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EPA’s Clean Power Plan: Role for Pollution Prevention in State Compliance Plans

Presentation to Pacific Northwest Pollution Prevention Resource Center

Seattle, Washington

2015-October-28

Christopher James, Principal

• The Regulatory Assistance Project (RAP) is a global, non-profit team of energy experts, mostly veteran regulators, advising current regulators on the long-term economic and environmental sustainability of the power and natural gas sectors. (www.raponline.org)

• Non-advocacy; no interventions

• Chris James is a Principal at RAP. His experience as an air quality regulator came as Air Director for the State of Connecticut and from US EPA Region 10 (Seattle).

Introduction

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Conclusions

• State flexibility encouraged only 3rd time in 40 years that this section of the Clean Air Act has been used. EPA recognizes link between pollution and energy production/consumption.

• Energy efficiency (EE) is pollution prevention, and improves the cost-effectiveness of states’ Clean Power Plans (CPP)

• EE can be a significant component to meet CPP targets, but it “won’t get there all by itself”

• Co-benefits matter, increase value of EE. apply to criteria pollutant programs (PM, ozone), water, energy plans

Regulatory Basis for Clean Power Plan

• 2007: Massachusetts vs. EPA, Supreme Court found that greenhouse gases are pollutants under the Clean Air Act.

• 2009: EPA “endangerment finding”: six GHG “threaten public health and welfare”

• 2010: Waxman-Markey GHG bill is not introduced in the Senate

• EPA has no choice but to pursue regulatory path

• 2012: EPA proposed GHG standard for new power plants

• 2014: EPA proposed GHG standards for existing power plants

• 2015: EPA issues final GHG standards for new and existing power plants

• EPA uses Section 111 of the Clean Air Act. CO2 is not a “criteria pollutant”. EPA does not expect to establish an ambient standard for CO2

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Are you developing your State Plan to your State’s Advantage?

111(d) State Plans

What’s Changed in the Final CPP (issued August 3rd)

• Building block 4 (EE) was removed

• States have until 2018 to submit compliance plan, with possible extension to 2022

• State emission rates adjusted

• Separate emissions rates for fossil steam (e.g., coal) and combined cycle natural gas plants

• States can use separate or blended emission rates

• Option: cap and trade

• New: Clean Energy Incentive Program

Three Building Blocks in Final CPP

• ,

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1. Heat Rate Improvements

2. Redispatch to Gas

3. Renewable Generation

4. Energy Efficiency

Optimize Power Plant Operations

Electric-Sector CHP

Increase New Low-GHG Generation

Retire Aging Power Plants

Establish Energy Efficiency Targets (EE, DSM, EERS)

Pursue Behavioral Efficiency Programs

Boost Appliance Standards

Boost Building Codes

Removed fromfinal rule

EPA’s Final CPP vs. Proposed: Masterful (1)

• Far greater legal defensibility • EE building block gone; actions “by” (vs. “at”) EGUs• Uniform emission rates applied nationally

• More achievable compliance timeframe• Starts in 2022 vs. 2020• Far more rational 3-phase “glide path”

• Much easier implementation • “Inside the fence” ~halved; more reasonable gas

redispatch; under-construction nukes count, etc.

• Reliability safety valve

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• “Trading Ready”• Eliminates need for multi-state agreements• (May still be multi-state issues, however, e.g., in RTOs)

• Clean Energy Incentive Program (CEIP)• Responds to low-income concerns

• Longer window for states to plan• Initial submittal due Sept. 2016; final plan Sept. 2018

• EPA provides guidance via proposed federal plan, model trading rules, CEIP, and EMV guidance

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EPA’s Final CPP vs. Proposed: Masterful (2)

See NACAA’s “Menu of Options”(May 2015)

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Technology Options

Policy Options

But Many Other Options Also Exist…

• Optimize Grid Operations

• Reduce Losses in the T&D System

• Privately-delivered Energy Efficiency

• Encourage Clean Distributed Generation

• Revise Capacity Market Practices

• Adopt Environmental Dispatch

• Improve Utility Resource Planning

• Adopt Cap-and-Invest Programs (e.g., RGGI)

• Tax Carbon Dioxide Emissions

• Water Conservation

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States Get First Crack at Compliance Plans…

…but have little guidance (except draft Federal Rule)

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What do we need to do?

Do what works best for you!

Can you give us some

guidance?

Could we see some

innovation?

