EPA’s ground-breaking proposal to cut carbon dioxide (CO2) emissions from existing power plants has been lauded by some for affording states considerable flexibility, while also being criticized by others for being stringent.  In fact, it’s both.

Flexibility is provided in the proposed regulations by permitting emission reductions to be achieved within four “building block” policies.  EPA would allow a state implementation plan to count CO2 emission reductions that occur as a result of (i) improving heat rate efficiency at coal-fired power plants; (ii) changing the dispatch of power plants so that existing combined-cycle natural gas plants are run more intensively and existing coal plants are run less intensively; (iii) expanding renewable generation and preserving existing nuclear plants at risk of retirement; and (iv) reducing end-use demand for electricity through adoption of energy efficiency programs.

These “building-blocks,” enable each state to design a least-cost system of CO2 emission reductions that best fits the electricity sector profile of the state.  Additional flexibility is afforded states through optional use of (i) regional implementation plans, (ii) mass-based rather than rate-based emission standards, (iii) cap and trade systems, (iv) assumption of state responsibility for achieving some part of the emission reductions, (v) alternative timelines and goals for submitting implementation plans and for achieving emission limits, and (vi) retention of and reliance on existing state programs.

But, the flexibility of the four “building blocks” has a flip side.  EPA uses the feasibility of implementing each building block as the basis for establishing the “stringency” of the CO2 emission performance standards imposed on each state.  EPA euphemistically refers to the state emission performance standards as “goals,” but these standards are binding.  Moreover, the standards are calculated by EPA using a uniform formula that presumes the feasibility and cumulative impact of policies and measures within each building block within each state.   This is the inflexible aspect of EPA’s “building blocks.”

In this blog post, we briefly summarize EPA’s factual and policy determinations that underlie inputs to its formula for calculating the stringency of each state’s binding CO2 emission performance standards, which are established for the year 2030 and, on average, for the decade of 2020-2029.  EPA invites comment on its formula and its input assumptions and determinations.  The formula used to calculate the binding CO2 performance standard for each of the fifty states is specified and illustrated in the Goal Computation Technical Support Document.

  1. Improving power plant efficiency.  EPA determines that every existing coal-fired power plant could improve its heat rate by at least 6%, yielding a 6% reduction in each plant’s net CO2 emission rate.  EPA finds that this level of average heat rate improvements could be achieved, at reasonable cost, through equipment upgrades and adoption of best operating practices.  EPA also assumes no installation of carbon capture and sequestration technologies at existing power plants and no conversion or co-firing of existing coal-fired power plants with natural gas.
  2. Redispatch from coal to natural gas.  EPA determines that each natural gas combined-cycle (“NGCC”) plant could achieve a 70% utilization rate (i.e., capacity factor), and be substituted for coal and less efficient natural gas and oil generation.  EPA assumes that this implied increase in the national average NGCC capacity factor from 46% in 2012 to 70% in 2020 (capped only by limits on how much natural gas could be substituted for other fossil generation in a particular state) could be achieved in a regional power pool or individual utility system utilizing security-constrained, economic dispatch, if a carbon price (estimated to be $30 per metric ton of CO2) or operating limits were imposed on existing coal-fired power plants.  However, EPA also notes that while it assumes a 70% average capacity factor for application of its formula, it does not expect that the majority of states would operate their existing power plant fleet at this level of redispatch.  See Goal Computation Technical Support Document at n.13.
  3. Renewables and nuclear power plants.  EPA assumes that, after giving effect to announced retirements of several nuclear plants, approximately 6% of the historical nuclear fleet is at risk of early retirement, primarily due to unfavorable economics.  In setting each state’s CO2 emission performance standard, EPA assumes retention of at-risk nuclear plants and completion of planned new construction of nuclear facilities. EPA also assumes annual increases in renewable generation in each state, based on annual growth factors and maximum target percentages that EPA determined for six regions encompassing the continental U.S.  The regional targets are based on the average Renewable Portfolio Standard requirements in those states within the region that have adopted such requirements.  EPA does not differentiate among different renewable technologies, but it proposes to exclude hydropower from its calculations.
  4. Reductions in electricity demand.  EPA developed a “best practices” demand-side energy efficiency scenario, which provides an estimate of the potential reduction in electricity demand that can be achieved at reasonable cost through demand-side measures already achieved or mandated by a number of states.  EPA calculates that twelve leading states have achieved or will achieve at least a 1.5% annual reduction in electricity demand through these best practices for end-use energy efficiency.  EPA applies this 1.5% annual incremental end-use energy efficiency savings factor to determine levels of CO2 emission reductions associated with foregone electricity generation achievable in every state (each of which starts from a different baseline).

The foregoing electricity sector policies and measures – the “building blocks” – comprise the “best system of emission reductions,” under Section 111(d) of the Clean Air Act, for which EPA calculates, using its uniform formula, the stringency of binding CO2 emission performance standards imposed on each state.  Starting from this prescriptive, inflexible stringency, EPA’s proposed Section 111(d) regulations attempt to afford states considerable flexibility in developing their individual or regional implementation plans, which must be approved by EPA.  Future blog posts will examine other aspects of EPA’s proposed regulations.