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Obama’s New Carbon Plan Makes History for Clean Energy

In a history-making move for clean energy, the Obama administration today, for the first time, proposed a rule to restrict carbon dioxide on existing power plants.

The Environmental Protection Agency (EPA) announced the proposal amid strong praise from several clean energy groups and, not surprisingly, criticism from coal supporters. The rule calls for reducing carbon 30 percent by 2030 over 2005 levels.

While the proposal is complex, the bottom line is simple. Generators that emit high levels of carbon will find themselves in a less favorable position in the electricity marketplace. Those that emit little or no carbon — like renewable energy — gain a new level of value.

“By leveraging cleaner energy sources and cutting energy waste, this plan will clean the air we breathe while helping slow climate change so we can leave a safe and healthy future for our kids,” said Gina McCarthy, EPA administrator, in releasing the draft rule.

The implications are both global and local. The proposal signals to the world stage that the U.S. is serious about decarbonizing its high tech economy. Power plants produce about one-third of the nation’s carbon emissions.

Once the rule becomes final — expected in about a year — state regulators begin a new approach to planning energy portfolios, this time with carbon restrictions in mind. A few states already have mandatory carbon targets, but for most states such requirements would be a first.

 

Select soundbites from EPA Administrator Gina McCarthy's annoucment about the new carbon regulations.

How It Works

The EPA rule opens the door for more clean energy because it allows states flexibility in how they meet the standard.

Rather than requiring that power plants install pollution controls at the smoke stack — the typical approach — the EPA will allow a state to create reductions by making changes in its entire power portfolio. This ‘outside-the-fence’ strategy allows states to look across their electric resources to find best places to reduce carbon. For example, they can reduce overall carbon emissions by making clean energy a larger part of their mix or by reducing demand through energy efficiency.

“It gives states the flexibility to chart their own customized path. There is no one-size-fits-all solution. Each state is different so each state’s path can be different,” McCarthy said. 

The EPA offered four ‘building blocks’ to achieve carbon reductions, but the states are not required to follow the guidelines. The building blocks are based on actions the EPA found already underway in many states. They are:

  • Make fossil fuel plants more efficient
  • Dispatch low-emissions sources, namely natural gas, more often
  • Continue the renewable energy expansion already underway and continue using existing nuclear power
  • Expand use of energy efficiency

States will detail how they will meet the air standard in what are known as state implementation plans, or SIPs. These plans are not new turf for the states. As the Environmental Defense Fund pointed out, states have been creating SIPs for many years to reduce other pollutants regulated by the EPA, among them ozone, particulate matter, carbon monoxide, nitrogen oxides, sulfur dioxide, lead, fluoride and sulfuric acid mist.

Once the states finalize their plans, they submit them to the EPA for review. State plans are due June 30, 2016, although the EPA will allow state extensions to June 30, 2018 under certain circumstances. 

The EPA will evaluate the plans to see if they are “equivalent” to what the state could achieve if it followed the agency’s recommendations, known as ‘the best system of emission reduction.' 

Cap & Trade Option

States also can meet the requirement by participating in carbon cap and trade programs, such the Northeast’s Regional Greenhouse Gas Initiative, or RGGI. Supporters of RGGI hope to see more states, beyond its current nine members, join the program as a result of the new standard.

Carbon emissions have dropped 29 percent percent in the RGGI states since the program began about five years ago. At the same time, electricity prices have dropped 8 percent across the region, according to a report by Environmental Northeast. What changed in the Northeast? It built more natural gas-fired generation, decreased power production from coal and oil plants, and invested more in renewables and energy efficiency. 

Indeed, much of the thinking behind the proposed rule stems from work in New England, according to the Conservation Law Foundation. The organization traced the EPA action back seven years to the U.S. Supreme Court decision, Massachusetts vs. EPA, which supported the idea of regulating carbon through the Clean Air Act.

“This national effort flows from, and builds upon, initiatives by the New England states to address global climate change pollution,” said John Kassel, CLF president.

It is not surprising that New England thinking would play into the EPA rule, given that Gina McCarthy held several government positions in the region before becoming head of the EPA.

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Market Implications

It’s too early to say exactly what the market implications are for renewables — what states will adopt which resources. A study by the Natural Resources Defense Council found that energy efficiency offers the least expensive way to reduce carbon emissions. But Peter Altman, director of NRDC’s Climate and Clean Air Campaign, said that “the standards will create a market opportunity for a full suite of clean energy investment, including renewables.” 

Andrew Steer, president and CEO of World Resources Institute, also sees the carbon standards catalyzing investment in renewable energy, given its falling costs and increased use.

“In Georgia, Minnesota and New Mexico renewable energy has emerged as the cheaper option for new electricity generation. The same holds true in Texas, which now has more wind power capacity than all but five countries. Earlier this year solar energy provided a record 18 percent of California’s energy demand,” he said.

Utilities and states are likely to push to get credit for existing solar facilities starting immediately — all the way down to the residential level, said Dan Bedell, Principal Solar’s executive vice president for strategic and corporate development.

“This scenario shapes up to look a lot like a REC structure for renewable energy, where utilities and states will want to offset existing pollution with clean sources,” he said. “If the outside the fence approach is adopted, the biggest impact is likely to occur in the states with the most polluting facilities and the most fossil power plants on the books that are not fully amortized. It is likely to be cheaper to purchase RECs than it will be to mothball functioning, non-depreciated power plants. In these states, larger solar facilities will be necessary to offset the larger pollution quantities.”

Even though renewables such as solar and wind do not displace fossil fuels one-to-one — because of intermittency and grid complexities — they can profoundly reduce carbon while maintaining reliable energy flow, according to a recent report by the Solar Energy Industries Association.  If Western Interconnect, for example, generates 33 percent of its power from wind and solar, it will cut carbon emissions by 29 to 34 percent, the report said. The PJM Interconnection, the nation’s largest organized market, can cut carbon by 28 percent with renewables by 2026. And even with 30 percent solar and wind in its mix, the grid operator would experience no significant operating issues, said SEIA, siting a PJM study. 

Battle Lines

President Barack Obama has pushed for carbon restrictions since he took office, but Congress blocked his attempts to create a cap and trade program. As a result, he is using his executive authority under the Clean Air Act to create the new draft rule.

The proposal now goes into a public hearing phase, which is likely to generate strong sentiment for and against. Lawsuits are inevitable, although legal experts say the rule stands a good chance of being upheld given recent precedent.

Even before the rule was out, its critics began pummeling it. The U.S. Chamber of Commerce said it will cost the U.S. economy $50 billion per year through 2030. In its blog, the EPA said the chamber’s figure stems from faulty assumptions. Specifically, the EPA said that it assumes that states would need to use expensive carbon capture and sequestration (CCS) for new natural gas plants to hit their goals. “EPA has indicated frequently that CCS would not be considered for existing power plants,” the blog said.

The volley is one of many likely to come as the EPA prepares the final rule, expected out next June. And controversy will continue beyond that as the states prepare their plans. Look for this to be one of the most galvanizing — and perhaps influential — decisions in U.S. energy policy for the next several years.

Lead image: Power plant emissions via Shutterstock

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