tim profeta, director nicholas institute for environmental policy solutions

U.S. Clean Power Plan

Tim ProfetaDirector, Nicholas Institute

North American Climate Policy ForumJune 22, 2016

Agenda

• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation• Possible paths forward

CLEAN POWER PLAN OVERVIEW

Best System of Emission Reduction (BSER) Building Blocks

• BB1: Heat rate improvements at existing coal units

• BB2: Increasing generation from existing natural gas combined cycle

• BB3: Increasing renewable generation

2030 Final rate

Fossil steam NGCC

lbs/MWh lbs/MWh

Eastern 1305 771

Western 360 690

ERCOT 237 697

EPA Translates the Emissions Guidelines into 4 forms

Subcategorized Rate

BlendedRate

Mass –Existing Only

Mass –Existing + New

Allowances

Emission Rate Credits

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

CPP Final Rule

Initial State

Subm

ission

Final Plan

Subm

ission

Clean Energy Incentive Program

Interim Step 1

Interim Step 2 Interim

Step 3

Final rate

Original CPP Compliance Timeline

• States have until September 6, 2016 to submit an initial plan• Final plan due September 6, 2018

State Plan Choices: Key QuestionsThis image cannot currently be displayed.

Mass vs. Rate?

How to distribute allowances?

How to address leakage?

Trading Ready?Degree of trading? Trading Partners?Photo: thedailyomivore.net

Emissions Standards vs. State Measures?

Emission Rate Credit Issuance and Supply?

Mass or Rate?

Mass• Administratively simpler• Allowance supply is pre‐

determined; allocation is a state decision.

• Potentially easier to build upon for future policies

• Environmental outcomes depend on leakage

Rate• ERC administration

potentially significant lift, especially for efficiency

• ERC supply is uncertain• Allocates financial incentive

to ERC developer• More or less stringent than

mass?

Mass Based Trading Basics

State plan creates # of allowances in each compliance period = total emissions budget

1 allowance = 1 (short) ton of emissions

Establish tracking system & method of getting allowances into market

To comply: Affected units measure their emissions in each compliance period

Must surrender 1 allowance for every ton emitted

Affected Units

= X tons?

Allowance

Permission to Emit 1 Ton

Allowance

Permission to Emit 1 Ton

Rate‐Based Trading Basics

Measure:lbs of CO2 & output (MWh)

Lbs/MWh = unadjusted rate

Below standard Earn ERCsAbove standard owe ERCs $ ERCs

Affected Unit

ERC Eligible Resources

Role of Canada and Mexico in CPP

• Can generate ERC’s if grid is linked• No provision for trading off allowances• Provision of low‐carbon power to U.S. demand is incentivized

Agenda

• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation

• Possible paths forward

CLEAN POWER PLAN LAWSUIT:WEST VIRGINIA V. EPA (NO. 15‐1363)

Who is Involved?

Challengers (Petitioners)

27 States

90 Industry groups, utilities, and co‐ops

Supporters (Intervenors)

19 States

8 Cities and counties

11 Non‐profit groups

6 Utilities

What are the Issues?1. Senate versus House version of Section 111(d) of the

Clean Air Act

2. Outside‐the‐fence‐line measures for the best system of emissions reductions

3. New source standard for greenhouse gas emissions emitted from natural gas and coal power plants

4. Constitutional & procedural challenges

WV v. EPA Status• Stayed by Sup Ct, 5‐4, but then Scalia passed• Under consideration by DC Cir – forewent 6/2 hearing by panel to have Sept. hearing en banc

• Opinion possible in late 2016 – but will Sup Ct forego review?

• DC Cir #’s favor EPA, but recent precedent has created erosion in deference to executive branch

What are the Potential Outcomes?

Rule Invalid EPA goes back to drawing board

Rule Partially Invalid

Clean Power Plan Revisited

Rule Upheld Clean Power Plan Moves Forward

2016 Presidential Election

Source: CNN

Agenda

• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation• Possible paths forward

THREE FUTURES?

