The Impact of Electricity Restructuring on NOx Emissions Affecting the Environment in Maryland Draft Final Report

The American electric power industry is undergoing dramatic changes in the way it is structured and regulated. As of June of 1998, state utility regulators, state legislatures or both in 17 states had made the decision to implement retail competition within 5 years or less. Competition in electricity markets and associated new opportunities for expanded interregional electricity trading could result in substantial changes in the mix of generation technologies employed to produce electricity, in the efficiency of power plant operations, and in the price and quantity of electricity traded in the marketplace. All of these changes could in turn have potential implications for NOx emissions, with associated potential impacts on air quality in Maryland and nitrate deposition in the Chesapeake Bay. This report focuses on how restructuring and concurrent potential environmental policies could affect emissions. The report draws on a national electricity model to characterize the changes that are likely to take place under alternative scenarios for regulatory and environmental policy. Absent new NOx regulation, electricity restructuring is likely to result in up a 4% increase in annual NOx emissions nationally from the electricity sector by the year 2003, the timeframe considered in this study. The bulk of this increase would occur in the five eastern NERC regions (NPCC, MAAC, SERC, ECAR and MAIN). The impact on NOx emissions in MAAC is smaller than in the Eastern Region as a whole, with only a 2.5% increase under aggressive restructuring. The NOx policies that are investigated would impose a substantial cost in the aggregate. However, they would have a minimal impact on the national price of electricity or on the price in individual NERC regions. Though electricity price seems to be quite responsive to the pace of restructuring, it is quite unresponsive to the strictness of NOx regulation. The most costly NOx regime considered in this study is an Old Source Performance Standard applied to the five Eastern regions leading to a 50% reduction in national NOx emissions from the electricity sector. Even in this case, real electricity prices would rise by less than 1% nationally, compared to the same restructuring scenario in the absence of the NOx control policy. In MAAC the effect of NOx policy leads prices to rise by no more than 1.1% compared to the same restructuring scenario in the absence of the policy. Under each of the market structure scenarios, NOx control is significantly cheaper (about …