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The Future of Energy: What Exactly Is the EPA Clean Power Plan?

by Matthew Rose, Enerdynamics Instructor

 

On June 2, 2014, the Environmental Protection Agency (EPA) released its Clean Power Plan proposal that, if implemented, will for the first time federally regulate carbon dioxide (CO2) emissions from existing power plants[1]. The plan is designed to cut carbon pollution from power plants nationwide by 30 percent from 2005 levels.

 

A 120-day public comment period began once the plan’s rules were published, and EPA began holding public hearings in Atlanta, Ga., Denver, Colo., Pittsburgh, Pa., and Washington, D.C. Affected parties are expected to submit comments to the plan during this period in order to preserve arguments for potential litigation.

 

The plan is expected to be finalized by June 1, 2015. This date assumes there are no challenges associated with its rules. Note that any legal challenges can only be advanced after the ruling is finalized, suggesting there may be a protracted process before any plan is finalized and implemented.

 

EPA’s objective

EPA’s proposed plan is designed to address the following:

  1. Create state-by-state carbon emissions goals: These goals are defined in terms of pounds of emissions per MWh of output and are based on each state’s historic generation mix. Thus goals for states with higher historic levels of carbon-based generation are set at less stringent levels than those for other states.

  2. Define a “pathway” for each state to develop plans to achieve the goals: Rather than defining power plant-specific regulations or mandating how states must achieve their goals, the EPA-proposed process is designed to be flexible to allow each state to develop its own program. States may develop their own individual plans or may work together to develop regional multi-state plans.

EPA’s approach

The plan’s proposed rules reflect a focused modeling exercise conducted by EPA to:

  • characterize the status and environmental efficiency of fossil-fuel generation assets in 2012
  • apply predetermined supply-and-demand efficiency improvements to establish state-level targets

These estimates were allocated across all states with fossil-fuel generation and result in a target goal for emissions reductions. The key analytical steps include:

  1. Calculating each state's "emissions rate”: The EPA sets a baseline estimate of the carbon intensity of each state's electricity sector. The carbon intensity is a product of dividing the total carbon dioxide emissions from a state's power plants by the total amount of electricity generated (with a few adjustments for renewables and nuclear). Different states start out with different emissions rates. Washington, for instance, has a relatively low emissions rate — just 763 pounds of carbon dioxide per MWh of electricity produced. That's a result of having only one coal plant. Indiana, by contrast, relies far more heavily on coal, so it has a much higher emissions rate of around 1,923 pounds of carbon-dioxide per MWh.

  2. EPA examines what emissions reductions are reasonable for each state to achieve:  The EPA sets goals for reducing those emissions rates based on what the agency deems reasonable for each state to cut by 2030. The EPA assumes that each state will be able to take a series of steps using existing technology or policies to lower emissions.

  3. Extend reduction options to a series of four building blocks: The proposed rule sets out a series of four building blocks (or pathways) that states can employ to reach reduction targets. These are illustrated in the following table:

 

 

 

 

The end result is a specific carbon reduction target for each state that in aggregate provides a total reduction of 30% for the country by 2030. As a result, each state has a specific target that varies greatly by state depending on various characteristics and opportunities. The application of the reductions plays out differently in each state.

 

For example, Michigan has a lot of coal plants and spare gas capacity so the opportunity of coal-to-gas switching is assumed as a key option in determining Michigan's goal. By contrast, the EPA assumed that growth in wind and solar could play a relatively bigger role in helping New Hampshire and Maine cut emissions based on renewable policies that are already in place.

 

The EPA draft plan and associated modelling expects 2012-20 reductions to comprise 39% from combined-cycle gas turbines (CCGT) re-dispatch, 10% from heat rate improvements at coal plants, 23% from renewables, 3% from nuclear build, and 25% from energy efficiency. This will vary by state depending on a state’s fuel mix and program history.

 

It's important to note that states don't have to follow any of the above pathways and may seek approval from EPA for a unique path to achieving the designated savings goal— this is just how the EPA calculates what it deems a reasonable goal for each state. (In the proposed rules, the technical term for this is “best system of emissions reductions”. For a complete graphic depiction of the assigned targets for each state, click here.  

 

State compliance plans

Once the EPA sets its final targets, states will have to submit compliance plans to meet the targets. EPA’s rules reflect a purposeful attempt to provide states with extensive flexibility in meeting emission reduction targets. Compliance plans could include an array of different strategies. For example, states could:

  • ramp up renewable energy
  • shut down their coal plants and/or build new natural gas plants
  • build nuclear plants or get credit for prolonging the life of their nuclear plants
  • advance more stringent energy efficiency codes and standards as part of a statewide energy efficiency portfolio
  • propose implementation of a carbon tax or join “cap and trade systems”[2]

The one condition is the need for EPA review and approval. The agency will have to decide whether a given state's implementation plan will actually help the state meet its emissions goal. States that refuse to submit compliance plans would be subject to the EPA crafting its own plan for regulating a state's emissions. It’s likely that any federal plan would be less flexible and possibly more costly.

