Last week, the U.S. Environmental Protection Agency announced a proposed regulation that, starting in 2020, would require fossil fuel power plants to cut carbon dioxide emissions by 30% from 2005 levels by 2030. This is expected to result in $90 billion in climate and health benefits but cost utilities up to $8.8 billion per year. This landmark decision set off an eruption of opinion on the implications, consequences and benefits of the rule.
CleantechIQ will explore technologies, like carbon capture, that will be elemental in meeting the proposed mandate. In this piece, we look at the various perspectives on the announcement.
U.S. coal plants, which produce the largest portion of U.S greenhouse gas emissions, would be the hardest hit. The rule allows states to achieve reductions though renewable energy generation, natural gas, energy efficiency measures and via carbon trading markets. EPA Administrator Gina McCarthy says it would fuel investment and economic growth by promoting clean energy innovation.
The EPA notes 47 states already have energy efficiency programs run by utilities, and 38 states have Renewable Portfolio Standards, or explicit targets, for boosting the share of solar and wind on the grid. The 12 states that do not have such standards likely face a rougher road. For example, by 2030 state level targets call for a 27% carbon reduction in Utah, a 19% reduction in Wyoming, a 21% reduction in Montana, a 35% reduction in Colorado, 31% in Michigan and a 52% reduction in Arizona. From 2005 to 2013, power plant emissions fell by 15% nationally.
However, the new EPA rule will only reduce global emissions by between 1-2%, says the Economist. The real impact of the rule in reducing the amount of carbon emissions will come from its influence on other big emitters, such developing nations, to follow suit.
The Guardian reports that Christiana Figueres, the UN’s top climate change official, expects the new rules to spark China and India to take action on climate change and reach a climate deal by the 2015 deadline. Climate diplomats hope to forge an agreement on global emissions, to be signed in Paris in late 2015, according to the article.
New Rules Will Spark Innovation
Certainty in the regulatory environment will raise investor’s confidence and drive further clean tech innovation and corporate adoption. It may be one of the largest market opportunities in history to drive the development and implementation of clean energy on a national level, says the Environmental Defense Fund.
The Research firm LUX notes that the greatest impact of new U.S. rules is accelerating innovation, as they won’t have a dramatic impact on global emissions.
The greatest potential impacts include: combined cycle gas turbines that decarbonize fossil fuel plants, new markets for solar and wind that will spur an influx of capital, the expansion of utilities’ home energy efficiency programs, and the development of new carbon capture and carbon utilization technologies. In a Forbes piece, the EDF points out that the new rules will spark investment in smart grid and demand-response programs and will drive further clean technology adoption at the state level, when they seek to comply with the law.
Dan Adler, co-chair of ACORE board of directors and Managing Director of the California Clean Energy Fund (CalCEF) echoed this optimism in an ACORE statement, saying, “This is the dawn of the era of climate solutions. By allowing states to stimulate investment in local, renewable energy projects to meet carbon reduction requirements, EPA can help sustain the surge in capital commitments to these technologies and boost growth at a critical time for our economy.”
Energy Efficiency Debate
A big factor in the EPA’s cost forecast is successful energy-efficiency programs, in which the EPA assumes electricity consumption will drop sharply. That factors into the agency’s calculation of the cost of complying with the new rules, according to the Wall Street Journal. The agency points to energy-efficiency programs, mandated in about half the states, which require utilities to try to cut electricity use.
However, the industry group Electric Reliability Coordinating Council recently called out the EPA for “highly unrealistic assumptions regarding energy efficiency programs,” according to the Journal.
And, unlike the EPA, which assumes growth in energy demand will slow sharply, the U.S. Chamber of Commerce assumes a 1.4% increase in electricity per year and more spending on new plants or retrofitting to keep up with demand. Last month, the federal Energy Information Administration forecast electricity demand will grow 0.9% a year until 2040.
And the EPA predicts that program would increase average U.S. electricity prices by up to 7% by 2020 and another 3% by 2030.
