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The EPA will now require carbon capture. This alone won't change much.

This past week, the US Environmental Protection Agency confirmed what the world expected: Starting in 2040, coal plants will be required to capture their carbon or shut down. They will most likely shut down.

Truth be told, US is on its way to becoming largely coal-free before any carbon capture requirements are implemented. The proposed EPA regulations demand that coal plants co-fire with 40% natural gas on a heat output basis starting in 2035. Utilities will have to make a decision on whether to upgrade their coal plants to meet this earlier deadline, and most coal plants won’t make the cut, as competition from solar and wind will be too fierce. By the time 2040 rolls along, there won’t be many (if any) coal plants left to regulate.

The proposed rules for natural gas plants are worth watching more closely, but they are safely vague, befitting the unknowable future status of natural gas electricity generation overall. In the next decade, gas plants will also be uneconomic to operate compared with solar and wind, saved only by their ability to operate dispatchably. But as gas plants lower their capacity factors to allow renewables onto the grid, it becomes proportionately more expensive to capture their CO2, as much of the cost of carbon capture is in capex payments.

So what is the best way to reduce the emissions of natural gas plants? One way is to find new carbon capture solutions with lower capex, favoring innovative capture technologies like the sorbents from Svante. Another possible solution is to replace some or all of the natural gas with hydrogen. The EPA has elected not to try to predict what will win, and this is probably a wise decision. Without any knowledge of the capacity factors that gas plants will run at in a decade, it’s impossible to make any rule with teeth. The grid is transforming far faster than rule-making can accommodate.

As such, the EPA’s proposed requirements represent more of a discussion point than an investment opportunity. It’s interesting to contemplate a world where fossil fuel emissions are captured, but the industry’s cost curve will be driven by markets such as cement and steel first. Even with the EPA signing up for carbon capture, the future of the power market still seems too uncertain to bet on.

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