TODAY’S STUDY: THE COSTS (AND BENEFITS) OF EMISSIONS CUTS
Low-Carbon Electricity Pathways for the U.S. and the South: An Assessment of Costs and Options
Marilyn A. Brown, Gyungwon Kim, and Alexander M. Smith, July 2015 (Georgia Institute of Technology)
Since the release of the Clean Power Plan (CPP), stakeholders across the U.S. have vigorously debated the pros and cons of different options for reducing CO2 emissions from existing power plants. By providing energy modeling relevant to these decisions, the authors seek to help policymakers and other stakeholders make well-informed choices. This paper uses the Georgia Institute of Technology’s National Energy Modeling System to evaluate alternative low-carbon electricity pathways. Among the scenarios studied, we find that the least-cost compliance pathway involves a combination of renewable and energyefficiency policies plus a modest price on carbon that could be expected to result from the Plan’s implementation. In addition to transitioning to a low-carbon power system, this compliance pathway would produce substantial collateral benefits including lower electricity bills across all customer classes, greater GDP growth, and significant reductions in SO2, NOx, and mercury emissions. The variation in compliance costs across the nation and within the South suggests that regional approaches to compliance would be most costeffective. In addition, our modeling indicates that rate-based goals may generally be less costly than mass-based goals.
Power plants are one of the largest sources of carbon pollution in the U.S., accounting for nearly 39% of annual CO2 emissions from the combustion of fossil fuels (EIA, 2014, Table A.18). On June 2, 2014, the U.S. Environmental Protection Agency (EPA) proposed statespecific limits on CO2 emissions from existing fossil fuel-fired electric generating units (EGUs) as part of its Clean Power Plan (CPP). Using its authority to control air pollution from stationary sources under Section 111 of the Clean Air, EPA is moving forward to establish carbon pollution standards:
§111 (b) authorizes the federal program to address new, modified and reconstructed sources by establishing standards.
§111 (d) authorizes a state-based program for existing sources. The EPA establishes guidelines under which the states design programs and achieve the needed reductions.1
§111 (d) provides the authority for the CPP. EPA is expected to publish a final rule in August 2015 requiring states to submit implementation plans as early as mid-2016. EPA is expected to offer states broad flexibility in the choice of compliance pathways; as a result, many states are vigorously engaged in examining alternative approaches to identify the compliance pathway that best meets their objectives.
The CPP proposes a customized goal of CO2 emissions reductions for each state. Collectively, these goals would reduce the intensity of U.S. carbon emissions from the power sector (measured in pounds of CO2 emitted per MWh of electricity generated from affected EGUs) to 30% below 2005 levels by 2030. Each state is not expected to reduce its emissions by 30%. Instead, the EPA developed a “best system of emissions reduction” that takes into account environmental protection goals, technical feasibility, and cost effectiveness. The individual state goals are customized to take into account each state’s existing policies and current energy system. For example, the proposed plan would require Washington to cut its emissions by 72% in 2030 relative to 2012, while Kentucky has a proposed goal of only 18% emissions reduction. Georgia’s proposed goal is a reduction of 44% from 2012 to 2030. This variation reflects potential emissions reductions available to states as well as reductions expected from existing policies and planned coal plant retirements. Figure 1 shows the variation in proposed state emission rate targets across the country.
Under §111(d), EPA is empowered to establish an “emission guideline” based on the best system of emission reduction. Once EPA guidance is finalized, states will be required to develop implementation plans to comply. States have until June 30, 2016 to submit their action plans but can request extensions until June 2017 for individual plans, or until June 2018 for multistate plans.
Compliance options include onsite actions at individual EGUs. For instance, states can undertake: (1) supply-side energy efficiency improvements (“heat rate improvements”), (2) fuel switching or co-firing of lower-carbon fuel; and (3) shifts in electricity generation from higher- to lower-emitting affected fossil units, such as the re-dispatch from coal to existing NGCC, with an increased utilization up to 70% of capacity. Heat-rate improvements could increase existing coal power plant efficiencies by 6%. More fully utilizing existing natural gas power plants would shift power generation from existing CO2-intensive coal power plants with an average rate of 2080 lbs/MWh to natural gas plants with an average rate of 1220 lbs/MWh. 2
Compliance options also include offsite actions that reduce or avoid emissions at affected EGUs. These include: (1) shifts from fossil generation to non-emitting generation such as nuclear or renewable generation and (2) reductions in fossil generation due to increases in end-use energy efficiency such as improvements in the efficiency of heating, cooling, lighting, manufacturing processes. EPA characterized the best practice for energy efficiency as a 1.5% incremental savings as a percentage of retail sales and for the rate of improvement used a 0.2% per year starting in 2017 (Southworth and Schwimmer, 2015a). 3 For nuclear plants, 6% of 2012 nuclear capacity is considered to be “at risk” and contributes to the goal and all of the generation from units under construction and not operating in 2012 contributes to the goal. No additional new nuclear power plants were proposed other than those currently under construction in Georgia and South Carolina. In calculating state limits, EPA applied regional, annual RE growth rates to state 2012 RE levels, assuming that renewable electricity grows until the state reaches MWhs of renewable generation equal to 10% of 2012 generation or reaches 2029.
