Q&A: EPA Regulation of Greenhouse Gas Emissions from Existing Power Plants
On August 3, 2015, the U.S. Environmental Protection Agency (EPA) adopted Carbon Pollution Standards for Existing Power Plants, known as the Clean Power Plan.
Adopted pursuant to EPA’s authority under the Clean Air Act, the Clean Power Plan establishes unique emission rate goals and mass equivalents for each state. It is projected to reduce carbon emissions from the power sector 32 percent from 2005 levels by 2030. Individual state targets are based on national uniform “emission performance rate” standards (pounds of CO2 per MWh) and each state’s unique generation mix.
On February 9, 2016, the U.S. Supreme Court issued a stay of the Environmental Protection Agency’s (EPA’s) Clean Power Plan, freezing carbon pollution standards for existing power plants while the rule is under review at the U.S. Court of Appeals for the District of Columbia Circuit.
See more resources and maps at the C2ES Carbon Pollution Standards Resource Page.
Q: Why did EPA develop rules to regulate carbon dioxide?
Under the Supreme Court decision in Massachusetts v. EPA, greenhouse gases meet the definition of air pollutants under the Clean Air Act, meaning they must be regulated if they could be reasonably anticipated to endanger public health or welfare. EPA made this determination in 2009. In June 2013, President Obama directed EPA to work closely with states, power plant operators, and other stakeholders in developing carbon standards for existing power plants, and to finalize the standards by June 2015. EPA released its proposed rule in June 2014 and the final rule in August 2015.
Q: Why do we need to regulate power sector carbon emissions?
The power sector is the largest source of U.S. carbon emissions, which are contributing to global climate change.
Many businesses, cities and states are cutting emissions, increasing renewable energy, and improving energy efficiency. In addition, newly abundant natural gas has begun to displace coal (which emits twice as much carbon) in the U.S. electrical generation mix. But in the absence of major new policies, U.S. emissions are projected to rise as the economy grows, and as natural gas prices rise. Stronger policies are needed to increase energy efficiency, thereby reducing electricity consumption, and to expand the use of low- and no-carbon energy sources. Under a business-as-usual forecast, fossil fuels are projected to provide 66 percent of the U.S. fuel mix in 2030 compared with 60 percent under the Clean Power Plan, with most of the reduction coming from higher-emitting coal plants. Therefore, under a business-as-usual scenario, carbon dioxide emissions from the power sector are expected to increase around 6.5 percent (from 2014 levels) to 2,177 million metric tons in 2030, while under the Clean Power Plan carbon dioxide emissions would fall more than 19 percent (from 2014 levels) to 1,644 million metric tons in 2030.
Figure 2: Projected Electric Power Sector Carbon Dioxide Emissions under Business-as-Usual Scenario
Q: What is in EPA’s Clean Power Plan?
Typically, under the Clean Air Act, EPA sets standards and states implement them. The Clean Power Plan:
- Sets unique emission rates goals and mass equivalents for each state, reflecting the variation in their electricity generation mixes, to be met starting in 2022;
- Provides states significant flexibility in choosing how to meet their targets;
- Provides incentives for early deployment of renewables and efficiency measures benefiting low-income communities;
- Provides tools to assist states choosing to implement market-based approaches; and
- Contains a Federal Implementation Plan that EPA would use in states that do not accept adequate implementation plans.
EPA set interim and 2030 targets for each state based on uniform emission performance rates (application of BSER) and its unique generation mix.
Q: How was each state’s target calculated?
Uniform, national emission performance rates for affected power plants are based on the “best system of emission reduction” (BSER), using three “building blocks” or potential pathways applied regionally to reduce CO2 emissions:
- Make affected fossil fuel power plants more efficient;
- Increase generation from lower-emitting natural gas combined cycle plants; and
- Increase generation from new zero-emitting renewable power sources.
See a map of state targets for a more detailed explanation.
Q: What are the big differences between the proposed and final plans?
States will have more time to submit their implementation plans (they can get extensions to 2018) and two more years (until 2022) to begin phasing in pollution cuts. C2ES and others encouraged allowing states more time so they could take a longer view on planning and investment.
The final plan also proposes a voluntary Clean Energy Incentive Program (CEIP) to encourage early installation of renewable energy projects and energy efficiency programs for low-income communities before the 2022 compliance start date. EPA has invited comments on the CEIP and will address design and implementation details in a future action.
