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Analysis of Alternative Mercury Control Strategies
 

Highlights

Background

This analysis responds to a September 14, 2004, request from Chairmen James M. Inhofe and George V. Voinovich asking the Energy Information Administration (EIA) to analyze the impacts of different approaches for removing mercury from coal-fired power plants. The senators asked that EIA analyze the impact of alternative mercury control strategies, including the Environmental Protection Agency’s (EPA) proposed cap and trade system (EPA-Cap), EPA’s proposed mercury maximum achievable control technology (EPA-MACT), and a 90percent mercury MACT approach. Chairmen Inhofe and Voinovich also requested that EIA assume that EPA’s proposed Clean Air Interstate Rule (pCAIR) is in force and that only commercially demonstrated mercury removal technologies can be used.

Summary

EIA’s analysis finds that the EPA-Cap or EPA-MACT mercury control strategies are not expected to lead to large changes in the fuels used to generate electricity or electricity prices to consumers. The EPA-Cap strategy appears to dominate the EPA-MACT strategy in the sense that the former reduces emissions to a greater extent with lower impacts on electricity prices and fuels markets than the latter. The 90-percent MACT strategy achieves lower mercury emissions than the other two alternatives, but has higher impacts on fuel use and electricity prices. Furthermore, the fuel market and electricity price impacts of a 90-percent MACT are highly sensitive to the commercial availability of mercury removal technologies capable of 90-percent mercury removal from all plant and coal types by 2008. These technologies are now in development, but vendors may not be able to offer unqualified performance guarantees by 2008. If these new technologies are not commercially available, the 90-percent MACT strategy could lead to a significant shift out of western coals to eastern coals and out of coal to natural gas and renewables. This would increase the near-term electricity price impacts of a 90-percent MACT strategy more than ten-fold compared to a case in which these technologies are commercially available in time.

Key Findings

  • Mercury emissions in 2025, which are estimated to reach 44.1 tons in the pCAIR baseline used in this report, are projected to range from 40.2 tons to 8.9 tons across the mercury control cases analyzed. In the EPA-MACT and EPA-cap cases emissions in 2025 are projected to be 40.2 tons and 30.1 tons respectively. The 15-ton mercury emissions cap imposed under the provisions of the EPA-Cap case is not expected to be reached because the safety valve limit on the price of mercury allowances is expected to be triggered. Projected emissions in 2025 under the 90-percent MACT case range between 8.9 tons and 9.9 tons depending upon the availability of mercury removal technologies.
  • Very little fuel switching is projected in response to the proposed EPA-Cap or EPA-MACT mercury control strategies.
  • The impact of the 90-percent MACT strategy on coal usage patterns depends heavily on the performance and commercial availability of new mercury removal technologies. If these technologies are available and able to achieve 90-percent mercury removal on all plant and coal types, western coal production is projected to be 4 percent lower then in the pCAIR baseline case, while Interior and Appalachian coal production is 4 percent higher. Without these technologies, a 90-percent MACT is projected to reduce 2025 western coal production by 60 percent while increasing Interior and Appalachian coal production by 35 percent.
  • The 90-percent MACT strategy could also lead to lower use of coal for electricity generation and increased use of natural gas and renewables. With commercialized mercury removal technologies capable of 90-percent mercury removal on all plant and coal types, a 90-percent MACT is projected to lead to little change in coal, natural gas and renewable generation. However, without these technologies, coal generation in 2025 is projected to be 11 percent lower, while natural gas generation is 10 percent higher and renewable generation is 3 percent higher.
  • The near term impacts of a 2008 90-percent MACT requirement without commercialized mercury removal technologies capable of achieving 90-percent removal from all plant and coal types could be very large, because it would require a rapid transformation of coal usage patterns together with rapid development of new natural gas and renewable supplies.
  • The national average electricity price impacts of controlling mercury are projected to be small under the proposed EPA-MACT and EPA-Cap systems, with prices generally less than 1 percent higher than in the pCAIR baseline scenario. Similar results are projected in all regions under these control strategies.
  • Small national average electricity price increases are also projected under a 90-percent MACT requirement provided that commercialized mercury control technologies able to achieve 90-percent mercury removal on all plant and coal types. Without these technologies national average electricity prices are projected to be 22 percent higher in 2010 and 7 percent higher in 2025. Regions that rely heavily on western subbituminous coals are expected to be the most strongly impacted, with price increases approaching 2.5 cents per kilowatthour projected for some regions in 2010.
  • The impacts on resource costs and safety valve payments, the total costs to the industry, generally increase with the level of mercury removal required. Discounted resource costs and safety valve payments are projected to be $2 billion and $8 billion under the EPA-Cap and EPA-MACT systems, respectively. Even though projected mercury emissions are higher, the resource cost impacts under EPA-MACT are higher than those under EPA-Cap.
  • With commercialized mercury removal technologies capable of 90-percent mercury removal on all plant and coal types, the 90-percent MACT strategy is projected to increase resource costs by $22 billion. However, without these technologies, it is projected to increase resource costs by $358 billion. These higher costs reflect the impacts of shifting away from relatively inexpensive subbituminous and lignite coals to other more expensive fuels. However, caution should be used when interpreting this result, because predicting the market price responses to such rapid shifts in fuel use patterns is very uncertain.
  • There are significant uncertainties associated with this analysis including: the extent of mercury co-benefits from installing sulfur dioxide scrubbers and nitrogen oxide selective catalytic reduction units, the performance of mercury control technologies such as activated carbon injection, and when mercury control technologies will be commercially available with performance guarantees.
  • The timing of any mercury control strategy is particularly important. Numerous mercury control technologies are currently being designed, tested, and evaluated. However, it could be several years before these technologies are fully commercialized.