The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
In its proposed Clean Power Plan to reduce carbon dioxide emissions in the power sector, EPA has set a unique target emissions rate for each state to hit by 2030. To develop this target, EPA first determined a carbon emissions baseline (using 2012 data) based on each state’s level of CO2 emissions from fossil-fired power plants divided by its total electricity generation (including fossil-fired generation, renewable generation, and nuclear generation). Targets for 2030 were then established based on the capacity of each state to achieve reductions using the following four “building blocks” identified by EPA:
- Make coal-fired power plants more efficient;
- Use low-emitting natural gas combined cycle plants more where excess capacity is available;
- Use more zero- and low-emitting power sources such as renewables and nuclear; and
- Reduce electricity demand by using electricity more efficiently.
Since there is a wide variation among states in both emissions baseline and capacity to leverage each of the four building blocks, there is a wide variation in how much each state must cut from current emissions to hit its 2030 target emissions rate. (See Table 1.)
Each state can meet its established target however it sees fit, and does not need to leverage each building block to the extent that EPA projects. States will be able to convert their target emissions rate (pounds CO2 per megawatt-hour of electricity generated) to a mass-based standard (tons of CO2 emitted per year) to enable a cap-and-trade program. States are also free to join together and work toward an aggregated regional target.
Table 1: Building Block Reduction by State
|State||Emissions Rate of Power System, including zero-carbon generation (lbs CO2 / MWh) (2012||Block 1 (Coal-plant Efficiency)||Adding Block 2 (Natural Gas Fuel Switching)||Adding Block 3 (Renewable and Nuclear Generation)||Final Target by Adding Block 4 (Demand-side Energy Efficiency)||Total Emissions Reduction Target by 2030|
|Vermont||No affected sources|
*In the cases of Iowa, Maine, Minnesota, and South Dakota, the emission rate rises when building block three is added. The 2012 renewable generation levels in these states were higher than what EPA's methodology projects for 2030, meaning EPA assumes lower renewable generation, and therefore higher emission rates, for these states in 2030. These increases in emission rates are reflected by negative percentage changes for the effect of building block three when you click on these states in the map above.
Source: U.S. Environmental Protection Agency, Technical Support Document (TSD) for the CAA Section 111(d) Emission Guidelines for Existing Power Plants: Goal Computation, Appendix 5.
The Obama Administration today took a major step toward reducing the carbon dioxide emissions that are impacting our climate. The Environmental Protection Agency (EPA) released its “Clean Power Plan,” which leverages existing authority in the Clean Air Act to propose carbon pollution standards for existing power plants, the largest single source of U.S. carbon emissions. The proposal would cut emissions in the power sector by 30 percent by 2030, based on 2005 levels. We reviewed the basics of the Clean Power Plan with four critical questions in mind:
1. Is the standard based on emission reductions outside the power plant fence line?
The short answer is “yes.” EPA cannot require states or power plant operators to take any specific measures, but it can set the emissions target stringent enough so that it would be challenging to achieve unless certain measures are taken. EPA is proposing state-specific targets based on the capacity of each state to leverage four “building blocks.” They are:
- Make fossil fuel power plants more efficient.
- Use low-emitting natural gas combined cycle plants more where excess capacity is available.
- Use more zero- and low-emitting power sources such as renewables and nuclear.
- Reduce electricity demand by using electricity more efficiently.
Although “outside-the-fence-line” measures are not specifically required under the proposal, states would be hard-pressed to meet their targets without using programs to reduce the demand for fossil electricity, by, for example, increasing energy efficiency and encouraging renewable energy.
Looking to Figure 1, EPA has chosen the System-level Option.
Figure 1: Scope of reduction requirements
On June 2, 2014, the U.S. Environmental Protection Agency (EPA) released its proposed Carbon Pollution Standards for Existing Power Plants (known as the Clean Power Plan), per its authority under Section 111(d) of the Clean Air Act (CAA). The development of this rule was announced by President Obama during his June 25, 2013, climate policy speech. The Clean Power Plan would establish different target emission rates (lbs of CO2 per megawatt-hour) for each state due to regional variations in generation mix and electricity consumption, but overall is projected to achieve a 30 percent cut from 2005 emissions by 2030, with an interim target of 25 percent on average between 2020 and 2029.