Market-based mechanisms are more explicitly encouraged in the final rule. The proposed federal implementation plan includes an option for states to join an interstate cap-and-trade program. It also outlines how states could participate in emissions credit trading without the creation of interstate compacts.
In calculating individual state targets, EPA had proposed taking into account each states’ energy efficiency potential, but it chose not to do so in the final rules. However, like the proposal, the final plan allows states to use energy efficiency programs for compliance.
EPA also changed its methodology for determining incremental renewable energy to better reflect regional technical potential, rather than state-level renewables policies, as in the proposal.
Unlike in the proposed plan, states with nuclear power plants under construction – Georgia, South Carolina, and Tennessee – will be able to count this generation toward compliance instead of having it factored into their targets.
The final rule also takes the interstate nature of the electric system into greater consideration. The proposal calculated state targets by applying building blocks to each state. The final rule uses the characteristics and potential of electric grid interconnections (Eastern, Western and Texas) to determine emission performance rates for units, which are then applied to each state’s unique generation mix to calculate a target.
Q: How can states reduce power sector carbon emissions?
States have wide latitude in designing their strategies to reduce emissions. In most cases, they will rely on a variety of measures. Major options include substituting natural gas for coal; improving energy efficiency; and increasing reliance on renewable energy.
States can implement the Clean Power Plan individually or in cooperation with other states. They also can employ market-based mechanisms, such as averaging or trading, to help power companies identify least-cost emission reductions.
Examples of steps to reduce carbon dioxide emissions in the power sector are illustrated in Figure 3 and Table 1.
Figure 3: Opportunities to reduce carbon dioxide emissions in the power sector
Table 1: Policy options to reduce power sector carbon dioxide emissions
|Power plant performance standard||Each power plant must achieve a set emissions intensity||California, New York, Washington|
|Renewable Portfolio Standard||Utilities must deliver a set percentage of renewable electricity||Colorado, Hawaii, Kansas, Missouri, Nevada, Rhode Island, and others|
|Energy Efficiency Resource Standard||Utilities must cut demand by a set amount by target years||Arizona, Connecticut, Maryland, Minnesota, Texas, and others|
|Decoupling||Reduce utility incentive to deliver more electricity by decoupling revenue and profit||California, Idaho, Massachusetts, Michigan, Oregon, and others|
|Net Metering||Encourage residential solar by paying homeowners to put excess electricity back on grid||Arkansas, Colorado, Georgia, Louisiana, and others|
|Cap & Trade||Issue a declining number of carbon allowances, which must be surrendered in proportion to each plant’s emissions||California, Regional Greenhouse Gas Initiative|
|Carbon Tax||Charge a tax for emitting carbon||British Columbia|
|Grid Operator Carbon Fee||Add a carbon price to grid operator decision over which power plants to run||None currently|
|Appliance Efficiency Standards||Require new appliances sold to meet set electricity consumption standards||California, Florida, New Jersey, and others|
|Commercial & Residential Building Codes||Require new buildings to include electricity saving measures||California, Illinois, Maryland, Mississippi, and others|
Q: How could states use market-based approaches to implement the plan?
Economists consider market-based approaches to be the most efficient way to reduce greenhouse gas emissions.
The Clean Power Plan encourages states to consider using market mechanisms, which could include a cap-and-trade program, a carbon tax, or tradable renewables or efficiency certificates.
EPA intends to set up and administer a program to track trading programs for states that choose to use them. In addition, the Federal Implementation Plan that EPA would employ in states without adequate plans includes market-based programs, which can be used by states as a model for their own plans.
Under EPA’s proposed new Clean Energy Incentive Program, states that act early to cut carbon pollution, either with renewables or energy efficiency, would be rewarded with emission reduction credits (ERCs), which they could use to meet their targets or sell to other emitters.
Q: How can states work together to implement the Clean Power Plan?
States have long collaborated to achieve energy and environmental goals. The successful trading program to reduce sulfur dioxide, which causes acid rain, is an example.
The plan is designed to facilitate interstate compliance strategies, including different forms of trading. The federal implementation plan outlines strategies to determine the equivalence of emission reduction credits in different states. It would also create a national platform that can be used to track the buying, selling, and trading of credits across state lines.
