Here's what happened to different electricity-generating (or saving) technologies in EPA's Clean Power Plan final rule

This post focuses on two types of changes the Environmental Protection Agency (EPA) made in the Clean Power Plan final rule, in response to public comments on its June 2014 proposal. First, I address changes in the pollution reduction strategies that EPA considered in determining the "best system of emission reduction" (BSER). Second, I examine states' and power companies' options for complying with the BSER-based carbon pollution limits. Along the way, I will explain the different types of state plans, and how states account for emission reductions in either type of plan.

What is the "best system" to reduce power plant emissions?

The emission limits in the proposed Clean Power Plan were based on a combination of four strategies: making existing coal-fired power plants more efficient; shifting electricity production from coal-fired power plants to natural gas-fired power plants (which emit less carbon pollution, though emissions of the potent greenhouse gas methane associated with natural gas production remain unacceptably high); shifting electricity production to power plants that produce no carbon pollution (like wind and solar) and keeping existing zero-emitting plants (like nuclear) online; and reducing energy waste using energy efficiency programs. EPA applied these four strategies to each state's electricity mix.

In the final rule, EPA no longer uses energy efficiency to set carbon pollution limits. Why? The agency follows its traditional interpretation of the relevant portion of the Clean Air Act: it limits how much pollution a factory or power plant can create per-unit of product, but does not seek to limit how much of that product is produced. Energy efficiency, EPA says in the final rule, does not fall within this interpretation because it leads to power plants selling less of their product. States and power companies can still use energy efficiency to reduce emissions and comply with the limits, though.

What resources can power plants use for compliance?

The final rule allows states to choose from two basic approaches for state plans: rate-based and mass-based. In either approach, a state can comply using a similar mix of low- or no-emissions electricity, including energy efficiency. But the state's choice will change how it accounts for emission reductions.

If a state chooses the mass-based option, it creates a permit - called an allowance - for each ton of carbon pollution power plants are allowed to emit in the coming year. It then distributes these allowances. At the end of the year, power plant owners must turn over allowances equal to their emissions. If a power plant emitted 500 tons of carbon pollution that year, its owner must give the state 500 allowances. This system is simple because actions that reduce reliance on a high-polluting power plant manifest in the amount of carbon pollution - the compliance metric in a mass-based system - that rises up the power plant's smokestack.

If a state chooses the rate-based option, it establishes an allowed emission rate for its power plants: total pounds of CO2 emitted divided by total megawatt hours generated (or saved). At the end of the year, power plant owners must show that their emission rate was equal to or less than the rate-based limit. This type of plan is more complicated than mass-based plans because actions that reduce reliance on a high-pollution power plant do not manifest in the power plant's emission rate. States that apply rate-based limits must account for these actions by creating Emission Rate Credits (ERCs). Each credit represents an emission-free megawatt-hour of electricity. I discuss ERCs in detail in this blog.

To summarize, the same emission-reducing actions - shifting electricity production to low-emitting or no-emitting power plants, or energy efficiency - are captured directly in a mass-based system but must be separately accounted for in a rate-based system, using ERCs.

Should mass-based states still measure the results of their clean energy policies?

Of course. A state that chooses a mass-based plan will still want to evaluate policies like energy efficiency and renewable energy standards, to make sure they are effective. In states that auction allowances and use the revenue for clean energy projects, the money should be well-spent, so measurement of results is essential. Power companies in a mass-based state will still care about whether an energy efficiency or renewable energy project leads to cost-effective emission reductions.

Which resources can be used to create an Emission Rate Credit?

To return to rate-based plans, the purpose of an Emission Rate Credit is to capture the impact in the compliance period, 2022-2030, of actions that reduce power plant emissions from 2012 levels.

If you find yourself wondering whether a particular project will generate ERCs, ask these questions:

  • Is the project located in a rate-based state?
  • Does the project displace electricity from fossil-fuel fired power plants with lower-emissions electricity or energy savings?
  • Was the project installed in 2013 or later?
  • Will the project be saving or generating electricity between 2022 and 2030 (or 2020 and 2021 in the case of the Clean Energy Incentive Program)?

If you can answer yes to all four questions, then you are likely looking at an ERC-eligible resource.

Below is a list of resources that can be used to create an ERC, and a summary of limitations on that resource. Again, only power plant capacity or energy-saving measures installed in 2013 or later, located in a rate-based state, can generate ERCs.