With the compliance flexibilities woven into the CPP, states have an array of options before them. On the supply side, they need to assess opportunities to shift the mix of fuels used to generate electricity in their state. On the demand side, they need to consider options for decreasing electricity consumption through energy-efficiency programs and policies. Administratively, states need to choose between adhering to an emissions intensity goal or an equivalent CO2 emissions goal. In addition, they can elect to prepare an individual plan or a multistate plan, and in either event they can design a policy pathway that facilitates regional trading of allowances.
This report uses state-of-the-art energy analysis tools to evaluate the pros and cons of these alternatives compliance options. As an initiative of the Georgia Institute of Technology, we not only examine the costs and benefits of various policy pathways from a national perspective, but we also focus on the applicability of these pathways to the South, where opportunities and conditions may suggest alternative policy agendas. We begin with an overview of state goals for the Clean Power Plan (Section 2). Our research questions are specified in Section 3, which is followed by a description of our research methodology (Section 4). Findings are then presented, beginning with an assessment of the effectiveness, costs and benefits of alternative low-carbon policy pathways (Section 5), with a particular emphasis on their fuel mix implications. The modeling results are then used to inform the pros and cons of regional vs state approaches (Section 6) and mass vs rate goals (Section 7). The reduction of other air pollutants are described in Section 8, and conclusions are summarized in Section 9.
Summary and Conclusions
Since the release of the Clean Power Plan, stakeholders across the U.S. have vigorously debated the pros and cons of different options for reducing CO2 emissions from existing power plants. States have an array of options to meet their carbon-reduction goals, including both demand- and supply-side resource investments. Administratively, states need to choose between adhering to an emissions intensity goal or an equivalent CO2 massbased goal; politically, they can also prepare an individual state or a multistate implementation plan. Using GT-NEMS, we offer the following policy-relevant findings about the effectiveness, costs and benefits of these various compliance alternatives.
Our modeling suggests that CPP compliance can be achieved cost effectively with a combination of renewable and energy-efficiency policies plus a modest price on carbon that could be expected to result from the Plan’s implementation.
In combination, these policies could significantly curb the increase in per capita electricity bills forecast by EIA to occur over the next 15 years. In addition to transitioning to a lowcarbon power system, a compliance pathway that combines these three policies would produce substantial collateral benefits including greater GDP growth and increased industrial shipments, as well as household utility bill savings and significant reductions in SO2, NOx, and mercury emissions.
Nationwide, the compliance pathways would reduce the use of coal in the electric power sector, curb the growth of natural gas, and accelerate the use of energy efficiency and renewable energy. The details of this fuel mix transformation are quite interesting:
• Without the addition of low-carbon policies such as those proposed by the CPP, the least-cost Reference case would not decrease coal generation between 2012 and 2030
• The low-carbon pathways cause little additional uptake of nuclear power
• The low-carbon pathways would cause increases in wind, biomass, and solar PV (but not geothermal or hydro)
• Wind power exceeds each of the non-hydro renewable resources in all of the scenarios except the pathway that is limited to updating solar costs, where solar PV is larger
• The uptake of solar PV appears to benefit from a tipping point between the $10Fee+EE+Solar and $20Fee+EE+Solar compliance cases; with the higher price signal, solar PV becomes transformational in many region of the U.S.
• The growth in solar PV mostly displaces wind and natural gas
• The growth of solar is subdued when the low-carbon policy is limited to integrated energy efficiency; however, solar PV grows along with energy efficiency when a carbon price is added.
Our analysis suggests several differences between national and southern fuel mix responses to low-carbon policies. Specifically, compared with the least-cost national response,
• Coal tends to decline more rapidly in the South
• Natural gas increases less, and nuclear power increases more in the South
• The South shows proportionately more growth in renewable energy and slightly more growth in energy efficiency
• Biomass plays a greater role in the South’s renewable portfolio, rivaling the role of wind
Our analysis identifies some differential responses to the low-carbon policies across the seven NERC regions that comprise the South:
• The three NERC regions in the South with nuclear units under construction would require lower carbon prices to achieve their rate-based goals.
• The solar PV price tipping point is shown clearly in four southern NERC regions; in FRCC, for instance, solar PV’s share of renewables mushrooms from 2% to 83% when the carbon price is doubled.
• In three of the seven southern NERC regions, coal power would decline significantly. Energy efficiency and renewables grow to fill the gap in SRVC and SPPS, and natural gas also grows in SRCE.
The variation in compliance costs across the nation and within the South suggests that regional approaches to compliance would cost less than individual state approaches. In addition, our modeling of U.S. compliance costs suggests that rate-based goals are less costly than mass-based goals, particularly in the South.
In conclusion, combining a $10 to $20 carbon price with the enhanced deployment of energy efficiency and reduced solar costs could achieve EPA’s carbon reduction goals nationwide and in the South. The impact of this low-carbon pathway would vary across regions of the country with different resources investments being chosen. The overall result would produce a low-carbon power system and an array of collateral benefits including lower electricity bills across all customer classes, greater GDP growth, lower household utility bills, and significant reductions in SO2, NOx, and mercury emissions.