The Regulatory Assistance Project web: www.raponline.org

Preparing for Federal Greenhouse Gas Regulations

Presented by Ken Colburn, Senior Associate

December 4, 2013

NCSL Task Force on Energy Supply December 3-4, 2013

Washington, DC

• 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)

• Ken Colburn is a Senior Associate at RAP; he previously served as New Hampshire’s Air Director and as Executive Director of NESCAUM.

Introduction

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Overview of Remarks

• Framing §111 Circumstances

• “What” Shape It May Take

• “How” It May Be Implemented

• What Should States Do Now?

• Reflections About Costs

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Framing

• Essentially new terrain for EPA …

• On a very tight schedule…

• With some legal tension…

• And recent SIP-related court decisions reinforcing states’ role… – (Corn Growers, CSAPR)

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“What” (1)

• New Sources - §111(b): (reproposed September 20, 2013)

– Source-based “standards of performance”

– Somewhat bifurcated coal vs. gas

• Existing Sources - §111(d): (proposal June 2013)

– “Best system of emission reduction” (BSER)

– Adequately demonstrated; consider cost; timeframe

– Emission “Guideline” (but mandatory)

• Modified or Reconstructed Sources: – Not clear

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“What” (2)

• Existing Sources - §111(d) (continued): – Anticipate BSER will be some combination of

supply-side and demand-side measures

– Supply-side: • Heat rate improvements? Fuel-switching? Co-firing

biomass? Retirement/replacement? Plant dispatch? Renewables/RPS? Fleet averages?

– Demand-side: • Energy Efficiency – EERS? 1%/year? Utility-run?

• Combined Heat & Power (CHP)?

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“What” (3)

• Cornerstone questions remain:

– What level(s) of reduction will be required?

– Against what baseline?

– Within what compliance timeframe?

– (e.g., Copenhagen: 17% below 2005 by 2020; economy-wide)

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“How” (1)

• Uncharted territory…

• But states will definitely get “first crack” on existing sources:

– “Each state shall submit a plan” under a procedure EPA establishes “similar to … section 7410” (i.e., §110 SIPs)

– aka, “State Equivalency Plan”

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“How” (2)

• Implementation issues are critical because approval of “state equivalency plans” will hinge on them:

– How will emission reductions be measured? • Mass-based (tons CO2e)? Rate-based (#/MWh)?

Carbon intensity? Carbon pricing?

– What GHG accounting, tracking, reporting?

– Will there be a Model Rule?

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“How” (3)

• Implementation issues (continued): – What flexibility mechanisms (if any)?

• Any kind of trading (and allowance issues)?

• Alternative compliance payments? Other?

– How to quantify emissions benefits of EE?* • EMV? “Deemed savings?” Location/grid issues?

“RSVPE?” … (if EPA does this at all – vs. states)

– How will “first-mover” states be recognized? • RGGI, AB-32, WCI, RPS, EERS, IRP, etc.

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* A recent RAP paper by John Shenot specifically addresses this issue

“How” (4)

• Bottom Line: The burden will fall on EPA to clearly define in rule, or on states to clearly demonstrate in plans

– “Clear definition” has lacked in the past (e.g., iterative process of nonattainment SIPs)

– EPA doesn’t have all the answers – or time; framing suggests greater deference to states

– Time for states to “cowboy up”; establish credible, defensible reductions

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What Should States Do Now? (1)

• Get your “ducks in a row”

• What EE, RE, CHP, EGU or other supply-side reductions are in place? What review processes?

– Have measured energy savings (and how – SEEAction? DOE Uniform Methods?)

– How EMV’d, reviewed, and translated into emission reductions?

– Determined where located?

– What does EPA/DOE-EIA have in their baseline projections?

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What Should States Do Now? (2)

• Are PUC, DEP, and SEO talking with each other? Planning together?

• Dialogue with EPA Regional Office?

• Pursuing “SIP-quality” credit using EPA’s EE/RE Roadmap?

• Joined EPA’s “Ozone Advance” and/or “PM Advance” program(s)? – Inventory, identify EE/RE measures, etc.

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What Should States Do Now? (3)

• Get ahead of the curve – Identify current situation – Identify preferred direction

• Communicate policy preferences to EPA

• Talk with other states about regional approaches

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In this context, the RGGI cap-and-invest program plays three integral roles in achieving

emission reductions. The declining cap and corresponding change in the cost of allowances

provides a market signal that supports fuel switching, on-site efficiency improvements, the

retirement of high-emitting plants, the construction of new more efficient plants, and other

measures that reduce emissions. The auction mechanism provides a source of funding for

complementary energy efficiency and renewable energy investments that further reduce

emissions. The enforceable emissions cap ensures that the combined effect of the RGGI

program and the suite of supporting policies is to actually reduce emissions to below the cap

level.

The experience in the RGGI states shows the magnitude of emission reductions possible

from the power sector: a projected 50% decline in tons of carbon dioxide (CO2) emissions and a

fossil fuel-fired generation fleet that is projected to achieve emission rates on par with the

recently proposed new source performance standard for new electric generating units.

Between 2005 and 2012, CO2 emissions from the power sector in the nine participating RGGI

states dropped more than 40%, from 162.5 million tons in 20052 to 92 million tons in 2012. The

RGGI states are locking in this reduction by reducing the regional cap to 91 million tons in 2014,

and reducing it an additional 2.5% each year thereafter to 78 million tons in 2020. In 2020, the

RGGI emissions cap will ensure that regional emissions are 50% below 2005 emission levels

(See Figure 1).

