Q&A: EPA Regulation of Greenhouse Gas Emissions from Existing Power Plants

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 Power Plants across the Contiguous United States

Source: Energy Information Administration

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 standardEach power plant must achieve a set emissions intensityCalifornia, New York, Washington
Renewable Portfolio StandardUtilities must deliver a set percentage of renewable electricityColorado, Hawaii, Kansas, Missouri, Nevada, Rhode Island, and others
Energy Efficiency Resource StandardUtilities must cut demand by a set amount by target yearsArizona, Connecticut, Maryland, Minnesota, Texas, and others
DecouplingReduce utility incentive to deliver more electricity by decoupling revenue and profitCalifornia, Idaho, Massachusetts, Michigan, Oregon, and others
Net MeteringEncourage residential solar by paying homeowners to put excess electricity back on gridArkansas, Colorado, Georgia, Louisiana, and others
Cap & TradeIssue a declining number of carbon allowances, which must be surrendered in proportion to each plant’s emissionsCalifornia, Regional Greenhouse Gas Initiative
Carbon TaxCharge a tax for emitting carbonBritish Columbia
Grid Operator Carbon FeeAdd a carbon price to grid operator decision over which power plants to runNone currently
Appliance Efficiency StandardsRequire new appliances sold to meet set electricity consumption standardsCalifornia, Florida, New Jersey, and others
Commercial & Residential Building CodesRequire new buildings to include electricity saving measuresCalifornia, 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 by June 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.