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CCAP comments support EPA’s Clean Power Plan

On December 1, 2014, CCAP posted the following comments to EPA’s Clean Power Plan docket:

Honorable Gina McCarthy
Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue
Washington, D.C. 20460

Re: Comments on the Proposed Clean Power Plan
U.S. Environmental Protection Agency Docket ID# EPA-HQ-OAR-2013-0602

 

Dear Administrator McCarthy:

The Center for Clean Air Policy supports the Administration’s proposal to regulate greenhouse gas emissions from electric generating units under the Clean Air Act. The proposed approach of assigning emissions reduction opportunities from four well-understood technology building blocks on the basis of state-specific characteristics is fair and reasonable. This approach acknowledges the uneven distribution of mitigation opportunities across the country and offers recognition to states that have acted early to deploy low carbon solutions. Moreover, the approach shows how the standards can be met in each state using demonstrated technologies.

In addition, the way that EPA intentionally did not fully utilize the available building blocks in each state offers a substantial cushion, allowing states or facilities to ramp up use of preferred mitigation options while using less of others. This approach nicely provides states with substantial room to accommodate the remaining useful life of existing units and other site-specific considerations. Similarly, the fact that EPA did not factor in other well-understood technological solutions in defining the best system of emission reduction—technologies like combined heat and power, procedures like co-firing with natural gas, and policies such as improved building codes—affords states more options for low-cost compliance while potentially offering room to strengthen the standards.

In reducing emissions from existing power plants by an estimated 30 percent below 2005 levels by 2030, the proposed rule achieves meaningful emissions reductions. While the science demands even more ambitious mitigation over time to stay on a path to a global 2 degree Celsius goal, this rule offers an important down payment. The proposal has demonstrated to the international community the U.S. is serious about making emissions reductions, and it has improved our standing in the international negotiations. This action is important in buttressing the United States’ intended nationally determined contribution, showing a viable path to achieving an aggressive interim goal of 26-28 percent below 2005 levels by 2025.

The proposed rule also offers a number of implementation pathways such that each state can select the approach most likely to work for its own sources and citizens. Each state can factor in a range of state-specific considerations in defining the form of the standard and in allocating the standard to individual sources. Moreover, states have the flexibility to allow compliance through any measure that displaces emissions from affected electric generating units, including through trading and averaging, and can join with other states to comply on a regional basis using a multi-state approach. In making use of these flexibilities over a long compliance horizon, states can develop strategies to minimize costs and ensure electric reliability.

CCAP offers specific comments on several topics, including: interstate emissions effects; compliance via combined heat and power; treatment of new natural gas combined cycle plants; the approach to setting a mass-based standard; phasing in building block 2; the 2012 base year; credits for early action; and treatment of nuclear energy.

Interstate Emissions Effects

The Clean Power Plan should allow for compliance through the full set of clean energy solutions—energy efficiency, renewable energy, combined heat and power, nuclear energy and others—that displace CO2 emissions from affected electric generating units (EGUs). Encouraging such investments is important to meet the rule’s interim and final compliance goals, and also to put the power sector and the country as a whole on a path to meet longer-term mitigation targets. If states opt for an emission rate standard, clean energy solutions should be credited on the basis of projected marginal emissions reduced (for example, through dispatch modeling or use of AVERT).

At the same time, the Agency must establish rules that will ensure the integrity of the Clean Power Plan by preventing situations where more than one state can take credit for a single clean energy investment. In such instances, individual states might report lower emissions rates due to increases in clean energy generation, but due to interstate emissions effects, actual emissions reductions on a regional level could fall far short of the projected level of ambition. Moreover, so as not to bias compliance for or against any particular clean energy solution, the Agency should apply these rules in a consistent manner.

To better isolate the interstate emissions effects, we suggest distinguishing between double claiming and double counting. Double claiming can happen when two or more states (or entities within a state) take credit for having been responsible for a single clean energy investment. For example, one state could site the clean energy source, while consumers in the other state buy the power. In our view, double claiming (for energy efficiency, renewable energy and other clean energy investments) can be addressed through clear rules and guidance awarding credit to the senior investor, proportional to the investment, or based on a clear sequencing of investors. In contrast, double counting occurs when the marginal emissions reductions (as estimated by dispatch modeling or AVERT) indicate that the emissions reduced as a result of the clean energy investment occur outside the state that claims the clean energy generation towards its compliance.

