Daily Update: June 12, 2024

The US Environmental Protection Agency has recently finalized rules first proposed in April 2023 regarding emissions reductions for power generation and transportation. These sectors are major emitters, being responsible for 25% and 28%, respectively, of the country's greenhouse gas emissions in 2022.

First up is the fossil-fuel-fired power plant, perhaps the unwanted poster child of GHG emissions. These are the heaviest emitters in the power sector, and the four finalized rules are not friendly, imposing significant new air, water and waste standards. If coal plants intend to operate past Jan. 1, 2039, they must capture 90% of CO2 emissions. Those slated to retire between 2032 and 2039 face less stringent limits, and plants scheduled to shutter before 2032 are wholly exempt from these restrictions. New gas facilities will face the same 90% limit, while the rubric for existing gas turbines hasn't been issued yet.

This is a major change for what has traditionally been a cornerstone of generation. The US Energy Information Administration reported that in 2023, fossil fuel-based electricity generation accounted for 60% of US utility-scale production, with coal representing 16% and natural gas 43%. Not everyone is convinced by the rightness of the approach.

At the heart of this is the fundamental question of whether this agency action has "vast political or economic significance" and therefore needs explicit Congress authorization, as per a 2022 Supreme Court ruling. This ruling was cited in a petition to the US Court of Appeals by attorneys general from 25 states. The EPA's promotion of carbon capture and storage (CCS) as the means to achieve emissions reduction is also divisive, given that the technology has not been proven at scale, and the high capital outlay required to build the infrastructure could materially affect utilities' cash flow and creditworthiness, which could impact their operations. 

Another concern is that removing capacity at a time of growing demand could lead to grid reliability issues. At present, it is not certain whether renewables will plug the gap. The appetite for nuclear is still small, though it is growing again with the advent of small modular reactors, which could be built cheaper and quicker than traditional reactors but are, again, an unproven technology.

The EPA stands by the feasibility of CCS, which it says is becoming more affordable due to Inflation Reduction Act of 2022 tax credits. And the agency says that although the rule could cost the industry between $7.5 billion and $19 billion through 2047 to comply, it could provide up to $370 billion in climate and public health net benefits over the next two decades. The EPA also says grid reliability concerns have been addressed in its finalized rules by taking on board stakeholder feedback. Expect some lively debate on this.

Moving on to mobility, in March the EPA released regulations that announce themselves to be "technology agnostic." It gives three possible scenarios for how automakers could alter their proportions of pure electric vehicles, hybrids and internal combustion engine cars to meet the progressively tightening emissions standards. Not all unbeliefs are created equal, however, as several elements seem "designed to encourage" the battery-electric vehicle solution for zero-emission vehicles, according to S&P Global Mobility. Again, stakeholder feedback has been considered in the finalized rulings, providing a shallower glide path in earlier model years (with a correspondingly steeper trajectory in the ramp-up to 2032). Again, not everyone is a true believer.

Against this overall arc of emissions reductions, the EPA has built in some wiggle room. For example, in the generation finalized rules, the EPA details a short-term reliability mechanism. And similarly, it is temporarily authorizing E15 fuel (15% ethanol blend) to be used this summer, despite the usual seasonal prohibition, to ensure adequate supply during a time of OPEC+ production cuts and elevated prices due to various geopolitical shocks.

Today is Wednesday, June 12, 2024, and here is today’s essential intelligence.