||The Clean Air Act requires the EPA to regulate carbon dioxide and greenhouse gases
to protect public health and welfare. Currently the agency is in the process of developing
standards for existing coal power plants under section 111(d) of the CAA and are expected
to issue the proposed rule this summer. These regulations have the potential to drastically
reduce emissions in the United States. Of the policy proposals and recommendations
that have been submitted to the EPA, most advocate for including flexibility mechanisms,
such as emissions trading, crediting and offsets, in the guidance policy. However,
such broad mechanisms have limited precedence under 111(d) and their legality is untested.
This paper explores a more conservative approach by regulating coal units within-the-fence-line.
Specifically, the proposed policy would require uniform mandatory heat rate reductions
for all coal units, regardless of initial heat rate. All coal units would be required
to lower heat rates by 740-810 Btu/kWh, resulting in an 8% fleet-wide average. Inefficient
units would be allowed to continue to operate alongside more efficient ones as long
as each reduces their heat rate by the given amount.
The policy was modeled and this analysis finds that despite costs associated with
installing heat-rate reducing technology, costs to plant operators and consumers are
reduced. This is mainly due to the decreases in fuel costs that accompany the efficiency
improvements. As a result, it is more economical for many coal plants to operate.
US generation from coal increases 4% relative to a reference and electricity prices
per kWh decrease. Costs associated with the policy do force some coal units into retirement.
An additional 4.3 GW of coal capacity and 50 coal units are retired compared to the
4.4 GW that are expected to retire absent any policy. However, the units that close
operate at low or zero capacity and specific regions are not disproportionally affected
Carbon emissions are reduced by 68 megatons the first year that the policy goes into
effect relative to the reference scenario and avoids 1,284 Mt of cumulative carbon
emission over the lifetime of the analysis (2016-2030). However, overall, the policy
does not force any changes in electrical generation. No new low-carbon resources are
built as a result of the policy. Therefore, total emissions continue to rise through
the end of the analysis as the economy grows. Despite starting below 2005 levels,
emissions increase to 4.3% above 2005 levels by 2030.
Overall, the policy represents a less ambitious course of action to reduce carbon
emissions from coal power plants but still allows reductions to take place at low
economic costs and would likely stand up to challenges in court. While it is unlikely
that the EPA will chose such a limited approach to regulating coal plants under 111(d),
the proposed policy could serve as a sound option if other alternatives fail.