EPA’s proposed treatment of renewable energy addresses double claiming but not double counting, making it highly likely that more than one state will take credit for emissions reduced. In contrast, EPA’s proposed treatment of energy efficiency addresses just double counting, and does so in a highly conservative manner that in most cases would significantly discount the emissions reductions from energy efficiency. EPA’s treatment of energy efficiency does not acknowledge the potential for double claiming that can happen within a state, but that also can be addressed through clear rules and guidance.

To avoid double claiming in a consistent and straightforward manner, EPA should offer default rules and guidance. In the case of renewable energy, the state (or entity) that purchases the renewable power and/or the renewable attribute should be able to take credit for the resulting emissions reductions. In the case of energy efficiency, credit might be granted to the utility or to a government entity that offers incentives for the efficiency investment. If there are no incentives, the private sector investor could keep the credit.

Addressing double counting, while necessary, is somewhat more challenging. While EPA has offered several potential approaches to address double counting, they require either a high level of coordination and agreement through multi-state programs or cooperative multi-state accounting; significantly limit the credit that can be offered for clean energy to that achieved in-state; or place the burden on EPA to assess double counting by ensuring that the combined state goals are likely to be met on a regional basis, potentially resulting in implementation delay. CCAP would like to offer an additional option to address double counting for EPA’s consideration: a multi-state modeling approach.

CCAP’s multi-state modeling approach would seek to recognize emissions reductions expected from clean energy investments across the region, allowing all such investments to count towards compliance. States in the region would model all of their planned clean energy investments together, and determine the resulting marginal emissions reductions in each state. Each state would then assign an emissions reduction value for each kWh of clean energy investment assumed in the state. In demonstrating compliance, each kWh of clean energy earns emissions reductions at the in-state rate. Under this approach, states would need to collaborate on modeling but would not need to rely on each other for compliance. Further, this approach captures all the emissions reductions from planned activities in the region that occur in each state, offering more credit than what would occur just through in-state investments.   Alternatively, EPA could provide the modeling using inputs from the states or derived in cooperation with the states.

Compliance via Combined Heat and Power (CHP)

Combined heat and power facilities reduce overall fuel use and emissions by generating two energy sources—heat and power—with the same fuel. The EPA recognized the opportunity presented by CHP in its Clean Power Plan, noting that large energy users might independently see opportunities for self-generation using CHP, and indicating that “states can structure their plans to allow the CO2 reductions achieved at affected EGUs through such actions to assist in reaching compliance.” (p.308/645) EPA also asked for comment on “whether industrial CHP approaches warrant consideration as a potential way to avoid affected EGU emissions, and whether the answer depends on circumstances that depend on the type of CHP in question.” (p.508/645)

Allowing compliance via combined heat and power presents a win-win opportunity to lower compliance costs for covered EGUs while encouraging efficient use of energy at industrial, commercial and institutional facilities. CCAP undertook a modeling study earlier this year to assess this opportunity. This study linked ICF International’s CHPower and Integrated Planning Models to assess how much CHP would be economical under the electricity, fuel and carbon prices in our forecasted 111(d) rule policy scenario. While the specifics of our study differed from EPA’s proposal, the level of stringency on a national basis was comparable. Using conservative assumptions about the technical and economic potential of CHP, as well as conservative assumptions on the rate at which users opt to invest in economic CHP and the rate of CHP deployment, we found that a total of 10 GW of CHP would be deployed by 2030.  CHP was an important 111(d) compliance option in Midwest and Southern states that both had CHP potential and faced a higher carbon price due to the regulation. Further, allowing CHP as a means of compliance also helped lower overall system-wide compliance costs. Accordingly, EPA’s final rule should encourage this win-win solution.

While we strongly believe that CHP should be allowed and facilitated as a means of compliance to the degree that they displace electric generation and reduce emissions from affected electric generating units, we also believe that EPA should take into account the fact that most CHP facilities (other than waste heat to power) produce at least some incremental emissions to generate electricity. To avoid emissions leakage through compliance via CHP, it is necessary to consider any incremental emissions at the CHP unit that can be attributed to electric generation. EPA should specify methodologies for quantifying any incremental emissions related to electricity generation that are additional to the business-as-usual emissions from heat production. Such methodologies could be based on heat rates and should not require use of continuous emissions monitors for small CHP units. Further, to facilitate CHP’s participation in state compliance markets using a standard currency (e.g., CO2 reduced), we recommend that emissions reductions from CHP and other clean energy sources be reflected in the numerator of the lbs/MWh emissions rate, not the denominator.

