Overview and Background: Regulation of Power Plants under EPA s Proposed Clean Power Plan

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1 Overview and Background: Regulation of Power Plants under EPA s Proposed Clean Power Plan Jennifer Macedonia Council of State Governments Annual Meeting August 11, 2014

2 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 2 Power sector transition driven by many factors Flattening electric demand Expanding renewable power Projected low stable natural gas price 111 GHG Regulation Aging fleet of generators Power sector EPA regulation air, water, waste GHG: Greenhouse Gas 111(d): Section 111(d) of Clean Air Act

3 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 3 Variation in Electricity Generation Fuel Mix Across U.S. States New England Pacific Northwest MISO New York California + Other West ERCOT + SPP SERC- Gateway SERC- Central PJM SERC- Delta SERC-Southeast Florida Covering 2 or more regions This map is illustrative and representative of the reporting regions as they align with state boundaries. Regional generation mix is based on business-as-usual projection for 2025.

4 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 4 U.S. GHG Emissions by Economic Sector in % 10% 32% 20% 28% GHG: Greenhouse Gas Source: EPA

5 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 5 National Climate Action Plan June 2013 Plan includes a suite of measures, including standards for power plants Presidential Memorandum directs EPA to work expeditiously to complete GHG standards for new and existing power plants under Clean Air Act authority Calls for EPA to work with states, industry, and stakeholders to develop carbon pollution standards that: Build on state leadership Provide flexibility Take advantage of a wide range of energy sources Sets timetable for EPA rulemakings and state implementation plans

6 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 6 Expected Timeline for Power Plant Regulation of Greenhouse Gases NSPS Rulemaking January 2014 Proposal* January 2015 Final NSPS Rulemaking June 2014 Proposal June 2015 Final Clean Power Plan June 2014 Proposal June 2015 Final States Submit Plans to EPA Compliance Phase-in June June *Proposal signed by EPA Administrator 9/2014 and published in Federal Register 1/2014. Effective upon promulgation 1/2014. NSPS: New Source Performance Standard Source: Dates from Federal Register publication of 111(b) proposal, June 25, 2013 Presidential Memorandum; and June 2014 EPA Proposed Clean Power Plan

7 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 7 Clean Air Act Regulation of Greenhouse Gases (GHGs) Supreme Court decision Massachusetts v. EPA Addressed EPA authority to regulate GHGs under Clean Air Act EPA Endangerment Finding: GHGs endanger public health and welfare First CAA regulation of GHGs: mobile source tailpipe standards Triggered GHG pre-construction permitting requirement for stationary sources January 2014: EPA proposed CO 2 standards for new power plants Separate standards for new coal and new gas June 2014: EPA proposed Clean Power Plan for existing power plants GHG: Greenhouse Gas CAA: Clean Air Act CO 2 : Carbon Dioxide MWh: Megawatt-hour CCS: Carbon Capture and Storage

8 New & modified Existing units BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 8 Clean Air Act Standard of performance: reflects the degree of emission limitation achievable through the application of the best system of emission reduction (taking into account cost, health & environmental impact, and energy requirements) which the Administrator determines has been adequately demonstrated. New Source Standard EPA issues performance standards for new and modified sources For each category of sources that causes, or contributes significantly to, air pollution that may reasonably be anticipated to endanger public health or welfare. Existing Source Standard Once NSPS applies to new sources EPA rulemaking establishes procedure for states to submit plans for EPA review on existing source performance standards States develop, implement, and enforce existing source standards If states fail to do so, EPA steps in CAA: Clean Air Act : section

9 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 9 Main Features of EPA s Proposal for Existing Power Plants Proposed rule is out for public comment, with final June 2015 EPA proposed numerical state goals Represent EPA s interpretation of best system of emission reduction States develop and submit a plan regarding implementation Submit to EPA June 2016 or request 1-2 year extension State flexibility Timing Interim goal (states choose trajectory to meet on average) Final 2030 goal States choose policy design States can implement on own or collaborate with other states Wide range of strategies may count towards compliance Rate-based (lbs CO 2 /MWh) or mass-based (tons CO 2 ) compliance metric EPA federal plan, if no state plan submitted/approved

10 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 10 Projected Impacts of Clean Power Plan: Electricity Prices and Bills According to EPA s Regulatory Impact Analysis, the proposed Clean Power Plan would, as compared to business-as-usual: Increase average nationwide retail electricity prices by about 6-7% in 2020, and by approximately 3% in 2030 Increase average monthly electric bills by roughly 3% in 2020, but decrease these bills by about 9% in 2030, due to increased energy efficiency and therefore lower consumption Electricity Prices Electric Bills 6-7% 3% 3% 9%

11 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 11 Projected Impacts of Proposed Clean Power Plan: Jobs According to EPA s Regulatory Impact Analysis, the proposed Clean Power Plan would impact jobs in multiple sectors; specifically, EPA estimated that the Plan would (compared to business as usual), among other potential jobs-related effects: Create approximately 25,000 to 28,000 job-years in the electricity, coal, and natural gas sectors by 2020, but Cause a reduction of about 80,000 job-years in the electricity, coal, and natural gas sectors by 2030; and Create roughly 79,000 jobs and 112,000 jobs related to demandside energy efficiency in the years 2020 and 2030, respectively.

