State, industry and advocacy leaders gathered on December 6 to discuss what they do and don’t want included in forthcoming regulations on CO2 emissions from existing power plants. They also discussed how analytical tools are guiding their thinking. The workshop was co-hosted by the Bipartisan Policy Center (BPC) and the National Association of Regulatory Utility Commissioners (NARUC). It is the second of three workshops exploring the challenges and opportunities of CO2 regulations under Section 111(d) of the Clean Air Act.
EPA is planning to issue its proposed rule in June 2014, with a final rule coming out in June 2015. In accordance with Section 111(d) of the Clean Air Act, the rule will come in the form of an emissions guideline. States will have until June 2016 to submit an implementation plan. EPA is soliciting input about how stringent the rule should be and how states should be allowed to comply.
BPC’s President Jason Grumet kicked off the event with an invitation to all stakeholders to come together to sort through the difficult task of drafting a CO2 policy. “The stakes here are very high,” he said. “The issues are complex, unprecedented, high profile, and I think fair to say, intensely political.”
Also framing the day was Bill Reilly, who led the EPA as Administrator from 1989-1993. Reilly gave the keynote remarks, pointing to the problems CO2 regulations seek to address and encouraging stakeholders to work together to create a sensible rulemaking.
Reilly stated that we can no longer ignore climate change as a country: “The power sector will be on the front line, and I hope and trust for the good of the climate and the future reliability of electrical energy in America, on which the industry’s record is exemplary, that EPA and industry will together elect a smart and constructive and profitable path forward.”
Below is a short summary of the three panel discussions that focused on potential paths forward.
Panel 1: State Considerations and Section 111(d) Policy Design
Hon. Doug Scott, chairman of the Illinois Commerce Commission led the first panel. Scott noted EPA has reached out to state leaders, like himself, to get a better understanding of what actions states are already taking. He said states will take the lead in this regulatory process and, as a result, have a lot of work to do. The need for “state flexibility” emerged as a common theme among all of the speakers. Hon. Lisa Edgar, NARUC’s first vice president and commissioner with the Florida Service Commission, said the need for flexibility is a widely held view among state utility commissioners and was included in a recent NARUC resolution about 111(d) regulations.
Panelists expressed the value of “state flexibility” in different ways.
- Edgar argued that flexibility could allow her state of Florida to account for early action, including the integration of consumer-level renewable energy. She said she is worried that the forthcoming regulation could reduce fuel diversity, impact reliability and increase costs.
- Kathy Kinsey, deputy secretary for the Maryland Department of the Environment, talked about how flexible compliance options would allow her state to use the Regional Greenhouse Gas Initiative (RGGI) to meet CO2 standards. She said RGGI has several advantages, including its ability to account for the regional nature of power markets, to allow companies to consider the remaining useful life of coal units and to allow for a portfolio of measures to be used to reduce emissions.
- Tom Curry, vice president of MJ Bradley and Associates, represents major utility and generating companies in the power sector. He discussed the pros and cons of different policy options for state implementation and highlighted the advantage of a tradable system, whether built on a rate-based or mass-based foundation. He said market-based mechanisms are preferable because they allow regulated facilities to find the most cost effective compliance strategies.
- Robert Wyman, a partner with Latham and Watkins, who represents a range of companies in the National Climate Coalition, advocated for an EPA regulation that is fuel- and technology-specific. He envisions EPA setting carbon intensity standards and then giving states wide flexibility to comply, including the option to use a mass-based program.
Panel 2: Drivers of Power Sector CO2 Reductions
Sue Tierney, managing principal of the Analysis Group, moderated the second panel, which explored the possibilities for emissions reductions at power plants and within the larger power system. She said there will not be a “national” approach to complying with 111(d) standards, but instead states will be in the driver seat, putting together unique plans to comply with EPA reduction targets. Tierney said the process will be a “cooperative federalism” approach.
Panelists also discussed options for compliance and how different policy designs could impact stakeholders.
- James Staudt, principal owner of Andover Technologies Partners, gave a technical overview of efficiency opportunities at coal and natural gas-fired power plants. He noted that plants are typically run as efficiently as economically possible, leading to fewer efficiency opportunities at flagship units and more opportunities for improvement at less valuable plants. Staudt also highlighted the use co-firing or fuel switching as possible compliance options for coal plants.
- Bruce Braine, vice president for strategic policy analysis at AEP, urged EPA to consider early action taken by power companies. He said AEP has been moving away from coal-fired capacity and toward lower-emitting generation options, such as natural gas. He also supported a mass-based compliance option that would allow companies to use a variety of approaches, such as renewable energy and demand-side energy efficiency, to comply with a 111(d) standard.
- Kathleen Barrón, senior vice president at Exelon, focused on the importance of carbon-free nuclear power in meeting greenhouse gas goals. She urged EPA and the states to ensure that all carbon-free resources are treated equally and to consider the impact of 111(d) compliance plans on nuclear power.
- Dallas Burtraw, senior fellow and Darius Gaskins chair at Resources for the Future, explored plausible ways in which a Clean Air Act program could significantly reduce U.S. greenhouse gas emissions, including the cost and benefit tradeoffs inherent in different design options. He focused on the importance of cost-effectiveness as one of the criteria that will be important in the assessment of state implementation plans and discussed the concept of EPA weighting different factors in a multi-criteria assessment of each state’s compliance plan.
Panel 3: Power Sector Impacts of GHG Regulation
Panel 3 invited four presenters to share results from economic modeling of 111(d) proposals. Presenters included:
- John Lyons, assistant secretary for climate policy for the state of Kentucky;
- Bruce Phillips, director of The NorthBridge Group;
- Daniel Lashof, director of climate and clean air program at the Natural Resources Defense Council; and
- Paul Bailey, senior vice president for the American Coalition for Clean Coal Electricity.
Each presenter used a different modeling platform to explore ways EPA could structure a rule and the outcomes that could arise, such as emissions reductions, coal retirements and price impacts. For a more detailed summary of the modeling panel, refer to a blog post by BPC Senior Advisor Jennifer Macedonia, who moderated this discussion.