An example of states already working together is the Regional Greenhouse Gas Initiative in the Northeast. A multi-state approach could also be accomplished through another existing authority such as a Regional Transmission Organization (RTO) or Independent System Operator (ISO).
Q: Will states be able to use Canadian hydropower to comply?
Renewable energy from outside of the United States, including Canadian hydropower, can be used for compliance purposes, provided it is incremental and installed after 2012 and meets some other conditions. More than a dozen U.S. states already import a significant amount of Canadian hydropower. According to a C2ES report, importing hydropower from even a modestly sized new Canadian project (250 MW) could help a state bridge the gap between its current carbon emissions rate and its 2030 target.
Q: Will the Clean Power Plan affect the reliability of the electric grid?
In response to concerns raised by EPA’s proposed rule, the final plan includes a “reliability safety valve” temporarily relaxing emission standards on individual electric generating units under extraordinary circumstances where electric system reliability is concerned.
To mitigate reliability issues, states are required to address reliability in their compliance plans. Importantly, the plan gives states up to seven years before interim targets must be met, providing time for state regulators and reliability entities to work with utilities and other key stakeholders.
The plan is also expected to encourage energy efficiency, which helps lower demand growth and improve reliability.
Q: How much will implementing the plan cost?
EPA calculates that savings from increased energy efficiency will outweigh the costs of implementing the plan, reducing household electric bills by about $7 per month by 2030. The agency estimates compliance costs of $5.1 billion to $8.4 billion and total benefits of $34 billion to $54 billion.
Q: How does the plan address nuclear power?
Nuclear provides nearly 20 percent of the nation’s power and is the largest source of carbon-free baseload electricity. Five reactors are now under construction in Tennessee, Georgia and South Carolina and are expected to be online by 2030.
Unlike the proposal, the final rule does not consider existing or new nuclear power for the purposes of setting state targets. Therefore, the five reactors under construction and any new units or upgrades can count toward compliance.
Q: How is natural gas treated in the plan?
Both the proposal and the final plan envision about a third of U.S. electricity coming from natural gas in 2030. However, under the final plan, less new natural gas generation capacity is anticipated.
Natural gas demand was expected to grow more quickly under the earlier compliance date called for in the proposed rule. Proposed incentives for early deployment of renewables may encourage more investment in renewable energy in the short term.
Q: What does this plan mean for coal?
Demand for coal in the U.S. has been decreasing for many years because of the availability of relatively less expensive natural gas to meet baseload power demands and because of other environmental and safety regulations. Even before the Clean Power Plan, very few new coal plants were expected to be constructed. According to EPA’s IPM modeling of the final rule, coal is expected to make up 27 to 28 percent of the electric generation mix in 2030. Under a business-as-usual scenario, coal is expected to deliver 36 percent of U.S. electricity in 2030.
Figure 4: Distribution of Fossil Fuel Power Plants across the Contiguous United States
Q: What does the Supreme Court stay mean for the regulation?
The Supreme Court granted a stay in response to a legal challenge from some states, utilities and coal companies, who argued that EPA’s regulation was burdensome. Other states and utilities are participating in the legal challenge by supporting EPA. The court’s decision does not address the merits of the challenge but puts implementation of the rule on hold while a lower court decides the merits of the challenge. There’s no telling how it will play out, but the high court is likely to wind up deciding the case.
Whether or not the Court ultimately upholds this particular rule, the legal requirement to cut carbon emissions will remain, and states need to figure out the most cost-effective ways to do that. It’s important to note that a number of states challenging the rule in court are simultaneously working on their implementation plans. Some states may suspend their planning efforts but others will press on with preparations. If the plan is ultimately upheld, the implementation timeline may have to be extended.
The Environmental Protection Agency’s authority to regulate greenhouse gases is settled. The issue is whether EPA’s particular approach is appropriate.
Regardless of the ultimate legal outcome, the broader trends at play favor continued momentum toward stronger climate action.
Q: What is the timetable for implementing the plan?
Before the stay was issued, states had until September 2016 to either submit a plan or request an extension. All final plans were due by September 2018. EPA would approve or disapprove a final plan within a year.
The Clean Energy Incentive Program was to begin on January 1, 2020. States that had expressed their interest in participating in this program in their final plans were eligible. This program was to run throughout 2020 and 2021.
