Abby L. Harvey
GHG Monitor
7/25/2014
Fuel switching is key to developing the most cost-effective implementation plans to meet the Environmental Protection Agency’s new proposed emissions reduction regulations for coal-fired power plants, representatives from the Center for Strategic and International Studies and the Rhodium Group said this week in presenting the preliminary findings of a study of the EPA proposal. The EPA’s proposal, dubbed the ‘Clean Power Plan,’ would set emissions reduction targets for each state and require the states to develop implementation plans to reach these targets. “The ultimate impact of this proposal will depend on the state implementation plans that are developed over the next several years. Rather than be predictive about how states will develop those plans, what we’re trying to do with this analysis is assess the impact of an economically optimal way of implementing those plans,” Trevor Houser, Partner at the Rhodium Group, said of the analysis.
The groups found that regardless of plan characteristics like the inclusion of energy efficiency crediting or states working together to create joint implementation plans, fuel switching from coal to natural gas played the primary role in developing an economically sound plan. The groups presented several findings of their analysis in which fuel switching was a key component throughout. “The shale boom of the last few years makes compliance with either the Clean Power Plan or other emissions reductions policies relatively affordable compared to before the shale boom occurred,” Houser said. He did note that gas prices may increase in the future.
When taking the inclusion of energy efficiency crediting into consideration, the group found that “when you include energy efficiency it reduces both costs and benefits of the policy,” John Larson, Senior Analyst at Rhodium Group, said, noting that fuel switching remains the most cost effective way to handle the standards. He also said, though, that “when you add in EE you see because you’re now reducing demand from energy efficiency you have a lower amount of shift between coal and gas, but you still have a shift between coal and gas, in fact that is still the primary way you get to the standard after energy efficiency is considered.”
In lowering consumer costs cooperation between states in developing joint implementation plans creates a large impact, the groups said. “The more states can cooperate the lower rate impacts will be for consumers nationally,” Larson said, though once again reaffirming that “the primary take away here is you still meet the standard through coal to gas switching. That’s your primary least cost option given our current expectations around prices.” Of course, given a reliance on fuel switching, changes in natural gas prices would have a significant effect, Houser said. “This is our estimate of what the most cost effective generation-side solution would be at currently projected natural gas prices and renewable energy costs. Those gas prices could be different which would change those outcomes.”
