissions in Arizona is shifting generation from coal to natural gas. This option creates a burden on the natural gas industry because at existing locations of coal-fired power plants there is a lack of pipelines for transmission. Additionally, Arizona does not have a storage facility in the state for natural gas. This lack of infrastructure presents a challenge as it may cause reliability issues for consumers.
In addition to the lack of infrastructure, compliance costs are of particular importance due to aging infrastructure. A majority (63%) of coal-fired power plants in the U.S. are over 40 years old, and the average age is 42 years, with many over half a century old. As such, it is safe to assume that there is room for efficiency improvements, among other things.
Of course, lowering carbon emissions is not a recent thing, as “progress” has been in motion for the past few years. Since October 2012, at least five of Arizona’s eight coal-fired power plants have either shut down a unit (or two!) or entirely. These plants are: Abitibi Snowflake Power Plant, Apache Generating Station, Cholla Power Plant, Four Corners Generating Station, and Navajo Generating Station. In the face of changing EPA regulations, it is certain these trends will continue into the future.
On the whole, the EPA’s new regulation projections of economic impacts differ depending on the source. According to the Chamber of Commerce, these regulations could cost businesses around $28 billion per year in compliance costs through 2030, as well as around 450,000 jobs by 2020. Compare this to the EPA’s estimates of annual business costs of $7.3 to $8.8 billion per year in compliance costs through 2030, as well as a loss of up to 78,000 jobs through 2025. The loss, however, is estimated to amount to around $65 per household per year, with the addition of up to 112,000 jobs.
There is also an expected impact on electricity costs. For Arizona (specifically the American Southwest), it is suggested that prices may rise up by 6.5% of current costs. Yet, these estimates should not be used as the end. A study found evidence that the actual costs of all environmental regulations from the 1970s through the early 1990s were below even the low-end estimates. Of course, this is not the only issue, particularly shifting generation from coal to natural gas is a challenge in itself.
Shifting from coal to natural gas is a challenge because of the way Arizona currently uses natural gas. Natural gas is used more in the summer for peak demand for cooling needs, and used less in the winter months. This is cause for concern for the reliability of natural gas-fired power plants to provide continuous power all year long since coal currently provides the base load. Furthermore, alternative, reliable energy sources will be needed to meet the peak demand during the summer if natural gas is used for the base load.
Other challenges are consumption and the existing practice of natural gas-fired plants in Arizona. Natural gas is consumed more than it is produced in Arizona so the state imports a majority of its natural gas. There are two major pipelines that supply natural gas for not only Arizona but California and Nevada as well, whom use natural gas as their primary energy source. If there is a national approach to states using more natural gas, there may be a supply issue in the Southwest. Furthermore, half of all Arizona natural gas generators are not operated to meet load demands. They serve as merchant suppliers selling natural gas to the energy market, and they often have long-term contracts with out-of-state markets.
With these challenges Arizona will face a difficult time shifting from coal to natural gas, yet the greatest hardship is time. EPA expects states to have a state implementation plan by June, 2016. By 2020, Arizona has to meet 77% of the 2030 goal of 702 CO₂ emissions. In the span of six years, Arizona is expected to reduce its emissions drastically with little time to spare.
These challenges are great for the state of Arizona in its compliance with EPA’s Clean Power Plan, and it will be interesting to see the finalized state implementation plan in June 2016.
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