Did regs kill the horse-drawn carriage?

April 9th, 2012

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This piece was originally posted on National Journal.

Blaming regulation for the decline of coal is like blaming cars for the demise of horse-drawn carriages. The market, not big bad regulators, replaced an antiquated technology with a more efficient one.

Coal is a nineteenth century technology that maintained dominance in the electricity sector because it was cheap. The precipitous decline in natural gas prices, thanks to hydraulic fracturing, are eliminating cost as a reason to use coal. The result has been a boom in new natural gas power plants, along with a dramatic increase in solar and wind power (whose prices are also declining rapidly), and virtually no new coal plants.

At today’s prices, a dollar spent on natural gas can get a utility 53% more energy than a dollar spent on bituminous coal. And that is before efficiency is taken into account. Natural gas plants are 28% more efficient than coal plants. So not only can a utility get more natural gas per dollar than coal, they can also get more energy out of that natural gas. That means less waste in the form of harmful pollutants. A natural gas combined cycle (NGCC) plant releases 44% less carbon dioxide, 68% less nitrogen oxide, and 100% less mercury than a coal plant. As Third Way’s recent focus groups found, even in the traditional energy states of Ohio and North Carolina, there is enormous support for eliminating pollution-emitting coal plants across education, gender, and economic lines.

It is also much cheaper to build a natural gas plant than a new coal plant. Per kilowatt, construction of a pulverized coal plant is almost three times more expensive than a NGCC plant. In addition, many natural gas plants across the country have excess capacity, meaning utilities can begin to capitalize on the economic advantages of natural gas right away without having to construct new plants.

These factors led to natural gas taking 9% of coal’s power market share in 2009, 8% in 2010, and 12% in 2011. It is expected to take 14% in 2012. Even regions that have been slower to shift from coal to natural gas, like the West and Texas/Louisiana regions, are starting to make the switch.

Has regulation had an impact? Without a doubt. But the EPA’s new greenhouse gas regulations have merely accelerated the transition away from a technology that was going to have a hard time competing in the market. Of course, there is one place where government can get some of the blame for assisting in the decline of coal: the Department of Energy helped fund research that led to the hydraulic fracturing drilling technology that has made cheap natural gas possible.