EPA’s Proposed Greenhouse Gas Regulations: Implications for the Electric Power Sector

The Environmental Protection Agency (EPA) has proposed regulations to reduce greenhouse gas (GHG) emissions from existing power plants. EPA believes that its proposed Clean Power Plan (CPP) will " protect public health, move the United States towards a cleaner environment, and fight climate change while supplying Americans with reliable and affordable power. " Burning fossil fuels to produce electricity results in the release of carbon dioxide, and represents the largest source of GHG emissions in the United States. Under its proposed plan, EPA believes it will be possible to lower the carbon intensity of power generation in the United States by approximately 30% in 2030 from carbon dioxide emissions levels in 2005. To achieve this goal, EPA is giving each state a numerical carbon reduction target, based on the state's existing power generation portfolio. Under the Clean Air Act (CAA) section 111(d), the EPA must identify the best system of emission reductions (BSER) that is adequately demonstrated and available to reduce pollution. The regulations allow EPA to set goals, and give states the responsibility for creating compliance plans which meet those goals. EPA set the state-specific goals based on (1) measures which improve the efficiency of fossil-fueled power plants, (2) use of lower-emitting generation sources such as natural gas or fuel-switching to natural gas, and use of nuclear power, (3) demand-side efficiency, and (4) renewable electric generation. EPA has suggested these measures as four BSER " building blocks " or options for states to consider when choosing how to meet their specific GHG reduction goals. Under the proposed plan, however, states would have the flexibility to choose the most cost-effective strategies to meet the targets. EPA's proposal for GHG reduction answers some questions from the electric power sector with regard to the timeframe, timeline, and choices that would be made available for compliance. The CPP proposal sets out a vision for a greater proportion of electricity coming from natural gas and renewable electric generation, and less from coal-fired power plants. However, some issues still remain unresolved with the potential implementation of the CPP. Some observers say that EPA's CPP essentially proposes an environmental dispatch regime for power plant operation which could potentially result in increased electricity prices to consumers, depending on the generation resource mix employed. But EPA believes adoption of greater energy efficiency measures will actually reduce average retail electricity bills. Compliance may require more natural gas consumption to …