 

Issues needing clarification

A review of the draft rules points to a number of issues that seem ambiguous and need greater clarification. These issues are not exhaustive but reflect some of the immediate concerns arising from the rules.

  • Enforceable authority: There is some uncertainty regarding the enforceable authority under the “Clean Air Act” especially for renewables and energy efficiency strategies. If a state elects to use renewable energy or a state energy efficiency portfolio standard as part of its compliance plan, does the strategy become subject to EPA’s authority? There is some ambiguity that the rules may potentially extend to federal oversight in these instances.

  • Historical contributions:  A key element of the approach is that EPA incorporated the relevant generation and energy efficiency accomplishments within each state in their goal-making process. As a result, any efficiency reduction prior to 2012 is not eligible to meet the savings targets. Only reductions from 2012 and forward can be applied against savings targets. Related questions: How do the rules address load growth or the need for new generation? Do emission targets change to accommodate new generation?

  • Generator incentives and cost recovery: What are the incentives to utilities (generators) to participate in a statewide strategy? This issue becomes more complex in states that have restructured and include merchant (IPP) generation, and it extends to the idea that some strategies may result in increased costs requiring regulatory approval and cost recovery. The process for this set of activities is not detailed in the rules.

  • Roles and responsibilities of ISO/RTOs: The rules have limited discussion of how things would work in an organized transmission organization (ISO/RTO) where the generators have limited control over their dispatch. The conflicting obligations of the ISO/RTO may not be aligned with intended state-level compliance requirements. Will states have the authority to control generation dispatch to address emission goals?

  • State regulatory authority: The rules are unclear in defining what state organization will be responsible for organizing and submitting compliance plans. Compliance with the rules will require an in-state authority capable of executing the plan development and compliance.

Implications

The proposed rules involve significant implications. Although there are disagreements on the rules’ impacts on prices and jobs, there is consensus that the rules serve to decrease the role and contributions of the country’s aging coal-fired generation. Many of the older plants will never find an economic path of compliance and will be forced to retire (although there may be some opportunities to convert existing coal plants to natural gas).[3]

 

Many experts point to impacts ranging from higher electricity prices, fewer jobs, grid reliability concerns, and greater reliance on natural gas as a fuel choice for future generation. Other analysts suggest that impacts will be minimal. And some even suggest that consumers will benefit through significantly increased use of low-cost energy efficiency and demand side management solutions. Of course, the real impacts will be discernible only when the final rules are revised and approved and markets have a chance to respond.  

 

As of early August 2014, a number of states have filed suits against U.S. Environmental Protection Agency to block the proposed rule in the U.S. Court of Appeals in the District of Columbia. These include Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Dakota, South Carolina, West Virginia, and Wyoming. It seems the process may entail legal and political battles resulting in an evolving landscape that takes time to settle and means implementation may be delayed beyond the EPA-proposed dates.

 


Footnotes:

 

[1] The Rule is the first federal regulation limiting CO2 emissions from existing power plants. EPA regulates mercury, arsenic, lead, nitrogen oxide, and sulfur dioxide emissions from existing power plants under the Clean Air Act, but not CO2. In July 2013, President Obama introduced a Climate Action Plan that included directives for EPA to regulate CO2 emissions from new and existing power plants, which lead to the Rule.

 

[2] This may include emissions trading systems such as the Regional Green House Gas Initiative (RGGI).

 

[3] There are some clean coal technologies that may be an option including integrated gasification combined-cycle (IGCC) plants that may be relevant however there is not a lot of experience with the technology.

 

Additional references:

 

Maureen Groppe. Gov. Pence Vows to Fight Plan to Cut Carbon Emissions.. Star Washington Bureau. June 3, 2014.

 

PJM Interconnect. Carbon Rule Falls Unevenly on PJM States. PJM RTO Insider. June 3, 2014.

 

Kevin Bullis and Suzanne Jacobs. Why EPA Regulations Go Easy on Coal States, MIT Technology Review. June 9, 2014.

 

Maureen Groppe. Even With New Limits, Indiana Would Remain Among Biggest Carbon Polluters. Star Washington Bureau. June 8, 2014.

 

Robert Samuelson. New EPA Regulations on Coal Serve Another Purpose. Charleston Daily Mail. June 10, 2014.

 

UBS Research Paper. Clearing the Air on EPA’s Climate Change Regulations. June 12, 2014

 

Communications: Bill Bumpers ESQ.-Baker, Botts, part of conference call convened on June 9, 2014.

 

Communications: Mike Freeman, Emerald Consulting Group, June 13, 2014.

 

 

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