• Cutting CO₂emissions from the power sector by 30% nationwide below 2005 levels; and

• Cutting particle pollution, nitrogen NO_x, and SO_x by more than 25% as a co-benefit.

EPA is only proposing goals for states with fossil fuel-fired power plants. Vermont and Washington, DC are not included in this rule because they do not have fossil fuel-fired power plants. EPA is also not proposing emission rate goals or guidelines for the four affected sources located in Indian country at this time. EPA will work with those tribes and sources to develop or adopt Clean Air Act programs.

Under the Clean Air Act (CAA), state plans must establish standards of performance that reflect the degree of emission limitation achievable through the application of the “best system of emission reduction” (BSER) that take into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements. EPA’s proposed rule contains state-specific goals that reflect the EPA’s calculation of the emission reductions that a state can achieve through the application of BSER.

EPA is using four “building blocks” to determine state-specific goals:

1. Reducing the carbon intensity of generation at individual affected electric generating units (EGUs) through heat-rate improvements. Heat rate improvements result in any changes in equipment, operating procedures or maintenance practices that increase the efficiency of converting fuel energy into electricity by an EGU.

   The value allocated here in EPA’s goal-setting formula was an average heat rate improvement of 6% for coal steam electric generating units (EGUs).

2. Lower the electric system’s overall carbon intensity by shifting generation among existing EGUs. This entails leveraging re-dispatch over the grid to substitute generation at the most carbon-intensive affected EGUs with generation from less carbon-intensive affected EGUs (including natural gas combined cycle [NGCC] units that are under construction).

   The value allocated here in EPA’s goal-setting formula was dispatch to existing and under-construction natural gas combined cycle (NGCC) units to up to 70% capacity factor.

3. Expanded lower-carbon generation. Adding new nuclear or renewable generating capacity to the electric system would tend to shift generation to the new units from existing EGUs with higher carbon intensity. Such expansion is consistent with current trends, EPA notes. While not included in the goal setting for building block 3, the addition of new NGCC capacity would have a similar impact and is one option states may choose to achieve the goal.

4. Improving demand-side efficiency. Reducing emissions from affected EGUs in the amount that results from the use of demand-side energy efficiency that reduces the amount of generation required.

   The value allocated in the goal-setting was an increase in demand-side energy efficiency to 1.5% annually.

The proposal provides guidelines for states to develop plans to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design a program that makes the most sense for their unique situation. States can choose a generation mix using diverse fuels, energy efficiency and demand-side management to meet the goals and their own needs. The proposal states to work alone to develop individual plans or to work together with other states to develop multi-state plans.

EPA is proposing a BSER goal approach referred to as Option 1 and taking comment on a second approach (Option 2). Each of these goal approaches use the four building blocks described above at different levels of stringency. Option 1 involves higher deployment of the four building blocks but allows a longer timeframe to comply (2030) whereas Option 2 has a lower deployment over a shorter timeframe (2025).

GHG reductions. The power sector was responsible for 2,446 million metric tons CO₂e in 2005, according to EPA. Under the proposed rule, EPA projects annual CO₂ reductions between 17% and 18% below base case projections for Option 1 in 2020 (reaching 26% to 27% below 2005 emissions), and between 24% and 25% below the base case in 2030 (reaching 30% below 2005 emissions), with ultimate emissions in 2030 of around 1,700 million metric tons CO₂e.

For Option 2, EPA projects annual CO₂ reductions between 13% and 14% in 2020 (reaching 23% below 2005 emissions) and 17% in 2025 (reaching 23% to 24% below 2005 emissions). For each Option, the regional scenario achieves fewer emissions reductions largely because the ability to average emissions regionally allows those states that were projected to emit below their state goal in the base case to offset reductions that other states would otherwise have made.

In 2020, EPA projects a 20% to 23% reduction of SO₂; 22% to 24% reduction of NO_x; and a 15% to 18% reduction of mercury, under the proposed Option 1 illustrative scenarios. EPA projects fewer emission reductions overall as a result of the proposed Option 2 in 2020: a 17% to 18% reduction in SO₂; 17% to 18% reduction in NO_x; and an 11% to 14% reduction in mercury.

Costs. The EPA projects that the annual incremental compliance cost of the proposed Option 1 ranges from $5.4 (state compliance) to $7.4 billion (regional compliance) in 2020 and from $7.3 (regional compliance) to $8.8 billion (state compliance) in 2030 ($2011), excluding the costs associated with monitoring, reporting, and record-keeping.

