Tierney: EPA Standards are Manageable and Deliver the Benefits of Public Health and Reliable Electricity at the Same Time

Dr. Sue Tierney of the Analysis Group asserted that there is no need to choose between public health and reliable electricity during Panel Two of the September 14th House Energy and Commerce Subcommittee on Energy and Power hearing on how new and proposed air pollution standards may impact reliable supplies of electricity.  She refuted claims that air pollution standards from EPA that save lives and protect Americans against illnesses would cause power outages and blackouts, presenting evidence and drawing from several studies released over the past year.  The two critical takeaway messages were that public health and reliable electricity supplies are not opposed to each other under EPA’s clean air and clean water standards, and that any impacts that the rules would have on the power sector are not insurmountable, but manageable with job growth and economic activity likely to follow.

By contrast, the other speakers on Panel Two (see the list here), with the exception of Mr. John Hanger of Hanger Consulting (former head of the Pennsylvania Department of Environmental Protection), expressed concern that complying with EPA standards in accordance with the proposed timeline would compromise reliable electricity, dramatically increase customer electricity bills and eliminate more jobs than it would create.  Some also warned that, without a comprehensive analysis evaluating the EPA standards together, it is impossible to understand the full scope and implications of the standards.    Mr. H.G. Doggett, President of the Electric Reliability Council of Texas (ERCOT) communicated his discomfort with the effects of the standards, the Cross-State Air Pollution Rule (CSAPR) in particular, on the Texas power market.  The issues they raised in their testimony are largely representative of those covered in this Edison Electric Institute (EEI) study, which was peer reviewed by Sue Tierney and Charles Cicchetti in a May 2011 paper that discredited the EEI claims, which I summarized here.  Also, the five Federal Energy Regulatory Commission (FERC) Commissioners, who testified that there is no tradeoff between public health and electric reliability, underscored differences between resource adequacy and local impacts and contrasted the roles of FERC and EPA with local and regional planning entities.  More details are available in my colleague Allison Clements’s blog here. 

Agreeing with the FERC Commissioners, Dr. Tierney commented that we can protect public health while keeping the lights on, both important national objectives, as EPA proceeds to implement clean air standards.  She listed at least eight supporting facts and energy market conditions, which I will briefly discuss below.

The industry’s response to changing market conditions as well as new standards will stimulate much-needed economic activity and modernization of the electric system.  Dr. Tierney commented that the capital investments industry makes in response to regulatory standards often produce positive economic activity in the local and regional communities affected.  Public health and environmental safeguards do not need to be traded against jobs – in fact, EPA’s environmental standards will create the jobs desperately needed in this country.  A February 2011 report co-authored by Political Economy Research Institute (PERI) and Ceres estimates that CSAPR (or, at the time of release, the CATR) and the Utility Air Toxics Rule would create 290,000 jobs, while another study by the Economic Policy Institute (EPI) attributed an increase of 90,000 jobs to the Utility Air Toxics Rule alone.  EPA’s air quality standards will have this kind of stimulative effect on the economy because environmental technologies require labor and capital for production, installation and maintenance.  Another reason that environmental standards drive job growth is that compliance costs account for only a small portion of production costs, and are almost always far less than projected.  Experience from the 1990 Amendments to the Clean Air Act show, for example, shows that electricity rates actually declined through the 1990s as pollution declined significantly.   And, as my colleague Laurie Johnson writes, “While employment trends in manufacturing continued on their downward path of the last four decades, with the de-industrialization and outsourcing of American production, the rate of job losses slowed for industries directly affected by the [1990 Clean Air Act] Amendments, while it increased for other manufacturers.”  Opposing concerns focused on a National Economic Research Association (NERA) report prepared for the American Coalition for Clean Coal Electricity in June 2011 that the standards set in the CSAPR and Utility Air Toxics Rule would reduce national employment by 1.4 million in 2020.  However, these concerns ignore two key considerations: first, many sites will likely be repowered with natural gas and preserving jobs, and second, construction to build new plants and to install back end controls on existing units will stimulate job growth.  It is equally significant that industry response would modernize the electric system by decreasing the amount of air pollution released to the atmosphere and improve public health for citizens across the country, all while providing most welcome economic and job opportunities.  The American economy would benefit as the EPA standards foster new, sustainable clean energy jobs instead of outdated and uneconomical coal jobs.  As Representative Inslee pointed out, we will be risking lost jobs for thousands of steel workers, teamsters, laborers, carpenters, iron workers, construction workers, and long shoreman, all of whom have found jobs in the clean energy industry, if we don’t continue the push towards cleaner sources of generation.

Historically, industry has pulled through to reliably deliver electricity to customers.  The U.S. electric industry has a proven track record of doing what it takes to provide reliable power supplies.  Dr. Tierney notes that there were no reliability problems arising from investments in pollution control equipment and new generation during the mid-1990’s, when industry raised almost identical concerns about equipment shortages and difficulties adding control equipment in a short period of time.  Additionally, in the decade between 1999 and 2008, the electric sector added almost 270 GW of natural-gas fired generating capacity, of which 160 GW was built between 2001 and 2003.  Today, much of this capacity is underutilized, suggesting that even a modest increase in utilization of these resources can play a role in avoiding outages.  In sum, history indicates that industry has always been able to deliver electricity to customers without breaching reliability.