New Natural Gas Combined Cycle Plants

Currently EPA’s proposal suggests that states can choose whether or not to include new natural gas combined cycle (NGCC) units in their state plans for existing sources. However, if emissions from new NGCC units reside outside the 111(d) compliance program, there is the potential for emissions from the sector to increase in the 2040 timeframe even while affected units are in compliance. Further, not including new NGCC units within the 111(d) compliance program could advantage new units over ones that were recently built and are covered by the 111(d) program.

The effects of including NGCC units or not will depend on the choice of program design (mass- or rate-based) and the choices of neighboring state program designs. For example, including new NGCC in a mass-based program would make the cap more stringent unless the cap is adjusted to accommodate new growth. Under a rate-based program, including new NGCC units could help states with higher emission rate goals meet compliance, but could make compliance harder for states with lower emission rate goals. For states with rate-based programs, not including new NGCC units in the state plan could result in displacement of affected coal-fired power generation without having to average in emissions from an NGCC plant, leading to a greater overall improvement in the emission rate for affected units. State(s) opting not to include their new NGCC units in the program would be more likely to build new NGCC capacity, helping meet the generation needs of their own states and also supplying power to other states within the region—particularly those that choose to include new NGCC units in their mass-based state plans. Such emissions leakage would be reduced if all states incorporate NGCC units in their plans.

Considering that new NGCC units are built to last 40 years and will in all likelihood be part of the energy mix in 2050 when the U.S. is striving to meet a goal of 80 percent below 2005 levels, we urge the Agency to require such units to be included in state plans. We can envision a compromise where such units are considered to be “new” and excluded from state plans for a few years, but then must be integrated into the 111(d) compliance goals. We encourage EPA to specify approaches to integrate new NGCC plants for both rate- and mass-based standards. The approach used for mass-based standards could encourage use of a set-aside to facilitate integration of new NGCC units. An increase in the state emission limit would not be needed so long as regional growth in generation was already built into the emission rate limit. We also urge EPA to indicate its intentions to review and potentially strengthen the state emission rate goals at least every eight years based on changes in the best system of emissions reductions (in accordance with the cycle for reviewing and revising the NSPS) so that states and utility planners will consider the possibility that emission rate goals will continue to decline when deciding on new electric generating capacity.

Finally, because new NGCC units could potentially lock in new emissions in the 2050 timeframe, we question whether new NGCC units should be considered part of the best system of emission reduction and used to strengthen state emission rate goals. Better interim strategies to lower emissions through use of natural gas include shifting generation among existing generating units (already a key component of the proposed best system of emission reduction) and co-firing with different fuels at existing generation units. However, states should be permitted to use new NGCC units as part of a flexible compliance strategy.

Approach to Setting a Mass-Based Standard

By avoiding the need to quantify and separately credit emissions reductions from clean energy solutions, avoiding double counting concerns, and by not encouraging electric generation, a mass-based approach has some important advantages over a rate-based policy approach. Therefore, the approach used to define the mass-based standard should support selection of a mass-based compliance strategy by ensuring the outcome is viewed as equivalent to the rate-based standard, does not penalize early action, and minimizes the likelihood that states will define business-as-usual assumptions that will result in a higher (weaker) mass-based standard.

EPA’s suggested approaches to setting a mass-based standard specified in the technical support document “Translation of the Clean Power Plan Emission Rate-Based CO2 Goals to Mass-Based Equivalents” both prevent the concern about states gaming their business-as-usual forecast and also avoid having business-as-usual forecasts lock in planned mitigation measures into the baseline. However, the second approach, the “Final CPP Mass‐Based Equivalent for Affected and New Sources” that factors in projected growth in regional electric generation may be closer to achieving equivalency with the rate-based methodology, which allows for growth in electric generation so long as the emission rate is achieved.

 

To support consistency in how states set their mass-based standards, we urge EPA to specify a preferred methodology such as the “Final CPP MassBased Equivalent for Affected and New Sources.” This methodology calculates the mass-based standard through a series of calculations that are based on historic (2012) generation levels. By specifying a single method based on a fixed set of parameters and not using state-generated modeling, this approach prevents gaming and also avoids the issue of whether to assume planned clean energy capacity in the forecast. Moreover, using a methodology such as this one that accounts for growth in electric generation to meet growth in demand will help avoid a situation where states opt for a rate-based goal in lieu of a mass-based standard only because the goal itself is seen as easier to achieve.

