Cap-and-trade shuts down U.S. coal plants

We tend to see a lot of handwringing over the fact that Europe has a carbon cap in place, yet they’re still adding coal to the mix. But stories like this never seem to get reported the other way. Did you hear the good news? Dynergy scuttled six coal plants because of the U.S. carbon cap:

> “The development landscape has changed significantly since we agreed to enter into the development joint venture with LS Power in the fall of 2006,” said Bruce A. Williamson, Chairman, President and Chief Executive Officer of Dynegy Inc. “Today, the development of new generation is increasingly marked by barriers to entry including external credit and regulatory factors that make development much more uncertain. In light of these market circumstances, Dynegy has elected to focus development activities and investments around our own portfolio where we control the option to develop and can manage the costs being incurred more closely.”

“Regulatory factors” refer to a host of potential legal obstacles, but the chief among them is the anticipated passage of a federal cap-and-trade bill sometime in the next several years. Unlike some market observers, energy developers aren’t watching for the price of carbon to pass the magical point at which clean coal or solar or whatever becomes cost-competitive. Rather, they’re looking ahead many years, performing scenario analysis, comparing cash flows, and making investments accordingly.

“External credit factors” refer, in part, to the ongoing financial crisis. But the credit squeeze affects other forms of energy development much as it does coal-fired plants, so Dynergy may also be referring to the fact that banks were tightening lending for projects with massive carbon exposure long before the crisis hit. And again, this tightened credit is a direct result of (as-yet-unwritten) federal cap-and-trade legislation.

Needless to say, many factors may have played into the decision to shut down those coal plants: grassroots pressure, lawsuits (real or threatened), disastrous publicity from the sludge spill, the imminent changing of the guard at the EPA, state-level permitting difficulties, etc. But as long as we’re handing out credit, let’s not forget the most obvious and compelling factor. In a carbon-constrained economy, no one wants to double down on coal.

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  1. P-dub - January 7, 2009

    FYI ILF, According to NASA, 2008 was the 10th warmest year on record. With climate change you must look at the rate of change on broader scale than one decade.
    Carbon pricing, whether it be a tax or C & T is a reality that we are all going to have to adapt to.

  2. Tom Harrison - January 7, 2009

    I agree that this is great news. But I don’t think it’s cap and trade, per se, that caused the decision — instead, it’s the threat of cap and trade!
    My take is that what we have seen very strongly in the economic world (within energy and elsewhere) is that uncertainty is the enemy of investment, especially large capital investment. Certainly uncertainty has roiled the financial markets — the result is that they simply froze, almost overnight. Before that, uncertainty in gasoline and fuel prices created havoc in that market and those that depend upon them (like making cars).
    Likewise, I think it is the uncertainty of whether cap and trade is implemented, how, and to what extent it will affect the bottom line that played into Dynergy’s decision.
    If, on the other hand, a cap and trade plan was in place and underway there would exist a far more predictable market, and this might have the opposite effect: allowing Dynergy and its peers to more accurately predict the long-term value of their investment. With less uncertainty, the outcome might has been different.
    The real test of cap and trade will be whether the additional cost of carbon will be sufficient to make a business case that makes coal a bad alternative. A lot depends on how it is implemented.
    Until then, a great deal of uncertainty may be our best hope.
    Continued pressure by progressive organizations (incl TerraPass), movement on legislation, including cap and trade but not limited to it, and clear signs of change will all help ensure that building a new coal plant is a bad bet.
    So I guess this counts as a good start.

  3. evljack - January 7, 2009

    This is great news, as long as you enjoy sitting in the dark. Do any people who support these beloved ‘progressive organizations’ like TerraPass have any idea how this company is going to meet capacity in the future? And don’t say solar since no company could build enough panels in twenty years to match the output of one power plant and mining the materials and manufacturing the panels would create another eco-catastrophe. Large scale wind power may be disastrous for migratory birds and bats. And no one likes nukes so where again does this leave us? Tell me again why this is great news?

  4. RS - January 7, 2009

    “no one likes nukes” – says who? Nuclear power is the way of the future. Note that President-elect Obama hasn’t completely ruled out nuclear energy – only that waste must be contained safely. I find nothing wrong with that position.
    There also another way to meet demand – reduce it!

  5. Adam Stein - January 7, 2009

    Yes, we do! Energy efficiency and significant expansion of renewables, such as wind, concentrated solar, solar PV, geothermal, etc. Expanded nukes may also play a role — remains to be seen. Cogenerated heat and power will be a huge new source of energy. And natural gas plants will undoubtedly play a bridging role.
    New coals plants haven’t been built in the U.S. for over a decade. The lights are still on.
    (Also the stuff about birds and bats is just way overcooked. This is not a significant problem on modern wind farms, and in fact coal plants are far worse for wildlife. It’s time to find a new line of attack.)