Industry has had more than a decade of notice of the forthcoming standards, and the proposals contain a broader range of possible compliance approaches than anticipated.  CSAPR and the proposed Utility Air Toxics Rule should come as no surprise to the industry.  These rules have been in the works for several years, and are in fact succeeding the Clean Air Interstate Rule (CAIR)/Clean Air Transport Rule (CATR) and the Clean Air Mercury Rule (CAMR), respectively.  In each instance, the U.S. Court of Appeals for the D.C. Circuit ruled that EPA reconsider and replace the rules with the present-day CSAPR and proposed Utility Air Toxics Rule.  What is more, the CSAPR and the Utility Air Toxics Rule contain several elements that allow for greater flexibility in affected companies’ responses.  For example, CSAPR allows intrastate and limited interstate trading of emissions allowances for SO2 and NOx consistent with the Clean Air Act, and the Utility Toxics Rule allow companies with multiple generating units at a single station to comply by averaging emissions across all of the units.   Even though these clean air standards have been expected for two decades, EPA has proposed compliance standards with a menu of compliance options that is broader than anticipated in order to ensure satisfactory compliance by affected companies. 

Owners of a substantial portion of the affected plants have already taken steps to bring their plants into compliance.  Many owners of affected plants have already begun to modernize their facilities to reduce air emissions as a result of factors unrelated to EPA standards including state standards that are more stringent than EPA’s and court orders.  States including Massachusetts, New Jersey, Connecticut, Delaware, New York and Illinois impose stricter mercury limits on coal-fired power plants than proposed by EPA in the Utility Air Toxics Rule.  Because many plants are already in compliance, the relevant pollution control technologies are commercially practicable, and many of the companies owning large portions of the nation’s coal generation have committed to complying with upcoming EPA standards in public statements.  Among them are Xcel Energy, Duke Energy, NRG, TVA, Wisconsin Energy and Edison International.  The underlying themes of these statements are: (1) companies have long anticipated these rules; (2) early investments have positioned these companies well for compliance; and (3) any impact on electricity rates would be manageable and not unprecedented.  With so many utilities making responsible investments to upgrade their facilities, those that have not similarly prepared are short of valid excuses.

Current fuel market conditions are putting economic pressure on older, inefficient coal plants to retire even without EPA’s standards.  EPA standards aside, increasing coal prices and lower natural gas prices, as well as abundant gas reserves and decreased demand for electricity challenge the economics of operating older, less efficient coal plants.  In absolute terms, these market conditions led to an overall increase in gas-fired generation, while coal-fired generation decreased in 2010.  In many cases, retiring the oldest, most polluting and least efficient coal units that do not have the necessary environmental controls to comply with EPA standards simply makes economic sense in light of today’s market conditions.

The most credible estimates of coal plant retirements and market impacts strongly indicate that the impacts are manageable.  Of the numerous studies that have been released estimating the impacts of the EPA’s clean air and clean water standards on the power sector, Dr. Tierney points out that the most recent studies are the most credible, as they are developed on the basis of the most realistic assumptions, following the proposed and final rule announcements.  These reports strongly indicate that the impacts are manageable.  Dr. Tierney and M.J. Bradley and Associates (MJB) conducted one such study in August 2010 on behalf of the Clean Energy Group, which they updated in June 2011, confirming that the EPA standards would not disrupt reliable electricity supplies from a resource adequacy perspective, and that any impacts could be managed with careful and timely planning.

Industry has protections in place to insure that generation needed for reliability does not retire, and that new capacity is added where it is needed.  Regulatory requirements combined with operating and planning requirements, system plans, emergency response protocols, to name a few, assure reliable electricity supply to meet demand.  Specifically, regional planning processes have the necessary protections in place to insure that generation needed to provide reliable electricity supplies does not retire without a workable replacement solution in place first.  See my colleague Allison Clements’s related blog here for more detail on the protections at the regional planning level.  In addition to the regional planning reliability assurances, information signaling investment opportunities are widely available.  For example, Federal administrative procedures provide advance notice of pending changes in environmental requirements and assessments performed by various organizations within the industry on resource adequacy routinely identify actions that would reinforce electricity reliability where needed.  Finally, the electric industry has proven experience in adding additional generating capacity, transmission solutions and demand-side measures as needed, and in coordinating effectively to address reliability concerns where they arise.  There are also existing statutory authorities at the federal, state and grid operator level as well as regulatory and risk-management tools to ensure that system reliability can be maintained, even as the industry responds to new EPA standards.

Recent market developments provide practical evidence that impacts from EPA standards are manageable.  Results from the most recent PJM capacity auction confirms that the PJM region, one of the most coal-dependent regions in the country and the nation’s largest power market, will have sufficient capacity to serve demand even after CSAPR and the Utility Air Toxics Rule take effect on or before January 2015.  By way of background, the PJM region includes hundreds of generating units that provide electric power to 54 million customers in 13 mid-Atlantic states and the District of Columbia.  The PJM capacity auction occurs each year with the objective of securing sufficient generating capacity to meet future demand three years forward.  The winners in the capacity auction commit to being available to provide capacity during that time period for a market-clearing capacity payment in return.  The latest capacity auction (May 2011, for the period May 31, 2014 to June 1, 2015) indicates that PJM will have more than enough capacity to meet federal reliability standards set by the North American Electric Reliability Corporation (NERC) when both CSAPR and the Utility Air Toxics Rule will be in effect.  More than 4 GW of new capacity came into the market with this auction, including new generation and demand-side resources such as demand response and energy efficiency.  With the results of this auction, PJM demonstrated the diverse range of solutions available to simultaneously address customers’ demand requirements and environmental requirements. 

The principal message, supported by all of the reasons Dr. Tierney set forth in the hearing yesterday, is that there is no justifiable reason to delay implementation of CSAPR and the Utility Air Toxics Rule, because investing in modernizing the nation’s generation fleet is important and feasible without having to choose between public health and reliable electricity supplies.