EPA's proposed Clean Power
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What’s In the BSER: EPA’s Process for Setting State Goals in the Clean... about:reader?url=http://common-resources.org/2014/whats-in-the-bser-e...
common-resources.org
Posted by Michael Wara on Tuesday, June 10, 2014 · 5 Comments
EPA’s proposed Clean Power
Plan uses a rarely used section of the Clean Air Act, Section 111(d)
to regulate existing fossil-fired electric generating units (EGUs).
This part of the Clean Air Act, like the more familiar provisions
governing ambient air quality for more traditional pollutants,
gives EPA the task of determining an acceptable target for
emissions and leaves it to the states to figure out how to achieve
that target. One aspect of EPA’s proposal that’s different from other
comprehensive power sector regulations like the NOx Budget
Trading Program or the Cross State Air Pollution Rule is that it’s not
straightforward to figure out how the agency set targets for each
state. For those rules, EPA, using the Integrated Planning Model
(IPM), simulated the impact of a pollution tax that produced an
acceptable level of abatement and then allocated responsibility for
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reductions in states based on their power plants’ responses to the
modeled tax. In essence, EPA used a price to set the quantity. This
approach was recently upheld by the Supreme Court.
For the Clean Power Plan, EPA describes four “Building Blocks”
that it says, when combined, determine the target, called the Best
System of Emission Reduction or BSER, that each state must
meet. Nowhere in the 645 pages of the proposed rule does EPA
spell out what marginal abatement cost it had in mind when it set
the targets. So I set out to dig into the technical support documents
for the rule to figure out how EPA set the goalpost, and if there was
a straightforward way to measure the that goal against more
familiar cap-and-trade or carbon taxation strategies. Here’s what I
found.
Building Block 1: More Efficient Coal
EPA’s offline estimate is that a 6% heat rate improvement will occur
at a cost of less than $8 per ton of carbon dioxide (CO2).
Building Block 2: Redispatch From Coal to Gas
As many suspected, EPA imposes a carbon price in their IPM to get
the redispatch they view as feasible (70% capacity factor at existing
NGCC units). The tax is between $30 and $33 per ton of CO2. Note
this is done after applying the demand reductions envisioned in
Building Block 4 but not the renewable and nuclear generation
envisioned in Building Block 3 (see below). There are 10%
cost-savings when compliance is regional rather than state-by-state
—smaller than I would have thought. EPA doesn’t break out state-
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by-state impacts. One could easily imagine that there will be
holdouts because a regional approach creates costs for them (see,
for example, Bonneville Power). On the other hand, not having to
deal with leakage issues may push states toward a regional
approach.
Building Block 3: Build Renewables, Keep Nuclear
The IPM, when forced with the carbon tax produces only about 20
GW of additional renewables by 2020 and only 6 GW more by 2030
than the reference case. The effect of the carbon price is to
accelerate deployment, not increase total capacity added by 2030.
That means EPA must do something else to reach its targets.
For renewables, EPA calculates regional targets based on current
renewable portfolio standards and assigns to each state an
obligation to hit their share of the renewable energy target. The
regional targets vary between 10 and 25%. Some states have
already hit their targets and others are on track to do so early. EPA
doesn’t supply a carbon price for these policies. Presumably it
would be higher than $30 per ton or else the IPM would be building
a lot more renewable generation in the policy scenario (It’s also
possible – even very likely—that the cost assumptions for
renewables are too high in IPM).
For nuclear, EPA estimates that keeping the approximately 6 GW of
existing capacity that the Energy Information Agency (EIA) has
characterized as “at risk” would cost $12–17 per ton. This is
consistent with economic analyses of new units at the Vogtle plant
in Georgia that assume it is in the money at carbon prices of
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$10–20 per ton. There’s no discussion of how relicensing and
expiration of second licenses for existing units plays into this
calculation—I’m sure that there are at least some units whose
second 20-year license will expire in the 2020s but I’m not sure how
many. My guess is that 6 GW of at-risk nuclear is a serious
underestimate, particularly when combined with the level of other
renewables assumed in EPA’s targets.
Remember that neither the additional renewables or preserved
nuclear is integrated into their dispatch model and so doesn’t take
account of electricity market equilibrium effects. It would be
interesting to see how many of the nuclear units remain operational
in IPM if the model is forced to implement the renewables target
without some sort of explicit carbon price. Given that the rule allows
but doesn’t require cap-and-trade for compliance, this is a real
possibility.
Building Block 4: Energy Efficiency.
EPA takes the EIA electricity demand forecast (about 1% annual
growth) and then modifies it on a state-by-state basis by adding in a
reduction factor to account for demand-side efficiency programs.
The assumed levelized cost of this program is 8–10₵ per kwh.
Interestingly, this may be higher than for distributed generation on
the timescale of the rule. Marginal abatement cost is estimated by
using IPM output for reference and policy cases and comparing that
to program costs and estimated energy savings. The bottom line
number is $18–24 per ton of CO2. EPA uses the EIA’s AEO as its
reference demand forecast. This is likely to inflate the baseline for a
variety of reasons. Also, EPA relies on questionable (albeit
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improving) EIA utility self-reported data to estimate the
effectiveness of efficiency programs.
A lot of this information is in the GHG Abatement Measures TSD.
To me, this whole thing is reminiscent of California—lots of shadow
carbon prices that are higher and lower than the visible power
sector price that’s driving the cost-effective abatement strategy
—redispatch. And it makes a fantastic argument for legislative
action to implement a simpler and more cost-effective policy. Why
can’t we just have a carbon tax and cut my FICA withholding
already?
About Michael Wara
Michael Wara is an associate professor of law and a Justin M.
Roach, Jr. Faculty Scholar at Stanford Law School. An expert on
energy and environmental law, Wara’s research focuses on climate
and electricity policy. His current scholarship lies at the intersection
between environmental law, energy law, international relations,
atmospheric science, and technology policy.
Views expressed above are those of the author. Resources for the
Future does not take institutional positions on legislative or policy
questions. All information contained on Common Resources is
intended for informational and educational purposes and may only
be used for these purposes. Please see RFF's Terms of Use for
further information.
Filed under Climate, Policy and Analysis · Tagged with Clean Air
Act, Climate Change
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