Notes on the EPA’s Clean Power Plan (Part 1: It’s More About Technology Than Coal)

One thing that sticks out across the energy industry in all the thrust and parry over the Clean Power Plan is the paucity of financial perspective and analysis from all sides.

With the declining significance of coal-fired power come certain inescapable conclusions nonetheless:

• First, while the coal industry wants the story to focus on how the industry is crying harm and foul, the issue of course is bigger than that. Environmentalists are quick to see a singular “new world” in every new investment in renewable energy – but this is bigger than that too. The energy sector today is being driven away from fossil fuels by new technology. In short, we are transforming energy not by using energy as we know it, but by using technology to create energy from sources (like the sun and the wind) that do not require burning of fuels.
• Second, coal plants–^­­which for the longest time were considered reliable, affordable and safe in many quarters–no longer carry that tripartite distinction. Along comes new science, raising all sorts of questions about toxicity and climate impacts. Along also came competition in the form of renewables and natural gas, and energy efficiency, and the affordability of coal was challenged. Granted, coal’s 24/7 base-load reliability is still its major strength, but it’s a strength being steadily eroded by these other forces. The change taking shape today is especially astonishing given that energy investment trends can take decades to coalesce before they move in a clear, coherent direction. Even with the current rapid pace of transformation, it will take decades under current scenarios to reduce the high levels of coal and natural gas being used now as the primary generation sources for electricity—in both the U.S. and most of the rest of the world. So, while the direction of innovation is right, the pace of uptake is too slow to achieve meaningful climate impacts. It’s also too slow to stimulate the necessary political consensus to carry the innovation forward through market ups and downs.
• Third, the EPA’s Clean Power plan is about accelerating changes already taking place in the market in the move to renewables and the drive for innovation in the energy sector. The coal industry opposition comes actually not from these changes but from in its failure to innovate over the past several decades.
• Fourth—and on a similar note as the one above—while the coal industry has failed to innovate it has continued to invest, but in the wrong places. The industry sinks great sums into coal-export plans that are floundering—and losing money. The industry has invested in the political process to hinder the rise of renewable power, make sure that carbon rules never take effect, and that new, improved technology is under-resourced. Where the industry has come up sadly short in its investment strategy, it is in missing out on being part of a solution to larger problems of pollution and climate change.

GE has a television commercial running in the United States today titled “Ideas Are Scary,” in which it pictures an ugly, beaten-down being who sleeps in the rain and lives alone on the streets. After being rejected everywhere it goes, it at long last meets a few kindred souls who recognize the idea and welcome it inside. The idea, in the last frame, is prettied up but still quite apart in appearance from all the rest, but the crowd cheers because it is seen it now for the good thing it is.

The move from fossil-fuel-fired electricity has taken hold in the U.S., and it’s a big deal in many ways, not the least of which how it affects capital markets, where fossil-fuel stock prices, bond prices and prospects for attracting money through Master Limited Partnerships and private raisings are tight.

Tom Sanzillo is IEEFA’s director of finance.

Tomorrow: More on the Clean Power Plan and the coal industry