The Brattle Group is examining the implications of the U.S. Environmental Protection Agency’s (EPA) proposed CO2 emissions standards for existing fossil-fueled plants under the Clean Air Act (CAA) Section 111(d) in a new report issued last week. The report outlines key questions for states and electric industry participants to ask while assessing the reasonableness of the EPA’s proposed rule, evaluating carbon abatement options, and establishing State Implementation Plans (SIP) for meeting the standards.
The report found that state-by-state standards do not directly indicate relative burdens to comply. The standards are defined in terms of an unintuitive emissions “rate” that includes fossil generation in the numerator, and fossil plus selected non-fossil supply and demand resources in the denominator. This means, for example, that states with little fossil generation can achieve relatively large “rate” reductions through small percentage increases in renewable generation or energy efficiency. Since some states will have more low-cost carbon abatement opportunities than others, compliance costs will not be proportional to required reductions.
Further, the standards are based on simplifying assumptions that contribute to target reductions that may diverge from what is readily possible. In estimating the reductions each state can achieve, the EPA assumes, for example, that all states within a region have the same renewable generation potential and that all nuclear plants are at the same risk of retirement.
Compliance with the standard will be measured in a way that does not count retention of most existing, zero-emitting nuclear or hydro resources the same as other existing renewables, new renewables, or new energy efficiency investments, which could distort investment and retirement decisions and raise compliance costs. However, states will have the flexibility to adopt compliance programs that restore a more balanced treatment and reflect CO2 abatement benefits from all resources.
States and utilities will have to analyze how different strategies would affect their expected costs, risks, and flexibility of compliance. For example, states will have to choose between a rate-based standard and a prospectively-equivalent mass standard, which would affect not only the state’s ultimate target, but also how it would structure interstate CO2 emissions trading arrangements. The various compliance approaches will also differentially alter the prevailing market prices for power and shift incentives for different kinds of resource development or use.
The Bipartisan Policy Center’s (BPC) Energy Project has created a tool that could be helpful in developing, on a state-by-state basis, a better understanding of the rule. The interactive and dynamic map tracks comments submitted on the EPA’s Clean Power Plan, provides key facts on each state’s political and electricity sector makeup, and includes information on each state’s energy policies, carbon emissions, electric capacity mix, and political affiliations, as well as links of submitted comments from state officials. Frequent updates will include new submissions during the public comment period.
“EPA’s proposal to develop fifty state reduction targets caught just about everyone by surprise. Whether you think the approach is wonderfully innovative or unduly complex, in the end it is all about the details,” said BPC President Jason Grumet. “By organizing the key policy and political input into a state-based tool, we hope to call attention to state-specific issues and regional trends in the ongoing regulatory debate.”