Tim Profeta, Director Nicholas Institute for Environmental Policy Solutions
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Transcript of Tim Profeta, Director Nicholas Institute for Environmental Policy Solutions
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U.S. Clean Power Plan
Tim ProfetaDirector, Nicholas Institute
North American Climate Policy ForumJune 22, 2016
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Agenda
• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation• Possible paths forward
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Agenda
• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation• Possible paths forward
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CLEAN POWER PLAN OVERVIEW
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Best System of Emission Reduction (BSER) Building Blocks
• BB1: Heat rate improvements at existing coal units
• BB2: Increasing generation from existing natural gas combined cycle
• BB3: Increasing renewable generation
2030 Final rate
Fossil steam NGCC
lbs/MWh lbs/MWh
Eastern 1305 771
Western 360 690
ERCOT 237 697
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EPA Translates the Emissions Guidelines into 4 forms
Subcategorized Rate
BlendedRate
Mass –Existing Only
Mass –Existing + New
Allowances
Emission Rate Credits
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2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
CPP Final Rule
Initial State
Subm
ission
Final Plan
Subm
ission
Clean Energy Incentive Program
Interim Step 1
Interim Step 2 Interim
Step 3
Final rate
Original CPP Compliance Timeline
• States have until September 6, 2016 to submit an initial plan• Final plan due September 6, 2018
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State Plan Choices: Key QuestionsThis image cannot currently be displayed.
Mass vs. Rate?
How to distribute allowances?
How to address leakage?
Trading Ready?Degree of trading? Trading Partners?Photo: thedailyomivore.net
Emissions Standards vs. State Measures?
Emission Rate Credit Issuance and Supply?
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Mass or Rate?
Mass• Administratively simpler• Allowance supply is pre‐
determined; allocation is a state decision.
• Potentially easier to build upon for future policies
• Environmental outcomes depend on leakage
Rate• ERC administration
potentially significant lift, especially for efficiency
• ERC supply is uncertain• Allocates financial incentive
to ERC developer• More or less stringent than
mass?
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Mass Based Trading Basics
State plan creates # of allowances in each compliance period = total emissions budget
1 allowance = 1 (short) ton of emissions
Establish tracking system & method of getting allowances into market
To comply: Affected units measure their emissions in each compliance period
Must surrender 1 allowance for every ton emitted
Affected Units
= X tons?
Allowance
Permission to Emit 1 Ton
Allowance
Permission to Emit 1 Ton
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Rate‐Based Trading Basics
Measure:lbs of CO2 & output (MWh)
Lbs/MWh = unadjusted rate
Below standard Earn ERCsAbove standard owe ERCs $ ERCs
Affected Unit
ERC Eligible Resources
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Role of Canada and Mexico in CPP
• Can generate ERC’s if grid is linked• No provision for trading off allowances• Provision of low‐carbon power to U.S. demand is incentivized
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Agenda
• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation
• Possible paths forward
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CLEAN POWER PLAN LAWSUIT:WEST VIRGINIA V. EPA (NO. 15‐1363)
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Who is Involved?
Challengers (Petitioners)
27 States
90 Industry groups, utilities, and co‐ops
Supporters (Intervenors)
19 States
8 Cities and counties
11 Non‐profit groups
6 Utilities
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What are the Issues?1. Senate versus House version of Section 111(d) of the
Clean Air Act
2. Outside‐the‐fence‐line measures for the best system of emissions reductions
3. New source standard for greenhouse gas emissions emitted from natural gas and coal power plants
4. Constitutional & procedural challenges
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WV v. EPA Status• Stayed by Sup Ct, 5‐4, but then Scalia passed• Under consideration by DC Cir – forewent 6/2 hearing by panel to have Sept. hearing en banc
• Opinion possible in late 2016 – but will Sup Ct forego review?
• DC Cir #’s favor EPA, but recent precedent has created erosion in deference to executive branch
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What are the Potential Outcomes?
Rule Invalid EPA goes back to drawing board
Rule Partially Invalid
Clean Power Plan Revisited
Rule Upheld Clean Power Plan Moves Forward
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2016 Presidential Election
Source: CNN
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Agenda
• Basic Structure of the Clean Power Plan• Sources of Uncertainty in CPP implementation• Possible paths forward
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THREE FUTURES?