See more resources and maps at the C2ES Carbon Pollution Standards Resource Page.
Why is regulation of greenhouse gas emissions from existing power plants important?
Electric power generation is responsible for nearly 40 percent of U.S. carbon dioxide emissions.
Figure 1: 2012 U.S. CO2 Emissions
Source: Energy Information Administration
Since the federal government adopted new vehicle efficiency standards last summer to address transportation emissions through 2025, the power sector represents the greatest opportunity for greenhouse gas reductions.
Figure 2: Electric Power Sector Carbon Dioxide Emissions without Proposed Emission Standards
Source: Energy Information Administration
Power sector emissions have declined over the past five years in part due to the economic downturn, increased energy efficiency, greater use of renewable energy and a switch from coal, the most carbon-intensive fossil fuel, to natural gas, the least carbon-intensive (in terms of combustion). In the absence of any policy changes, the U.S. Energy Information Administration projects that as the economy grows and natural gas prices rise slowly over the next five years, emissions will rise. The Clean Power Plan will have to push against these underlying trends.
Figure 3: Distribution of Fossil Fuel Power Plants across the Contiguous United States
What is in EPA’s proposal?
Typically, EPA regulations are set at the federal level and then administered by states. For example, EPA sets a limit on the level of smog in the atmosphere, and states then submit plans for how they will meet that standard. Once approved by EPA, states then administer these plans, known as State Implementation Plans.
The proposed Clean Power Plan is similar in that states would be given a target emissions rate, but have broad flexibility to determine how to achieve that target. Each state would be assigned a carbon emissions baseline based on its level of carbon emissions from fossil-fired power plants divided by its total electricity generation. (See our Proposed State Emission Rate Targets Map.) Electricity generation in this case includes fossil generation, nuclear, renewables, plus generation avoided through the use of energy efficiency programs. A target for 2030 is then established for each state based on its capacity to achieve reductions using the following four “building blocks” identified by EPA:
1. Make fossil fuel power plants more efficient.
2. Use low-emitting natural gas combined cycle plants more where excess capacity is available.
3. Use more zero- and low-emitting power sources such as renewables and nuclear.
4. Reduce electricity demand by using electricity more efficiently.
Each state could then meet its established target however it sees fit. States could join multi-state programs to reduce emissions collectively, for example through a cap-and-trade program.
How much flexibility will states have to minimize costs?
States would have considerable flexibility to adopt a variety of approaches to reduce carbon dioxide emissions from the power sector, if they can demonstrate that they will achieve the emissions target.
Among the possibilities:
- States could allow emissions credit trading among power plants owned by the same operator. This means that if one power plant reduced its emission rate below the state target, it could trade credits to a power plant that could not meet the target so that the company overall would be in compliance.
- States could allow emissions trading between power companies and even across state lines (such a program would be similar to the Regional Greenhouse Gas Initiative). Averaging or trading across power plants, companies, and states cut overall compliance costs by taking advantage of the lowest-cost opportunity for emissions reductions.
- States could use energy efficiency or renewable energy for compliance, provided that the total emissions met an EPA-approved target.
- States could also set a standard that is more stringent than what would be required by EPA's guidelines.
How much will this rule cost?
EPA projects that the compliance costs for this rule would be between $7.3 billion and $8.8 billion annually by 2030. EPA projects that this would lead to about a 3 percent increase in electricity rates by 2030. The rule would deliver considerable benefits as well, including a total of $55 billion to $93 billion in public health benefits by 2030, as projected by EPA. The rule could also reduce electricity consumption, meaning a homeowner’s electricity bill could stay the same or even decrease. It is important to weigh any costs of the Clean Power Plan against the costs of allowing carbon dioxide emissions to continue to rise unabated, contributing to climate change. The costs of climate impacts such as more frequent and intense heat waves, higher sea levels, and more severe droughts, wildfires and downpours, are projected to be much higher.
What can power plants do to reduce emissions?
