Regulating Greenhouse Gas Pollution from Existing Power Plants

by Makari Krause

One of the most ambitious components of President Obama’s Climate Action Plan is the EPA’s Clean Power Plan (CPP). The CPP combines regulations on new and existing power plants and will drastically reduce power plant emissions once implemented. Authority for the CPP is granted by Section 111(d) of the Clean Air Act and requires that the EPA issue a set of emissions guidelines. Once they have done this the states then need to come up with their own way of meeting those emissions guidelines but have discretion in deciding what instruments to use as long as the resulting abatement is either the same or superior to that mandated by the EPA.

There are generally two areas of contention in this process. First are concerns about EPA’s establishment of the emissions guidelines. Different parties have different opinions about what form the guidelines should take, whether they should be centered around mass-based caps or rate-based performance standards. There is also disagreement about how EPA should define the best system of emissions reduction. Should EPA consider carbon trading and demand side efficiency as a way to meet the targets or require that the targets be met by technological improvements within the plants themselves? And of course there remains the ever–present question of how much abatement the EPA should be aiming for with the program.

The second area of contention is about the amount of flexibility the states should be afforded when designing plans to meet the EPA requirements. Should they be able to undertake carbon trading or carbon offsetting projects or be limited to technological advancements and demand side efficiency improvements?

Lienki et al. (2014) include a chart summarizing the positions taken in 30 reports on the questions and concerns raised above. The reports were produced by environmental groups, industry, and government agencies. Three main broad themes become prevalent when looking at these reports:

Embrace Broad, Market Based Compliance Mechanisms

Most stakeholders agree that EPA should afford states a lot of discretion and flexibility and should allow the use of emissions trading and averaging, demand side efficiency, and increases in renewable energy generation to meet abatement goals. Most stakeholders do not, however, believe that carbon offsets should be allowed.

Encourage Mass Based Standards

The majority of proposals also recommend that EPA allow states to use mass-based emissions caps rather than rate-based performance standards. This does not necessarily mean that the EPA must use mass-based caps when determining the emissions guidelines, however. The reason for this is that many economic studies have shown mass-based cap-and-trade systems to be more efficient than rate-based trading systems. Mass-based trading programs put an effective price on every ton of carbon emitted. If this price were appropriately calibrated to equal the social cost of carbon then all cost-effective emissions reductions would take place. A rate-based system, however, only puts a price on emissions above the relevant performance standard. Mass-based systems also allow demand-side energy efficiency improvements to be easily taken into account because they decrease the total level of emissions. These improvements are much harder to account for in a rate-based system because efficiency improvements do not decrease the rate at which generators produce carbon. This same argument holds for generation from non-carbon emitting sources.

The authors conclude with a recommendation that EPA conduct a full-cost benefit analysis to identify the social cost of carbon and thereby the optimal level of emissions reduction to call for in the CPP.

Lienke, J., Schwartz, J. A., & No, P. B. (2014). Regulating Greenhouse Gas Pollution from Existing Power Plants.

TAGS: Jack Lienke, Jason A Schwarz, Clean Power Plan, Climate Action Plan, Institute for Policy Integrity, Social Cost of Carbon, Carbon Mitigation

TWEET: Policy recommendations for the EPA #CleanPowerPlan include a transfer to mass based targets and broad, market based compliance mechanisms.


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