Three Big Questions about Obama's Carbon Rule

    July 7, 2014 9:19 AM by Russell Ray, Managing Editor, Power Engineering

    On June 2, the Environmental Protection Agency unveiled the first ever limit for greenhouse gas emissions from existing U.S. power plants. The proposed rule would require existing plants to reduce carbon dioxide (CO2) emissions 30 percent below 2005 levels by 2030.

    Although the national average will be 30 percent below 2005 levels by 2030, the specific reduction target for each state will vary. The reductions will be based on the characteristics of each state’s fleet of generation. Each state would be assigned a reduction target and would be expected to make “meaningful progress” toward those reductions by 2020.

    The rule does give states suitable flexibility to meet the reduction targets through the best system of emission reduction (BSER). States can use a variety of compliance strategies ranging from improved heat rates of a generating unit to demand-side management programs designed to lower electricity consumption. States can use methods inside and outside the fence of a power plant to meet the reduction target.

    With public hearings on the proposed rule scheduled to begin later this month, many questions linger. Here are three important questions many people are asking:  

    Will it survive the legal challenges?

    The most controversial piece of the rule centers around the method EPA used to set different “target rates” for each state.

    The target rates were set by choosing a best system of emission reduction, or BSER, for each state. Did EPA apply the BSER properly? Did the agency choose reasonable target rates for each state? This is where much of the legal battle will be fought.

    The proposal relies heavily on reduction strategies that occur beyond the fence of a power plant, a departure from traditional strategies that occur inside the fence at the unit itself. The proposed standard could not be achieved through improvements made inside the fence lines of America’s power plants. Options that go beyond the fence were needed to reach the EPA’s standard.

    Oklahoma Attorney General Scott Pruitt said the EPA has set an arbitrary goal that fails to recognize the capabilities of a power plant.

     “If the EPA is serious about providing states flexibility, the agency should use an ‘inside the fence’ approach that allows each state to set emissions standards for existing power plants by evaluating each unit’s ability to improve efficiency and reduce CO2 emissions in a cost-effective way,” Pruitt said. 

    The EPA will issue a final rule by June 2015. That’s when the litigation will begin. States will have until June 2016 to file their compliance plans, with one- and- two-year extensions available to qualifying states.

    By the way, the June 23 Supreme Court decision to limit EPA’s authority in establishing CO2 limits for new and expanded facilities will have no effect on the Obama administration's ability to set CO2 limits for existing plants.

    How much will it cost?

    The rule would cost the industry an estimated $8.8 billion annually in compliance costs and cause a 3 percent increase in the average electricity rate paid by U.S. consumers by 2030, according to the EPA.

    For some states, the cost of compliance could be significantly higher. In South Carolina, where consumer rates have jumped 37 percent in five years, CO2 emissions must be reduced by 51 percent by 2030 under EPA’s proposal. Only two other states have larger reduction targets.

    The cost to consumers will be higher than the EPA claims, according to the American Coalition for Clean Coal Electricity. The EPA’s calculation assumes electricity consumption will fall 10 percent by 2030, which means consumers would be charged higher rates for consuming less power.

    Joseph Bast, president of the Heartland Institute, a conservative think tank based in Chicago, said the EPA rule will cost about $51 billion and eliminate 224,000 jobs each year through 2030.

    “This is Obamacare for the environment,” Bast said. “Guaranteed to raise costs, reduce choices, and destroy an existing industry.”   

    Will it have a meaningful effect on climate change?

    It might help, but it’s not nearly enough.

    U.S. power plants account for just 4 percent of global greenhouse gas emissions. The proposed rule would cut global GHG emissions by less than 1 percent at an estimated cost of $8.8 billion a year.

    Although the rule is a good step in the right direction, it would have little or no effect on curbing the rate of global climate change.

    Meanwhile, CO2 emissions in 2013 were 10 percent below 2005 levels, according to the Energy Information Administration, the statistical arm of the U.S. Department of Energy.

    If you have a question or a comment, contact me at russellr@pennwell.com. Follow me on Twitter @RussellRay1.

     

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Russell Ray

The Power Points blog, written by Russell Ray, managing editor of Power Engineering, covers all forms of power generation, including coal, gas, nuclear and renewable. It examines a wide range of issues and advancements in pricing, policy and technology. You can follow Russell on Twitter @RussellRay1.

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