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Future 1: Regulatory Path
• Court upholds 111 authority• EPA expands CPP efforts to other sectors• Possible use of 115 to attack other sectors, or even power sector
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Future 2: Clean Air Act Reform Path
• Allow CPP to go forward but amend Act to allow for more effective and efficient regulation– Cross sectoral? International trade?– Clear authority on creation of emissions limits
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Future 3: Grand Bargain Path
• Replace regulatory authority with clean carbon pricing regime
• With Waxman/Markey failure still in consciousness, cap‐and‐trade legislation unlikely in near term
• Carbon tax compromise is possible and oft‐discussed
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Thank you!
https://nicholasinstitute.duke.edu/focal‐areas/clean‐air‐act‐clean‐power‐plan
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APPENDICES
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Clean Energy Incentive Program (CEIP)
Optional early action program in 2020 and 2021
CEIP Eligible Resources:
Any wind or solarFor every 2 MWh, project receives 1 credit from EPA, 1 credit from state
Energy efficiency in ‘low‐income communities’ For every 2 MWh, project receives 2 credits from EPA, 2 credits from state
Early action credits/allowances granted certain renewables and energy efficiency that commences construction/operation after the state plan is submitted for MWhsgenerated/saved in 2020 and 2021
EPA matching credits/allowances Participating states must create own pool of matching credits/allowances
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Leakage
• “Leakage” is a general term
• “Leakage” states must address in the Clean Power Plan is more narrow
Policy Scope
Emissions
Existing Sources
New Sources
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LeakageRate‐based plans cannot include new sources for compliance, so EPA is not worried about leakage
Mass‐based plans need to demonstrate they have addressed risk of leakage to new sources in state plan
3 options available to states1. Cover new sources2. Use an allocation method that counteracts leakage 3. Other methods demonstrated by state to prevent
leakage
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Trading‐ReadyWhat is “Trading Ready”?
Allows EGUs and others to trade compliance instruments with the same definition and common tracking system with entities in other states without a formal multistate agreement.
Mass Subcategorized Rate
Allowance representing 1 short ton of CO2 emissions
Emission Rate Credit (ERC) representing 1 MWh of zero carbon generation or avoided emissions
*Mass can trade with mass and subcategorized rate with subcategorized rate.
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Proposed Model Rules• The EPA has proposed mass‐ and rate‐based model rules and federal plans
• EPA aims to finalize model rules before the first state submission in Sept 2016
• Both mass‐ and rate‐ are trading ready• Both include Clean Energy Incentive Program
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PROPOSED MODEL RULES:MASS‐BASED MODEL RULE
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Pathways
Mass
Address Leakage Risk
Cover New Units
Existing EGUs Only
Existing & New Source
Complement
State Measures PlanExisting EGUs or Existing & New
MODEL RULE
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Mass Allowance Allocations• The plans create allowances equal to a state’s mass goal
• EPA wants states to determine the allowance distributions
• If EPA is distributing allowances, they propose to do this based on historical 2010‐2012 generation data
• EPA is taking comment on other distribution options.
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Allocation Set‐asides
EPA is proposing three set‐asides for the federal plan and model rule1. Clean Energy Incentive Program2. Output‐based allocation to existing
natural gas set‐aside to address leakage 3. RE set‐aside of 5% to address leakage
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Key Points in Mass‐Based Model Rule
• Existing Sources Only, Uses Allowance Allocation to Address Leakage
• Trading Ready• EPA will track allowances using the Allowance Tracking and Compliance System (ATCS)*
• Allowances can be banked with no restrictions*
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PROPOSED MODEL RULES:RATE‐BASED MODEL RULE
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Pathways
RateDefineEligible ERCs
Sub‐categorized Rate
State‐wide (blend) Rate
State Defined Rates
MODEL RULE
Can be multistate
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Emission Rate Credits (ERCs)There are three categories that can generate ERCs:
1. Affected EGUs operating below subcategory emission performance rate
2. Existing NGCC earns Gas Shift ERCs (GS‐ERCs) to sell to fossil steam units (cannot use for NGCC compliance)
3. Zero emitting resources: Post 2012 renewable energy, energy efficiency, nuclear generating or avoiding MWh during compliance period
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Zero‐Emitting ERCs Model Rule proposal• All wind• All solar (including distributed)• Geothermal• Hydropower• Qualified biomass• Wave• Tidal• Waste‐to‐energy• New/uprate nuclear• Non‐affected combined heat and
power• Demand‐side energy efficiency/
demand‐side management
Federal Plan proposal*• On‐shore utility scale wind• Utility scale solar PV• Concentrated solar• Geothermal power• New/uprate nuclear• Utility scale hydro
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ERC Issuance Process
42
Step 1: Project developer submits application to state with EM&V plan and third party verification
State Approves Project
Qualifying energy is generated or saved and M&V is carried out with third party verification
Developer submits total generation and M&V report to state.
Step 2: State awards ERCs for verified MWhsand issues ERCs into the ERC tracking system
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Key Points in Rate‐Based Model Rule
• Uses subcategorized rates• Trading ready• Uses EPA tracking system• ERCs can be banked without limit• Includes Clean Energy Incentive Program*
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KEY CHOICES FOR STATES
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Emissions Standards orState Measures Plan?
• Emissions Standards: Compliance obligation entirely on affected units.
• State Measures: All or part of compliance obligation on state or other entities. – Accommodates existing programs in California and to a lesser extent RGGI
– For states without existing programs, essentially requires creation of two plans (state measures plus backstop)
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Mass or Rate?
