Regulations for Carbon Pollution

Regulations for Carbon Pollution Executive Summary In June 2014, the Environmental Protection Agency issued a draft rule to regulate carbon pollution from existing power plants, as part of an action plan to address climate change. The rule is limited to existing power plants and does not address other sources of carbon pollution such as cars or industrial facilities. It is often referred to in short hand as the â€Å"111d rule,† because the agency used the authority found in Section 111d of the Clean Air Act to issue the regulation. The EPA gave each state a target of carbon reduction to reach at power plants by 2030, based on its assessment of each state’s unique characteristics. The average carbon reduction nationwide is 30% by 2030. Montana’s proposed target is a carbon emission rate reduction of 21%. The draft rule gives the states significant amounts of flexibility in how to meet the newly proposed standards for clean air. If the final rule by EPA provides the flexibility promised in the draft, Montana will have significant latitude to implement measures that are rooted in the states unique economic characteristics. This DEQ paper presents hypothetical scenarios that could emerge depending on how the state decides to respond to the rule the EPA eventually releases. This document only seeks to illustrate some of the measures that the state could undertake as part of its plan to meet the proposed reduction targets in the draft rule. There are, of course, a number of other pathways to meeting the proposed standard, but we hope to start a discussion through this paper that will lead to even more innovations. In addition, this paper does not address the options or challenges that other states may have in meeting their respective proposed reductions, which could have impacts on Montana. As can be seen in the discussion that follows, each scenario has its potential benefits, costs, and uncertainties. Importantly, none of the scenarios call for plant closures. All five scenarios evaluated in this paper not only keep the jobs that we currently have and meet the reduction target in the proposed rule, but strongly suggest that it would be possible to create new jobs and additional tax revenue, and to further strengthen the economy through the development of new renewable electricity generating capacity and increased investment in cost-effective energy efficiency. Background Context On June 2, 2014, the Environmental Protection Agency (EPA) issued draft emission guidelines for the regulation of greenhouse gas emissions – specifically carbon dioxide (CO2) – from existing electric generating units (referred to as power plants in this paper), relying on its regulatory authority under section 111(d) of the Clean Air Act. For all pollutants regulated under section 111, EPA is required to identify a â€Å"best system of emission reduction† and set targets for carbon reduction based on that system of controls. In the draft rule, EPA used four â€Å"building blocks† to determine the best system of emission reduction. They are based on the most likely sources of carbon pollution reductions. Section 111(d) provides significant flexibility to states to decide how to meet the established standards of performance. Consequently, the EPA’s building blocks would not require states to follow them in order to comply with the rule. The four building blocks the EPA used are: 1) Efficiency improvements at all coal-fired power plants; 2) A shift in total electricity generation from coal-fired power plants to existing natural gas combined cycle power plants; 3) Increased generation from low- and no-carbon renewable and nuclear energy options; and 4) Increased investment in energy efficiency. EPA applied this system of controls to each state to determine proposed targets for each state. Montana’s target is expressed in pounds of carbon emitted per megawatt hour (a rate-based standard) 1,771 lbs CO2/MWh by 2030, a reduction of approximately 21% from the 2012 emissions level of 2,246 lbs CO2/MWh. To meet the standards for clean air created by the new rule, the state has the option to convert the rate-based standard into a mass-based standard, which is an overall reduction of tons of carbon emitted annually. EPA uses the following specific data inputs for each building block to arrive at Montana’s target. In Building Block 1, EPA assumes a 6% efficiency improvement at all nine affected coal- fired units. EPA assumes Montana’s potential under Building Block 2 to be zero because Montana does not currently have any natural gas combined cycle power plants. In Building Block 3, EPA assumes that Montana will be able to increase renewable energy generation from its current 5% of total state generation to approximately 10% by 2030. In Building Block 4, EPA assumes that Montana will be able to increase the electricity energy savings from demand-side management programs beginning in 2017, ultimately more FOR DISCUSSIONS PURPOSES ONLY 4 than doubling current energy efficiency in the state. The net result would be a reduction of the state’s retail sales of electricity by 11.3% cumulatively by 2030, compared to what Montana would consume without energy efficiency programs. Although EPA used the above-described building blocks to set targets, section 111(d) and the draft emission guidelines afford states the opportunity to use any mix of controls, including methods not considered by EPA, to meet those targets. That is, Montana does not have to use the building blocks EPA used if it can find a different path to meeting the overall proposed carbon reduction target. After the final rule is released in June 2016, Montana must develop a state plan (individual or multi- state) in accordance with section 111(d) to implement and comply with the rule.1 Although the methods in the plan may differ from those described above, Montana’s plan must meet or exceed the final carbon reduction target calculated by EPA. Purpose of this Analysis This paper analyzes five scenarios that, if implemented, would meet the EPA’s proposed target reduction in carbon emission intensity. These scenarios are similar in that they all achieve EPA’s proposed target, but differ in the extent to which they rely on each of EPA’s proposed building blocks to meet or surpass the target. The scenarios are presented here to demonstrate the relative interplay and effectiveness of some of the options available to Montana for complying with the proposed emission guidelines. The following five scenarios are discussed in more detail throughout this paper: Scenario 1 – Existing Energy Generation plus Heavy Energy Efficiency Scenario 2 – Existing Energy Generation plus Lewis Clark Plant Co-Fire Scenario 3 – Existing Energy Generation plus Moderate Energy Efficiency and Heat Rate à ¢Ã¢â€š ¬Ã‚ ¨Improvement Scenario 4 – Existing Energy Generation plus Heavy Renewable Energy Scenario 5 – Existing Energy Generation plus CO2 Sequestration Summary of Scenario Inputs and Results The five scenarios were modeled using a tool developed by the Montana Department of Environmental Quality. Each scenario results in compliance with EPA’s proposed rate-based emission target as well as Montana’s estimated mass-based target. The following table shows the extent to which each building block contributes to each of the five scenarios. This paper only considers opportunities and challenges for reducing carbon emissions through actions taken within the state’s boundaries and does not consider a multi-state or regional approach.