Perspective the Cost of the Clean Power Plan:
Scope and Form Affect Technology Outcomes
Dallas Burtraw, Karen Palmer, Anthony Paul, Sophie Pan
EPRI/RFF Webinar Series:
Exploring the Costs of EPA’s Clean Power Plan: A Closer
Look at the Regulatory Impact Assessment
December 2, 2014
Outline
Three factors affect cost, technology and
environmental outcome
1. Stringency of Regulation: Within BSER
2. Scope of Regulation: Covered Sources
3. Form of Regulation: Rate vs. Mass
Importantly, resolving these issues rests with EPA
and the states…
2
Perspective: Clean Power Plan’s Federal-State Framework
EPA Guidelines
Stringency
Regulatory Stringency
FEDERAL
STATE
Scope
Scope of covered
entities
Form
Compliance Flexibility
Form of compliance
approach
State Implementation Plan
3
Stringency: National Emissions Rate Reductions
More Building Blocks, More Stringency
2,500
Fossil Unit Emissions Standard (Adjusted*)
(lbs/MWh)
EPA Average 2012 Coal CO2 Emissions Rate
2,000
5%
1,500
12%
7%
31% CO2
Rate Reduction
7%
1,000
EPA Average 2012 NGCC CO2 Emissions Rate
500
0
2012 Rate
BB1: Coal Heat
Rate
BB2: NGCC
BB3: RE
BB4: EE
2030 Target
Sources and Notes:
Reflects Option 1 final rate for year 2030 from EPA Technical Support Document: Goal Computation, Appendix 1.
*Adjusted emissions rate applies to Fossil, 2012 RE, Nuclear (At Risk + Under Construction)
*BB3: RE includes Existing+New Renewable, Nuclear At Risk + Under Construction +New
Scope of Regulation: Within BSER
Stringency of target depends on the contribution of each
building block (scope)
Target*=
CoalEmis GasEmis OtherFosEmis
OtherFosEmis
GasEmis
CoalGen GasGen OtherFosGen
OtherFosGen REGen
REGen
EE
EE
GasGen
= Emissions Rate Achieved Through:
BB1: More efficient coal boilers
+ BB2: More use of existing natural gas combined cycle
+ BB3: More clean energy (renewable, nuclear power)
+ BB4: More efficient use of electricity
* The target is unadjusted here. EPA’s published rate target is “adjusted” emissions rate” where existing
renewables and nuclear at risk (5.8%) are included in the denominator for BB1, BB1&2 goal computation.
* BB3 Denoted as RE includes Existing+New Renewable, Nuclear At Risk + Under Construction+New
Contribution of Building Blocks to Emissions Reductions
(M short tons)
BB1+2 Rate As
Existing Fossil Policy
M short tons
BB1 Rate As
Existing Coal Policy
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
2013
Coal Heat Rate
2016
2020
2025
2030
2035
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
2013
M short tons
BB1+2+3 Rate As Existing Fossil + All
Renewables Policy
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
RE
2013
2016
2020
Demand Reduction
Existing CC Nat Gas
Nuclear
2030
2016
2020
2025
2030
2035
BB1+2+3+4 Rate As Existing Fossil +
All Renewables Policy w/ EE
Nuclear
2025
Ex NGCC
2035
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
EE
2013
EE Savings
New CC Nat Gas
Other
2016
2020
2025
2030
2035
Coal Heat Rate Improvement
Wind
6
Stringency and Scope are Intertwined
Low
Legal Risk
Coal boiler
heat rate
Increased
improvements
use of existing
gas plants
Increased
use of
nonemitting
resources
High
Demand-side
energy
efficiency
What happens to stringency if building blocks are severed?
Scope: Building Block 3
(M short tons)
BB1+2 Rate As
Existing Fossil Policy
M short tons
Perhaps the greatest
distinction appears in moving
beyond the “fence line” of
emitting units (BB3)
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
2013
M short tons
BB1+2+3 Rate As Existing Fossil + All
Renewables Policy
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
RE
2013
2016
2020
Demand Reduction
Existing CC Nat Gas
Nuclear
2030
Ex NGCC
2016
2020
2025
2030
2035
BB3 gives credit for many
actions that are happening
anyway under state policies
Nuclear
2025
Demand Reduc.
2035
EE Savings
New CC Nat Gas
Other
Adding Building Block 3 may
increase emissions and
reduce the obligation on
industry
Coal Heat Rate Improvement
Wind
8
Form of Regulation: Rate vs. Mass
Distribution of Emissions Value
Generators
Rate-based
compliance
Consumers
- Surrender credits at emissions rate:
(tons/MWh)*MWh = tons
Target
Rate
(tons/ MWh)
- Earn credits at standard
Mass-based
compliance
- Surrender allowances for emissions
(tons)
- Earn credits through output based
allocation
- Allocation to Local Distribution
Companies
- Investments in EE
- Dividends
Covered Technologies?