“The reason EPA’s electric bill impacts look so good is they are assuming that demand-side energy efficiency will allow electric customers to purchase as much as 12% less electricity per year by 2030,” said Brian Potts, a partner at Foley & Lardner LLP, based in Wisconsin.
The NRDC points out that efficiency is mentioned 328 times in the 645-page document. And if the EPA sets final standards that rely on stronger efficiency measures, it could save U.S. households and businesses more than $37 billion on their electricity bills a year by 2020 while creating more than 274,000 efficiency-related jobs, according to NRDC’s analysis.
Impact on States
The agency is giving states broad flexibility on how to meet their goal and set the goals based on what it thinks each state can achieve, based on their current energy mix. However, some in the states are speaking out against the rule and vowing to fight it.
Washington State, which has the greatest mandated reduction of any state, must cut its emissions by 72%. However, the coal-fired plant in the state’s southwestern corner is the single largest source of carbon emissions, accounting for about 70% of that pollution. In 2011, the state legislature passed a bill to close the facility by 2025, says the Wall Street Journal.
David Danner, chairman of Washington’s Utilities and Transportation Commission, says that state, where hydropower predominates, also increased its conservation and wind generation. “We did the hard work early, so these targets will be less onerous.”
Kentucky, on the other hand, is only mandated to have an 18.3% cut in carbon-dioxide emissions required by 2030, but gets 93% of its power from coal, so reducing it by almost 1/5 will be a challenge. Senate Minority Leader Mitch McConnell, a Kentucky Republican who is up for re-election this year, has spoken out against the rules, saying that the economic impact of the rules will be “staggering for millions” and called the plan “catastrophic.”
Under the plan, Indiana would have to curb carbon emissions by 20%. Governor Mike Pence vows to oppose the regulations, saying they would cost the state jobs and business growth and result in higher electricity rates. “We’ll pursue all possible methods of pushing back against this and that may possibly include legal action, but we’re looking at all our options,” he told BusinessWeek.
Representative Nick Rahall, a West Virginia Democrat, says he will introduce legislation to block the Obama rules for both existing and new plants.
Emissions from power plants were already down 15% from 2005 through 2012, halfway to the goal, according to Vicki Arroyo, executive director of the Georgetown Climate Center. The group compiled a list of reductions by state, which showed many, including New York, Washington, Virginia, and Georgia, have already exceeded cuts of 30%.
Opponents Voice Opinions
Industry groups have warned the proposal will result in higher electricity prices and result in job losses.
The U.S. Chamber of Commerce predicts the new rules would cost the U.S. economy more than $50 billion in productivity because “spending in pursuit of regulatory compliance rather than economic expansion” would result in 224,000 job losses and add up to $17 billion in consumer costs each year for the next 15 years.
And the Consumer Energy Alliance, a Houston-based group whose members include Exxon Mobil Corp. (XOM) and some coal groups, warns the proposal will hurt companies through higher electricity prices, according to Bloomberg.
“The president’s plan is nuts, there’s really no more succinct way to describe it,” House Speaker John Boehner said in a statement. He said the proposed rules will ship jobs overseas for years to come.
“The administration has set out to kill coal and its 800,000 jobs,” Republican Senator Mike Enzi, whose home state of Wyoming is the largest coal producer in the U.S., said on May 31.
However, the EPA estimates that, by 2030, coal will still provide 30 percent of the country’s power.
And Hugh Wynne, a New York-based utilities analyst for Sanford C. Bernstein & Co., said in an interview that the proposed cuts were “eminently doable.”
“Critics claim that your energy bills will skyrocket. They’re wrong. Should I say that again? They’re wrong,” EPA Administrator Gina McCarthy said during the announcement of the plan last Monday.
And Senate Environment and Public Works Committee Chairman Barbara Boxer came out for the plan, saying “Thank goodness the president refuses to be bullied by those who have their heads in the sand, and whose obstruction is leading us off the climate change cliff.”
Infographic provided by the White House