Phasing in Building Block 2

We agree with the proposal to phase in building block 2 over time to accommodate technical challenges states may face in expanding natural gas infrastructure. Similar to the way that building blocks 3 and 4 are implemented in the proposal, EPA could define an amount of utilization shift that is feasible by 2020, and then define how quickly that amount could grow until the full amount of utilization (70 percent in 2030) is achieved. This way, states whose proposed emission rate goals assume large improvements through building block 2 will have a similar level of compliance flexibility as that which results from gradual deployment of the other building blocks. We do not believe it is necessary to evaluate the rate at which existing coal-fired power plants can be retired as the compliance period averaging should be able to accommodate any such delays.

The 2012 Base Year

Instead of using a single year (2012) we believe it is appropriate to use a three-year average to define the base year for all states. Using a three-year average addresses concerns raised by some states that 2012 was an aberration and avoids the loosening of the state goals and reduced overall ambition that may occur if some states opt for a three year average because it is more favorable and others keep the 2012 base year.

Credits for Early Action

While we agree that there is an incentive to delay certain private sector energy efficiency investments (those not required or encouraged by state energy efficiency resource standards) until 2020 in order to maximize the value of those investments, use of early reduction credits would weaken the state emission goals during the compliance period(s). If EPA decides to allow states to reward early energy efficiency investments with credit towards future compliance period(s), such credits should not weaken the overall stringency of the rules.  Under a mass-based approach, this can be accomplished through creation of a set-aside for energy efficiency. This set-aside could be larger in the first year(s) to accommodate several years of early crediting. Under a rate-based approach, the availability of low-cost early reduction credits could help justify going a bit further along the cost curves in defining the best system of emissions reductions. In addition, early credit should be limited to private sector investments outside of state energy efficiency resource standards and that comply with approved MRV methodologies. State energy efficiency resource standards (and renewable portfolio standards) that ramp up in the pre-compliance timeframe will ultimately support achievement of greater emissions reductions during the compliance periods and do not warrant early crediting.

Alternatively, to encourage early action on a more holistic basis, EPA could allow states to adopt early emission rate goals or mass-based standards between the date of their state plan and 2020. For example, the goal could be set to reduce emissions in a linear fashion between 2017 or 2018 levels and 2020. Emissions reductions below the state goal level could be banked for use in the first compliance period.

Treatment of Nuclear Energy

As proposed, despite attempts by EPA to recognize and reward existing at-risk nuclear units, the way existing at-risk nuclear plants are treated under the rule does not encourage such plants to continue operating. If these units shut down, this would result in significant increases in emissions as fossil units ramp up to make up for the lost generation. Further, to the extent that nuclear plants are not relicensed in the future, this would also have a significant impact on emissions and compliance. To avoid these outcomes, it will be important to evaluate alternative approaches to treating nuclear generation. The attached meeting summary describes a number of options. In particular, to address the relicensing issue, we suggest the Agency consider allowing some portion of relicensed nuclear generation to meet compliance in addition to new nuclear power and nuclear uprates. At the same time, states should not be penalized for nuclear capacity that shuts down due to safety reasons. Such instances could warrant an adjustment to the emissions cap under a mass-based approach.

Thank you for this opportunity to comment on the proposed Clean Power Plan. We welcome your questions and further dialogue as the Agency defines its final rule.

Sincerely,

Ned Helme
President
nhelme@ccap.org
202-408-9260

Stacey Davis
Senior Program Manager
sdavis@ccap.org
202-408-9260

About CCAP

Since 1985, the Center for Clean Air Policy (CCAP) has been a recognized world leader in climate and air quality policy and is the only independent nonprofit think tank working exclusively on those issues at the local, U.S. national and international levels. Headquartered in Washington, D.C., CCAP helps policy-makers around the world develop, promote and implement innovative, market-based solutions to major climate, air quality and energy problems that balance both environmental and economic interests. CCAP’s mission is to significantly advance cost-effective and pragmatic air quality and climate policy through analysis, dialogue and education to reach a broad range of policy-makers and stakeholders worldwide.

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