China emissions deal doesn't change much — yet — for coal industry

2014-11-14T00:10:00Z China emissions deal doesn't change much — yet — for coal industryBy Jacob Barker jbarker@post-dispatch.com 314-340-8291 stltoday.com

It would seem coal’s prospects dimmed this week after the United States and China announced an agreement on greenhouse gas emissions.

The pact between the world’s two biggest economies marked a step toward international consensus ahead of climate change negotiations in Paris next year and was the first time China agreed committed to limit emissions. The international commitment by the U.S. could make it less likely to bend on domestic regulations calling for emission reductions.

The American Coalition for Clean Coal Electricity said the U.S. was on “the losing end” of the deal and that President Barack Obama was “shooting our economy in the foot.” Incoming Senate Majority Leader Mitch McConnell called it an unrealistic plan that was part of the president’s “ideological ‘war on coal.’”

But the U.S. is already on the track toward comparable reductions in carbon dioxide through Environmental Protection Agency regulations on power plant emissions that will largely hit coal plants. In China, the government had already grown more concerned with pollution as its cities become known for choking smog, and its investments in alternative energy along with a maturing economy have already begun to change the country’s direction.

In all, it doesn’t seem like anything too new, said Kristoffer Inton, a financial analyst who follows the coal industry at Chicago-based Morningstar.

“We thought that Chinese coal usage was already peaking,” Inton said. “That’s largely due to the fact that they said they were going to increasingly use other sources: nuclear, renewables. That’s already happening, the way they’re building out. ... They’re shifting more from an investment-led economy to a consumer-led economy, which in general is much less energy intensive.”

Coal exports to developing countries are where some coal miners see the future. St. Louis-based Peabody Energy already sends coal from Australia there.

As it stands, the two countries don’t have to do anything the agreement calls for, and there’s plenty standing in the way of a binding pact. Still, it does have big political ramifications.

“I understand there are questions about how much the Chinese will actually do, but at the same time it deflates that argument that we’re going to have to do this alone and China’s not going to do anything,” said William Lowry, a political science professor at Washington University who follows environmental issues.

Plus, he added, it’s turning into good politics in this country. “It’ll be a tough sell in a lot of states like Missouri, but there are a lot of places where this is going to resonate.”

The proposal calls for China’s emissions to peak by 2030 and for non-fossil energy usage there to rise to 20 percent by then. The U.S. pledged to reduce carbon emissions 26 to 28 percent below 2005 levels by 2025 — not far off the 30 percent reduction EPA’s rule calls for by 2030.

The U.S.’s pledges appear to be made based on a calculation of what Obama and future presidents, using executive authority, can do without Congress, said Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions at Duke University.

“It looks consistent with what we’re already going to ask from the power sector under the proposed rules,” he said.

The reductions outlined in the China agreement could make the administration less likely to accommodate utilities, such as St. Louis-based Ameren, that have said the EPA’s proposal calls for too much too fast.

In a statement, American Coal Council CEO Betsy Monseu said the pledge between the two countries “only serves to reinforce the American Coal Council’s concerns about the very negative impacts of EPA’s proposed 111(d) carbon rule.”

On the other hand, Peabody Energy, the largest privately owned coal miner in the world, actually found some parts of the agreement it liked.

While it still condemned the EPA’s proposal, it praised wording in the China deal to continue research in carbon capture and storage and a commitment for a “major new carbon storage project” in China.

“We are pleased that the U.S., China and other ... ministers clearly accept the vital role coal plays in providing essential energy around the world,” Peabody CEO Greg Boyce said in a statement.

The Coal Council was lukewarm about the new carbon capture project.

“The overwhelming reality here at home is that EPA’s carbon rules for new and existing plants would inhibit industry’s advancement of coal technologies in the U.S,” Monseu wrote in an emailed statement.

Inton, at Morningstar, said carbon capture doesn’t appear to be nearing the point of being economical anytime soon.

“Technology in general, if you put enough money into it, usually you can find a way,” he said. “But in energy, there’s a lot of other alternatives.”

Jacob Barker is a business reporter at the Post-Dispatch. Follow him on Twitter @jacobbarker and the Business section @postdispatchbiz.

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