Even Bigger Carbon Reductions, Even Lower Costs
Posted December 9, 2013
About a year ago NRDC released a report describing a specific proposal for reducing carbon pollution from power plants under the Clean Air Act and providing the results of an analysis of our proposal using the Integrated Planning Model, which is also used by EPA for regulatory analysis. Last Friday I presented preliminary results from updated modeling of our proposal and two additional scenarios at a workshop sponsored by the Bipartisan Policy Center and the National Association of Regulatory Utility Commissioners.
Our goal then, and now, is not to say that our proposal is the one right way to set power plant carbon pollution standards. Rather we showed that it is possible to achieve big reductions cost-effectively using the Clean Air Act.
A year later, the president has directed EPA to propose carbon pollution standards by June 2014 and finalize them by June 2015. EPA is undertaking an extensive stakeholder engagement process, of which Friday’s workshop was a part. Hundreds of people have weighed in, some of them with specific feedback on our proposal. We have been listening to that feedback and we are in the process of conducting new analysis, both of our original proposal and of variations on it. Friday’s event was my first opportunity to discuss our new results in public. This post summarizes my presentation (a slightly updated set of charts is available here; the slides from all presenters at the workshop can be found here).
Spoiler alert: We found that we can make even bigger reductions at even lower costs than in our original analysis. Up to a 30 percent reduction in power sector CO2 emissions by 2020 compared to 2012 levels with net health and environmental benefits of over $30 billion.
Before presenting the new results in more detail here is a recap of our policy proposal: Using the terminology EPA defined in its introduction to power plant carbon pollution standards, our proposal is a system-wide, rate-based, state-specific performance standard that applies to all fossil fuel power plants.
The emission rate standard for each state is calculated based on a formula that reflects the generation mix of the state during a baseline period (we used 2008-2010) and nominal emission rate targets for coal and gas generation. So for example, the emission standard for fossil fuel power plants in Kentucky in 2020 would be 1480 lbs/MWh reflecting the fact that almost all of Kentucky’s generation came from coal during 2008-10. Florida would have a standard of 1160 lbs/MWh reflecting a mix weighted somewhat toward gas, and California would have a standard of 1010 lbs/MWh reflecting fossil generation that comes almost entirely from gas.
This means that Kentucky would face a significantly weaker standard than Florida or California, although it would have to make a greater percentage reduction from its current emissions rate to get there. This is only reasonable given that Kentucky has emission reduction options that aren’t available to California—namely Kentucky can replace part of its coal generation with natural gas generation, which California can’t do because it has no coal generation to replace.
The other key feature of our proposal is flexibility that would allow generators to get credit for any measure that actually reduces emissions from the power sector, and would allow states to adopt alternative plans as long as they reduce emissions by at least as much.
Compliance flexibility, which nearly all stakeholders have called for, is the key to achieving big reductions at low cost. Under our proposal, source-based reductions, such as heat-rate improvements and co-firing biomass or natural gas at coal-fired power plants, would contribute to reducing emissions, but so would system-based reductions such as shifting dispatch to cleaner sources, adding zero-emitting resources, and increasing end-use energy efficiency.
Some industry representatives have suggested that emission standards be based solely on reductions that can be made within the fence line of each individual source, but that sources then be given the option to tap into the full array of system-based reductions. As my colleague David Doniger has pointed out, such an approach would not meet the Clean Air Act’s requirement to establish the Best System of Emission Reductions that has been adequately demonstrated. Indeed, system-based reductions have been widely demonstrated and are responsible for nearly all of the 15% reduction in CO2 emissions that occurred between 2005 and 2012.
Turning to our new analysis, we updated our reference case by benchmarking it to the Energy Information Administration’s 2013 Annual Energy Outlook, whereas our old reference case was based on the 2011 outlook. That makes quite a difference given the significant changes in the energy industry over the last few years. Power sector carbon dioxide emissions in 2020 are 11 percent lower in the updated reference case compared to the original reference case.
For our policy cases we developed an endogenous approach to energy efficiency using a simplified supply curve. We broke up the total savings we used last time (which comes from an assessment by Synapse Energy Economics based on the performance of leading state programs) into three equal blocks. We assigned program costs to each block so that the middle block had the same cost of saved energy as we assumed before, with relative costs for the blocks based on a Lawrence Berkeley National Lab report. In each region the model selects how much energy efficiency to deploy based on its cost relative to other resources.
We have also analyzed a case assuming that only half as much energy efficiency is available. In this case we simply reduce the amount of energy efficiency available in each cost block by 50 percent. Finally, given the modest costs and very large net benefits of our original proposal, we examined a case with somewhat more stringent standards.
Figure 1 compares 2020 generation in the updated reference case to the three policy cases: The second bar has our original standards and original energy efficiency resource assumption. The third bar looks at what happens if the energy efficiency resource is only half as large, and the final bar is the result of more stringent standards and the original efficiency resource.
Figure 1. Electricity Generation by Source in Updated NRDC Scenarios
The differences are largely as expected. Note, however, that in the case that assumes only half the energy efficiency resource, there is both more gas generation and more coal generation than in the basic policy case. The explanation is that in this case 9 percent of the coal-fired generation employs Carbon Capture and Storage (CCS) or biomass co-firing. In the more stringent standards case 13 percent of coal-fired generation uses these technology and there is also less coal generation overall and more gas generation than in the basic policy case.
It is also worth noting that in all of these cases natural gas-fired generation in 2020 is less than it was last year, and in the basic policy case it is lower than in the reference case for 2020. So contrary to conventional wisdom, we can cut power sector carbon pollution substantially without getting bloated on gas.
Figure 2 presents the bottom line for CO2 emissions. Under the basic policy case CO2 emissions are reduced 23 percent from 2012 levels by 2020, or 35 percent from 2005 levels. In the case that assumes that the energy efficiency resource is half as large emission reductions are similar, but slightly smaller (21 percent below 2012 levels in 2020). The more stringent standards case reduces emissions by 30 percent from 2012 levels (or 40 percent from 2005 levels) by 2020.
Figure 2. Power Sector CO2 Emissions in Updated NRDC Scenarios
Finally, these emission reductions come with huge net benefits as shown in Figure 3. In the basic policy case the total cost of delivering electricity services, including the cost of energy efficiency programs and customer contributions, turn out to be virtually identical to the costs in the reference case. Meanwhile, a low estimate of the value of the CO2 emission reductions, based on the administration’s latest estimate for the “social cost of carbon” is $23 billion. Using the low end of the range we used in our original report, the value of SO2 and NOx reductions adds about $7 billion to the benefits column. (We will calculate the high end of the range in future updates.)
Figure 3. Costs and Benefits from Reduced Emissions in 2020
Complying with the standards with only half the energy efficiency resource would certainly be more expensive, but it would still be a great bargain. Costs of less than $8 billion and CO2 reduction benefits of more than $20 billion. Adding a preliminary low estimate of the benefits from SO2 and NOx emission reductions brings the total benefits to almost $28 billion. These are both low-end benefits estimates, so the net benefits in this conservative case are still at least $20 billion.
The more stringent standards case has compliance costs of about $7 billion, and CO2 reduction benefits of almost $30 billion. When we account for the benefits of SO2 and NOx reductions the net benefits in this case come to over $30 billion, which is even higher than in the standard NRDC Policy case.
So to conclude: The Clean Air Act can be used to get even bigger reductions in carbon pollution from power plants at even lower costs than we thought last year.
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