On January 1, 2022, states were to begin complying by meeting their interim targets. On January 30, 2030, states must meet their final CO2 reduction goals.
During the period of the stay, no deadlines are binding, and they may be extended when the legal challenge is resolved.
Q: What happens to states that fail to comply?
States were given up to three years to write implementation plans, applying their knowledge of their utilities and the programs that have worked in the past.
Under the Clean Air Act, any state that would fail to submit a plan or get EPA approval for its plan would be subject to a federal implementation plan. The current proposals for the federal implementation plan would use flexible, market-based solutions for compliance.
Rate-Based Compliance Under the Clean Power Plan
Comments of the Center for Climate and Energy Solutions on Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Proposed Rule
Comments of the Center for Climate and Energy Solutions on Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units; Proposed Rule
United States Environmental Protection Agency
(80 Fed. Reg. No. 205 (October 23, 2015))
Docket ID No. EPA–HQ–OAR–2015–0199; FRL 9930–67– OAR
This document constitutes the comments of the Center for Climate and Energy Solutions (C2ES) on the proposed federal plan requirements for greenhouse gas (GHG) emissions from electric utility generating units under the Clean Power Plan, proposed by the U.S. Environmental Protection Agency (EPA) and published in the Federal Register on October 23, 2015. C2ES is an independent, nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. As such, the views expressed here are those of C2ES alone and do not necessarily reflect the views of members of the C2ES Business Environmental Leadership Council (BELC). In addition, the comments made in this document pertain to existing sources in the specific sector addressed by the Proposal and may not be appropriate for other industrial sectors or for new electric utility generating units.
C2ES believes a nationwide, economy-wide market based policy would be the most efficient and effective way to reduce GHG emissions by harnessing market forces to spur clean energy innovation, development and deployment. However, enactment of federal legislation that would establish a comprehensive market-based policy to reduce GHG emissions is not likely in the near-term. Given the urgency of addressing the rising risks that climate change poses to U.S. economic, environmental, and security interests, and the inability of Congress to establish our preferred approach of a nationwide price on carbon, C2ES believes EPA, as it implements the Clean Power Plan, should rely upon market-based approaches. Acting now will provide environmental benefits now and in the future, economic growth, and the opportunity for US companies to lead development of innovative technologies for which global demand is rapidly increasing.
The proposed federal plan requirements are an important component of the Clean Power Plan as they establish a framework for what may constitute a federal implementation plan in the event a state does not submit an adequate state implementation plan. The requirements are important as they may also serve as model rules offering guidance to states on possible provisions of an adequate state implementation plan.
C2ES supports the proposed federal plan requirements based on several key characteristics of the proposal.
- Market-based mechanisms to reduce carbon emissions are encouraged: The proposed federal plan requirements are market based and offer two market approaches, rate-based and mass-based trading. The inclusion of these market approaches in the proposal guides and facilitates the use of market-based policies by states. Moreover, the proposal retains flexibility for states to create markets that are responsive to specific state needs as well enact ancillary policies to achieve additional policy objectives.
- The Clean Power Plan could serve as a stepping-stone to a comprehensive, national program: In offering the proposed federal plan requirements as model rules, EPA is moving individual state actions toward a broader, nationwide program. The proposal could facilitate the development of market-based policies in more states and could thereby provide additional experience, learning opportunities, and frameworks necessary to ultimately develop a successful national program.
- EPA-defined model provisions encourage interstate consistency: Model provisions for topics such as tracking systems and what evaluation, measurement, and verification (EM&V) protocols to use to track efficiency measures will help states meet the deadline for their plans and could promote consistency across states. Such consistency could facilitate interoperability and the creation of a large, liquid market that reduces compliance costs for all participants.
EPA has invited comment on whether to finalize a single approach (i.e., either a mass? or rate?based approach) for a federal plan. While choosing a single approach that creates a large, liquid market would reduce compliance costs for all participants and a mass-based approach would likely be administratively simpler to implement, states should be allowed to maintain the flexibility to implement rate-based programs as under the final rule establishing the Clean Power Plan. If a federal implementation plan is necessary for a state, EPA should maintain the flexibility to implement either approach as warranted by the specific circumstances of that state.
