What State Legislators need to know about EPA's Clean Power Plan
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What State Legislators
need to know about
EPA’s Clean Power Plan
J ENNIFER M ACEDONIA
N AT I O N A L C O N F E R E N C E O F S TAT E L E G I S L AT U R E S
N OVEMBER 1 0 , 2 0 15
The Bipartisan Policy Center (BPC) is a non-profit organization that was
established in 2007 by former Senate Majority Leaders Howard Baker,
Tom Daschle, Bob Dole and George Mitchell to develop and promote
solutions that can attract public support and political momentum in
order to achieve real progress. BPC acts as an incubator for policy
efforts that engage top political figures, advocates, academics and
business leaders in the art of principled compromise.
2
• In April 2011, BPC launched its Energy Project led by former
Senators Trent Lott, Byron Dorgan, former National Security Advisor
General Jim Jones (ret.), and former EPA Administrator William
Reilly.
• Energy Project Goals
• Encourage substantive, bipartisan dialogue among key interest groups and
decision makers on national energy goals and strategies;
• Engage and shape near-term energy policy agendas;
• Produce research products on a variety of energy issues; and
• Develop consensus recommendations to guide national energy policy.
3
• Legal and technological context
• Insights from economic modeling
• Flexibility
• Concluding Thoughts
42007: Supreme Court decision Mass v. EPA: EPA authority to regulate GHGs
2009: EPA Endangerment Finding: GHGs
endanger human health and welfare
2010: EPA motor vehicle
tailpipe standards for GHGs 2011: Supreme Court: can’t sue
-- first CAA regulation of GHGs also emitters under common law b/c EPA
triggered pre-construction permitting authority to regulate GHGs under CAA
for many stationary sources
2014: Supreme Court: EPA has 2014: EPA proposes power
authority to regulate GHG from new plant CO2 regulations
power plants, provided the source is -- standards for new builds
regulated for other pollutants -- Clean Power Plan for
existing plants
2015:
-- Final rule for new power plants
-- Final rule for existing power plants (Clean Power Plan)
-- Proposed rule: Federal Plan and Model Rules
5Flattening Expanding
electric renewable
demand power
Projected low
Clean Power
stable natural
Plan
gas price
Aging fleet of Power EPA air, water,
waste
generators
sector regulations
7What is expected to occur without the Clean Power Plan?
• Coal remains important part of fuel mix, even as many plants retire and the
generation fleet becomes more diverse
• Declining prices for renewables, particularly solar
• Natural gas and renewables dominate new builds
• Deployment of energy storage and microgrids could spur more renewables
Nuclear
Natural Gas
Nuclear
Coal
Source: U.S. Energy Information Administration, Annual Energy Outlook 2015 835
30
Other
Hydro
U.S. Capacity Additions (GW)
25
Nuclear
Oil
20
Coal
Gas
15
Wind
Gas
CSP
10
UPV
Wind DPV
5
Total
Solar
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
• New generating capacity in past decade dominated by gas and wind
– Increasing share from solar; nearly 1/3 of all new capacity in 2014
– Wind and solar combined represent 55% of new generating capacity in 2014
Source: U.S. Department of Energy SunShot 2014 Edition (NREL/PR-6A20-62558)Average US PV Prices
Note: Reported, bottom-up and analyst-projected average U.S. photovoltaic system pricing over time all show a downward
trend in PV system pricing
Source: U.S. Department of Energy SunShot 2014 Edition (NREL/PR-6A20-62558)
10• Charles Patton, President of Appalachian Power:
With or without the Clean Power Plan, the economics of alternatives
to fossil-based fuels are making inroads in the utility plan.
Companies are making decisions today where they are moving away
from coal-fired generation.
If we believe that we can just change administrations and this issue
is going to go away, we’re making a terrible mistake.
October 27, 2015 at West Virginia Energy Summit, as reported by David Gutman in the Charleston Gazette-Mail.
• David Crane, President and CEO of NRG Energy:
Now we are headed …down the path toward a distributed-
generation-centric clean energy future featuring individual choice
and the empowerment of the American energy consumer.
The only real question is how quickly will this future will occur?
