WASHINGTON — The cost of complying with upcoming carbon emission caps will depend on the role of energy efficiency and the choice of “blended” or fuel-specific emission standards, speakers told a high profile forum here last week.
A popular parlor game in Washington these days is debating what the Environmental Protection Agency’s pending greenhouse gas rules on existing power plants should look like. Will it be a rate-based standard limiting emissions per MWh or a mass-based standard, similar to the overall emissions “budget” used by California and the Regional Greenhouse Gas Initiative (RGGI)? Will limits be uniform or recognize states’ varying fuel mix?
About 400 people were in attendance as the Bipartisan Policy Center and the National Association of Regulatory Utility Commissioners turned a conference room at the Marriott Metro Center into a large, web-cast parlor. While there was no consensus on what EPA will do, there were plenty of opinions on what it should do.
Supporters of the mass-based standard said the rate-based alternative could result in uneconomic plant operations due to “seams conflicts” among states with different systems.
“If you’ve got states with 50 different programs you’ve got seams” said Kathy Kinsey, deputy secretary of the Maryland Department of the Environment. “That gets pretty complicated.”
“State borders are incongruous with energy markets,” said Dallas Burtraw, senior fellow at Resources for the Future, a think tank.
Bruce Phillips, director of The NorthBridge Group, said the rate-based alternative could also cause an “emission “rebound” as coal units that reduce their heat rates to comply are dispatched before gas plants, thus extending their operating lives.
Phillips argued for a mass-based approach that sets a “budget” for coal emissions and a separate emission rate for gas plants rather than a “blended” budget for both fuels.
Both mass-based approaches could cut carbon emissions from fossil fuel generation and coal generation by 26% over 2005 levels while increasing gas consumption by 2.7 TCF and boosting Henry Hub gas prices by about 10%, Phillips said.
But while the fuel-specific approach would increase wholesale electric costs by 6%, prices would rise 28% under a blended approach, Phillips said.
Energy Efficiency’s Roles
The forum also featured a debate between the Natural Resources Defense Council and the American Coalition for Clean Coal Electricity (ACCCE) over the role and cost of energy efficiency under the new rules.
The NRDC has proposed a plan that would grant credits to state energy efficiency programs, which generators could purchase to effectively lower their average emissions rates. Dan Lashof, director of NRDC’s climate and clean air program, told the forum its plan could cut CO2 pollution by 26% from 2005 levels by 2020.
The environmental group initially estimated a compliance cost of $4 billion in 2020, which it said would produce environmental benefits of $25 to $60 billion. A revised analysis, incorporating lower demand growth estimates and energy efficiency costs, projects 2020 compliance costs at less than $1 billion.
Sound too good to be true? It is, insisted Paul Bailey, ACCCE’s senior vice president for federal affairs and policy.
Bailey presented an analysis “bookending” the NRDC proposal between two scenarios: “Maximum flexibility,” which envisions national emissions trading and credits for end-use efficiency and new renewables and “limited flexibility,” which allows only intra-state trading and no credits for EE or renewables.
Where NRDC sees 210,400 net job gains in 2020, ACCCE says it will cost 75,000 to 214,000 jobs. ACCCE also predicts retail price increases of more than 10% in 13 to 29 states.
Bailey said the main reason for the disparities are differing assumptions regarding energy efficiency costs. NRDC estimated costs of up to 4.6 cents per KWh while ACCCE used an estimate more than twice as high at 11 cents.
Other speakers also split on the role of energy efficiency.
“In the future, it’s going to be a challenge” to increase EE further, said Bruce Braine, AEP’s vice president for strategic policy analysis.
Resources for the Future’s Burtraw said a flexible approach allowing emissions rate averaging or trading and reliance on EE could result in a “very small change in electricity prices.”
State Standards
Kinsey said EPA should set uniform carbon intensity standards for all states while giving coal-dependent states time to adjust.
But the NRDC would set different levels. For example, California, which has virtually no coal generation would have a limit of 1,100 lbs./MWh while Kentucky would have a limit of 1,480. “While Kentucky would have a lower standard than California it would have to make a bigger reduction from its starting point,” said Lashof.
Nuclear Power Role
Keynote speaker William K. Reilly, EPA administrator from 1989-93, said the rules should allow generators time to recover their investments in emission controls for mercury, sulfur oxides and nitrogen oxides.
Reilly and other speakers also called for a renewed role for nuclear power, saying a reliance on natural gas alone for baseload power would expose the economy to price risk.
Six nuclear plants with a capacity of almost 4,900 MW have recently announced retirements due to flat power demand and low prices.
If that trend continues, the nation will lose one-quarter of its nuclear capacity by 2025 — giving back more than half of the progress to date in meeting 2020 climate goals, said Kathleen Barron, Exelon Corp.’s , senior vice president for federal regulatory affairs and wholesale market policy. “All of these pictures, of course, change if there’s a price on carbon,” she said.
EPA Approach Praised
Speakers praised EPA’s efforts to solicit input from industry and state regulators in formulating the rules. “I’ve seen EPA personnel more than my own family in the last few months,” joked Doug Scott, chairman of the Illinois Commerce Commission.
Among those in attendance were Gregory Carmean, executive director of the Organization of PJM States Inc. (OPSI), and PJM market strategist Gary Helm, Vice President for Federal Government Policy Craig Glazer and Chief Economist Paul Sotkiewicz.
“It’s pretty clear that people are looking for flexibility in what EPA proposes,” Sotkiewicz said after the session. “Flexibility across fuel sources, flexibility across geographic regions, flexibility across time.”