The estimated cost of Option 2 is between $4.2 (regional compliance) and $5.4 billion (state compliance) in 2020 and between $4.5 (regional compliance) and $5.5 billion (state compliance) in 2025 (2011$). The estimated monitoring, reporting and record-keeping costs for both options are $68.3 million in 2020, $8.9 million in 2025, and $8.9 million in 2030 (2011$).

The annual incremental cost is the projected additional cost of complying with the proposed rule in the year analyzed and includes the net change in the annualized cost of capital investment in new generating sources and heat rate improvements at coal steam facilities; the change in the ongoing costs of operating pollution controls; shifts between or amongst various fuels; demand-side energy efficiency measures; and other actions associated with compliance.

Benefits. EPA calculated the climate benefits resulting from the proposal using the estimated values of marginal climate impacts presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (2013 SCC TSD).

The SCC is a metric that estimates the monetary value of impacts associated with marginal changes in CO₂ emissions in a given year. It includes a wide range of anticipated climate impacts—e.g., net changes in agricultural productivity and human health; property damage from increased flood risk; and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning.

The latest four SCC estimates—each associated with different discount rates—were updated in 2013, are as follows: $13, $46, $68, and $137 per metric ton of CO2CO₂ emissions in the year 2020 (2011$). Each estimate increases over time.

EPA used a “benefit-per-ton” approach to estimate the health co-benefits. The range of combined benefits reflects different concentration-response functions for the air pollution health co-benefits, but does not capture the full range of uncertainty inherent in the health co-benefits estimates. EPA said it was unable to quantify or monetize all of the climate benefits and health and environmental co-benefits associated with the proposed emission guidelines, including reducing exposure to SO₂, NO_x, and hazardous air pollutants (e.g., mercury and hydrogen chloride), as well as ecosystem effects and visibility impairment. While these unquantified benefits could be substantial, the agency said, it is difficult to approximate the potential magnitude of these unquantified benefits and previous quantification attempts have been incomplete.

EPA evaluated the range of potential impacts by combining all four SCC values with health co-benefits values at the 3% and 7% discount rates. For example, EPA estimated that in 2020 the proposed Option 1 regional compliance approach will yield monetized climate benefits of $17 billion using a 3% discount rate (model average, 2011$). The air pollution health co-benefits in 2020 are estimated to be $15 billion to $34 billion (2011$) for a 3% discount rate and $13 billion to $31 billion (2011$) for a 7% discount rate.

Quantified net benefits (the difference between monetized benefits and costs) are $26 billion to $46 billion for 2020 and $47 billion to $80 billion (2011$) for 2030.

Economic impact. Under Option 1, EPA projects that average nationwide retail electricity prices will increase roughly 6 to 7% in 2020, and roughly 3% in 2030 (contiguous US), compared to base case price estimates modeled for these same years. EPA estimates an average monthly increase in electricity bills of roughly 3% in 2020, but a decline by roughly 9% by 2030 because increased energy efficiency will lead to reduced usage.

EPA projects coal production for use by the power sector, a large component of total coal production, will decline by roughly 25 to 27% in 2020 from base case levels. The use of coal by the power sector will decrease by roughly 30 to 32% in 2030.

EPA also projects that the electric power sector-delivered natural gas prices will increase by 9 to 12% in 2020, with negligible changes by 2030 relative to the base case. Natural gas use for electricity generation will increase by as much as 1.2 trillion cubic feet (TCF) in 2020 relative to the base case, declining over time. EPA anticipates renewable energy capacity to increase by roughly 12 GW in 2020 and by 9 GW in 2030 under Option 1.

EPA also notes that the evolving economics of the power sector, in particular the increased natural gas supply and subsequent relatively low natural gas prices, have resulted in more gas being utilized as base load energy in addition to supplying electricity during peak load.

EPA claims that the cuts will avoid up to 6,600 premature deaths, up to 150,000 asthma attacks in children, and up to 490,000 missed work or school to provide up to $93 billion in climate and public health benefits.

EPA will accept comment on the proposal for 120 days after publication in the Federal Register and will hold four public hearings on the proposed Clean Power Plan during the week of July 28 in the following cities: Denver, Atlanta, Washington, DC and Pittsburgh. Based on this input, EPA will finalize the standards in June 2015.

Resources

• Clean Power Plan proposed rule