Excluding New NGCC
Rate-based
compliance
Mass-based
compliance
Including New NGCC
Form and scope of regulation
interact in important ways
Cap
(tons)
Sources of Reductions Vary by Scope and Form of Regulation
(M short tons)
Rate Based Excluding New NG
Rate Based Including New NG
2400
2400
2300
2300
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
1500
2013
2016
2020
2025
2030
Mass Based Excluding New NG
2035
1500
2013
New NGCC
2400
2400
2300
2300
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
1500
2016
2020
2025
2030
2035
Mass Based Including New NG
1500
2013
2016
2020
Demand Reduction
Existing CC Nat Gas
Nuclear
2025
2030
2035
2013
EE Savings
New CC Nat Gas
Other
2016
2020
2025
2030
2035
Coal Heat Rate Improvement
10
Wind
Including New NGCC in Rate Based Program
(M short tons)
Rate Based Excluding New NG
Rate Based Including New NG
2400
2400
2300
2300
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
1500
2013
2016
2020
2025
2030
Mass Based Excluding New NG
2035
1500
2013
New NGCC
2400
2400
2300
2300
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
2016
2020
2025
2030
2035
Mass Based Including New NG
Included technologies receive a production
incentive by earning credits at the emissions rate
standard. For NGCC this is net positive because its
rate is below the standard.
1500
1500
2013
2016
2020
Demand Reduction
Existing CC Nat Gas
Nuclear
2025
2030
2035
2013
EE Savings
New CC Nat Gas
Other
2016
2020
2025
2030
2035
Coal Heat Rate Improvement
11
Wind
Including New NGCC in Mass Based Program
(M short tons)
Rate Based Excluding New NG
Rate Based Including New NG
2400
2400
2300
2300
Excluded technologies are subsidized by avoiding
the regulatory cost of acquiring emissions
allowances
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
1500
2013
2016
2020
2025
2030
Mass Based Excluding New NG
2035
1500
2013
New NGCC
2400
2400
2300
2300
2200
2200
2100
2100
2000
2000
1900
1900
1800
1800
1700
1700
1600
1600
1500
2016
2020
2025
2030
2035
Mass Based Including New NG
1500
2013
2016
2020
Demand Reduction
Existing CC Nat Gas
Nuclear
2025
2030
2035
2013
EE Savings
New CC Nat Gas
Other
2016
2020
2025
2030
2035
Coal Heat Rate Improvement
12
Wind
Conclusions
BB 2 produces largest incremental emissions
reductions.
Adding BB 3 could produce negative emissions
reductions in market equilibrium
Stringency
New Natural Gas Combined
Cycle plays important role if:
a) covered under rate
Scope
Form
b) not covered under mass
Form and scope of regulation
interact in important ways
Rate leads to higher
credit price and
encourages nonemitting
technologies
Mass achieves more
emissions reductions
through lower demand
13
For more information
• See RFF blog (common-resources.org) and RFF Expert Forum on
EPA’s Clean Power Plan.
• Also see RFF web page for the Center for Energy and Climate
Economics (www.rff.org/cece) for information on RFF research and
policy engagement.
• Sign up for next RFF/EPRI webinar event on December 16!
Possible Benefits from EPA’s Clean Power Plan: A Focus on Air Quality
and Climate Change Impacts
Thank you!
BSER: Building Blocks Translate to State Goals
Building Block
1. Heat rate improvement (Avg.
Reduction for Coal)
2. Dispatch to existing and underconstruction NGCC
3. Dispatch to new clean electric
generation
4. Demand-side Energy Efficiency
(% reduction in demand from BAU MWh
sales)
Goal
Average nationwide goal for covered
sources (lbs/MWh)
Proposed Option 1
Alternative Option 2
6%
4%
Utilization of NGCC
up to 70% capacity factor
Utilization of NGCC
up to 65% capacity factor
Includes new nuclear generation under construction,
moderate deployment of new renewable generation,
and continued use of existing nuclear generation
3.0% / 10.7%
(2020 / 2030)
2.4% / 5.2%
(2020 / 2025)
Proposed Option 1
Proposed Option 2
25% to 30% below 2005
levels
20% to 25% below 2005
levels
BSER is applied to observed state-level data (e.g., best
practice) to set state-specific emission rate goals.
15
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
BSER: State Targets in 2030 Under Option 1
lb/MWh
Target
Blocks 3 & 4
Block 2
Block 1
2,500
2,000
1,500
1,000
500
0
Source: US EPA Clean Power Plan proposal
Six Compliance Regions
Regional Interim (2020-2029) Emission Rate Goal
628 lbs/MWh
1421 lbs/MWh
929 lbs/MWh
1221 lbs/MWh
1052 lbs/MWh
883 lbs/MWh
• Regional target is translated from state targets by weighting each state’s
contribution to regional generation based on 2012 generation