In its ground-breaking “Clean Power Plan” released 2 June, the US Environmental Protection Agency (EPA) proposed to work with 49 states to slash the CO2 intensity of fossil-fuel power generation by 2030. The headlines were simple enough: US plans to cut its emissions 30% from 2005 levels. But what the regulation actually does is lay out a series of (convoluted) state-level targets designed to reduce the carbon intensity of states’ power. In this Analyst Reaction we offer here a high-level look at these targets with more in-depth analysis to come in coming days for BNEF clients.
• Headlining the regulations are a series of emissions rate (lb/MWh) targets unique to each state. And the variation among states is stark: some states face substantially stiffer reduction targets than others.
• The wide variation among states is based on the agency’s evaluation of what it calls each state’s emissions ‘framework’: existing fossil generation, zero-carbon generation, energy efficiency potential and the outlook for both coal-plant retirements and low-carbon deployment in the future.
• EPA was required to establish performance standards achievable under a best system of emission reduction (BSER) method, which includes consideration of cost and technical feasibility, among other factors.
• The BSER proposed by EPA is based on mechanisms that fall into four categories, which the EPA describes as ‘building blocks’: heat rate improvements, dispatch of lower-emitting power plants, zero-carbon generation and end-use energy efficiency
• The agency also solicited other technologies and strategies, which may include market-based trading programmes and multi-state compliance activities. In soliciting these so-called ‘outside-the-fence’ compliance methods, EPA is entering uncharted regulatory territory; all previous power-plant emissions regimes have focussed on technologies and operating mechanisms at the point of emissions only.
• On orders from President Obama, EPA must finalise the proposed standards by June 2015. Complete individual state plans are due June 2017. Complete multi-state plans are due June 2018. States may obtain extensions under certain circumstances.
• As a result of the lbs of CO2 per MWh produced metric, the joint rulemaking’s outcome could well be delayed and is subject to weakening by state inertia and legal challenges.