March 2014, Letter from David Crane, CEO of NRG, NRG.com
1112
13
• EPA proposed nationally uniform emission rate standards for 2
subcategories of power plant generator types:
– Fossil steam (includes coal, oil, and gas boilers)
– Natural Gas Combined Cycle
• Standards increase in stringency between 2022-2029, then stabilize
• EPA offers each state the option to choose 1 of 2 state-specific
alternative standards (instead of subcategory rates) deemed
equivalent:
– Rate-based state goal of lbs CO2/MWh
– Mass-based state goal of tons of CO2/compliance period
• States develop and submit a plan to EPA on implementation
– States choose policy design
– States choose whether to implement on own or collaborate with other
states
– Wide range of CO2 reduction strategies may count towards compliance
13
• If no state plan submitted/approved, EPA implements Federal plan• Congressional Review Act
• Lawsuits filed, petitions for reconsideration
• Some key concerns raised:
– Authority
• Use of section 111(d) of the Clean Air Act
• Outside the fence line measures
• EPA vs. state role
– Procedural
• Notice and comment on items that changed substantially from proposal to final
– Potential impacts
• electric reliability
• electricity rates
• stranded assets
14• Impacts of the Clean Power Plan, including compliance costs, are
dependent on:
– federal and state decisions yet to be made
• state plan development process
• approval process for state plans
• litigation and court decisions
• finalization of the federal plan and model rules
– as well as additional factors, such as:
• future natural gas supply, deliverability, and prices,
• the future cost and performance of renewable energy,
• the availability and cost of end-use energy efficiency (EE), and
• the future of existing nuclear plants (e.g., re-licensing)
• Insights can be gained through economic modeling, with tools such as
power sector dispatch models, and analysis across a series of scenarios
that vary key assumptions within a range of uncertainty
– BPC analysis using ICF’s Integrated Planning Model (IPM)
16• State complementary policies to incent investment in end-use
efficiency (EE) reduce wholesale electricity price impacts, cost
impacts, & coal retirements resulting from the Clean Power Plan
• Energy efficiency reduces overall generation and capacity needs
• Increasing EE investment reduces the shift from coal to gas-fired generation
needed to comply with the Clean Power Plan
• Effective energy efficiency policies have the potential to save over $7 billion
dollars nationally in 2025 in compliance costs under the Clean Power Plan
• Energy efficiency policies are good for energy consumers with or
without the Clean Power Plan
17• Power flows across state borders
– It is important to consider the interconnected nature of the power
system when looking at costs and impacts of Clean Power Plan
• Decisions made in one state may affect power prices, generation,
and reliability in other states
Source: U.S. Energy Information Administration; Annual net power flows among regions in North America, 2010, million MWhs 18• The nature of interstate power flows, as well as uncertainties about
what the future holds, increase the value of state program design
that provides affected companies flexibility to adapt to changing
circumstances and find lowest cost compliance strategies for their
customers
– Allowing flexibility in both where and when CO2 reductions occur gives
utilities/generators opportunities to develop system-wide compliance
strategies based on averaging or combined compliance, rather than meeting
limits at every facility
– A wide range of regulated companies and stakeholders have encouraged
states to allow generators access to market-based flexibility mechanisms
– States may choose between rate-based and mass-based trading approaches
in state plan development under the Clean Power Plan
19• Adopting policy designs that allow access to emission reduction
opportunities in other states tends to:
• significantly lower the cost of compliance
• reduce plant retirements
• provide a smoother transition that complements electric reliability
• better align with multistate power flows and multistate utilities
Annual Average Cost Savings from Multi-state Collaboration (2023-2030)
800
600
400
200
Million $
0
-200
-400
-600
-800
Midcontinent RGGI Other PJM Other SERC Other SPP ERCOT West
20• States, companies, and stakeholders are exploring options that
would provide the advantages of multistate flexibility without
requiring significant cross-state negotiations or multistate compacts
– The EPA final rule allows for emissions trading and “trading ready” plans
• A few common elements in state plans could
– Preserve state authority over all aspects of implementation
– Preserve state choice on key program design features, such as how to
divide the obligation among affected power plants within a state
– Provide the option for utilities, coops, municipals, and merchants to access
lower cost reductions in other states
• Minimum compatibility across a group of states, such as
– The same choice of metric, either rate-based or mass-based
– A common fungible currency to keep track when flexibility is used (when
averaging or bubbling removes need to meet the standard at every facility)
– Common or compatible accounting and tracking systems
21• Both mass- and rate-based trading approaches could
– Reduce compliance costs of the Clean Power Plan
– Integrate with existing economic dispatch and electricity markets
– Allow for economic growth
• Mass-based policy infrastructure is simpler to administer and more
transparent, predictable, and adaptable
– Less tracking and reporting requirements
– No need to approve projects/credits
– Allowances issued in advance of the compliance period
– Mass-based market aids in price discovery and enables informed investment
decisions
– More states may find a mass-based approach preferable, offering more
opportunities to lower cost
• Company-specific and state-specific factors may influence the choice
of rate-based or mass-based approaches
22• Given the significance and potential impacts, the U.S. Congress could
address greenhouse gas emissions in a more efficient way than EPA’s
use of current Clean Air Act authority
• In the absence of action by U.S. Congress, EPA is moving forward
• Although the Clean Power Plan faces legal and political obstacles, EPA’s
basic authority to regulate greenhouse gas emissions under the existing
Clean Air Act has been affirmed by the Supreme Court
• Even without Clean Power Plan, U.S. is diversifying electricity
generation fleet with lower carbon resources & increasing energy
productivity
• Final rule provides states with options to develop plans that meet
multiple state objectives, capitalize on technological changes and
trends, and that don’t put EPA in the driver seat through a Federal Plan
• Role of state legislator may vary across states
– Ensure stakeholder involvement
– Consider supportive policies to ensure low cost options are available 2324
Policy/Reporting Regions for BPC Analysis
RGGI
Midcontinent
West Other PJM
SPP
SERC
ERCOT
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