Clean Power Plan Points Utilities Toward ‘Inevitable’ Low-Carbon Future, McCarthy Says

Source: By Andrew Childers, Bloomberg News • Posted: Thursday, April 30, 2015

April 28 — A low-carbon future is “inevitable,” and the Environmental Protection Agency’s proposed Clean Power Plan is intended to send utilities the market signals necessary to guide those investments, Administrator Gina McCarthy said.

“A low carbon future is absolutely inevitable. The question is how quickly will that come out and who will win,” McCarthy said April 28 at Columbia University’s Global Energy Summit in New York.

McCarthy said the EPA’s proposed rule follows investments utilities have already made in new natural gas-fired and renewable electricity generating capacity. The proposed Clean Power Plan would provide additional market certainty for utilities as they continue to pursue those investments.

“America is already bullish on clean energy and the low carbon economy,” McCarthy said. “That is my argument. That is what money and investments are telling me. EPA simply wants to send the right signal so they can feel sure when they double down it will be profitable to them.”

The proposed Clean Power Plan (RIN 2060-AR33), expected to be finalized this summer, would set carbon dioxide emissions rates for existing power plants in each state. State regulators would develop their own plans to achieve that emissions rate.

McCarthy touted the flexibility the EPA is proposing to give states to develop their own compliance plans. That allows each state to customize their compliance options to meet their unique economic and power needs, she said.

“We’re not balancing energy and environment. We’re actually marrying them together,” McCarthy said.

Emissions Reductions Rest on States

The success of the EPA’s proposed rule could hinge on how states develop those compliance strategies and whether the Clean Power Plan affords them the time necessary to develop regional plans, the Bipartisan Policy Center said in modeling results released April 28. The center modeled various compliance scenarios available to states as they plan to implement the rule. How states choose to structure their compliance plans will have a large impact on the rule’s costs and the scope of the achievable emissions reductions, the Bipartisan Policy Center said. Its modeling shows the rule could cost $9.7 billion per year when it takes effect in 2020 and as much as $15.7 billion annually in 2030 without energy efficiency measures to keep costs down.

“If [end use energy efficiency] is available and low cost as many studies suggest, it will really have a substantial impact on reducing the cost,” Jennifer Macedonia, senior adviser to the Bipartisan Policy Center, told reporters April 28.

The EPA’s proposed rule allows states the option of developing their own compliance plans or working collaboratively on regional compliance options. The Bipartisan Policy Center’s modeling shows that regional approaches are most cost-effective and allow states more flexibility to adapt to changing markets, including preventing retirement of 7 gigawatts of existing coal-fired generating capacity. But some states have suggested that the EPA’s proposal does not provide sufficient time to develop those regional compliance plans.

Mass Conversion Has Implications

The cost of the plan and the emissions reductions achieve may be determined by whether states chose to stick with the carbon dioxide emissions rate as proposed by the EPA or convert that rate into a mass-based target to facilitate the kinds of emissions trading programs currently in place in California and the Regional Greenhouse Gas Initiative states, the Bipartisan Policy Center said.

The mass-based targets tend to lower total compliance costs while the rate-based targets result in lower wholesale electricity costs, Macedonia said.

How states calculate that target could also increase the amount of carbon dioxide emissions permitted under the rule, she said.

The EPA provided states with additional guidance on how to convert their rate-based targets into mass-based targets in November 2014. The guidance offered two options for states to convert to mass-based targets. The first would rely on generation data from 2012 that has been updated to account for increased use of renewable electricity, nuclear generation and energy efficiency programs as part of the EPA’s proposed emissions guidelines. Under the second option, the EPA would allow the states to also include new fossil fuel-fired generation sources as well as the 2012 generation data, which could increase the amount of carbon dioxide emissions permitted.