Future 1: Regulatory Path

• Court upholds 111 authority• EPA expands CPP efforts to other sectors• Possible use of 115 to attack other sectors, or even power sector

Future 2: Clean Air Act Reform Path

• Allow CPP to go forward but amend Act to allow for more effective and efficient regulation– Cross sectoral? International trade?– Clear authority on creation of emissions limits

Future 3: Grand Bargain Path

• Replace regulatory authority with clean carbon pricing regime

• With Waxman/Markey failure still in consciousness, cap‐and‐trade legislation unlikely in near term

• Carbon tax compromise is possible and oft‐discussed

Thank you!

[email protected]

https://nicholasinstitute.duke.edu/focal‐areas/clean‐air‐act‐clean‐power‐plan

APPENDICES

Clean Energy Incentive Program (CEIP)

Optional early action program in 2020 and 2021

CEIP Eligible Resources:

Any wind or solarFor every 2 MWh, project receives 1 credit from EPA, 1 credit from state

Energy efficiency in ‘low‐income communities’ For every 2 MWh, project receives 2 credits from EPA, 2 credits from state

Early action credits/allowances granted certain renewables and energy efficiency that commences construction/operation after the state plan is submitted for MWhsgenerated/saved in 2020 and 2021

EPA matching credits/allowances Participating states must create own pool of matching credits/allowances

Leakage

• “Leakage” is a general term

• “Leakage” states must address in the Clean Power Plan is more narrow

Policy Scope

Emissions

Existing Sources

New Sources

LeakageRate‐based plans cannot include new sources for compliance, so EPA is not worried about leakage

Mass‐based plans need to demonstrate they have addressed risk of leakage to new sources in state plan

3 options available to states1. Cover new sources2. Use an allocation method that counteracts leakage 3. Other methods demonstrated by state to prevent

leakage

Trading‐ReadyWhat is “Trading Ready”?

Allows EGUs and others to trade compliance instruments with the same definition and common tracking system with entities in other states without a formal multistate agreement.

Mass Subcategorized Rate

Allowance representing 1 short ton of CO2 emissions

Emission Rate Credit (ERC) representing 1 MWh of zero carbon generation or avoided emissions

*Mass can trade with mass and subcategorized rate with subcategorized rate.

Proposed Model Rules• The EPA has proposed mass‐ and rate‐based model rules and federal plans

• EPA aims to finalize model rules before the first state submission in Sept 2016

• Both mass‐ and rate‐ are trading ready• Both include Clean Energy Incentive Program

PROPOSED MODEL RULES:MASS‐BASED MODEL RULE

Pathways

Mass

Address Leakage Risk

Cover New Units

Existing EGUs Only

Existing & New Source

Complement

State Measures PlanExisting EGUs or Existing & New

MODEL RULE

Mass Allowance Allocations• The plans create allowances equal to a state’s mass goal

• EPA wants states to determine the allowance distributions

• If EPA is distributing allowances, they propose to do this based on historical 2010‐2012 generation data

• EPA is taking comment on other distribution options.

Allocation Set‐asides

EPA is proposing three set‐asides for the federal plan and model rule1. Clean Energy Incentive Program2. Output‐based allocation to existing

natural gas set‐aside to address leakage 3. RE set‐aside of 5% to address leakage

Key Points in Mass‐Based Model Rule

• Existing Sources Only, Uses Allowance Allocation to Address Leakage

• Trading Ready• EPA will track allowances using the Allowance Tracking and Compliance System (ATCS)*

• Allowances can be banked with no restrictions*

PROPOSED MODEL RULES:RATE‐BASED MODEL RULE

Pathways

RateDefineEligible ERCs

Sub‐categorized Rate

State‐wide (blend) Rate

State Defined Rates

MODEL RULE

Can be multistate

Emission Rate Credits (ERCs)There are three categories that can generate ERCs:

1. Affected EGUs operating below subcategory emission performance rate

2. Existing NGCC earns Gas Shift ERCs (GS‐ERCs) to sell to fossil steam units (cannot use for NGCC compliance)

3. Zero emitting resources: Post 2012 renewable energy, energy efficiency, nuclear generating or avoiding MWh during compliance period

Zero‐Emitting ERCs Model Rule proposal• All wind• All solar (including distributed)• Geothermal• Hydropower• Qualified biomass• Wave• Tidal• Waste‐to‐energy• New/uprate nuclear• Non‐affected combined heat and

power• Demand‐side energy efficiency/

demand‐side management

Federal Plan proposal*• On‐shore utility scale wind• Utility scale solar PV• Concentrated solar• Geothermal power• New/uprate nuclear• Utility scale hydro

ERC Issuance Process

42

Step 1: Project developer submits application to state with EM&V plan and third party verification

State Approves Project

Qualifying energy is generated or saved and M&V is carried out with third party verification

Developer submits total generation and M&V report to state.

Step 2: State awards ERCs for verified MWhsand issues ERCs into the ERC tracking system

Key Points in Rate‐Based Model Rule

• Uses subcategorized rates• Trading ready• Uses EPA tracking system• ERCs can be banked without limit• Includes Clean Energy Incentive Program*

KEY CHOICES FOR STATES

Emissions Standards orState Measures Plan?

• Emissions Standards: Compliance obligation entirely on affected units.

• State Measures: All or part of compliance obligation on state or other entities. – Accommodates existing programs in California and to a lesser extent RGGI

– For states without existing programs, essentially requires creation of two plans (state measures plus backstop)

Mass or Rate?

Mass• Administratively simpler• Allowance supply is pre‐

determined; allocation is a state decision.

• Potentially easier to build upon for future policies

• Environmental outcomes depend on leakage

Rate• ERC administration

potentially significant lift, especially for efficiency

• ERC supply is uncertain• Allocates financial incentive

to ERC developer• More or less stringent than

mass?

47

Existing Sources Only

Existing Unit New Unit

Existing Plus NewMust hold allowances

No requirement to hold allowances

Must hold allowances

Must hold allowances

Mass‐Based Plans: Addressing the Risk of Leakage

Mass‐Based Plans and Leakage3 options available to states1. Cover new sources2. Use an allocation method that counteracts

leakage (presumptively approvable model rule method)

3. Other methods demonstrated by state to prevent leakage

New Source Complements

Cumulative National Increase in Interim Goal Budget

National Increase in Final Goal Budget

1.8% 2.5% 49

0

20

40

60

80

100

120

Million Tons

Final Goal New Source Complement

Final Mass‐Based Goals Plus New Source Complements by State

Mass‐Based Plans and LeakageCover New Sources

• Covering new sources does not limit load growth.

• Does limit emissions.

• May make it harder or easier to comply depending on assumptions about future demand and emissions

Existing Sources Only

• No limit on new NGCC

• Must adequately address the risk of leakage through allowance allocation or other mechanism(s)

• No forward going requirement to show leakage did not occur

50

Allowance Distribution in Mass‐Based Plans

States have discretion to distribute allowances, so long as leakage is adequately addressed.

Some possible goals for allowance distribution:• Protect or benefit ratepayers/consumers• Fairly distribute regulatory obligation• Encourage specific outcomes or activities (e.g.

encouraging certain plants to run or investments in energy efficiency, renewable energy)

Mass: Alternative Ways to Distribute AllowancesCommon Options Rationale Examples

ALLOCATE FOR FREE

* “Grandfathering”: Given to all emitters based on historicemissions (or generation)

Political buy‐in for owners of initial emitting assets

Early yrs of EU ETSOther pollutant ETS (acid rain)Nox (heat input)

* Output‐based (updating): Given free to emitters in proportion to their ongoing generation levels

Mitigate leakage to uncapped sources

NOx trading programCalifornia C&T for (trade‐explosed) industrial sectors

* Setasides for targeted activities (e.g., renewables, energy efficiency) or populations (rate‐payers), price containment

Way to finance, e.g., low carbon investment, lessen burden on rate‐payers

Waxman‐Markey bill provisionsCal. Set aside for LSE’s on behalf of ratepayersCA and RGGI cost containment reserves

COMPETITIVE AUCTION

Government auction with targeted proceeds to types of households, investments,…

Address disproportionateimpactsFinance low carbon investment

RGGI poor household EEVA NOx

Government auction with use of revenues to reduce taxes

Fiscal reformPolitical buy‐in

British Columbia (carbon tax, not ETS)

* CPP proposed federal plan has dimensions of these options

Rate: Emission Rate Credits

• What types of resources can earn credits?– State discretion other than new sources, offsets, and

energy storage.– What resources actually get built is still a utility

commission decision.• EM&V requirements for each qualifying resource

– EPA draft guidance available– Tension between costs and accuracy of estimating

energy savings from energy efficiency measures.

Scope of Trading?

• Proposes to allow federal plan states to trade with similar approved state plans using EPA tracking system, taking comment on also linked systems

Trading Partners?

Thank you!

[email protected]

[email protected]

[email protected]

https://nicholasinstitute.duke.edu/focal‐areas/clean‐air‐act‐clean‐power‐plan

Rate Based State Plans –(Non‐Exhaustive)

Rate Based Model Rule

Rate Based Federal Plan


Onshore wind*Utility‐scale solar PV*Concentrating solar power*Geothermal*Hydropower*Qualified BiomassEnergy Efficiency including water system efficiency Waste to Energy DSM T&DNuclear EnergyCHP WHP/”bottom cycling CHP units”Distributed Renewables

Wind (all)Solar (all)GeothermalHydropowerWaveTidalQualified BiomassWaste‐to‐Energy Nuclear EnergyNon‐affected CHPDemand Side EE/DSM

On‐shore utility scale windUtility scale solar PVConcentrated solar powerGeothermal powerNuclear EnergyUtility scale hydropower

Any type of wind* Any type of solarEnergy Efficiency in Low Income Communities

*Under the proposed model rule, in federal plan states eligible wind is limited to on‐shore.

*Part of the BSER (utility scale only)Sources: Section VII K &V E

Source: § 62.16435 Source: § 62.16435 Source: § 62.16235

Biomass in the Clean Power PlanMass Based Plan• EPA seeking comment on inclusion of biomass as an eligible measure in the Proposed Federal Plan

• Proposed Model Rule includes “qualified biomass”– Must justify qualified biomass– Must include methods for

emission measurements and feedstock verification

Rate Based Plan• EPA seeking comment on

Emission Rate Credit (ERC) eligibility for biomass in Proposed Federal Plan

• Qualified biomass eligible for ERCs in Model Rule‐ Must justify qualified biomass‐ Must include methods for

emission measurements and feedstock verification

Requirements for Biomass in State Plans

To include biogenic feedstocks in plans*, states must:• Address types of biogenic feedstocks used• Justify why proposed feedstocks can be determined qualified

biomass• Address valuation of biogenic CO2 emissions• Explain evaluation and monitoring systems to properly

account for biogenic CO2 emissions • Include third party verification of qualified biomass

* The SAB Panel process and updated 2014 Framework is expected to inform how states should best address these requirements in their plans.

States

AlabamaArizona Corporation CommissionArkansasColoradoFloridaGeorgiaIndianaKansasKentuckyLouisiana

Louisiana Dep’t of Environmental QualityMichigan Attorney GeneralMississippiMississippi Dep’t of Environmental QualityMissouriMontanaNebraskaNew JerseyNorth Carolina Dep’t of Environmental QualityNorth Dakota

OhioOklahoma Attorney GenerallOklahoma Dep’t of Environmental QualitySouth CarolinaSouth DakotaTexasUtahWest VirginiaWisconsinWyoming

UtilitiesIndustryCo‐Ops

Alabama Power CompanyAmerican Chemistry CouncilAmerican Coalition for Clean Coal

ElectricityAmerican Coke & Coal Chemicals InstituteAmerican Foundry SocietyAmerican Forest & Paper Ass’nAmerican Fuel & Petrochemical

ManufacturersAmerican Iron & Steel InstituteAmerican Public Power AssociationAmerican Wood CouncilArizona Electric Power Coop, Inc. Association of American RailroadsAssociated Electric Coop, Inc.Basin Electric Power CooperativeBig Brown Power Company LLCBig Brown Lignite Company LLCBig Rivers Electric CorporationBrazos Electric Power Coop, Inc.Brick Industry AssociationBuckeye Power, Inc.Central Montana Electric Power CoopCentral Power Electric Coop, Inc.Chamber of CommerceCO2 Task Force of the Florida Electric

Power Coordinating Group, Inc.Corn Belt Power CooperativeDairyland Power CooperativeDeseret Generation & Transmission CoopDixon Brothers Inc.

East Kentucky Power Cooperative, Inc.East River Electric Power Coop, Inc.East Texas Electric Cooperative, Inc.Electricity Consumers Resource CouncilGeorgia Power CompanyGeorgia Transmission CorporationGolden Spread Electrical Cooperative, Inc.Gulf Coast Lignite CoalitionGulf Power CompanyHoosier Energy Rural Electric Coop, Inc.International Brotherhood of Boilermakers, Iron

Ship Builders, Blacksmiths, Forgers, & HelpersJoy Global Inc.Kansas Electric Power Cooperative, Inc.Lignite Energy CouncilLuminant Big Brown Mining Company LLCLuminant Generation Company LLCLuminant Mining Company LLCMinnkota Power Cooperative, Inc.Mississippi Power CompanyMontana‐Dakota Utilities Co.Murray Energy CorporationNational Association of Home BuildersNational Association of ManufacturersNational Federation of Independent BusinessNational Lime AssociationNational Mining AssociationNational Oilseed Processors AssociationNational Rural Electric Cooperative Ass’nNelson Bros. Inc.Norfolk Southern Corp.

North Carolina Electric Membership Co.Northeast Texas Electric Cooperative, Inc.Northwest Iowa Power CooperativeNorthWestern CorporationOak Grove Management Company LLCOglethorpe Power CorporationPeabody Energy Corp.Portland Cement AssociationPowerSouth Energy CooperativePrairie Power, Inc.Rushmore Electric Power Coop, Inc.Sam Rayburn G&T Electric Coop, Inc.San Miguel Electric Cooperative, Inc.Seminole Electric Cooperative, Inc.Sandow Power Company LLCSouth Mississippi Electric Power Ass’nSouth Texas Electric Cooperative, Inc.Southern Illinois Power CooperativeSunflower Electric Power CorporationTex‐La Electric Cooperative of Texas, Inc.Tri‐State Generation & Transmission AssociationUnited Mine Workers of AmericaUpper Missouri G. & T. Electric Cooperative, Inc.Utility Air Regulatory GroupWabash Valley Power Association, Inc.Wesco International Inc.Westar Energy, Inc.Western Farmers Electric CooperativeWest Virginia Coal AssociationWolverine Power Supply Coop, Inc.

Challengers in the CPP Lawsuit

Supporters in the CPP Lawsuit

States

CaliforniaConnecticutDelawareDistrict of ColumbiaHawaiiIllinoisIowaMaineMarylandMassachusetts

MinnesotaNew HampshireNew MexicoNew YorkOregonRhode IslandVermontVirginiaWashington

Cities and Counties

Austin, TexasBoulder, ColoradoBroward County, FloridaChicago, Illinois

New York, New YorkPhiladelphia, PennsylvaniaSeattle, WashingtonSouth Miami, Florida

Nonprofits

Advanced Energy EconomyAmerican Lung AssociationAmerican Wind Energy AssociationCenter for Biological DiversityClean Air CouncilClean Wisconsin

Conservation Law FoundationEnvironmental Defense FundNatural Resources Defense CouncilOhio Environmental CouncilSierra Club

UtilitiesIndustryCo‐Ops

Austin EnergyCalpine CorporationNational Grid Generation, LLC

NextEra Energy Inc.Pacific Gas and Electric CompanySeattle City Light Department

Nicholas Institute Modeling of the Clean Power Plan

Integral part of work with state decision makers

Goal: provide information to guide threshold level decisionsrate vs. mass, include new sources, trading‐ready partners

Iterative process

62

Modeling scenarios

Mass covering existing units Subcategorized rate‐based

Mass covering existing + new Blended rate‐based

Different trading‐ready configurations

Sensitivities: NG price, RE costs, EE

Output‐based Allocation Set‐Aside• This set‐aside is intended to address leakage by encouraging existing NGCC

• EPA has proposed the size of the set‐aside for each state

State Interim 2 Goal 2025‐2027Allowances in output‐

based set‐asideSet‐aside as a percent

of allowancesAlabama 60,918,973 4,185,496 6.87%Arkansas 32,953,521 2,102,538 6.38%Florida 110,754,683 12,102,688 10.93%Georgia 49,855,082 3,563,104 7.15%Kentucky 69,698,851 288,730 0.41%Louisiana 38,461,163 2,207,879 5.74%Mississippi 26,790,683 3,132,671 11.69%North Carolina 55,749,239 2,120,178 3.80%South Carolina 28,336,836 1,029,366 3.63%Tennessee 31,079,178 632,949 2.04%Virginia 28,990,999 3,011,811 10.39%West Virginia 56,762,771 0 0.00%

Proposed set‐aside for output‐based allocation for the second compliance period (short tons)

Output‐based Allocation Set‐Aside to Address Leakage

There is a lagged accounting method• NGCC units earn output‐based allowances in one compliance period

(for example 2022‐2024) by operating above 50% CF over entire period

• Submits the confirmed generation to state (EPA) • State (EPA) awards the allowances in the next compliance period• If exceed allocation, distribute pro‐rata basis• Unused allowances distributed to affected EGUs

Allowance to existing NGCC unit

=Net

Generation over 50% CF

* 1030 lbs/MWh‐net

64

RE Set‐Aside to Address Leakage

• 5% allowances in model rule• In‐state: utility‐scale wind, solar (any), geothermal and utility‐scale hydro constructed after Jan 1, 2013

• Sources apply to EPA/state with MWh projection• Allocation year prior to generation• True‐up mechanism• All allowances allocated, allowances per MWh depends on total– cannot simultaneously generate ERCs

• Set‐aside increases with retirements in model rule

65

RE Set‐aside• The distribution of the allowances happens at the beginning of each year (before the RE has been generated) as follows:– The EPA approves the eligibility of a RE project, which projects its

generation and includes EM&V– The EPA distributes allowances to eligible projects on a pro‐rata basis– At the end of the generation year, the RE project must true‐up with its

projected generation

• EPA expects this set‐aside to grow, as they propose the allowances from retired EGUs get added to the RE set‐aside

CEIP set‐aside• For early‐action EE and RE in 2020 and

2021• The state‐match allowances are pulled

from the first interim compliance period only

• For any state that takes over the allowance distributions of a federal plan, they still need a CEIP set‐aside, but they can change the amount of allowances

• A state with a model rule can opt out of the CEIP

State Set‐aside 2022 through 2024Alabama 3,122,306Arkansas 2,187,230Florida 3,230,248Georgia 2,755,623Kentucky 4,952,862Louisiana 1,497,428Mississippi 357,307North Carolina 2,674,590South Carolina 1,652,802Tennessee 2,178,084Virginia 1,386,546West Virginia 3,506,890

Proposed CEIP Early Action Allowance Set‐Aside in the Mass‐Based Federal Plan (Short Tons)

Example of all Mass Set‐Asides

aRE set‐aside proposed to grow as EGUs retire

Example of allowance set‐asides for South Carolina – varies by state

Mass Goal

CEIP set-aside

Output-based allocation

RE set-asidea

Set-asides as a percentage of the

mass budget

Interim Phase 1 31,025,518 1,652,802 0 1,551,276 10.33%

Interim Phase 2 28,336,836 0 1,029,366 1,416,842 8.63%

Interim Phase 3 26,834,962 0 1,029,366 1,341,748 8.84%

Final 25,998,968 0 1,029,366 1,299,948 8.96%

Affected EGU ERCs Accounting Example

Example 1:An NGCC facility with an average emissions rate of 700 that generates 1,000 MWh in a final compliance period with the final NGCC compliance standard of 771:

ERCs = (771 ‐700)/771 * 1000 = 92.1 or 92 ERCs earned

Example 2:An NGCC facility with average emissions rate of 800 that generates 1,000 MWh in a final compliance period with the final NGCC compliance standard of 771:

ERCs = (771‐800)/771 * 1000= (‐29/771) *1000= ‐37.6 or 38 ERCs owed

ERCs = (EGU standard – EGU operating rate)/EGU standard * generation

Gas‐Shift ERCs

• GS‐ERCs can be created by all existing NGCC• GS‐ERCs are independent of the NGCC standard and can be used for steam generation compliance only

• The same NGCC facility might be creating GS‐ERCs and still need to surrender ERCs to meet their rate target

GS‐ERC = NGCC Generation

* Incremental Generation

Factor

GS‐ERC Emission Factor

*

Gas Shift‐ERC Equation**in federal plan proposal

The GS‐ERC Emission Factor represents how much lower an individual NGCC’s emission rate is compared against the fossil steam standard


= 1

GS‐ERC = NGCC Generation

* Incremental Generation

Factor


*

71


What ERCs to retire?• ERCs must be created• Pull ERCs from CEIP recipient?

2020 2021 2022 20223 2024 2025…

Gen(MWh)

262,800 262,800 262,800 262,800 262,800 262,800

EPA ERCs 131,400 131,400

State ERCs 131,400 131,400 131,400 131,400 262,800 262,800

Illustrative example100 MW wind farm with a 30% capacity factor


EPA providing credits/allowances from 300 million ton poolState provides matching credits/allowances• EPA matching credits/allowances are additional• State credits/allowances cannot add to supply in compliance periods

Where do state matching allowances/credits come from?

Mass based model rule: from allowance set‐aside in 1st interim compliance period pulling from future• Change in allocation, supply of allowances unchanged

Rate based: EPA requires states to do something analogous• Suggests retiring future ERCs or adjusting the rate targets

73

Trading Options in State Plan Pathways

Multi‐State Plan with Defined Trading

Partners and Multi‐State Goal

Intra‐state Trading Only

“Trading Ready” Plan with Single

State Goal

• Only trading option for state‐defined rates

• Allowable in all plan types

• Required for interstate trading with blended rate

• Allowable in all plan types except state‐defined rates

• New relative to proposed rule

• Allowed for all types of mass based plans and subcategorized‐rates

All Plan Types Certain Plan Types

Why Trade?1. Electrons do not stop at state borders

• Flexibility to manage grid2. Cost

• Wider markets tend to lower overall cost3. Growth

• Access to markets for additional allowances 4. Reliability

• Potential benefits of geographic diversity

0

500

1000

1500

2000

WV KY TN SC NC AR LA GA AL MS

VA FLCarbon

Emission

sRate (lb

s/MWh)

Proposed Goal Final Goal

Decreased Variability Between States (Southeast states blended rate comparison)

• The final rate goals are much less variable across the country compared to the proposal

• 31 states have less stringent targets (16 have more stringent targets) compared to the proposal

Source: EPA Data File Goal Computation Appendix 1‐5.

Fossil Steam Final Rate

NGCC Final Rate

Source: https://www3.epa.gov/climatechange/ghgemissions/sources.html

EPA’s MAPPING OF THE STATE PLAN APPROACH OPTIONS