EPA: Grid reshaping due to climate law, not power plant rules

Climate law and carbon rules to reshape U.S power generation, says EPA

The U.S. power generation landscape is set to undergo significant changes not because of this year’s carbon rules, but due to last year’s climate law. This is reflected in the Environmental Protection Agency’s (EPA) future power generation and capacity projections that were recently published alongside proposed standards for gas and coal plant emissions.

The EPA’s Clean Air Act rules, according to the modelling, will have a minor role in phasing out coal power and an insignificant role in promoting renewable energy. This is primarily because the Inflation Reduction Act already significantly impacted these areas, leaving little for the new power rules to accomplish.

John Coequyt, director of government affairs at RMI, affirmed that the industry had already undergone significant transformation due to the Inflation Reduction Act. The EPA’s draft rules for power plant carbon pollution provide the first glimpse into how the Inflation Reduction Act is expected to impact the U.S. power grid over the next two decades.

The EPA predicts that the Inflation Reduction Act will revolutionize the U.S. power sector, trigger unprecedented growth in renewable power, and significantly reduce dependence on coal. This act provides $369 billion in climate and clean energy spending.

The EPA’s new assumptions about the post-Inflation Reduction Act grid, which became public last week, are the baseline for calculating the costs and benefits of carbon rules for existing coal plants and newly built gas power. The draft rules’ effects on the relatively small segment of the existing gas fleet weren’t modeled.

EPA maintains a power plant baseline that uses an energy economics model to find the most cost-effective means of powering the country over time. This year, a significant change was President Joe Biden’s extensive climate spending package, the Inflation Reduction Act, which has sped up the utility sector’s race towards decarbonization. The EPA now views its rules as secondary to this Act in driving this transformation.

In 2021, there were still 210 coal plants in the continental United States providing 220 gigawatts of power capacity and 22 percent of total generation. The Inflation Reduction Act is expected to have a significant effect on these figures, with EPA now projecting that coal will drop to 100 GW of capacity by 2028, and comprise about 11 percent of the nation’s power.

Moreover, the EPA’s analysis shows that the draft power plant rule would be the final blow for coal without carbon capture by 2035. Critics argue this rule is at odds with Biden’s pledge to have a zero-carbon power grid by 2035.

Impact of Inflation Reduction Act and power rules

The Inflation Reduction Act is projected to cause the U.S. coal fleet to shrink to 60 GW and 5.5 percent of total generation by 2030. With the introduction of EPA rules demanding carbon sequestration from that year, almost a quarter of that projected capacity is expected to disappear. The combined effect of the Inflation Reduction Act and the draft carbon rules is anticipated to reduce coal capacity to 46 GW, providing only 1.8 percent of generation.

The outlook for gas is less dramatic, with the Inflation Reduction Act-dominated baseline showing a slight increase in gas-fired power capacity from 463 GW in 2028 to 503 GW in 2040. The proposed rule alters this trajectory marginally over that timeline.

However, the draft rules are projected to have little effect on promoting renewables. The rise in renewable energy from 2028 to 2040 is attributed entirely to the Inflation Reduction Act. The EPA estimates that sources such as wind and solar will provide about 22 percent of U.S. generation in 2028 and 55 percent in 2040.

Mike O’Boyle, senior director for electricity at Energy Innovation: Policy & Technology LLC, explained that while the Inflation Reduction Act offers voluntary incentives, the new rules guarantee emissions reductions. He referred to the Inflation Reduction Act as a series of carrots, while the new standards serve as sticks ensuring utilities take advantage of the incentives offered by the Act.