Tuesday, September 08, 2015

Map to Clean Power

Power plants in the U.S. generated a near-record 4,093 billion kilowatt hours of electricity in 2014.  So says the U.S. Energy Information Administration.  Fossil fuels are used generate about two-thirds of that electricity.  Coal alone is used for about 39% of our electricity.  It is messy stuff, filling our skies with toxic gases and particulates that bring on illness and cause irreparable damage to an environment that is in trouble.  The year 2014, was also a seminal year on our planet as the hottest year in recorded history.  The role of fossil fuel combustion in global warming is no longer in question.  

The dangers of combusting fossil fuels have long been known to scientists, but the path to shifting our electricity production to more benign fuel sources has not been clear.  U.S. citizens have waited a long time, but finally a president has come up with a map.  In early August 2015, after months of hearings and acres of comments, the Obama administration put forth a Clean Power Plan.  The plan will be carried out by the Environmental Protection Agency (EPA) with its authority under the Clean Air Act.

The Plan is aimed at shifting the U.S. electrical grid toward cleaner power sources in a way that the EPA claims will be a “steady, achievable pace.”  Carbon pollution limits begin in 2022 and ramp to full effect by 2030.  The EPA has set standards for each state that are meant to be flexible enough to be fair while bringing the power generation infrastructure in the state into compliance with pollution limits.

If every state meets the standards, the EPA estimates the carbon generated by the electric industry in the U.S. will be reduced 32% by 2030, or a reduction of about 870 million tons.  This will take us back to carbon pollution levels in 2005.  That will be critical to stave off more global warming.  It could also have a dramatic impact on health.  The EPA cites a reduction in premature deaths, asthma attacks, and missed work and school.

The EPA has stated that the price tag for the Clean Power Plan will be in the range of $1.4 billion to $2.5 billion in 2020.  By 2030, the costs will rise to a range of $5.1 billion to $8.4 million.  These costs include the investments need for lower-carbon power sources, which are partially offset by savings from energy efficiency.  The average family is expected to save about $7.00 per month on their electric bills by 2030 if the efficiency measures pay off.

To support the Plan the EPA claims that the combined climate and health benefits will outweigh the costs.  By 2030, the EPA estimates there will be a savings in health care costs, lost work and other benefits that will reach $26 billion to $45 billion per year.   Cutting carbon pollution to 2005 levels will save as much as $20 billion per year.

Some have expressed dissatisfaction with the Clean Power Plan because fossil fuels will remain a source of energy for electric power generation.  The Plan does eliminate any power source.  However, the Plan does require fossil-fuel fired power plants to operate more cleanly and efficiently.  Furthermore, it supports a dramatic expansion in zero- or low-carbon emitting power sources.  The EPA argues that by giving the power generation industry a set of standards, a goal post and ample time to build a strategy to reach that goal, the Clean Power Plan has the best chance to make a meaning impact on carbon pollution.

Building a strategy to meet the new EPA standards will certainly involve new investment in power generation and efficiency solutions.  It is worthwhile investment theme.  The next post will feature a company that believes it will be a direct beneficiary of the Clean Power Plan.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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