US demand for activated carbon in mercury removal applications is expected to rise almost 4% per year through 2022, according to a new study by The Freedonia Group. This is good growth for a mature product like activated carbon, but still a far cry from the 17% annual growth averaged between 2007 and 2017. The reason for this sharp slowdown ties into a regulation called the Mercury and Air Toxics Standards (MATS).
MATS: A Brief History
In 2011, the US EPA issued MATS, a new set of standards for mercury control in coal-fired power plants. These regulations replaced the Clean Air Mercury Rule (CAMR), which was vacated in 2008. Under MATS, coal power plants would be required to install additional pollution control equipment – primarily consisting of activated carbon injection – to reduce atmospheric mercury levels. The initial compliance deadline was April 2015, although this was later extended to April 2016.
In theory, then, all major coal power plants in the US should have additional emissions equipment installed by now, and the activated carbon business should be booming. So why are only one third of plants in compliance, and why are activated carbon producers struggling?
Legal Challenges Hamper MATS Implementation
Legal challenges have proven a significant hurdle to the adoption of MATS. From the beginning, the rule has been plagued by lawsuits, although the EPA ultimately upheld it in 2016.
With a new president, however, has come a new approach to MATS. The Trump administration’s generally more lax approach to environmental regulations had caused the installation of activated carbon mercury control equipment to stall. In December 2018, the EPA announced plans to eliminate the consideration of positive health effects from the calculation of the rule’s costs.
Furthermore, if a utility company elects to upgrade, and MATS ends up being repealed, the company may not be able to pass the costs on to customers. AEP and other utilities that have already installed upgrades have voiced concerns about this very possibility.
Without MATS Enforcement, Coal Plant Operators Watch & Wait
Given these legal uncertainties, it’s no wonder many coal plant operators have decided to take a wait-and-see approach to MATS compliance. With fines for noncompliance off the table, options include:
- maintaining coal plants until they reach the end of their operating lives in the next decade without upgrading
- retiring coal plants and switching capacity to natural gas or renewables
- adding other pollution control equipment (although most options outside activated carbon are quite expensive)
Natural gas is a particularly attractive option for many utilities at present due to its relatively low emissions and low prices compared to coal.
Assessing the Impact on Activated Carbon Suppliers
As a result of these factors, demand for activated carbon in mercury control applications – the largest US market for activated carbon, according to the Freedonia study – has stalled. A number of companies operating in the country pivoted to invest in the mercury control market when MATS was finalized and full implementation looked likely. Now, however, these firms are faced with overcapacity and declining revenues.
Cabot, for example, has idled three of seven production units at its Marshall, TX plant due to low demand. In its Q3 2018 presentation, EBITDA margins for its Purification Solutions segment (which makes activated carbon) were just 1%, compared to over 20% in the company’s other segments. Cabot has stated throughout 2018 that they intend to explore “strategic alternatives” for the activated carbon business, including a sale.
ADA Carbon Solutions, which is heavily focused on the mercury removal market, is another US-based company that has seen a sharp revenue drop since MATS implementation was delayed, based on research in the Freedonia study. In December, ADA was acquired by Advanced Emissions Solutions, a leading provider of emissions control solutions for the coal-fired power generation and industrial sectors. If ADA had not been purchased by a larger company with deeper pockets, further revenue decreases may well have forced the firm to close.
Want to Learn More?
It’s worth bearing in mind that while the US is the world’s largest mercury removal market for activated carbon, important developments in the rest of the world are causing global demand to rise rapidly. To find out more, see Global Activated Carbon, a new study from The Freedonia Group.
About the Author:
Zoe Biller is an Industry Analyst at the Freedonia Group where she develops and writes reports on the global chemicals, capital goods, and polymers & materials markets.