When President Obama announced the final Clean Power Plan last August, the public only had a few detailed model runs to evaluate the new carbon pollution limits on power plants. Now, a new report out by M.J. Bradley & Associates, with insights and feedback from stakeholders including utility companies, trade associations and NGOs including NRDC, is the first in-depth analysis of a broad range of policy design options under the Clean Power Plan (CPP). The analysis confirms EPA's conclusions with even more data that the CPP is readily achievable and produces benefits that greatly outweigh the modest costs nationally. Because the Clean Power Plan helps cut energy waste, household electricity customers will even save money on their monthly electricity bills. And, there are options for even further reducing CPP costs and boosting benefits, such as trading allowances or credits (ERCs), which leads to significant cost savings and flexibility for both power generators and states.
The report also points to what we view as an important issue: EPA requires that state plans following the mass-based approach that exclusively covers existing power plants prevent "emissions leakage." "Emissions leakage" results from the incentives under a mass-based plan to shift generation and emissions to new fossil-fired plants outside of the program. The analysis found that while EPA is correct to require state plans to mitigate leakage, its proposed approach would only have a minor impact. EPA is taking comment on this, and stakeholders are currently working to offer alternatives that could be more effective.
M.J. Bradley studied 16 different scenarios - two reference cases and 14 policy cases with the CPP standards in place. The 14 policy cases examined both mass- and rate-based compliance along with various policy elements (e.g., treatment of new sources, allocation of allowances, and resources eligible to generate ERCs). The charts below refer to these various cases by their shorthand names. A fuller description of each of the cases and the accompanying assumptions appear in the report itself, but for now, this post will focus on the most important takeaways from this study.
On average, households will save on their electricity bills under the Clean Power Plan
U.S. households will also benefit from the Clean Power Plan. In 2030, M.J. Bradley found that they would save between 5 and 20 percent on average on their monthly electricity bills. The level of average savings depends on both the level of energy efficiency achieved and how revenue for the auction of carbon allowances would be used. This is even more reason that energy efficiency should feature strongly in any state implementation plan.
If all states were to achieve a modest level of energy efficiency in their compliance plans, electricity customers would save 8 percent on average on their monthly household electricity bills. With significant energy efficiency savings, customers could more than double their monthly electricity bill savings!
Choosing to reinvest revenue from the auction of allowances in bill assistance, energy efficiency, and/or other clean energy programs would yield even greater benefits for households. On average, the analysis shows that bills decline by an additional three to seven percent across the cases when revenue is reinvested into energy-related programs. The Regional Greenhouse Gas Initiative (RGGI) does exactly this and generated over $1 billion in economic value across the region in the years 2012-2014.
Compliance can be achieved with a diverse energy mix
The analysis finds that the U.S. maintains a diverse mix of generation across all scenarios. On average, coal generation declines by 21 percent relative to reference, but still represents 23 to 28 percent of total electricity generation in 2030. Natural gas generation makes up a similar portion of total generation in 2030, supplying between 25 and 32 percent of U.S. electricity needs. The rest of U.S. demand is met by nuclear, energy efficiency, and renewable sources, with renewable generation increasing to between 11 and 15 percent of total U.S. generation in 2030.
Clean energy resources will play an increasing role in the energy market
Renewable generation from wind and solar will continue to grow and expand across the country. Since incremental renewable energy capacity (in operation after 2012) can help generators meet the emissions targets by providing a zero-emission source of energy and is eligible to generate "Emission Rate Credits" (ERCs) under a rate-based program, these cost-effective sources are key components of state compliance plans.
The assumptions underlying the modeling do not include distributed generation (i.e., solar panels on home roofs, microturbines) or the Congressional extension of the Investment tax credit (ITC) for solar energy or the production tax credit (PTC) for wind energy - which we expect will result in further new renewable energy capacity than these scenarios project. We will continue to analyze the potential impacts of these current developments.
Compliance costs are modest, and are greatly outweighed by the benefits
M.J. Bradley found in this analysis that among the scenarios assuming states adopt mass-based compliance plans, the incremental costs to the electric sector ranged from $1 billion to $4 billion in 2030. To put this in perspective, it represents only an increase of between 0.7 percent and 2 percent over what the industry is projected to spend in 2030.
According to the analysis, the CPP will reduce harmful carbon dioxide emissions from the power sector 16 to 22 percent below 2012 levels (29 to 34 percent below 2005 levels) in 2030. This is equivalent to taking 69 million to 93 million cars off the road. The benefits of reducing this much pollution are huge. In 2030 alone, the benefits of reducing pollution under the CPP in these scenarios exceed the costs by $33 to $86 billion!
M.J. Bradley's analysis confirms that the Clean Power Plan is readily achievable and will result in large net benefits for consumers and the nation as a whole. Trading and energy efficiency will allow generators and states to meet CPP targets at low cost, while making the electricity system more flexible, saving consumers money, and improving public health.
Thanks to my colleague, Amanda Levin, for co-authoring this post.