12 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 12 EPA defined the Best System of Emission Reduction with 4 building blocks and used these to determine each state s goal Coal Plant Heat Rate Improvement Increased Use of Existing Natural Gas Clean Generation (Renewable & Nuclear) End-Use Energy Efficiency STATE BASELINE STATE GOAL EPA applied a consistent methodology to all states starting with each state s unique baseline emission rate and calculated state-specific numeric goals

13 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 13 Available CO 2 Reduction Options for Implementation Range of CO 2 reduction options may count towards compliance On-site measures to reduce power plant emissions heat rate improvements (process & equipment) fuel switching/co-firing (natural gas & biomass) carbon capture, utilization, & storage (CCS/CCUS) technology Shifting from higher emitting to lower/zero emitting generation more efficient coal-fired units existing, under construction, and new natural gas combined cycle units existing and new non-hydro renewable energy new and increased hydro-electric generation nuclear capacity uprates and new nuclear generation new, under construction, and at risk existing nuclear generation End-use energy efficiency that reduces demand for electricity Reductions in transmission & distribution losses

14 OVERVIEW: EPA S PROPOSED CLEAN POWER PLAN 14 Electricity flows don t obey state boundaries Opportunities for multi-state collaboration North American Regional Transmission Organizations Source: FERC

15 HEADER GOES HERE 15 States have critical role to play and choices to make Importance of discussions among officials within states, with stakeholders, and across states Opportunity to comment on proposed rule to ask for specific provisions that accommodate trends and plans in your state Option to work with stakeholders to develop a state plan that works best for your state Seek options to complement existing trends and plans and provide a least cost pathway to meet your state s energy service needs

16 BACKGROUND: EPA S PROPOSED CLEAN POWER PLAN 16 Important changes are underway, look for synergies Flattening electric demand Expanding renewable power Projected low stable natural gas price 111 GHG Regulation Aging fleet of generators Power sector EPA regulation air, water, waste GHG: Greenhouse Gas 111(d): Section 111(d) of Clean Air Act

17 Jennifer Macedonia

18 Appendix 18

19 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE STATE GOAL End-Use Energy Efficiency Pollution to power ratio in pounds of CO 2 per megawatt hour (lbs CO 2 /MWh) of energy Clean Generation (Renewable & Nuclear) Increased Use of Existing Natural Gas EPA applied a consistent methodology to all states starting with each state s unique baseline emission rate and calculated state-specific numeric goals Coal Plant Heat Rate Improvement

20 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE 20 STATE GOAL Inserting Block 1 into State Goal Coal Plant Heat Rate Improvement Building block 1: baseline coal emissions reduced 6% to represent average fleet-wide opportunity for heat rate improvements technically achievable at reasonable cost

21 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE 21 STATE GOAL Inserting Block 2 into State Goal Increased Use of Existing Natural Gas Building Block 2: Emissions are reduced by amount to reflect shift in dispatch from coal & oil/gas steam to existing natural gas combined cycle up to 70% capacity factor Coal Plant Heat Rate Improvement Building block 1: baseline coal emissions reduced 6% to represent average fleet-wide opportunity for heat rate improvements technically achievable at reasonable cost

22 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE 22 STATE GOAL Inserting Block 3 into State Goal Clean Generation (Renewable & Nuclear) Building Block 3: Future zero-carbon energy is reflected by including the renewable generation target EPA calculated for each state, as well as under-construction nuclear and generation from at risk nuclear plants in the existing fleet Increased Use of Existing Natural Gas Building Block 2: Emissions are reduced by amount to reflect shift in dispatch from coal & oil/gas steam to existing natural gas combined cycle up to 70% capacity factor Coal Plant Heat Rate Improvement Building block 1: Baseline coal emissions reduced 6% to represent average fleet-wide opportunity for heat rate improvements technically achievable at reasonable cost

23 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE 23 STATE GOAL End-Use Energy Efficiency Clean Generation (Renewable & Nuclear) Building Block 4: Future end-use energy efficiency is reflected by adding the avoided generation from the energy efficiency target EPA calculated for each state Building Block 3: Future zero-carbon energy is reflected by including the renewable generation target EPA calculated for each state, as well as under-construction nuclear and generation from at risk nuclear plants in the existing fleet Increased Use of Existing Natural Gas Building Block 2: Emissions are reduced by amount to reflect shift in dispatch from coal & oil/gas steam to existing natural gas combined cycle up to 70% capacity factor Coal Plant Heat Rate Improvement Building block 1: Baseline coal emissions reduced 6% to represent average fleet-wide opportunity for heat rate improvements technically achievable at reasonable cost

24 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS STATE BASELINE 24 STATE GOAL Demand- Side Energy Efficiency Clean Generation (Renewable & Nuclear) Increased Use of Existing Natural Gas 2030 STATE GOAL = emissions (lbs. CO 2 ) CO 2 emissions after re-dispatch of existing plants baseline fossil generation + clean energy goal + EE goal generation (MWh) Coal Plant Heat Rate Improvement