Masterful, But Not Without Some Problems

• Overall slightly less stringent (mass)• 32% reduction from 2005, off higher baseline• Several states may already comply

• EE may find it harder to play (especially mass-based)• EE won’t “happen automatically”• EM&V remains unnecessarily complex

• CEMs; RAP’s “Mobile Source Analogy”

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www.raponline.org/document/download/id/7501

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Most analyses of EE are

incomplete:

• Some look only at

avoided energy costs.

• Many include

production capacity

costs, but not

transmission or

distribution capacity

or line losses.

• Few include other

resource savings

(water, gas, oil).

• Very few try to

quantity non-energy

benefits.

The Answer is Energy Efficiency: What Was The Question? Multiple Benefits of EE

$0

$20

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$60

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$100

$120

$140

$160

$180

$200

Vermont Energy Efficiency Savings Value Updated Externality and NEB Values

Risk

DTQ NEB

Other Fuel

O&M

Other Resources

Externalities

Avoided Reserves

Line Losses

Distribution Capacity

Transmission Capacity

Avoided Capacity

Avoided Energy

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IEA2012

Why limit ourselves to valuing only one element of benefits?

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77

Sources: SO2 and NOx - NEI Trends Data and NEI 2005 Version 2 (2009) and CAMD Data & Maps (2010); PM10 - NEI Trends Data (2009); Hg - NEI 2005 Version 2 (2009); CO2 - Inventory of U.S. GHG Emissions and Sinks: 1990-2008 (2010) and 1990-2007; “Other” sources include transportation, other mobile sources, and industrial sources

Other Sectors

Nitrogen Oxides (NOx), 200915.3 Million Tons

Particulate Matter (PM10), 200514.8 Million Tons

Mercury (Hg), 2005114 Tons

Other Sectors

13.3 Million Tons87%

2.0 Million Tons13%

Electric Power

Other Sectors

14.3 Million Tons96%

Electric Power

Other Sectors

Electric Power

2.6 Billion Tons40%

62 Tons54%

52 Tons46%

Sulfur Dioxide (SO2), 20099.5 Million Tons

3.8 Million Tons40%

5.7 Million Tons60%

Electric Power

Carbon Dioxide (CO2), 20086.5 Billion Tons

3.9 Billion Tons60%

0.5 Million Tons4%

Other Sectors

Electric Power

Power Sector: A Major Share of US Air Emissions

Coal 85%

Coal 97%

Coal 83%

Coal >99%

Coal-fired power plants: vast majority of power sector air emissions

Coal 95%

More Stringent Ozone Standards (EPA, Ozone Concentrations, 2012)

EPA announced new ozone standard of 70 ppb. Areas in orange may be required to develop new control measures for VOC and NOX(ozone precursors)

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Many Regions Have Water Constraints…Not Limited to the West

• .

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Washington Is Part of The Western Interconnection

Washington’s hydro power is transmittedto the south. Washington imports powerfrom BC, Montana, Wyoming and Utah, depending on the time of year.

Currently, Washington is a winter peakingsystem. But, as our summers get warmer, andmore air conditioning is installed, that may change.

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EE Works: ISO-NE EE Forecast (2014)

~10% lower

Electricity Affordability Index

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Electricty Affordability Index (bill/Income) United States Average

ACEEE Top 10 States

Deep Thoughts (1)• “Skate where the puck is going to be” (Gretsky)

• CPP isn’t the last environmental regulation• New ozone NAAQS October 1st; SO2, CSAPR, PM, haze

coming up; water concerns

• EGUs are just the first to be regulated• Next up: Refineries? Cement?• Mass-based allows economy-wide trading

• Massive change underway in power sector• Tom Siebel’s vision: “The Internet of Energy”

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Deep Thoughts (2)• Emission allowances have value

• Civic society trades pollution (health and welfare harms) in exchange for public goods

• How will that value be recognized, captured, distributed, and verified in your state plan?

• Choice is up to each state

• Different states will make different choices

• Your job: Inform the decision makers

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Bibliography

• John Shenot, RAP, “Skate to Where the Puck Is Going to Be”: http://www.raponline.org/featured-work/skate-to-where-the-puck-is-going-to-be

• Ken Colburn, Chris James, RAP, “Hit The Ground Running on EPA’s Clean Power Plan”: http://www.raponline.org/featured-work/hit-the-ground-running-on-epas-clean-power-plan

• Ken Colburn, Jim Lazar, RAP, “A Layer Cake of Benefits: Recognizing the Full Value of Energy Efficiency”: http://www.raponline.org/press-release/recognizing-the-full-value-of-efficiency-theres-more-layers-in-the-layer-cake-than-many-account

About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts focused on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies to:

Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

Thank You for Your Time and Attention

Chris James: cjames@raponline.org

617-861-7684