Some of this reduction is attributable to the successful energy efficiency programs

implemented  by  each  of  the  RGGI  participating  states.    For  example,  New  York’s  energy  

efficiency programs have reduced electricity use in New York by a cumulative total of 6.5% in

2012. As a result, CO2 emissions associated  with  New  York’s  electricity  use  are  estimated  to  be  

2.68 million tons lower in 2012 than they would have been otherwise. In the four years since it

began  in  2009,  Maryland’s  EmPOWER  program  has  reduced electricity consumption by 3.25%,

reducing CO2 emissions by 1.17 million tons. Massachusetts projects that its investment in

energy efficiency will accelerate the reduction in electricity demand to approximately 2.5%

each year from 2013-15. From 2005 through 2015, these energy efficiency investments will

reduce  Massachusetts’  electricity  demand  by  17.1%,  for  a  total  annual  reduction  of  3  million  

tons of CO2 in 2015. Similarly,  Connecticut’s  energy  efficiency  programs  have  reduced  electric  

consumption by over 10% since 2001, resulting in a total reduction of over 2 million tons of CO2

emissions.

2 http://rggi.org/historical_emissions; https://rggi-coats.org/eats/rggi/index.cfm?fuseaction=search.rggi_summary_report_input&clearfuseattribs=true

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Source: Global CCS Institute, 2011

Reflections About Costs (1)

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Reflections About Costs (2)

+45%

+83%

+46%

Source: C2ES

First, Do No Harm

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• Unwise climate policy choices can hurt air quality & water

• Unwise air quality & water choices can hurt climate

• End result: Higher overall costs

Energy Efficiency: The “First Fuel”

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• Example:

– Efficiency Vermont supplied electric efficiency in 2012 at 3.4¢/kWh.

– Taking into account participating customers’ additional costs and savings, the levelized net resource cost of saved electric energy in 2012 was less than 0.1¢/kWh.

– By contrast, the cost of comparable electric supply in 2012 was 8.6 ¢/kWh.

EE Also Reduces Multiple Pollutants: What if the Ozone NAAQS is Tightened?

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EE Impacts in ISO-NE Forecasts

20 These graphics illustrate the impact of the energy-efficiency forecast on both the peak demand

forecast and the long-term load forecast for the region as a whole.

The blue line in both charts is the baseline load forecast. Again, this is how peak demand and

energy consumption would trend if NO EE savings were taken into account. The red line

reflects the energy-efficiency savings that have been acquired through the Forward Capacity

Market for the next three years; in this forecast, the amount of energy savings from the FCM is

held constant after the third year. And the black line shows the results of the energy-efficiency

forecast: increasing amounts of energy-efficiency savings, which reduces the long-term forecast

for both annual electricity consumption and peak demand.

These results have already led to the cancellation of 10 planned transmission upgrades in New Hampshire and Vermont, saving $260 million.

RGGI States’ Experience (1)

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Figure 1: New RGGI Cap and Projected CO2 Emissions Without Cap Reduction

Much of the reduction in power sector emissions is attributable to better utilization of a

cleaner power system, resulting in a substantially reduced system-wide emission rate. Between

2005 and 2010, the overall CO2 emission rate of the fossil fuel-fired power sector in the RGGI

states declined from 1,694 lbs/MWh to 1,393 lbs/MWh (1026 lbs/MWh to 841 lbs/MWh,

including zero emission sources).3 By 2020, modeling of the new RGGI cap indicates that the

fossil fleet emission rate will decline further to 1,028 lbs/MWh (568 lbs/MWh for all sources).4

Thus, in the 15 years between 2005 and 2020, the RGGI states will have achieved a 39%

reduction in the emission rate from fossil fuel-fired power plants and a 45% reduction in the

emission rate of the entire power sector.

3 From data used to produce: http://rggi.org/docs/Documents/Elec_monitoring_report_2011_13_06_27.pdf 4 http://rggi.org/design/program_review

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RGGI States’ Experience (2)

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RGGI States’ Experience (3)

Conclusion

• Good news about 111(d): States are likely to have great freedom and flexibility

• Bad news about 111(d): States are likely to bear greatest responsibility

• Key question for states: “What’s your plan?”

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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!

Ken Colburn (kcolburn@raponline.org)

Additional Slides

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Reflections About Costs (4)

Source: Global CCS Institute, 2011

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• Efficiency improvements on existing coal-fired plants:

– Combustion Control Optimization (0.15 to 0.84%)

– Cooling System Heat Loss Recovery (0.2 to 1%)

– Flue Gas Heat Recovery (0.3 to 1.5%)

– Low-Rank Coal Drying (0.1 to 1.7%)

– Sootblower Optimization (0.1 to 0.65%)

– Steam Turbine Design (0.84 to 2.6%)

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Reflections About Costs (1)

Synergistic Multi-Pollutant

Effects of Energy Efficiency Offer Economic

Benefits

Design Task: Reduce air

pollution health impacts by 50%.

(Source: Based upon Bollen et

al, 2009 cited in RAP 2012,

Integrating Energy and

Environmental Policy)

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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.

Multiple Benefits of EE

$0

$20

$40

$60

$80

$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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RGGI States’ Experience