C2ES believes states should have the flexibility to use existing systems or a new, EPA-administered tracking system. However, it would be in the best interest of the state and market if the tracking system were interoperable with the national market. Interoperability of tracking systems allow the credible and transparent tracking of assets across state lines, thereby facilitating a larger market which reduces compliance costs for all participants. Existing tracking systems provide insights for the Clean Power Plan. Please see the attached C2ES brief on tracking for more information.
The allocation of allowances in a mass-based program is a significant policy decision. Allowances represent a significant source of value and can be used to compensate firms or individuals affected by climate change policy or to raise funds for other socially desirable policy objectives. The basic allocation decision involves whether to freely allocate or auction some or all emission allowances. And further, if freely allocated, to whom and how to distribute, and if to auction allowances, the type of auction and how to distribute the revenues. Please see the attached C2ES brief on allocation policies for more information.
Carbon markets, like other commoditites markets, require provisions to ensure that the market functions effectively, is efficient and liquid, and is not manipulated by some participants. A carbon market can best achieve its environmnental aim if it is well designed and functions efficiently from the beginning. A well-designed policy should include effective means to prevent excessively high prices, extreme volatility, and market manipulation – the action by an individual or small group of individuals to alter the price of a good for their own advantage – which is best achieved through effective policy and market design.
Comments of the Center for Climate and Energy Solutions on the Clean Power Plan's Clean Energy Incentive Program
C2ES December 2015 comments of the Center for Climate and Energy Solutions on the Clean Power Plan’s Clean Energy Incentive Program (CEIP)
This document constitutes the comments of the Center for Climate and Energy Solutions (C2ES) on the proposed Clean Energy Incentive Program proposed by the U.S. Environmental Protection Agency (EPA). C2ES is an independent, nonprofit, nonpartisan organization dedicated to advancing practical and effective policies and actions to address our global climate change and energy challenges. As such, the views expressed here are those of C2ES alone and do not necessarily reflect the views of members of the C2ES Business Environmental Leadership Council (BELC).
C2ES believes that market-based policies are the most efficient and effective way of reducing greenhouse gas emissions, and we applaud EPA for including multiple provisions in the final Clean Power Plan that promote market adoptions that can be used by states. Market-based policies harness market forces to spur innovation, development and deployment of clean energy technologies. To that end, trading of allowances or emission rate credits (ERCs) under the Clean Power Plan (CPP) can help ensure that emission targets are achieved at the lowest possible cost. Complementary to this, C2ES believes the Clean Energy Incentive Program (CEIP), properly designed, can help meet CPP objectives, promote market mechanisms and provide additional clean energy benefits as outlined below.
The CEIP provides economic value
CEIP credits (allowances or ERCs) issued by states and matched through EPA’s reserved pool could provide economic value to clean energy projects in two ways. First, if a project developer is an electricity generator subject to the CPP, these credits can be used for compliance. Second, if the project developer does not have a compliance obligation, these credits can be sold, which creates a revenue stream that can improve the financial viability of a project. As states develop their implementation plans, they may be able to provide early enhancements for project financing if some of the CEIP credits are allocated in advance by project type. This can help mobilize capital markets who would now know that the additional incentive would be available.
The CEIP will accelerate early market formation and price discovery
CEIP credits will complement other trading mechanisms that states may establish to comply with the CPP and add additional liquidity to CPP markets. Liquidity is important to an emissions trading market because it lowers the risk of price volatility or sudden price spikes caused by an inability to find available allowances. In addition, it can help with price discovery because these will likely be available before CPP compliance markets are functioning.
The trading of CEIP credits could be a key strategy for electricity generators to comply with emissions limits, either by incentivizing them to reduce their emissions and sell (or avoid purchasing) credits, or by purchasing credits from other generators at a lower cost. Early implementation of the CEIP may play a role in fostering the development of these trading regimes.
The CEIP could speed the development of state implementation plans and help reduce regulatory uncertainty
Projects become eligible for CEIP credits only if they commence construction after a final state implementation plan is submitted in the project’s host state. EPA allows plans to be finalized as late as September 2018. Because of the value of CEIP credits, project proponents may encourage states to finalize plans as soon as possible in order to open CEIP eligibility to a greater number of projects. Early plan finalization may give utilities additional time to plan for compliance and lower the regulatory uncertainty around CPP implementation.
