Special Report: U.S. 'clean coal' program fails to deliver on smog cuts

[December 03, 2018]  By Tim McLaughlin

(Reuters) - Champions of coal say the superabundant fossil fuel can be made environmentally friendlier by refining it with chemicals – a “clean coal” technology backed by a billion dollars in U.S. government tax subsidies annually.

But refined coal has a dirty secret. It regularly fails to deliver on its environmental promises, as electric giant Duke Energy Corp found.

Duke began using refined coal at two of its North Carolina power plants in August 2012. The decision let the company tap a lucrative federal subsidy designed to help the American coal industry reduce emissions of nitrogen oxides – also known as NOx, the main contributor to smog and acid rain – along with other pollutants.

In nearly three years of burning the treated coal, the Duke power plants collected several million dollars in federal subsidies. But the plants also pumped out more NOx, not less, according to data from the U.S. Environmental Protection Agency analyzed by Reuters.

The NOx emission rate at Duke’s Marshall Steam Station power plant in Sherrills Ford, North Carolina, for example, was between 33 percent and 76 percent higher in the three years from 2012 to 2014 than in 2011, the year before Marshall started burning refined coal, the EPA data shows.

The utility also discovered that one of the chemicals used to refine the coal, calcium bromide, had reached a nearby river and lakes – raising levels of carcinogens in the water supply for more than a million people in greater Charlotte.Duke stopped using refined coal at the plants in May 2015 because of the water pollution problems, said spokeswoman Erin Culbert. Bromide levels in the region’s drinking water dropped sharply several months later, said Barry Gullett, the city’s water director, in a 2015 memo.

Duke’s experience reflects a fundamental problem with the U.S. clean coal incentive program, a Reuters examination has found. Refined coal shows few signs of reducing NOx emissions as lawmakers intended, according to regulatory documents, a Reuters analysis of EPA emissions data, and interviews with power plant owners, scientists and state environmental regulators.

Consumption figures compiled by the U.S. Energy Information Administration show that American power plants are on track to burn about 160 million tons of clean coal in 2018 – a fifth of the U.S. coal market. That amount would generate about $1.1 billion in incentives at the current tax credit amount of $7.03 per ton.

But most of the plants receiving the subsidy failed to reduce NOx emissions by 20 percent – the threshold required under the policy – in 2017 compared to 2009, the last year before they started burning refined coal, according to a Reuters analysis of EPA data on power plant emissions.

Reuters identified 56 plants that burned refined coal in 2017 using data from the U.S. Energy Information Administration and disclosures from energy companies and refined-coal developers.

Only 18 of that group reduced NOx emissions by more than 20 percent in 2017 compared to 2009. And 15 of those 18 only reported the improvements after installing or upgrading pollution control equipment or switching a portion of power production to cleaner-burning fuel, complicating the question of whether their pollution reductions are attributable to refined coal.

At 22 of the 56 plants, NOx emissions were higher in 2017 while burning refined coal than they were when using raw coal in 2009.

As a group, the fleet of U.S. power plants that burn refined coal also underperformed the rest of the industry in cutting emissions of NOx, the Reuters analysis found. NOx emissions rates declined 19 percent among the 56 power plants that reported burning refined coal in 2017. That compares with a 29 percent reduction by 214 other coal-fired power plants over the same period.

The analysis included U.S. coal-fired power plants with at least 100 tons in annual NOx emissions in 2017.

Investors in plants that failed to show substantial NOx emission cuts collected the tax credit anyway because the Internal Revenue Service allows them to prove emissions reductions with laboratory tests. The results of those tests – conducted for several hours a couple of times a year – often do not translate to real-world improvements at plants that burn millions of tons of coal annually.

The IRS, which approves applications for the tax credit, declined to comment on the design or effectiveness of the testing regimen.

“It’s hard to hang your hat on refined coal as the way to reduce nitrogen oxide emissions,” said Ron Sahu, an environmental engineer who has consulted with utility companies, the EPA and the U.S. Justice Department on power plant emissions.

Sahu, who reviewed the data and methodology used by Reuters, said the analysis shows refined coal has little to no impact in reducing NOx emissions at actual power plants.

“It’s clear that any benefit from refined coal can easily be overwhelmed by modest changes in combustion conditions” at power plants, Sahu said. “It’s debatable that a tax credit should be given for NOx reduction.”