25 BUILDING BLOCKS OF EPA S PROPOSED STATE GOALS 25 Example: MICHIGAN STATE BASELINE = 1690 lbs/mwh End-Use Energy Efficiency lbs/mwh Clean Generation (Renewable & Nuclear) Increased Use of Existing Natural Gas -11% -4% -12% -5% - 69 lbs/mwh lbs/mwh - 87 lbs/mwh Coal Plant Heat Rate Improvement 31% below state baseline STATE GOAL = 1161 lbs/mwh Source: Numbers calculated from pg. 25 of the TSD: Goal Computation. Percent reductions represent the building block emission rate/baseline emission rate.

26 STATE BASELINE RATES, BUILDING BLOCKS, AND STATE GOALS (CONTINUED ON NEXT SLIDE) 26 State 2012 Fossil Emission Rate (lb/mwh) Adjusted Baseline Rate (lb/mwh) Percent Reduction from Baseline Rate by Building Block * Total Reduction from Baseline 2030 Goal (lb/mwh) Alabama 1,518 1,444-4% -8% -9% -6% -27% 1,059 Alaska 1,368 1,351-1% -8% -3% -14% -26% 1,003 Arizona 1,551 1,453-4% -38% -2% -8% -52% 702 Arkansas 1,722 1,634-5% -30% -4% -5% -44% 910 California % -5% -7% -11% -23% 537 Colorado 1,959 1,714-5% -17% -7% -7% -35% 1,108 Connecticut % -4% -12% -13% -29% 540 Delaware 1,255 1,234-2% -17% -8% -4% -32% 841 Florida 1,238 1,199-3% -24% -6% -6% -38% 740 Georgia 1,598 1,500-4% -14% -19% -6% -44% 834 Hawaii 1,783 1,540-2% 0% -2% -12% -15% 1,306 Idaho % 0% -14% -19% -33% 228 Illinois 2,189 1,894-6% -9% -7% -11% -33% 1,271 Indiana 1,991 1,924-6% -2% -3% -9% -20% 1,531 Iowa 2,197 1,552-6% -10% 11% -11% -16% 1,301 Kansas 2,320 1,940-6% 0% -9% -8% -23% 1,499 Kentucky 2,166 2,158-6% -2% -1% -9% -18% 1,763 Louisiana 1,533 1,455-4% -25% -4% -7% -39% 883 Maine % -3% 6% -17% -14% 378 Maryland 2,029 1,870-5% -3% -18% -11% -37% 1,187 Massachusetts 1, % -10% -17% -9% -38% 576 Michigan 1,814 1,690-5% -12% -4% -11% -31% 1,161 Minnesota 2,013 1,470-6% -27% 3% -11% -41% 873 Mississippi 1,140 1,093-2% -24% -5% -5% -37% 692 Vermont and the District of Columbia do not have any affected power plants and thus, do not have state goals.

27 2012 Fossil Adjusted Baseline Percent Reduction from Total Reduction 2030 Goal State Emission Rate Rate HEADER GOES HERE Baseline Rate by Building Block from Baseline (lb/mwh) 27 (lb/mwh) (lb/mwh) * Missouri 2,010 1,963-6% -5% -2% -9% -21% 1,544 Montana 2,439 2,246-6% 0% -8% -7% -21% 1,771 Nebraska 2,162 2,009-6% -4% -8% -9% -26% 1,479 Nevada 1, % -17% -8% -7% -35% 647 New Hampshire 1, % -20% -20% -5% -46% 486 New Jersey 1, % -11% -21% -9% -43% 531 New Mexico 1,798 1,586-5% -15% -7% -7% -34% 1,048 New York 1, % -15% -18% -11% -44% 549 North Carolina 1,772 1,647-5% -19% -7% -8% -40% 992 North Dakota 2,368 1,994-6% 0% -1% -4% -11% 1,783 Ohio 1,897 1,850-5% -4% -9% -9% -28% 1,338 Oklahoma 1,562 1,387-4% -20% -6% -5% -35% 895 Oregon 1, % -19% -16% -11% -48% 372 Pennsylvania 1,627 1,531-5% -4% -15% -7% -31% 1,052 Rhode Island % 0% -4% -9% -14% 782 South Carolina 1,791 1,587-5% -10% -30% -6% -51% 772 South Dakota 2,256 1,135-6% -30% 15% -14% -35% 741 Tennessee 2,015 1,903-6% -5% -20% -8% -39% 1,163 Texas 1,420 1,284-4% -20% -9% -5% -38% 791 Utah 1,874 1,813-6% -11% -3% -7% -27% 1,322 Virginia 1,438 1,302-3% -16% -12% -6% -38% 810 Washington 1, % -38% -19% -11% -72% 215 West Virginia 2,056 2,019-6% 0% -10% -3% -20% 1,620 Wisconsin 1,988 1,827-5% -13% -6% -10% -34% 1,203 Wyoming 2,331 2,115-6% -1% -9% -3% -19% 1,714