The CEIP can incentivize city-level clean energy programs
Finally, the CEIP could provide a way for cities to have a role in meeting CPP compliance goals. U.S. cities have tremendous citizen and policymaker interest in reducing carbon emissions, improving energy efficiency and deploying more renewable energy, but they often face resource constraints. CEIP credits could provide cities a crucial funding resource to expand existing programs or launch new initiatives.
While noting that the CEIP as proposed has many benefits, C2ES also sees several potential enhancements, and we recommend the following:
Ensure the maximum number of projects can receive credits under the CEIP
Opportunities for wind, solar, and energy efficiency projects abound, and there is a chance that the demand for credits will exceed 300 million tons. We advise EPA to prepare for this situation by anticipating how to allocate credits when there are not enough to match each megawatt hour generated or avoided.
One way to accomplish this is to provide a reservation system for credits. Clean energy project developers would request credits prior to 2020, based upon two requirements—the launch of the program/beginning of construction and the expected performance of the project. In 2020 and 2021, after the project’s performance is verified, the project could then be allocated credits. C2ES believes this would add certainty to the project financing during the development stage by reducing the chance that a project would receive no credits (because the CEIP pool had been depleted), as could happen under a first-come, first-served system. EPA or states could also modify a reservation system to achieve other policy aims by prioritizing projects that meet desired characteristics. For example, criteria could include project size, project cost, or project operation start date. This approach can help mobilize capital markets earlier.
An alternative approach would be to set a maximum number of credits that a project could request from the CEIP. In this way, an allocation to a large project would not leave too few credits for other projects. A system could be developed where allocation requests happened in stages, so that if, after all eligible projects had received credits for some fraction of the electricity generated or avoided, they could request additional allocation if credits remained in the CEIP matching pool. This is different than the redistribution formula on which EPA is requesting comment, in that this staged distribution would occur in the same year in the same state and applies only to the situation in which the CEIP is oversubscribed.
We recognize that setting a priority to maximize the number of projects that receive CEIP credits creates a risk of missing opportunities for least-cost project development. Giving a large number of CEIP credits to a small number of projects may be more cost effective because it may result in lower costs for project administration per unit of renewable energy or energy efficiency delivered. However, given the limited duration of the CEIP, C2ES believes that the environmental benefits of broad participation outweigh the economic concerns of possibly incentivizing more costly programs over less costly ones.
SPECIFIC COMMENTS REQUESTED BY EPA
EPA requested comment on a number of provisions in the proposed CEIP. C2ES thanks EPA for the opportunity to comment on a few of these areas.
Definition of commence construction
C2ES believes EPA should use a definition of “commence construction” that already exists. This lowers the administrative costs of the CEIP and facilitates faster deployment of CEIP-eligible projects, since developers would not need to educate themselves about a unique definition.
As an example, certain federal-level clean energy tax credits define “commence construction” as when either work of a significant physical nature has been undertaken or more than 5 percent of a project’s total capital cost has been spent. Such requirements are well-understood by project developers and are not considered overly burdensome to meet or demonstrate to authorities.
Definition of low-income community
Similarly, C2ES believes EPA should use a definition of “low-income community” that already exists. State and city policymakers and project developers are familiar with existing terms, for example a geographic region’s area median income, or a comparison to the federal poverty line. While we are agnostic on exactly which definition is used, we believe it should be one currently used in other federal programs, reflecting regional differences in cost of living, and consistent across all states.
C2ES identifies a second aspect of the low-income community definition under the CEIP that we believe should be changed – the prescribed extent in which low-income communities are served. Some projects serve only low-income communities, for example residential energy efficiency improvements. Others, however, serve the broader community, including low-income households. For example, energy efficiency projects at water treatment plants serve the broader community, including low income households.
C2ES believes that applying a broad definition of how communities are served will maximize the environmental and economic benefits of the CEIP. It will do this by increasing the number of projects that are eligible – some of which may be larger and therefore lower cost to implement. Energy efficiency tends to lower electricity bills as consumers who have deployed more energy efficient technologies reduce their consumption of electricity. This provides an additional benefit that can significantly help low-income communities given the regressive nature of any energy cost increase. In addition, it has the added benefit of making these consumers less vulnerable to extreme heat or cold.
