CHP Offers Opportunity for Industrial Competitiveness and Greenhouse Gas Reductions

By producing both electrical and thermal energy together from the same fuel, combined heat and power (CHP) can lower energy bills for users while at the same time reducing the amount of pollution associated with meeting electrical and thermal energy demand. Because CHP displaces electricity production, it offers a low-cost way of reducing greenhouse gas (GHG) emissions from the power sector, potentially contributing to cost-effective compliance with future regulation of power sector GHG emissions.

As discussed in a recent CCAP white paper, CHP can bring real benefits for the environment, job creation, and domestic business’ bottom lines; but several barriers have thwarted greater implementation of CHP technologies. While CHP systems can reduce energy costs for users, saving them money and reducing their environmental impact, barriers exist that have prevented greater use. The initial capital costs of installing the equipment can be prohibitive even if a project is cost-effective over its lifespan. In addition, the requirements for connecting a CHP-powered facility to the grid (to make up for additional electricity needs, to sell excess electricity back onto the grid, or to provide power when CHP equipment is shut down) can be onerous, time consuming, and expensive. Recognizing CHP’s benefits, President Obama released an executive order in August of last year calling for an additional 40 GW of new CHP capacity to be installed in the U.S. by 2020 (up from 80 GW today). To meet this goal, states will have to address the barriers that have challenged CHP up to this point.

Meanwhile, the EPA is moving to regulate GHG emissions for existing power plants; smartly designed flexible regulations that allow for the crediting of off-site CHP may be able to reduce the costs of compliance while fostering greater use of CHP – and bring all the benefits that CHP can offer: a winning combination for businesses, utilities, and the public. The EPA’s proposed regulations are expected in June of 2014, followed by an official comment period, but it is important that those crafting the proposed rule are aware of the benefits that flexible mechanisms that credit CHP can offer. Under a flexible approach, GHG standards addressing existing sources of power generation can bring greater emission reductions at a lower cost. If CHP is allowed to count toward compliance in a way that fairly reflects the efficiency improvements achieved (and thus lower overall carbon emissions), manufacturers will benefit from having a new incentive for CHP and the lower overall energy costs afforded by CHP technology. Regions of the country that depend on the manufacturing sector – for example the Midwest – will likewise see benefits as energy efficiency makes their economies more competitive while reducing their GHG emissions. States whose economies rely on industry while their electrical grids rely on coal-fired generation will likely benefit most from GHG regulations that appropriately credit emissions reductions from CHP.

Realizing this potential, CCAP will be working with a range of industry and other stakeholders at the national level and in Midwest states – particularly Ohio and Minnesota – to assess and advance policies and regulations that reduce GHG emissions while fostering economic competitiveness. In an effort to demonstrate the positive role CHP can play and the benefit for states, CCAP will be undertaking modeling of GHG regulations for existing power plants. The focus will be on flexible solutions to achieve a meaningful GHG standard for existing power plants, and on how such a standard can encourage CHP. CCAP sees opportunities for these regulatory and policy solutions to benefit manufacturing interests and the regions that depend on them, as well as many electric utilities. CCAP is anticipating insightful and informative results moving forward in this new stage of the Climate Policy Initiative and will present findings as results become available.

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  1. Bernard Derrick

    A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect.