and National Academies of Sciences, Engineering, Medicine. “The Power of Change: Innovation for Development and Deployment of Increasingly Clean Electric Power Technologies.” In, 2016.Abstract
    Electricity, supplied reliably and affordably, is foundational to the U.S. economy and is utterly indispensable to modern society. The National Academy of Engineering has called electrification the greatest engineering achievement of the 20th century (Constable and Somerville, 2003). Generating electricity also creates pollution, however, especially emissions of air pollutants. While the most severe and life-threatening pollution from electric power plants is largely a thing of the past in America, power plant emissions of particulates as well as oxides of nitrogen and sulfur (NOx and SOx) 1 still cause harms and contribute to increases in morbidity and mortality (Bell et al., 2008; Laden et al., 2006; Pope et al., 2009). Those harms include premature deaths, contributions to illnesses such as asthma, and increased hospitalizations, and electricity prices do not fully incorporate the costs of those harms (NRC, 2010b). Harms from greenhouse gas (GHG) emissions—to which the power sector is an important contributor, accounting for nearly 40 percent of all domestic emissions (EPA, 2016)— remain almost completely unpriced and thus above the level they would be if market prices reflected their full costs.
    Cullen, Joseph, and Erin Mansur. “Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach using the Shale Revolution.” In, 2016.Abstract
    This paper examines how carbon pricing would reduce emissions in the electricity sector. We show how both carbon prices and cheap natural gas reduce, in a nearly identical manner, the historic cost advantage of coal-fired power plants. The shale revolution has resulted in unprecedented variation in natural gas prices that we use to estimate the potential effect of a carbon price. Our estimates imply that a price of $20 ($70) per ton of carbon dioxide would reduce emissions by 5% (10%). Furthermore, carbon prices are much more effective at reducing emissions when natural gas prices are low. In contrast, modest carbon prices have negligible effects when gas prices are at levels seen prior to the shale revolution.
    Borenstein, Severin, James Bushnell, Frank Wolak, and Matthew Zaragoza-Watkins. “Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design." .” In Energy Institute at Haas. Berkeley University. 2016.Abstract

    We study potential equilibria in California’s 2013-2020 cap-and- trade market for greenhouse gasses (GHGs) based on information available before the market started. We find large ex ante uncer- tainty in business-as-usual emissions, and in the abatement that might result from non-market policies, compared to the market- based variation that could plausibly result from changes in al- lowance prices within a politically acceptable range. This implies that the market price is very likely to be determined by an admin- istrative price floor or ceiling. Comparable analysis seems likely to reach similar conclusions in most cap-and-trade markets for GHGs, consistent with outcomes to date in such markets.

    Staff White Paper on Guidance Principles for Clean Power Plan Modeling." Federal Energy Regulatory Commission, AD16-14-000, 2016."” In, 2016.Abstract

    Executive summary

    On August 3, 2015, the U.S. Environmental Protection Agency (EPA) issued the Clean Power Plan (CPP) under Clean Air Act 111(d). The CPP limits carbon dioxide emissions from existing fossil fuel-fired electric power plants by providing state specific goals for carbon dioxide emissions from affected electric generating units. As part of the CPP, EPA considered the potential impacts of the CPP on electric system reliability. Specifically, the CPP requires each state to demonstrate in its final state plan submittal that it has considered reliability issues in developing its plan. Separately, on August 3, 2015, EPA, the U.S. Department of Energy (DOE) and the Commission agreed to coordinate certain activities to help ensure continued reliable electricity generation and transmission during the implementation of the CPP. 

    While the CPP assigns no direct role to the Commission, it is possible that the Commission may be called upon, through the EPA-DOE-FERC Coordination Document or for other reasons, to address concerns about reliability as the CPP is implemented. In that case, the use of appropriate modeling tools and techniques will be helpful to the Commission in carrying out its responsibilities for reliability.

     This white paper identifies four guiding principles that may assist transmission planning entities, which may include regional transmission organizations (RTOs), independent system operators (ISOs), electric utilities, or other interested stakeholders, in conducting effective analysis of the CPP and associated state plans, federal plans or multi-state plans (compliance plans). The North American Electric Reliability Corporation (NERC) and the regional electric reliability organizations may also benefit from following these guiding principles as they perform CPP-related analyses. These guiding principles address four areas: (1) transparency and stakeholder engagement; (2) study methodology and interactions between studies; (3) study inputs, sensitivities and probabilistic analysis; and (4) tools and techniques.

    Incorporating these guiding principles in the modeling of the CPP compliance plans is one way to promote a robust analysis of the reliability impacts of the CPP. The guiding principles discussed herein may form the basis for additional action by staff, such as industry outreach or technical conferences, or future action by the Commission.

    Hogan, William W.Electricity Markets and the Clean Power Plan.” In, 2015. Publisher's VersionAbstract
    The Environmental Protection Agency issued a final rule that defines a broad and complicated set of standards for controlling carbon dioxide (CO2) emissions from affected electricity generating units. (Environmental Protection Agency, 2015b) The proposed national average reduction by 2030 is 32% from the 2005 level of emissions, about half of which has already occurred. (Environmental Protection Agency, 2015j) The rules for new power plants are relatively straightforward and imply little more than reinforcing the current economic choice of natural gas over coal fired generation, given current projections for the price of natural gas. The Clean Power Plan rules for existing power plants arise under a different section of the Clean Air Act and present a more complicated picture. The result has implications for the nature and degree of future limitations on carbon dioxide emissions from the electricity sector. In addition, some versions of the possible implementation plans could have material implications for the operations of Regional Transmission Organizations under the regulations of the Federal Energy Regulatory Commission. The purpose here is to highlight some of the possible directions for relevant policies of electricity system operators.
    Taylor, Jerry.The Conservative Case for a Carbon Tax.” In, 2015.Abstract
    Costly and economically inefficient command-and-control greenhouse gas regulations are firmly entrenched in law, and there is no plausible scenario in which they can be removed by conservative political force. Even were that not the case, the risks imposed by climate change are real, and a policy of ignoring those risks and hoping for the best is inconsistent with risk management practices conservatives embrace in other, non-climate contexts. Conservatives should embrace a carbon tax (a much less costly means of reducing greenhouse gas emissions) in return for elimination of EPA regulatory authority over greenhouse gas emissions, abolition of green energy subsidies and regulatory mandates, and offsetting tax cuts to provide for revenue neutrality. Arguments that unilateral action by the United States produces little climate benefit, that a carbon tax will expand the size of government, that a carbon tax is a regressive, that adaptation and geo-engineering is preferable to emissions constraint, that economists cannot confidently design a carbon tax that does more good than harm, that the legislative process cannot deliver a carbon tax worth embracing, and that promoting a carbon tax puts conservatives on a slippery political slope are explored and found wanting.
    of the of the House., Office Press Secretary White. “Fact Sheet: The United States and China Issue Joint Presidential Statement on Climate Change with New Domestic Policy Commitments and a Common Vision for an Ambitious Global Climate Agreement in Paris."” In, 2015.Abstract
    On the occasion of President Xi’s State Visit to Washington, D.C., the United States and China today marked another major milestone in their joint leadership in the fight against climate change with the release of a U.S.-China Joint Presidential Statement on Climate Change. The Statement, which builds on last November’s historic announcement by President Obama and President Xi of ambitious, respective post-2020 climate targets, describes a common vision for a new global climate agreement to be concluded in Paris this December. The Statement also includes significant domestic policy announcements and commitments to global climate finance, demonstrating the determination of both countries to act decisively to achieve the goals set last year.
    Group, The Brattle. “Brattle Group Policy Brief: EPA's Proposed Clean Power Plan: Implications for States and the Electric Industry."” In, 2014.Abstract


    On June 2, 2014 the U.S. Environmental Protection Agency (EPA) announced its proposed performance standards for reducing carbon dioxide (CO2) emissions from existing power plants under the Clean Air Act Section 111(d).1 The proposed rule requires each state to reduce its CO2 emissions rate from existing fossil fuel plants to meet state-specific standards (in pounds per MWh) starting in 2020, with a final rate for 2030 and beyond.2 The EPA estimates that the rule will achieve a 30% reduction in CO2 emissions from the U.S. electric power sector in 2030 relative to 2005 levels. Once the rule is finalized in 2015, states will have until June 2016 to submit initial state implementation plans, to be finalized by June 2017 for stand-alone plans, and by June 2018 for multi-state plans.

    Agency, Environmental Protection. “Environmental Protection Agency. Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units.” In, 2014.Abstract



    This Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the proposed Emission Guidelines for Greenhouse Gas Emissions from Existing Stationary Sources: Electric Utility Generating Units (herein referred to EGU GHG Existing Source Guidelines). This RIA also discusses the potential benefits, costs and economic impacts of the proposed Standards of Performance for Greenhouse Gas Emissions from Reconstructed and Modified Stationary Sources (EGU GHG Reconstructed and Modified Source Standards).


    ES.1 Background and Context of Proposed EGU GHG Existing Source Guidelines Greenhouse gas pollution threatens Americans' health and welfare by leading to longlasting changes in our climate that can have a range of severely negative effects on human health and the environment. Carbon Dioxide (CO2) is the primary greenhouse gas pollutant, accounting for nearly three-quarters of global greenhouse gas emissions and 84 percent of U.S. greenhouse gas emissions. Fossil fuel-fired electric generating units (EGUs) are, by far, the largest emitters of GHGs, primarily in the form of CO2, among stationary sources in the U.S. In this action, the EPA is proposing emission guidelines for states to use in developing plans to address greenhouse gas emissions from existing fossil fuel-fired EGUs. Specifically, the EPA is proposing state-specific rate-based goals for carbon dioxide emissions from the power sector, as well as emission guidelines for states to use in developing plans to attain the statespecific goals. This rule, as proposed, would set in motion actions to lower the carbon dioxide emissions associated with existing power generation sources in the United States.

    McCarthy, James, Alissa M. Dolan, Robert Meltz, Jane A. Leggett, and Jonathan L. Ramseur. “ EPA's Proposed Greenhouse Gas Regulations for Existing Power Plants: Frequently Asked Questions.” In, 2014.Abstract


    Taking action to address climate change by reducing U.S. emissions of greenhouse gases (GHGs) is among President Obama’s major goals. At an international conference in Copenhagen in 2009, he committed the United States to reducing emissions of greenhouse gases 17% by 2020, as compared to 2005 levels. At the time, 85 other nations also committed to reductions.

    Since U.S. GHG emissions peaked in 2007, a variety of factors—some economic, some the effect of government policies at all levels—have brought the United States more than halfway to reaching the 2020 goal. Getting the rest of the way would likely depend, to some degree, on continued GHG emission reductions from electric power plants, which are the largest source of U.S. emissions.

    In June 2013, the President released a Climate Action Plan that addressed this and other climate issues. At the same time, he directed the Environmental Protection Agency (EPA) to propose standards for “carbon pollution” (i.e., carbon dioxide, the principal GHG) from existing power plants by June 2014 and to finalize them in June 2015. Under the President’s timetable, by June 2016, states would be required to submit to EPA plans to implement the standards.

    On June 2, 2014, EPA responded to the first of these directives by releasing the proposed standards.

    The proposal relies on authority given EPA by Congress decades ago in Section 111(d) of the Clean Air Act (CAA). This section has been little used—the last use was in 1996—and never interpreted by the courts, so a number of questions have arisen regarding the extent of EPA’s authority and the mechanisms of implementation. EPA tends to refer to the regulations as “guideline documents”—although that term is not used in the statute—perhaps to indicate that the section is intended to give primary authority to the states. The proposed guideline document would set interim (2020s averages) and final (2030) emission rate goals for each state based on four “building blocks”—broad categories that describe different reduction measures; in general, however, the policies to be adopted to reach these goals would be determined by the states, not EPA.

    EPA faced a number of issues in developing the proposed regulations:

    • How large a reduction in emissions would it propose, and by when?

    • What year would it choose as the base against which to measure progress?

    • How flexible would it make the regulations? Would it adopt a “mass-based” limit on total emissions or a rate-based (e.g., pounds of carbon dioxide per megawatt- hour of electricity) approach?

    • What role might allowance systems play in meeting the goals?

    • Will compliance be determined only by the actions of power companies (i.e., “inside the fence” actions) or will actions by energy consumers (“outside the fence”) be part of compliance strategies?

    • Would states and power companies that have already reduced GHG emissions receive credit for doing so? What about states and power generators with high levels of emissions, perhaps due to heavy reliance on coal-fired power? Would they be required to reduce emissions more than others, less than others, or the same?

    • What role would there be for existing programs at the state and regional levels, such as the Regional Greenhouse Gas Initiative (RGGI), and for broader greenhouse gas reduction programs such as those implemented pursuant to California’s AB 32?

    This report summarizes EPA’s proposal and answers many of these questions. In addition to discussing details of the proposed rule, the report addresses a number of questions regarding the reasons EPA is proposing this rule; EPA’s authority under Section 111 of the CAA; EPA’s previous experience using that authority; the steps the agency must take to finalize the proposed rule; and other background questions.

    Agency, U.S. Environmental Protection. “Translation of the Clean Power Plan Emission Rate-Based CO2 Goals to Mass-Based Equivalents.” In, 2014.Abstract


    This technical support document (TSD) describes two illustrative calculation-based approaches for translating the Clean Power Plan (CPP) emission rate-based goals to a mass-based equivalent. These approaches should be viewed as two potential ways in which implementing authorities may wish to translate the form of the goal to a mass-based equivalent. The first approach produces mass-based equivalents that apply to existing affected fossil fuel-fired sources only. In light of the fact that the CPP takes comment on the inclusion of new, fossil fuel- fired sources as a component of state plans, the second approach produces mass equivalents that are inclusive of emissions from existing affected and new fossil fuel-fired sources.

    Stavins, Robert. “What are the Benefit and Costs of EPA's Proposed CO2 Regulation?” In, 2014. Publisher's VersionAbstract


    On June 2nd, the Obama Administration’s Environmental Protection Agency (EPA) released its long-awaited proposed regulation to reduce carbon dioxide (CO2) emissions from existing sources in the electricity-generating sector.  The regulatory (rule) proposal calls for cutting CO2 emissions from the power sector by 30 percent below 2005 levels by 2030.  This is potentially significant, because electricity generation is responsible for about 38 percent of U.S. CO2emissions (about 32 percent of U.S. greenhouse gas (GHG) emissions).


    On June 18th, EPA published the proposed rule in the Federal Register, initiating a 120-day public comment period.  In my previous essay at this blog, I wrote about the fundamentals and the politics of this proposed rule (EPA’s Proposed Greenhouse Gas Regulation: Why are Conservatives Attacking its Market-Based Options?).  Today I take a look at the economics.