Reuters sent its analysis of EPA emissions data to every major utility operating power plants that burn clean coal, along with the leading U.S. investors who finance clean coal facilities in partnerships designed to take advantage of the subsidy. Most companies declined to comment or did not respond. The handful that did respond did not contest the findings of the analysis.

“We do agree with the overall assessment that emission controls have a more measurable impact on emissions reductions over refined coal,” DTE Energy, a Detroit-based utility that uses refined coal, told Reuters.

The Edison Electric Institute, which represents the U.S. electric utility industry, did not respond to requests for comment.

The law requires all refined coal producers seeking the subsidy to show that burning their product can lead to a 20 percent cut in NOx emissions. The producers also must show a 40 percent reduction in either mercury or sulfur dioxide. They are given the choice of which of those two pollutants to target.

Refined coal investors tend to target mercury as the second pollutant for cuts, according to disclosures by the corporations involved in the program. That’s because reducing mercury emissions with refined coal is a cost-effective way for plants to comply with other, relatively new EPA regulations governing the pollutant. Utilities already have spent tens of billions of dollars on equipment to filter out sulfur dioxide, making additional reductions of that gas more difficult.

The subsidy program has been more successful at combating mercury than NOx, the analysis found. The mercury emission rate at power plants burning refined coal product, for example, fell 75 percent between 2009 and 2017, more than the 40 percent cut required to qualify for the subsidy. Some of those cuts can also be attributed to other pollution control measures, such as the installation of scrubbers that filter coal plant exhaust, according to the EPA.

High exposure to mercury can damage the intestines, kidney and nervous system, according to the EPA. Sulfur dioxide and NOx can cause lung damage.

The refined coal subsidy was adopted by Congress and signed into law by President George W. Bush as part of the American Jobs Creation Act of 2004, alongside credits for generating renewable energy from solar and wind. The legislation had broad bipartisan support and generated little public debate. The subsidy is set to expire in 2021, and coal-state lawmakers, including North Dakota Republican Congressman Kevin Cramer, are moving to extend it for another decade.

“The tax-credit program is bridging the divide to make coal clean and beautiful,” said Cramer, borrowing President Donald Trump’s two favorite adjectives to describe coal.

Trump has promised to advance the interests of the coal industry to support blue-collar energy jobs. His administration has argued coal provides a more reliable fuel for power generation than natural gas, solar and wind, which can be more easily interrupted by pipeline problems or uncooperative weather.

The White House did not respond to requests for comment.

‘TOO GOOD TO BE TRUE’

In one of the industry’s first refined coal ventures, power plant operator Associated Electric Cooperative Inc in 2010 signed a 10-year deal with affiliates of Goldman Sachs Group Inc to burn refined coal at the New Madrid and Thomas Hill power plants in Missouri.

Steam rises from Duke Energy's Marshall Power Plant in Sherrills Ford, North Carolina, U.S. November 29, 2018. REUTERS/Chris Keane

As a tax credit investor, Goldman worked with Advanced Emissions Solutions Inc to build refined coal facilities next to the cooperative’s power plants. A refined coal operation typically costs about $6 million to develop, featuring new conveyor belts and sprayers to move and treat the coal with chemicals, according to presentations to investors by Advanced Emissions. Silos also are installed to store the refined coal chemicals.

The deal called for the utility to sell raw coal to the Goldman-led investment group at cost, and then buy it back at a discount after it was treated, saving the utility millions of dollars, disclosures show.

Goldman and its investment partners collected about $63 million in gross tax credits from the program in 2017, based on an estimate in Associated’s annual report that its plants used 9 million tons of coal that year. Goldman Sachs declined to comment.

Associated had no upfront cost for the refined coal facility and contributes nothing to its annual operating costs. It forecast the arrangement would bring in $7 million to $9 million in annual revenue through at least 2018. “The project at first was questioned as simply too good to be true,” the utility wrote in its 50th anniversary report released in 2011.

The money-making deal also illustrates how the potential benefits of refined coal on air quality can be erased by a variety of complex factors.

The New Madrid plant in southeast Missouri, for example, has seen its production of NOx soar to a higher rate than any other U.S. coal plant while burning refined coal. In 2017, the plant’s NOx emission rate was 298 percent higher than it recorded in 2009, before New Madrid started burning clean coal, according to the EPA. During the first quarter of 2018, the rate jumped even further, to seven times the 2009 level.