Evaluation, measurement, and verification requirements should be explicit and consistent
C2ES recognizes the critical role that evaluation, measurement, and verification (EM&V) requirements play in maintaining the environmental integrity of carbon trading programs. Having EPA-defined EM&V requirements reduces potential costs for state agencies by avoiding the need to develop requirements in every state and provides consistency for project developers as part of the model rule.
C2ES recommends that as EPA finalizes the EM&V requirements, it should prioritize processes that are low-cost and can be applied uniformly across states to allow a greater deployment of energy efficiency under the CPP.
Timing of credit allocation
C2ES notes that having credits available to the market as early as possible is the best way to reduce uncertainty and stimulate early market formation. In terms of credit allocation to projects in 2020 and 2021, C2ES recommends that EPA provide matching credits to clean energy projects shortly after performance, potentially on a quarterly or six-month basis.
Redistributing unused credits
If there are insufficient projects in a state to utilize its full share of EPA’s matching pool, C2ES recommends that the credits be available to projects in any state in which the CEIP is implemented and there is excess demand for credits, on a first-come, first-served basis. The initial matching pool allocation to participating states will ensure that states with a large capacity for clean technologies do not utilize the entire pool at the expense of states with smaller capacities. However, if a state’s share of the matching pool is unused, this would most likely reflect capacity that is too expensive to develop in the 2020-2021 timeframe. C2ES believes the EPA matching credits should then be rewarded to projects in other states that have met eligibility criteria but have not yet been allocated credits (reflecting an oversupply of economic renewable and energy efficiency potential in that state).
Converting the 300 million short ton matching pool into ERCs
C2ES believes that such a conversion should be administratively simple and consistent with the actual emission reductions taking place on the electricity grid. For example, the emission rate of the marginal generation source in a given power market could be used. In addition, C2ES recommends that the conversion factor be periodically updated to account for the expected change in carbon intensity of electricity generation occurring even before the first compliance period. For example, if new renewables lowered the carbon intensity (in tons/MWh) of electricity in a power market between 2020 and 2021, the conversion factor (expressed in tons/MWh) would have to be similarly lowered so that projects receiving ERCs or allowances are treated fairly, with respect to one another.
Participation by states, tribes and territories without CPP goals
Since CEIP-eligible projects serve to reduce overall emissions of the entire electricity grid, it is appropriate to allocate CEIP credits to projects in states that do not have CPP goals but are connected, via interstate transmission lines, to states that do. These jurisdictions, if they wish to participate in the CEIP, should submit an intent to do so in the same way as CPP states. EPA should then allocate a portion of its matching pool to these jurisdictions using the same formula as for other states. Since there is no corresponding state match for these jurisdictions, EPA could consider doubling the allotment from the federal matching pool for projects in these jurisdictions only. In this way, project developers would have an equal incentive to develop CEIP-eligible projects in these jurisdictions. For example, an energy efficiency project located in the District of Columbia could be granted two full CEIP credits from the EPA matching pool for every megawatt hour of electricity avoided. In this way, the project receives the same economic incentive as a project located in a state with a CPP target.
C2ES recognizes that EPA has finalized the eligibility criteria in the final Clean Power Plan. As mentioned earlier, the CEIP has the potential to be an important stimulator of clean energy and also of market-based implementation plans. We view these as important and that the CEIP can play this role.
However, in finalizing the eligible projects to solar, wind, and energy efficiency in low income communities, EPA is making some essential policy advances, but at the same time missing some others.
Encourage other clean energy technologies
C2ES believes that the CEIP as proposed encourages other clean energy technologies too narrowly. For example, hydropower and geothermal facilities could increase capacity at existing plants within a similar two-year construction window, while carbon capture and storage (CCS) could be deployed at existing coal and natural gas units to significantly decrease emissions.
We suggest that EPA explicitly help states to understand and use the flexibility they have in their overall state-wide allocations to complement the objectives of the CPP and CEIP, including rate payer protection, and potentially allocations for other clean energy technologies. Each state is unique, with its own set of industries, resources and population needs. For example, we believe one state may desire to buffer rate impacts, while another might want to use a portion of its allocation to credit a CCS retrofit or capacity upgrade at another existing power plant. We believe that states should have as much flexibility as possible.
