Birds in the hand for CO2

The January call for a national policy on greenhouse gas (GHG) emissions by a coalition that includes some of America’s largest companies and electric utilities—GE, Alcoa, Dupont, Duke, FPL, and PG&E—makes clear that carbon management is now as much of a raison d’être for CEOs as it has been for environmentalists.

The momentum to reduce GHG emissions—especially those of CO₂—may be growing, but I think the forces behind it are setting their sights too narrowly on future coal-fired generation. Most embryonic efforts by legislators and regulators to impose carbon caps or taxes will have the initial effect of encouraging utilities to build "clean coal" plants, especially integrated gasification combined-cycle (IGCC) units, while discouraging construction of inherently dirtier pulverized coal (PC)-fired capacity.

To my mind, that approach is riskier than seeking to reduce CO₂ emissions from existing plants because it puts all eggs in one (unproven) technology basket. The focus on PC plants is understandable because they account for 82% of the U.S. power sector’s CO₂ emissions. But the magnitude of the problem demands a more comprehensive approach that includes reducing emissions by reducing demand for power.

Executive orders

If CO₂ emission reductions are made a priority, I would start with this four-step program.

Revitalize demand-side management (DSM). A megawatt avoided is cheaper than a megawatt built. Amory Lovins of the Rocky Mountain Institute (www.rmi.org) coined the term "negawatt" to describe this effect. State regulators must prioritize DSM initiatives on a par with, or even ahead of, new capacity and allow utilities to earn "equivalent profits" if they can document the savings.

Deploying smart meters to enable time-of-use rates has proven capable of improving end users’ energy efficiency. Tightening building codes and employing creative rate design would have the same effect. Barriers to adopting energy-efficiency technologies must be removed if utilities are to invest in negawatt technologies without damaging their bottom line. One way to encourage that investment would be to decouple utility revenues from power sales. Some states are considering doing just that.

For utilities, the math makes a lot of sense. According to Leonard Haynes of Southern Company, the $82 million a year that his utility spends on energy efficiency and demand control "has been able to reduce our growth [in needed capacity] by a little over 2,700 MW." That’s pretty cheap power. If planning costs for nuclear and IGCC plants of the distant future qualify for inclusion in the rate base, why shouldn’t ongoing DSM initiatives whose cumulative cut in demand would reduce the need for supply?

Improve the efficiency of our existing coal-fired fleet. IGCC plants promise to emit less CO₂, but when and at what price? The costs are proving tough to pin down. For example, AEP had been saying that the one or more 600-MW IGCC projects it plans to build would each cost from $1.2 to $1.3 billion, or 20% more than the cost of a conventional, 600-MW PC-fired plant. But last December, a final design study projected a much higher tab and premium. AEP isn’t saying how much higher.

To me, a concerted, industrywide effort to improve the combustion efficiency of our existing fleet of 1,100-plus coal-fired plants has the appeal of a bird in the hand. I urge regulators to add the costs of efficiency upgrades to the rate base as well. But this carrot won’t tempt any utility unless Washington puts away the New Source Review stick. The U.S. Environmental Protection Agency program continues to discourage major plant upgrades by treating them as new sources of air pollution. Some capacity upgrades make a plant dirtier in absolute terms, but most efficiency upgrades do not.

Move now to ultrasupercritical technology rather than building more conventional PC plants. IGCC won’t make economic sense until carbon capture proves workable and carbon caps go into effect, and neither will happen overnight. For the generation of plants that will be needed sooner, why not go with the most efficient, least CO₂-emitting coal-fired technology available today?

Here, too, government incentives are needed—in this case, to encourage utilities to build baseload coal-fired capacity. Over the past decades, market forces have illustrated the downsides of building natural gas–fired plants for other than intermediate or peaking service. Gas may be a cleaner fuel than coal, but it remains subject to price spikes and supply shortages. As evidence, consider that the average residential electric rate in California—which gets more of its power from gas-fired plants than most states—was 12.2¢/kWh during October 2006. Consumers in states with a significant amount of coal-fired generation paid a lot less. In Kentucky, the average was 7.3¢/kWh; in Colorado, it was 9.03¢/kWh.

Build (a few) more nukes. The next-generation reactor designs already approved or pending approval by the U.S. Nuclear Regulatory Commission are inherently safe by design and emit no CO₂. The waste produced by the new plants would add only a drop to the buckets of waste already stored at plant sites.

Building new nuclear capacity over the next decade won’t put a dent in the total CO₂ emissions of the power generation sector over the period. But it will pay dividends later, if the rate of capacity growth exceeds that of demand for power. Put another way, if we build only enough new nukes to replace the capacity of older reactors that are retired, nuclear power won’t be a factor in the CO₂ reduction equation.

Desperately seeking solutions

Reducing CO₂ emissions remains a controversial subject. As members of the power generation community, surely you have your own pet prescriptions for reducing CO₂ emissions. Send them to me at [email protected] and I’ll publish the most interesting responses.