Associated Electric said the increase in NOx emissions at New Madrid was due in part to the cooperative’s purchasing tradable pollution credits through the U.S. cap-and-trade system. The market-based system sets an overall limit on pollution, and allows power plants that cut their pollution to earn credits that can be stockpiled or sold to other polluters. When large volumes of credits are generated, the cost of buying them can be lower than the cost of running pollution control equipment.

“At times during the last seven years Associated has met compliance with emissions rules by purchasing NOx credits from the cap-and-trade markets, rather than running the control equipment all year,” the electric cooperative said in a statement, which it issued through Goldman Sachs spokesman Michael DuVally.

The National Mining Association, which represents the U.S. coal industry, supports extending the tax credit. It said the cap-and-trade system was the primary reason NOx emissions went up at many power plants in the Reuters analysis. The association said clean coal lowers emissions, but provided no data to support the claim.

Duke Energy said in a statement that routine changes in electricity demand can also make clean coal ineffective in reducing NOx by changing boiler temperatures and catalyst conditions in pollution control devices.

Sahu, the environmental consultant, said refined coal is most effective at reducing NOx emissions when a utility burns the fuel at a relatively low temperature, something that typically occurs when electricity demands on the plant are low.

But using low temperatures over an extended period can also damage power plant boilers by causing corrosion and soot buildup, he said. Conversely, burning the coal at a relatively high temperature – more common during high-demand periods – can reduce the risk of damage but limit the effectiveness of smog reductions.

The Grand River Dam Authority stopped burning refined coal at its Oklahoma power plant last year because corrosion and other problems outweighed any upside, said John Wiscaver, head of GRDA’s corporate communications.

“We had too many problems with refined coal,” he said.

TROUBLED WATERS

Refined coal has also led to contamination of water supplies for more than a million people, according to regulators and utility officials.

In 2012, the South Carolina Department of Health & Environmental Control noticed elevated levels of bromides, the chemicals used to treat refined coal, in the Santee Cooper-Lake Moultrie public water system, said Tommy Crosby, a spokesman for the agency.

The South Carolina plant’s refined coal operation stopped spraying bromide on the coal burned at the Cross Generating Station out of concern for the elevated levels of cancer-causing trihalomethanes, Crosby said, and the levels decreased within six months. Trihalomethanes are created when bromide mixes with the chlorine in treated drinking water.

The plant’s refined coal facility was financed by global insurance firm AJ Gallagher, Boston-based mutual fund giant Fidelity and a U.S. subsidiary of France’s Schneider Electric SE. Fidelity declined to comment on the elevated TTHM levels and pointed out that federal limits were not exceeded. Schneider Electric and AJ Gallagher declined to comment.

The North Carolina town of Mooresville, downstream of Duke’s Marshall power plant, saw its trihalomethanes surge as high as 127 parts per billion at times in 2015, after the facility discharged bromide used to treat coal into a nearby lake, according to the town’s drinking water quality report.

That did not trigger a violation of federal clean water rules because the town’s annual average of 54 parts per billion that year was below the maximum trihalomethane contaminant level of 80 parts per billion. The same was true of the South Carolina plant, where trihalomethane levels in 2012 rose to 67 parts per billion.

Over the past decade, however, many studies have shown that exposure to trihalomethanes at much lower levels than the federal limit raises the risk of cancer and of problems during pregnancy. Some people who drink water containing TTHMs in excess of the maximum standard over many years may experience problems with their liver, kidneys, or central nervous system, and may have an increased risk of getting cancer, according to the EPA.

In 2016, the EPA included bromide in the Safe Water Drinking Act as an unregulated contaminant to be monitored by public water systems.

Research by Jeanne VanBriesen, director of Carnegie Mellon University’s Center for Water Quality in Urban Environmental Systems, found that bromide additives used to reduce mercury could significantly boost trihalomethanes in drinking water supplies downstream of coal plants. Her 2017 study focused on 22 drinking water systems serving 2.5 million people in Pennsylvania.

Once Duke Energy halted refined coal operations at the North Carolina plant, bromide dropped about 75 percent in the nearby Catawba River, Zachary Hall, director of environmental science at Duke, said in a February 2017 deposition given to the Southern Environmental Law Center.

Duke officials concede that bromide applications contributed to the elevated trihalomethane levels.

“While bromides from our facilities were not the sole cause,” Duke’s Culbert said, “we felt it was important to partner with downstream water utilities and suspend the program.”

(Reporting by Tim McLaughlin; Editing by Richard Valdmanis and Brian Thevenot)

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