Related to this issue, states should also be granted the flexibility to determine how many CEIP credits to allocate to clean energy or energy efficiency technologies from their state budgets. For example, under the proposal, a wind project would receive half credit from a state and half credit from EPA, for every megawatt hour generated. If a state wanted to give a wind project a full credit, for example, we see no issue (even if EPA only provides a half of a credit). Similarly, if a state deems CCS to be eligible for CEIP allocation, but EPA does not, then a state should be able to decide the size of the credit for the the CCS project. In this way, the megawatt hour generated from wind and the CO2 reductions from CCS would receive the same economic incentive, even though the source of this incentive (state versus EPA) would be different.
The finalization today of EPA’s Clean Power Plan offers Americans a clear, realistic roadmap for addressing planet-warming emissions that threaten the environment and the U.S. economy.
Most importantly, it puts states in the driver’s seat to devise innovative strategies to reduce emissions efficiently and cost-effectively. Now it's time for states to work together with businesses and cities to craft the approaches that work best for them.
Climate change is a critical challenge, and the impacts will only grow more costly if we fail to act. Last year was the warmest on Earth since we started keeping records over a century ago. During the first half of this year, it got even hotter. Climate change impacts include more extreme heat, which can exacerbate drought and wildfires, more frequent and intense downpours that can lead to destructive floods, and rising sea levels that threaten coastal cities.
New federal standards are already reducing heat-trapping emissions from the second-biggest source, transportation, by increasing the fuel economy of cars and trucks. The Clean Power Plan takes the next logical step by addressing the largest source: the electric power sector, responsible for nearly 40 percent of U.S. carbon dioxide emissions.
President Obama's Climate Action Plan:
By Michael Tubman
Two years after President Obama announced his Climate Action Plan, the administration has made marked progress toward achieving its goals. The plan, announced June 25, 2013, outlines 75 goals in three areas: cutting carbon pollution in the United States, preparing the United States for the impacts of climate change, and leading international efforts to address climate change. To date, there has been at least initial government action related to every item in the plan.
The proposed Clean Power Plan to reduce carbon emissions from existing power plants is a long overdue turning point in America’s response to climate change.
EPA’s approach gives the states tremendous flexibility to design strategies that work best for them. States have always been incubators of innovation, and they will drive technological and policy innovation as they encourage low-cost solutions to implement the plan.
We need to encourage that innovation – by cities, states, and businesses -- to show the path forward to a clean energy economy.
C2ES submitted comments today as part of the EPA’s process to seek stakeholder input to the proposed rule before finalizing it in June 2015.
Here are five suggestions that could make EPA’s framework even better.
With all the fuss around the EPA’s proposed carbon dioxide standard for new power plants, you would be forgiven for missing the following line: “EPA projects that this proposed rule will result in negligible CO2 emission changes, quantified benefits, and costs by 2022.” That’s right, the standard will likely have little to no effect before the date by which EPA will be required by law to revise it.
Why? As I recently told the National Journal, because the most credible projections have natural gas so inexpensive for the next several years that very few power companies are planning to build new coal plants – compared with the 150 natural gas power plants in the works. Pulling the proposed standard wouldn’t change that reality. In fact, the one coal plant being built today includes carbon capture and storage (CCS), and is expected to meet the tough carbon standard EPA has proposed. A handful of additional coal plants with CCS may move forward in the next several years, as well.
So what’s all the fuss about?
I recently replied to a question on the National Journal blog, "Do the results of the 2012 election pave the way for Washington to achieve bipartisan energy and environment policies?"
You can read other responses at the National Journal.
Here is my response: In his victory speech, President Barack Obama called for an America “that isn’t threatened by the destructive power of a warming planet.” With mostly the same players who failed to pass any significant climate legislation returning to Washington, can we expect a different result?
Possibly -- and for two reasons.
It’s too early to know whether Hurricane Sandy will be the “Love Canal” of climate change, catalyzing a strong national response. But with Sandy’s costs still mounting, President Obama has an opportunity and an obligation to press the case for stronger climate action.
In his victory speech, the president called for an America “that isn’t threatened by the destructive power of a warming planet.” We hope he keeps driving that message home -- to be clear with the American people about the urgency of cutting carbon emissions and strengthening our critical infrastructure against the rising risks of climate change.