States will benefit from regional approach to EPA carbon rule — analysis 

Source: Jean Chemnick, E&E reporter • Posted: Thursday, April 30, 2015

States face wide variations in Clean Power Plan compliance costs and outcomes depending on the paths they choose and how much time U.S. EPA allows them for writing compliance strategies, according to an analysis released yesterday by the Bipartisan Policy Center.

The Washington, D.C., nonprofit’s modeling explores options the draft rule offers to states, projecting outcomes based on whether states choose regional or individual emission plans and weighing variables that include the cost of natural gas.

The modeling projects that the EPA rule will cost $9.7 billion in 2020 and $15.7 billion in 2030 annually before savings from demand-side efficiency are factored in.

The center found that nearly every state would benefit by choosing regional cooperation. The exception: Texas, which is served by grid operator Electric Reliability Council of Texas (ERCOT) and is assumed to go it alone.

How much the regional approach will save on compliance costs varies by region. The report sees the vast “Midcontenental” region that sprawls from Montana to Michigan to Louisiana as saving more than $1.5 billion a year between 2020 and 2030 by banding together.

Regional approaches would also keep more coal-fired power plants online because emissions reductions could be averaged across a broader swath of states, taking advantage of least-cost options.

The center says regional approaches could prevent the retirement of 7 gigawatts of coal capacity between 2016 and 2030.

In addition to bringing down the cost of overall compliance, state plans that encourage energy efficiency can act to safeguard the current power mix, including coal.

If less power is used, the report says, more of it can come from higher-emitting sources while still allowing states to meet their targets. Five Southeastern states stand to keep nearly 10 GW of coal-fired capacity from being retired if the region maximizes new and additional demand-side efficiency, it says.

A state’s choice to comply using a rate-based standard — which sets a carbon limit per kilowatt — or a mass-based “carbon budget” is also important, according to the analysis. Most states will save compliance costs by going the mass-based route, the report says.

On a call with reporters yesterday, analyst Jennifer Macedonia said states could erode the EPA rule’s overall carbon-reduction benefits if they all used the most generous assumptions the agency provides for when converting their rate-based targets to mass-based targets.

If all states did so, the power sector could exceed EPA’s projected emissions levels by as much as 17 percent, she said.

It also matters whether states choose to include their new combined-cycle natural gas power plants under the draft rule, she said.

That approach would ensure those units make ongoing emissions reductions, she said, as the existing fleet is required to do rather than simply complying with EPA’s separate standard for new facilities and then operating outside the cap of regulations.

“There’s kind of a level playing field between new and existing gas,” Macedonia said.

So including new units under the Clean Power Plan compliance strategy will keep more existing power plants online, she said, again lowering overall compliance costs. It would also address concerns some utilities have raised about the rule’s potential to require them to shutter power plants before they have finished paying for them.

The center’s study is the latest of many analyses that show states would benefit from a regional rather than a state approach to Clean Power Plan compliance.

But many states say the draft rule provides them too little time to construct a regional compact. And green groups warn that political pressure in some states to “just say no” to compliance with the rule could slow their implementation process further, putting more time-consuming compliance options out of reach and making enforcement of a federal plan more likely.