An individual power plant could reduce its greenhouse gas emission rate by using fuel more efficiently or by switching to a lower carbon fuel, such as natural gas or biomass instead of coal. However, states would be complying with this rule on a statewide basis using any number of emission reduction options. As long as states met carbon dioxide targets broadly, action would not necessarily be required at particular power plants. States could meet their emissions targets by increasing their consumption of renewable electricity relative to fossil-generated electricity or improving energy efficiency. Options to reduce carbon dioxide emissions in the power sector are illustrated in Figure 4.
Figure 4: Opportunities to reduce carbon dioxide emissions in the power sector
How will existing state policies, such as the Regional Greenhouse Gas Initiative, be affected?
States would have significant flexibility in setting regulations for existing power plants within their borders, but are required to follow the broad limits in EPA’s proposed rule. Since states have been given the authority to use market-based mechanisms, the nine Northeast states participating in the Regional Greenhouse Gas Initiative (RGGI)would be able to demonstrate that their cap-and-trade program for power plants satisfies the required emission reductions, and that further regulation is therefore unnecessary. Policy measures that states might employ to achieve their carbon targets are listed in Table 1.
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|
What happens now?
EPA has been directed by President Obama to work closely with states, power plant operators, and other stakeholders as it finalizes its guidelines due to their novelty and far-reaching implications. Administration officials have said they aim to issue a final rule in the summer of 2015. The target date for states to submit their proposed plans to EPA is June 30, 2016, but states can apply for a one-year extension. After a plan is submitted, EPA will have a year to either approve plans or send them back to states for revision. If a state does not submit an adequate plan, EPA is authorized to impose a federal plan to drive the necessary reductions.
It is important to note that this action is not voluntary on the part of EPA. According to the Supreme Court in Massachusetts v. EPA (a decision that was recently reaffirmed), EPA is legally required to regulate greenhouse gases under the Clean Air Act if it finds them to endanger public health and welfare, just as EPA has addressed more traditional pollutants for the past 43 years. In 2010, EPA settled a suit with several states and environmental groups by agreeing to finalize greenhouse gas standards for existing power plants by May 26, 2012.
Additional resources can be found on the C2ES Carbon Pollution Standards Resource Page.
U.S. Capitol Visitor Center
Room SVC 202-203
First St SE
Washington, DC 20515
Thursday, May 22, 2014
9:30 AM to 11:30 AM
Carbon pricing is widely viewed as a cost-effective way to reduce greenhouse gas emissions and encourage energy innovation. Different forms of carbon pricing are employed in a growing number of jurisdictions around the world. Experts join C2ES to explore options for expanding the use of carbon pricing in the United States -- in particular, as a way for states to implement upcoming federal standards to reduce carbon emissions from power plants.
Session I: Carbon Pricing - What are the Options?
ADELE MORRIS (presentation)
Policy Director, Climate and Energy Economics Project, Brookings Institution
APARNA MATHUR (presentation)
Resident Scholar, American Enterprise Institute
Vice President, Markets and Business Strategy, Center for Climate and Energy Solutions
Session II: Carbon Pricing Under the Clean Air Act
DALLAS BURTRAW (presentation)
Senior Fellow, Resources for the Future
DAVID BOOKBINDER (presentation)
Co-Founder, Element VI Consulting
BRIAN TURNER (presentation)
Deputy Executive Director for Policy and External Relations, California Public Utilities Commission
JON BREKKE (presentation)
Vice President, Membership and Energy Markets, Great River Energy
Senior Fellow, Center for Climate and Energy Solutions
Judging from the climate policy debate in Washington, one might conclude that carbon pricing is only a concept, or something being tried in Europe.
But in fact, 10 U.S. states (California and the Northeast states in the Regional Greenhouse Gas Initiative) have carbon trading programs. That means more than a quarter of the U.S. population lives in a state with a price on carbon. And a growing number of nations and provinces around the globe are turning to carbon pricing to cost-effectively reduce greenhouse gas emissions and encourage energy innovation.
