By early June, the EPA is set to announce its proposals for regulating carbon dioxide emissions from existing power plants. Final regs won't be imposed until states come up with their own plans to do the EPAs bidding, but it's worth starting to think about the winners and losers of anti-carbon laws.
A report out yesterday from analyst Hugh Wynne at Bernstein Research points out that whatever the ultimate outcome, coal-fired power plants will certainly bear the brunt of the new regulation.
Wynne presents us with some insightful data points to think about, and draws the conclusion that any reasonable new regulation is likely to promote switching what fuels our power plants away from coal and towards natural gas.
-- Electric power generation accounts for about a third of man-made greenhouse gas emissions in the United States.
-- Within the electricity generation, coal-fired power plants account for almost 80% of carbon dioxide emissions.
-- Thus, coal-fired plants emit about 25% of all greenhouse gas emissions.
-- Coal-fired plants emit about 1 metric ton of carbon dioxide per MWh.
-- Advanced natural gas turbines emit just .4 metric tons per MWh.
-- Natural gas turbines are currently being operated at 45% of capacity. For most plants, this could be doubled.
-- Were gas turbines ramped up to 90% capacity, they could offset enough coal-fired generation to reduce carbon dioxide emissions by 550 million metric tons per year.
-- That would represent the equivalent of about 25% of power generation emissions, or roughly 8% of total U.S. greenhouse gas emissions.
-- This coal-to-gas switching would (assuming current fuel prices) be the most cost effective method of reducing carbon emissions nationwide.
It's unclear what mechanism the EPA might try to use to impose carbon cuts. Obama tried to float a cap-and-trade proposal early in his administration, to no success. And there is zero chance of such a bill gaining traction now, especially with Australia recently scrapping its own carbon trading experiment.
More likely, they could try to simply dictate the closure of plants putting out arbitrarily too much carbon per MWh. Or tax power generators for emissions beyond a certain threshold.
Bernstein's analysts looked at the potential impact to the nation's big power generators, assuming a $10 per ton price of carbon dioxide. The companies that will suffer, they say, are those with big coal-fired fleets selling electricity into competitive markets. Chief among these are Dynegy and
Generators with lots of gas turbines or nuclear power plants would benefit from the regulation. Bernstein figures that
The other winner: natural gas producers. Cutting coal will naturally increase demand, and price for natural gas. Achieving just a 10% cut in carbon emissions from the nation's power plants would reduce the coal burn by about 180 million tons, or about 18% of national mine output. While replacing all that coal with natural gas would add 8 billion cubic feet per day to demand -- about 12% of U.S. production.
In that case, you'll want to own natural gas producers. Bernstein oil and gas analyst Bob Brackett's favorite picks are
And something to keep in the back of your mind, the breakdown of U.S. greenhouse gas emissions by economic sector, according to the EPA and Bernstein analysis:
32% - Electric power generation
28% - Transportation
20% - Industry
10% - Agriculture
5% - Commercial
5% - Residential
