EPA's Clean Power Plan: Implementation Options

Abstract

On June 2, 2014, the U.S. Environmental Protection Agency (EPA) proposed a plan to reduce carbon dioxide (CO₂) emissions from existing fossil fuel power plants based on its authority under section 111(d) of the Clean Air Act (42 U.S.C. § 7411(d)). The proposal, known as the Clean Power Plan or 111(d) rule, will require each state to develop a plan for reducing the rate of CO₂ emissions from its electric power system. As currently proposed, the Clean Power Plan requires states to meet interim emissions reduction targets beginning in 2020, with final targets to be achieved by 2030.The Clean Power Plan envisages that electric power companies will reduce their emissions by, among other things, switching to lower carbon fuel sources and increasing investment in energy efficiency. Currently, coal supplies approximately 40 percent of the electricity delivered to the grid in the U.S. Reducing the carbon intensity of the electric power system will mean increased reliance on natural gas and alternative sources of power, such as nuclear, wind, and solar. To some extent, this transition is already underway, even in the absence of federal standards. The U.S. Energy Information Administration estimates that, between 2004 and 2014, coal-fired electricity generation declined by nearly 20 percent. Over the same period, natural gas-fired generation increased by almost 58 percent and non-hydroelectric renewable generation by over 200 percent. The Clean Power Plan promises to accelerate this transition away from coal towards natural gas and renewables. Given this, the Clean Power Plan has been highly controversial. EPA received approximately two million public comments from states, industry leaders, environmental groups, and public citizens with a wide range of opinions on the best options to proceed with the Clean Power Plan. To help inform the on-going policy debate, from April to June 2015, the Kay Bailey Hutchison Center for Energy, Law, and Business at The University of Texas at Austin conducted a survey on key aspects of the Clean Power Plan. 66 valid survey responses were received. The survey respondents included power company executives, industry consultants, state environmental officials, state energy officials, utility regulator staff, and regional transmission organization staff from various locations. Responses were not collected from every state. Survey respondents were not asked whether they support or oppose the Clean Power Plan. Rather, the survey focused on issues relating to implementation of the Plan. The survey results are summarized in this report. Key findings of the survey include:(1) The overwhelming majority of survey respondents favored the development of state compliance plans rather than federally-developed plans. (2) There was broad support, among survey respondents, for mass-based trading programs. Support was found in both Democratic- and Republican-controlled states but was higher in the former than the latter.(3) Survey respondents were divided on the use of renewable portfolio standards and energy efficiency measures. These policies were popular among energy and environmental officials, particularly in Democratic-run states. However, few power company executives supported use of the policies.(4) Most survey respondents favored market-based compliance options. 68 percent of respondents indicated that they preferred mass-based trading over other market-based options. 11 percent of respondents listed rate-based trading as their preferred option. (5) Almost two-thirds of survey respondents favored adoption of mass-based emissions targets, arguing that they are easier to implement than the rate-based targets proposed by EPA. Others, however, expressed concern about the difficulties of converting any rate-based target into a mass-based form. There was also some concern about a mass-based target’s perceived limits on future electricity growth.(6) The bulk of survey respondents supported interstate cooperation on the Clean Power Plan, with 90 percent arguing that states should develop multi-state plans or single-state plans that preserve the option to trade across state lines.