On June 2, the Environmental Protection Agency (EPA) is expected to release its proposal to cut carbon dioxide (CO2) emissions from existing power plants. This proposal is a key element of President Obama’s Climate Action Plan, and will be critical to reducing U.S emissions of CO2, the most common greenhouse gas contributing to climate change.
The proposed rule, being developed under EPA’s authority under Section 111(d) of the Clean Air Act, could be groundbreaking for at least two reasons. First, it has the potential to drive major reductions in the highest emitting sector in the United States – the power sector – which is responsible for nearly 40 percent of U.S. carbon emissions. Second, EPA has indicated that the proposal will include a number of novel policy provisions to advance low-emitting generation and energy efficiency.
At C2ES, we’ll be looking for answers to four key questions as we read through EPA’s proposal. These questions are expanded upon in our new brief, Carbon Pollution Standards for Existing Power Plants: Key Challenges.
Summary of C2ES May 2014 comments on EPA’s proposed “Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Generating Units.”
On September 20, 2013, EPA proposed carbon dioxide emission standards for new power plants in implementing its authority under section of 111(b) of the Clean Air Act. More information on the proposed rule can be found here. On May 7, 2014 C2ES submitted formal comments to EPA in response to the proposed rule. You can read those comments here, which are summarized below.
Market-based measures preferred: A comprehensive market-based approach would be a more efficient and effective way of reducing greenhouse gas emissions. This would require congressional action, which is unlikely in the near term. In the absence of legislation, C2ES believes EPA must proceed using its existing authorities under the Clean Air Act.
Comprehensive energy strategy needed: The United States needs a comprehensive energy strategy that advances low-emitting uses of coal and natural gas, nuclear power, renewable energy, and efficiency. Carbon capture and storage (CCS) must be an element in this strategy.
Importance of a CCS requirement: EPA’s proposed rule would essentially require any new coal plant to employ CCS technology to capture approximately 40 percent (at minimum) of its carbon dioxide (CO2) emissions and store this captured CO2 underground. Due to the availability of inexpensive natural gas and other market factors, no new coal plants are projected in the near term. However, significant increases in natural gas prices may renew interest in new coal plants. If this occurs, a CCS requirement as proposed by EPA will ensure that these new coal plants do not exacerbate the challenge of reducing greenhouse gas emissions.
CCS experience: There are about 50 commercial-scale CCS projects in the power and industrial sectors in various stages of development across the globe, including 12 already in operation in a variety of industrial plants in the United States. All of these plants transfer the captured CO2 to enhanced oil recovery projects (CO2-EOR). CO2-EOR has been used in the United States for 40 years to coax additional production from existing oil wells while reliably storing CO2. Since this process attaches a value to captured CO2, it has been and will continue to be critical in the deployment of CCS in the power sector.
A CCS requirement is only part of the solution: There are several barriers to the deployment of CCS on new coal plants. For one, even if there were an economic reason for a power company to build a new coal plant, there would be no economic or regulatory reason to include CCS. Additionally, CCS technology is currently very expensive, especially compared to a new natural gas power plant. The proposed rule addresses the former problem, but not the latter. Federal financial support through tax credits, such as the Expanding Carbon Capture through Enhanced Oil Recovery Act of 2014, and/or grants is also critical to help technology companies and power providers gain experience and reduce the costs of CCS.
Flexibility mechanisms: In addition to a regulatory requirement and financial support, power companies need time to bring CCS to the point of being cost competitive with other low- and no-carbon power generating technologies. We therefore encourage EPA to consider provisions to allow for flexibility in compliance with the CCS requirement, such as a 20-year emissions averaging period or a few years of lead time before capture is required on plants built after the rule goes in place.
Natural gas standard: Since there are circumstances whereby it is necessary to run gas plants at less than peak efficiency to minimize the systematic emissions of the power system – for example, to back up intermittent renewable sources of electricity – we encourage EPA to ensure that the proposed standards for natural gas plants are achievable for new combined cycle plants under all likely operating conditions.
Relationship with standard for existing plants: The relationship between EPA’s greenhouse gas standard for new power plants and the standard for existing plants is currently unclear. We request that EPA provide guidance on this point to reduce uncertainty for power companies and state regulators.