Low natural gas prices, energy efficiency to play key roles in EPA’s existing power plant rules
In his Climate Action Plan released in June, President Obama directed U.S. EPA to craft a regulation that would set maximum carbon emissions standards from existing power plants by July 2014. EPA will promulgate the rule under Section 111 (d) of the Clean Air Act, which requires states to make individual plans to comply with EPA’s requirements.
The agency has given little indication on how it will regulate 50 states with widely varying energy and environmental landscapes, except to say that the rule will allow enough flexibility for states to achieve their carbon-cutting targets as easily as possible. In the meantime, environment and industry groups have begun to put together economic models to understand what states’ best course of action will be.
“None of us, none of them, none of these models know the right answer,” said Jennifer Macedonia, a senior adviser at the Bipartisan Policy Center. “Instead, they give us directional trends, they help crystallize our thinking, take abstract concepts and make them tangible.”
The Bipartisan Policy Center co-hosted an event with the National Association of Regulatory Utility Commissioners on greenhouse gas regulations under Section 111(d) on Friday.
The Natural Resources Defense Council (NRDC) was the first organization to release an analysis of a potential road map for states. Last year, NRDC published a report that assumed different potential carbon reduction measures — like improving the thermal efficiency of power plants, shifting dispatch from higher-emitting units to lower-emitting units, and introducing renewable energy — that states would adopt, depending on how cost-effective that measure would be.
Renewable energy sees little growth
Dan Lashof, director of NRDC’s climate and clean air program, presented updated findings to the analysis, showing even larger cuts in CO2 than in the original analysis — 40 percent by 2020, as opposed to 25 percent by 2020. This would yield about $22 billion in benefits, compared with $14 billion net benefits for a low-end estimate in the original analysis. This doesn’t include the additional health and environmental benefits of lower levels of nitrogen and sulfur air pollution, Lashof said.
“The new policy case looks more like a continuation of the recent trends that we’ve seen since 2007,” said Lashof. NRDC used 2013 reports on demand projections, nuclear capacity, onshore wind costs and energy efficiency potential to assess the figures.
In the policy case, energy efficiency achieves the most emissions reductions from coal plants, around 500 million megawatts in the new policy case. But overall, the flood of natural gas — more than 1 billion megawatts of generation by 2020 — will lower carbon dioxide the most.
Despite their low-carbon potential, there won’t be much growth in renewable energy in the policy outside of the 30 states that already have renewable portfolio standards, said Lashof. This assumption could change if the price of installing solar and wind capacity drops.
“I think renewables could play a bigger role than what we see here,” he said. “That would make it easier to meet these targets.”
Renewable energy in Kentucky, a state that gets nearly 100 percent of its energy from coal, would need to be imported, as there are few installations in the state, said John Lyons, Kentucky’s assistant secretary for climate policy.
More eggs, more baskets
Paul Bailey, senior vice president of the American Coalition for Clean Coal Electricity, disputed Lashof’s views on the potential of energy efficiency to lower emissions in the coal-fired power plant fleet. NRDC assumes that states will pay between 2.3 and 3.2 cents per kilowatt-hour to improve efficiency between now and 2020. That number is unrealistically low, said Bailey, who places the figure closer to 11 cents per kilowatt-hour, according to analysis from NERA Economic Consulting.
“Someone is paying for the efficency improvements … and then you’re spreading the same system cost over fewer kilowatt-hours,” he said.
Although the overall bill of generating electricity would go down, it doesn’t offset the cost per unit, Bailey said.
According to ACCCE’s modeling, the benefits to the climate would be greatly outweighed by high costs: up to $151 billion in total consumer costs and between 75,000 and 214,000 jobs lost.
The low-hanging fruit of energy efficiency is likely to be eaten soon, leaving less opportunities for the future, said Bruce Braine, vice president for strategic policy analysis at American Electric Power Co. Inc. Traditionally, improvements in efficiency have come from relatively simple fixes, like replacing compact fluorescent light bulbs with light-emitting diode (LED) lights. Energy efficiency may become more difficult to achieve once the easy moves are made, he said.
Kentucky will see most of its potential emissions reductions from natural gas. That may be a risky proposition, and might lead to the same lack of diversity that Kentucky is facing today with coal. In a business-as-usual scenario, Kentucky will get about 80 percent of its generation from gas by 2050.
“That is simply not good for Kentucky, nor is it good for the country,” he said. “We’re going right back to what many of us already had, which is all eggs in one basket.”