  6. Wolverine - January 7, 2009

    Evljack,
    I will respond by saying solar and wind power. These alternative energy options don’t need to completely replace coal, they just need to eliminate the need to build new coal fired power plants. The older coal plants can slowly be retired as more alternative energy capacity comes on line in the next decade or so.
    Wind turbine bird and bat strikes have been largely mitigated by the newer, larger and slower rotating, wind turbines and better placement of wind farms away from primary bird migration routes. Your arguments on solar energy are specious as well. Solar thermal power, not photovoltaic, is an older technology that has been around for two decades or so. It utilizes the suns energy to heat fluid, generate steam and run a generator. There is advanced research looking into storing this energy for when the sun is not shining. The Mohave plant in California has been running since 1986 with no major breakdowns or outages and solar thermal is a alternative energy option that requires no technological breakthrough. It has been estimated that a 100 square mile solar thermal plant located in the desert southwest could provide all the electricity needed for the US.
    You are right that you can’t eliminate the use of coal overnight but we will never solve our energy problem by doing things the same old way.
    Think out of the box

  7. fiver - January 7, 2009

    evljack:
    It’s great news, because it encourages us to look at alternatives, including negawatt generation (aka conservation). Prime example: here in central Texas, our utility recently purchased land for a coal plant, then evaluated what it would cost to actually build the generation capacity versus what it would cost to encourage our consumers to reduce their consumption by the exact same amount. The cheaper alternative was the one that was implemented: conservation. We have “generated” the necessary amount by conservation, and we still have yet to build out that coal plant.
    Your other arguments are a bit overblown: of course wind, solar, and everything else has an impact (which is one reason conservation is best). But come on: compared to coal, which kills life (including human, but also far more wildlife than wind farms) at every stage of its usage, these alternatives are orders of magnitude less harmful than coal. For crying out loud: we’re ripping the tops off of mountains and dumping them into streams to get to the coal, killing all sorts of wildlife and polluting our own water, not to mention the periodic deaths of the coal miners themselves. We’re burning the stuff, releasing mercury that finds its way into our food supply (which is now a huge problem in the fish we eat) and killing literally thousands of us Americans a year with the fine particulates in the air. And now we’re realizing that we’re storing the toxic sludge of the burnt by-product in hundreds of dam-enclosed time bombs waiting to go off like the one in Tennessee just did. Oh yeah, and I have some hazy recollection about a little thing called global warming that might just somehow be connected. Enough with the coal already!!!
    I for one welcome our new renewable energy masters :) The impact of that wind farm, though real, is orders of magnitude less than what we’re doing with coal.

  8. David C. Yao - January 7, 2009

    Wow, you guys must be really cap-and-trade boosters to make such a huge leap of logic in the TITLE of the article.
    Cap-and-trade (the earlier versions, to be fair) has been ineffective at anything but boosting corporate profits. There’s a suspicion that it’s promoted not because it’s the most effective way to reduce GHG emissions, but because its market orientation makes it more palatable, especially since it has the potential to boost profits at minimal cost – in some cases.
    So it is an unproven strategy – let’s not jump to conclusions

  9. Adam Stein - January 7, 2009

    See, this isn’t true, and this is the notion I’m trying to push back on. Cap-and-trade in Europe certainly has plenty of flaws, but this notion that it’s served no purpose other than to transfer wealth to corporations is a bit of pernicious myth. And it’s a charge that’s particularly hard to level in the U.S., as the legislation hasn’t even been passed yet.
    TerraPass is a big booster of carbon pricing, as well as other forms of mitigating greenhouse gas emissions. We have been from the get-go. As to which system of carbon pricing is “most effective,” that’s an easy one — it’s the one that actually gets passed into law.

  10. Chad - January 7, 2009

    Evljack, you are just wrong about how big the solar industry is or how big it can get. Several panel suppliers are at or close to gigawatt scales per year (one gigawatt = a big coal plant). Hemlock Semiconductor, the world’s largest silicon manufacturer, produces enough material for several gigawatts per year and is growing like wildfire. There is nothing to prevent these companies from growing at >30% per year if demand calls for it. Wind is even easier, and gigawatts abound. Storage and intermittancy are not an issue. Do you not know that we already have dozens of gigawatts of storage capacity on our grid right now, most as pumped storage facilities? We can build as many as we need.

