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Aug 4, 2015

5 Things to Know About Obama’s Clean Power Plan


Yesterday afternoon President Obama announced the release of the final version of the Clean Power Plan (CPP). Anticipating the wave of challenges that industry will throw at him, Obama assured the American people that this rule is both essential and attainable. “We can figure this stuff out as long as we don’t take the path of least resistance,” he said. “Scientists, citizens, workers, entrepreneurs—together as Americans we disrupt those stale old debates; upend old ways of thinking.”

And that is exactly what the Clean Power Plan hopes to do: upend the old way of thinking and put a stop to the unchecked pumping of CO2 into the atmosphere. With a uniform standard for every power generator in the U.S., this version of the rule looks a lot more likely to reach its target of cutting emissions 32 percent from 2005 levels by 2030 than the original version did. Deeper analysis and scrutiny in the coming days will undoubtedly reveal shortcomings and areas where the rule could have been tightened. But in the meantime, here are the top things you should know about the first major effort by the U.S. government to limit CO2 emissions from the power sector.

The Clean Power Plan complements existing federal air quality regulations

Coal plant emissions regulated by the Clean Power Plan are already controlled under the Mercury and Air Toxic Standards (MATS), which was the subject of a Supreme Court ruling a few weeks ago. Many of the dirty coal plants that would have their carbon emissions regulated by the Clean Power Plan have already shut down, or are slated to shut down, due to the cost of cutting mercury emissions to comply with MATS. By the April MATS compliance deadline, 4,600 MW of coal generation was offline, with a total of 46,000 MW on track to close in the ten years spanning 2012–2022. While the final fate of MATS is still up in the air, the CPP will ensure that any coal plants that continue to operate do so with lower CO2 emissions.

The final version of the rule made major advances in energy resource prioritization

Notably, natural gas was deemphasized as a bridge resource. In the original CPP, replacement for coal and other high-emissions resources favor quickly deployable resources with high upfront costs (e.g., natural gas combined cycle plants) rather than slower but more-reliable resources (e.g., efficiency). The extended compliance deadline (pushed back from 2020 to 2022) will enable utilities to more adequately plan for and integrate efficiency and distributed renewables and will decrease states’ need to rely on natural gas. However, it could also allow states with no plans to comply even more time to build high-emissions resources and lock themselves, and their ratepayers, into an overbuilt future.

Also, and importantly, efficiency and renewables are treated more accurately. The final rule uses updated renewable projections, and addresses efficiency with a new Clean Energy Inventive Program. The original rule used a regional average to calculate renewable potential, which resulted in seven states having 2030 targets below their present installed capacity, and 17 states having renewable targets below what state law already requires. Additionally, renewable energy cost estimates used by the original rule were at least one-third above current U.S. market levels, and efficiency costs were twice those of current utility efficiency programs. These updates accounts for some of the increase in the emissions-reduction potential calculated for the final rule.

The final version of the rule also left some issues unresolved

The original CPP overestimates the amount of electricity that people will need from central generation plants. Future demand projections were based on government forecasts that use, among other sources, the U.S. Energy Information Administration (EIA). However, the EIA projects sales will grow at 0.78% over the years 2012–2040, when the observed average growth rate in the nine years since 2005 has actually been 0.17%. In fact, the EIA has consistently over-estimated demand growth each year since 2005. This is problematic because higher demand will drive more investment in central thermal capacity (likely natural gas), locking the grid even more into fossil resources.

Strong industry opposition remains, despite efforts to respond to industry concerns

Many states claim they will not comply, even though some are on track to “accidently” comply. At least 13 states have tried (unsuccessfully so far) to challenge the rule. Kentucky has made it clear it will not submit a state compliance plan. But it turns out it might “accidently” comply simply by letting the market drive coal plant retirement and increased natural gas use. Market fundamentals (the fracking boom, declining natural gas costs, and declining solar and wind costs) are no longer in coal’s favor in much of the country, and while the CPP will support and accelerate a transition to renewables and natural gas, it will likely not be the fundamental driver of this transition.

There is also a large discrepancy between what the Environmental Protection Agency (EPA) and the industry calculate as the net value of the rule. The EPA calculates the net benefits of the final rule at around $34–54 billion per year in 2030, while industry projections place the cost at $366–479 billion over the period 2017–2030 based on the original draft rule. This discrepancy would be concerning, except industry-sponsored exaggerated claims of dire costs from emission regulations have accompanied nearly every modern environmental regulation the EPA has proposed. The Center for American Progress  analyzed economic data on the impact of the original 1997 ozone regulation and found that industry predictions about the harmful impact of the regulation never materialized.

Finally, electricity costs are projected to increase under both business as usual and the CPP. Opponents of the rule believe that it will strand existing assets and leave consumers with increasing electricity costs. However, these claims fail to account for the benefits of a high-renewable and -DER future, which can have the effect of lowering grid costs when deployed properly. Additionally, they use a very low future baseline to support claims of high rate impacts from the CPP. Realistic projections would incorporate the estimated $1.5 trillion in infrastructure investments that will be needed under BAU to maintain our current centralized electricity grid over the next 15 years.

The push to upend traditional thinking will put us on track towards a more-efficient energy system

The CPP presents a unique opportunity to rethink utility resource planning. Future utility resource planning will have to incorporate not just the marginal cost of operating generation units but also the cost of carbon. States that refuse to comply and continue to plan and build carbon-emitting resources in the near term could inadvertently end up sticking their ratepayers with the bill for both the newly constructed carbon-emitting resources, and any additional carbon-reduction measures that the states should have taken from the start to meet their emissions target. States that embrace the opportunity will find that compliance is not as challenging as they thought, and actually presents an opportunity to save their ratepayers money by avoiding unnecessary investment in large central generation assets.

Image courtesy of Shutterstock.

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