Abby L. Harvey
GHG Monitor
7/18/2014
The potential effects of recently proposed Environmental Protection Agency regulations to reduce greenhouse gas emissions on consumers are in the hands of the states, according to a report released this week by the Analysis Group. The regulations, proposed early last month, set carbon dioxide emissions reductions targets for each state and require states to develop plans to reach those targets. This structure, according to the report, leaves the responsibility to the states of crafting implementation plans that limit the impact on consumers. The report also finds that not only is it possible for states to meet their goals with little impact on consumers, but well-crafted plans can result in net benefits. “In the end, the states are in control,” the report says. “The components of the State Plans will affect compliance costs and collateral benefits. And states’ regulatory and ratemaking policies can influence how compliance actions undertaken by owners of power plants and other actors translate into increases or decreases in electricity rates and bills to different types of consumers.”
According to the report, there are several reasons to believe that a well-developed state plan could yield net benefits for consumers. “First, and foremost, states have a long track record of using various regulatory and other policy tools to encourage utility programs and investments that minimize the cost of electric service, consistent with the myriad of public policies (tax, environmental, reliability, labor, and other areas of policy) that affect the provision of electricity,” the report says. Also noted is the flexibility given to the states to develop plans that work for their specific circumstances and a provision in the regulations that allows states to phase in changes to accommodate “smooth transitions.”
RGGI Example of Well Developed Market-Based Plan
The proposed regulations also allow for market-based mechanisms to reduce CO2. Using the Regional Greenhouse Gas Initiative (RGGI) as a case study, the report finds that “the impacts on electricity rates and bills from well-designed CO2-pollution control programs will be modest in the near term, especially for low income customers.” RGGI is a regional cap-and-trade program composed of nine north-eastern states wherein CO2 allowances are auctioned off to emitters. What the proceeds of the auctions are used for is up to the individual states. According to the report, the program has benefited consumers. “Experience demonstrates that some approaches can even generate net benefits to electricity customers and the larger state economy. An example of the latter is the RGGI states’ auction of CO2 allowances and use of the auction proceeds to support energy efficiency and customer bill credits,” the report says.
Cost of Compliance Not Sole Factor in Economic Impact
The report lays out a few major factors which will decide the costs and benefits of the regulations should they go into effect. First, there will be direct compliance costs sustained by the owners of affected units, which they may pass along to consumers. Second, there will expenditures on low or no carbon power production methods. Similarly there will also be expenditures on energy efficiency measures and there will be changes in the markets for various energy producing fuels. However, there will also be “direct and indirect social, economic, health and environmental benefits from mitigation of climate change and public health benefits from reduction in combustion of fossil fuels,” the report says. The report says that while the stated purpose of the regulations is to receive the benefits noted, most conversations about the regulations will focus on the economic impact. “The close attention paid to direct and indirect economic impacts is inevitable given the importance the public places on near-term energy costs and economic productivity,” the report says.
Since the announcement of the proposed regulations they have been widely controversial, drawing criticism from proponents of the coal industry who say the regulations will drive electricity prices sky-high and result in lost jobs due to a potentially high cost of compliance. This narrow analysis of the economic impact of the regulations does not tell the whole story however, according to the report. “Although most discussions of the EPA’s proposed Clean Power Plan will inevitably focus on costs of compliance, states should consider possible ways to design their State Plans to minimize those costs and increase the economic benefits of reducing CO2 emissions from the power sector. Discussions and analyses that only address the former without paying attention to the latter will lead to incomplete assessments of the proposed Clean Power Plan’s impact on consumers and the economy.”