  11. Grace - January 7, 2009

    According to James Hansen, (leading climate scientist), in his open letter to Barak and Michelle Obama, posted in full at:
    http://gristmill.grist.org/story/2009/1/1/23367/28094
    … cap and trade is not effective and a carbon tax at the wellhead is the only way.
    “The physics of the matter, together with empirical data, also define the need for a carbon tax. Alternatives such as emission reduction targets, cap and trade, cap and dividend, do not work, as proven by honest efforts of the ‘greenest’ countries to comply with the Kyoto Protocol:
    1. Japan: accepted the strongest emission reduction targets, appropriately prides itself on having the most energy-efficient industry, and yet its use of coal has sharply increased, as have its total CO2 emissions. Japan offset its increases with purchases of credits through the clean development mechanism in China, intended to reduce emissions there, but Chinese emissions increased rapidly.
    2. Germany: subsidizes renewable energies heavily and accepts strong emission reduction targets, yet plans to build a large number of coal-fired power plants. They assert that they will have cap-and-trade, with a cap that reduces emissions by whatever amount is needed. But the physics tells us that if they continue to burn coal, no cap can solve the problem, because of the long carbon dioxide lifetime.
    3. Other cases are described on my Columbia University web site, e.g., Switzerland finances construction of coal plants, Sweden builds them, and Australia exports coal and sets atmospheric carbon dioxide goals so large as to guarantee destruction of much of the life on the planet.
    Indeed, “goals” and “caps” on carbon emissions are practically worthless, if coal emissions continue, because of the exceedingly long lifetime of carbon dioxide in the air. Nobody realistically expects that the large readily available pools of oil and gas will be left in the ground. Caps will not cause that to happen — caps only slow the rate at which the oil and gas are used. The only solution is to cut off the coal source (and unconventional fossil fuels).
    Coal phase-out and transition to the post-fossil fuel era requires an increasing carbon price. A carbon tax at the wellhead or port of entry reduces all uses of a fuel. In contrast, a less comprehensive cap has the perverse effect of lowering the price of the fuel for other uses, undercutting clean energy sources.6 In contrast to the impracticality of all nations agreeing to caps, and the impossibility of enforcement, a carbon tax can readily be made near-global.7″
    He also makes a case for 4rth gen nuclear. Its an interesting read and the discussion/critique of his stance that follows is likewise highly worth a look.

  12. Adam Stein - January 7, 2009

    James Hansen has said a lot of negative things about cap and trade, which is unfortunate, because his commentary on this point has been fairly confused. Fortunately, he seems to have recently turned around on this (or at least, clarified his earlier statements):
    Many of the ills of cap-and-trade (“special interests, lobbyists, …”) are associated with free allocation, but allowance auctioning (which Obama favors) would be similar to a tax in terms of revenue generation and potential for consumer dividends. Moreover, an auction with a price floor would be equivalent to a carbon tax as long as there are sufficiently many allowances to satisfy market demand at the price threshold. (The price would only increase if the tax incentive is insufficient to achieve the cap.) A recognition of the commonality between carbon taxes and cap-and-trade could help overcome political barriers to action on climate change.
    This is an important point. Cap and trade and carbon taxes are largely similar policies, and their effectiveness depends on how well they’re implemented.

  13. Steve - January 9, 2009

    A terrible development indeed.
    Coal makes for an excellent baseline energy source for the grid. By not adding these plants to the mix the US grid becomes that much less stable, that much less reliable. Wind and solar can take up some of the slack; not enough given the current infrastructure however.
    This is the technological equivalent of eating part of our seed corn for a quick snack.

  14. Chad - January 11, 2009

    I don’t know how you can definite something as “excellent” when it kills 20,000 Americans each year and sickens countless more, while spewing toxic metals to every corner of the planet and thereby fouling the environment. Coal is only “cheap” because it passes most of its costs onto the public. It’s true cost probably exceeds 20 cents per kwh, just for generation, not the 2-3 that you pay (you also pay ~7 cents for transmission).

  15. Adam Stein - January 14, 2009

    You know, it’s not that hard to Google for this stuff:
    http://www.earth-policy.org/Updates/Update42.htm

  16. friends of coal - March 8, 2009

    you can tell that you have a white collar job, you are forgetting the thousands of people that depend on coal…

  17. Wolverine - March 8, 2009

    Yeah, but now they can depend of clear energy jobs – wind and solar thermal. This is not just good for their health but also the health of the nation. Not to mention an end to mountain top mining and coal slurry dams.
    Take a leap and think out of the box.

  18. al b - June 27, 2009

    [Dude, you need to lay off the caps lock...]