Why the new EPA carbon emission proposal impacts gas and coal (Part 2 of 6)
Natural gas set to replace coal
The coal-burning power plants are the biggest source of carbon emissions in the United States. Power plants are regulated by federal and state laws in order to protect human health and the environment. However, the impact that coal-fired power plants have on the environment varies depending on the technologies used to run the plants. The environmental impact of the coal-based power plants depends on their air-emission, water resource use, water discharge, solid waste generation, etc. According to the Environment Protection Agency (or EPA), the average emission rates from coal-fired generation in the United States are: 2,249 pounds per megawatt of carbon dioxide (or CO2), 13 pounds per megawatt of sulfur dioxide, and six pounds per megawatt of nitrogen oxides.
In the past decade, plenty of cheap shale gas has been discovered in the U.S. As a result, power utilities are likely to accelerate the process of switching coal plants to the cheaper gas-powered plants. Natural gas is cleaner than burning coal. Emissions of sulfur dioxide and mercury compounds from burning natural gas are negligible. According to the U.S. Energy Information Administration (or EIA) estimates, natural gas produces ~50% as much CO2, less than 33% as much nitrogen oxides, and only 1% as much sulfur oxides compared to its coal-fired counterparts.
Natural gas based power plants are not completely emission free either. The primary component of natural gas is methane, which also generates carbon emissions. Methane can also be emitted from the leaks and losses during transportation.
The lower cost of natural gas relative to coal and the stricter regulations against using coal as input to power plans have resulted in natural gas gaining popularity among power companies such as Duke Energy (DUK) and the Southern Company (SO). This is most relevant for U.S. producers weighted towards natural gas, such as Chesapeake Energy (CHK), Southwestern Energy (SWN), Devon Energy (DVN), and Range Resources (RRC) as well as holders of natural gas ETFs such as the United States Natural Gas Fund (UNG).
Browse this series on Market Realist:
- Part 1 - Why the new rule may cut power plant CO2 emission by 30% by 2030
- Part 3 - Why new policy supports the gas transition as price stabilizes
- Part 4 - Why higher gas price may increase capacity in entire value chain
- Commodity Markets
- Natural gas
- coal-burning power plants