Billed as Barack Obama’s most sweeping climate policy, new rules curbing greenhouse gas emissions at US power plants will profoundly impact the nation’s electricity sector

Washington, at long last, is ready to act on climate change, in June committing to a 30% reduction in carbon dioxide emissions from US power plants by the year 2030, compared with a base in 2005.

Some environmentalists have argued for bolder action. Even if the rules are fully implemented by 2030, coal would still produce roughly one-third of the US’s electricity, down from about 40% today, according to the US Environmental Protection Agency. Nevertheless, the rules effectively snuff out the chance of any new coal-fired plants being built.

As for the country’s existing power plants, for the first time they face limits on carbon emissions – a clear signal to private corporations, governments and nonprofits of where the US is heading. The regulations potentially shift billions of dollars in investments towards low-carbon energy production, which is “a very important step”, says Niklas Höhne, director of energy and climate policy at Ecofys, a consultancy that helped calculate the plan’s impact.

The regulations set different limits for each state, allowing them the flexibility to meet the standards by picking from a menu of policy options – including creating state programmes that require power plants to pay a fee for their carbon emissions; installing new wind and solar power; and making appliances, lighting and air conditioning more efficient. There’s “huge potential” in both savings from efficient electricity consumption and falling prices for renewable energy, says Höhne.

Efficiency in fossil fuel power plants would contribute only limited savings, but if these three are taken together Höhne believes the US could easily surpass the 30% reduction target. Yet a great deal still depends on state level policymakers and reactions from the investment community. In states such as Kentucky, West Virginia and Wyoming where the political class strongly backs continued coal production, the new regulations could be tied up in courts for years to come.

Another potential hurdle is threatened intransigence from monopoly utilities who view solar as a rapidly disruptive technology cutting into their profits. Solar threat According to McKinsey, cost reductions in power from photovoltaics – poised to fall to $2.30 per watt by 2015 and to $1.60 by 2020 – will put solar within striking distance of traditional power-generation technologies in the US market.

That’s not just true for residential and commercial power customers, where it is already cost competitive in many (though not all) locations, but also, eventually, for large-scale industrial and wholesale markets. If utilities raise prices – for both power and grid access – analysts say individual customers and even entire communities will end long-standing arrangements with traditional utilities altogether, as Chicago, Cincinnati and other major cities have already done, citing discontent over poor utility service and prices.

Stephan Singer, director of global energy policy at WWF International, says: “It’s just a matter of time” before utilities lose their stranglehold. He cites the experience of European utilities which are now losing out as more nimble players enter the market with new business models.

On sunny days European utilities have to react to over 80GW of European solar power capacity coming online by switching down their traditional generators. This impacts utility profitability, making fossil fuel energy less competitive. Utilities, however, still enjoy the benefits of access to cheap capital, advanced power technologies as well as control of the grid.

“Climate campaigners don’t realise it yet, but they need utilities to finance and distribute a new generation of clean power,” writes Carl Pope of the Sierra Club in a recent posting in Bloomberg Views. “Their long adversarial relationship is coming to an end. A fruitful alliance is there for the making.”

carbon dioxide emissions  climate change  energy sector  US emissions  Washington