  • Energy efficiency should be an important part of any state's emission-reduction strategy, and energy saving projects can generate ERCs. I discuss this here.
  • Renewable energy projects like onshore and offshore wind, solar, and geothermal units can generate ERCs. If a project is in a mass-based state but the owner can demonstrate that the power is delivered into a rate-based state - if there is a power purchase agreement (PPA) - then it can generate ERCs.
  • Existing Natural Gas Combined Cycle (NGCC) power plants can generate ERCs, under two circumstances. First, if a NGCC power plant produces electricity at an emission rate below its limit, it can be issued ERCs based on the difference between the emission limit and its reported emission rate. Second, in states that apply different emission performance limits to coal- and gas-fired power plants, existing natural gas-fired power plants can produce "gas-shift ERCs" (GS-ERCs) that represent the shift of electricity production from high-polluting coal plants to lower-polluting natural gas plants. Only coal plants can buy these ERCs.
  • Hydroelectric power plants can generate ERCs, but there are not many new hydropower projects planned in the U.S. Instead, some dams are "repowering:" replacing old turbines with more efficient new ones and changing how the facility is operated to better accommodate fish, wildlife, and recreation. Repowering or relicensing an existing facility does not mean the facility can generate ERCs, unless there is increased capacity as part of the relicensing, and then only the new, extra capacity can generate ERCs. Canadian hydropower plants can also generate ERCs, but only from capacity installed in 2013 or later. This is important. We do not want Canadians to simply export to the U.S. electricity from existing hydro capacity that once served Canadian domestic demand, and fulfill its domestic demand with more fossil fuel-fired power. Why am I discussing Canada? Dam owners like Manitoba Hydro and Quebec Hydro export electricity to the U.S., and would like to export more.
  • Biomass-fired power plants can generate ERCs, but a state that wants credit for burning biomass has to show that the kind of biomass its power plants propose to burn actually reduces net CO2 emissions. This is an important condition, because not all biomass is created equal. Burning certain types of biomass can result in net CO2 reductions, but burning our forests to produce power actually results in more CO2 emissions, not less. NRDC will be watching biomass developments carefully.
  • Waste-to-energy power plants, which burn trash, can generate ERCs, but only for the portion of their electricity that is derived from plant material. These facilities often use supplemental fuel like natural gas, and can incinerate plastic and metal along with other waste. EPA is rightly concerned about burning materials that otherwise would be recycled or composted, or not produced in the first place. States that plan to use waste-to-energy facilities to generate ERCs have to include information in their state plan about how they are strengthening waste reduction, reuse, recycling, and composting programs, and addressing negative impacts of waste-to-energy production.
  • Demand response programs, where consumers and businesses change when energy is consumed to avoid peak hours, can generate ERCs, but only to the extent they actually reduce total electricity consumption, rather than just shift electricity consumption and carbon pollution from one time of day to another.
  • Transmission and distribution investments that reduce line losses or directly reduce electricity use (by optimizing the voltage sent to customers) can generate ERCs. Wasting less electricity on the way to our homes and businesses means less electricity needs to be generated, and less pollution is emitted.
  • New or under construction nuclear plants can generate ERCs. "Capacity uprates," where nuclear plants make modifications to increase the amount of energy they produce from existing reactors, can also generate ERCs. Like hydropower, just relicensing an existing plant does not count unless there is a capacity uprate accompanying the relicensing, and then only the incremental capacity can generate ERCs. This is a boon to those few utilities building reactors currently.
  • New combined heat and power (CHP) units can generate ERCs. CHP units simultaneously produce heat and electricity for industrial facilities and big buildings, and replace or supplement a boiler (for heat) and grid electricity. To determine the amount of ERCs created, the state would compare the CHP system's total CO2 emissions with what would have been released had the facility used a boiler to get the needed heat, and attribute the remainder to electricity production.
  • New waste heat power (WHP) units can generate ERCs. WHP units utilize waste heat from an existing industrial process to produce electricity. To be eligible, these systems have to be designed to match the waste heat produced by the industrial process. We do not want industrial facilities needlessly producing more waste heat so the WHP unit produces more electricity.

One resource that cannot generate ERCs is energy storage, even though storage may help integrate more renewables into the grid. Why? Because if a storage project actually helps integrate more renewable energy, this renewable energy will itself be ERC-eligible. Giving ERCs to energy storage would be double-counting the same emission reduction.