Mass• Administratively simpler• Allowance supply is pre‐
determined; allocation is a state decision.
• Potentially easier to build upon for future policies
• Environmental outcomes depend on leakage
Rate• ERC administration
potentially significant lift, especially for efficiency
• ERC supply is uncertain• Allocates financial incentive
to ERC developer• More or less stringent than
mass?
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47
Existing Sources Only
Existing Unit New Unit
Existing Plus NewMust hold allowances
No requirement to hold allowances
Must hold allowances
Must hold allowances
Mass‐Based Plans: Addressing the Risk of Leakage
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Mass‐Based Plans and Leakage3 options available to states1. Cover new sources2. Use an allocation method that counteracts
leakage (presumptively approvable model rule method)
3. Other methods demonstrated by state to prevent leakage
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New Source Complements
Cumulative National Increase in Interim Goal Budget
National Increase in Final Goal Budget
1.8% 2.5% 49
0
20
40
60
80
100
120
Million Tons
Final Goal New Source Complement
Final Mass‐Based Goals Plus New Source Complements by State
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Mass‐Based Plans and LeakageCover New Sources
• Covering new sources does not limit load growth.
• Does limit emissions.
• May make it harder or easier to comply depending on assumptions about future demand and emissions
Existing Sources Only
• No limit on new NGCC
• Must adequately address the risk of leakage through allowance allocation or other mechanism(s)
• No forward going requirement to show leakage did not occur
50
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Allowance Distribution in Mass‐Based Plans
States have discretion to distribute allowances, so long as leakage is adequately addressed.
Some possible goals for allowance distribution:• Protect or benefit ratepayers/consumers• Fairly distribute regulatory obligation• Encourage specific outcomes or activities (e.g.
encouraging certain plants to run or investments in energy efficiency, renewable energy)
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Mass: Alternative Ways to Distribute AllowancesCommon Options Rationale Examples
ALLOCATE FOR FREE
* “Grandfathering”: Given to all emitters based on historicemissions (or generation)
Political buy‐in for owners of initial emitting assets
Early yrs of EU ETSOther pollutant ETS (acid rain)Nox (heat input)
* Output‐based (updating): Given free to emitters in proportion to their ongoing generation levels
Mitigate leakage to uncapped sources
NOx trading programCalifornia C&T for (trade‐explosed) industrial sectors
* Setasides for targeted activities (e.g., renewables, energy efficiency) or populations (rate‐payers), price containment
Way to finance, e.g., low carbon investment, lessen burden on rate‐payers
Waxman‐Markey bill provisionsCal. Set aside for LSE’s on behalf of ratepayersCA and RGGI cost containment reserves
COMPETITIVE AUCTION
Government auction with targeted proceeds to types of households, investments,…
Address disproportionateimpactsFinance low carbon investment
RGGI poor household EEVA NOx
Government auction with use of revenues to reduce taxes
Fiscal reformPolitical buy‐in
British Columbia (carbon tax, not ETS)
* CPP proposed federal plan has dimensions of these options
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Rate: Emission Rate Credits
• What types of resources can earn credits?– State discretion other than new sources, offsets, and
energy storage.– What resources actually get built is still a utility
commission decision.• EM&V requirements for each qualifying resource
– EPA draft guidance available– Tension between costs and accuracy of estimating
energy savings from energy efficiency measures.
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Scope of Trading?
• Proposes to allow federal plan states to trade with similar approved state plans using EPA tracking system, taking comment on also linked systems
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Trading Partners?
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Thank you!
https://nicholasinstitute.duke.edu/focal‐areas/clean‐air‐act‐clean‐power‐plan
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Rate Based State Plans –(Non‐Exhaustive)
Rate Based Model Rule
Rate Based Federal Plan
Clean Energy Incentive Program
Onshore wind*Utility‐scale solar PV*Concentrating solar power*Geothermal*Hydropower*Qualified BiomassEnergy Efficiency including water system efficiency Waste to Energy DSM T&DNuclear EnergyCHP WHP/”bottom cycling CHP units”Distributed Renewables
Wind (all)Solar (all)GeothermalHydropowerWaveTidalQualified BiomassWaste‐to‐Energy Nuclear EnergyNon‐affected CHPDemand Side EE/DSM
On‐shore utility scale windUtility scale solar PVConcentrated solar powerGeothermal powerNuclear EnergyUtility scale hydropower
Any type of wind* Any type of solarEnergy Efficiency in Low Income Communities
*Under the proposed model rule, in federal plan states eligible wind is limited to on‐shore.
*Part of the BSER (utility scale only)Sources: Section VII K &V E
Source: § 62.16435 Source: § 62.16435 Source: § 62.16235
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Biomass in the Clean Power PlanMass Based Plan• EPA seeking comment on inclusion of biomass as an eligible measure in the Proposed Federal Plan
• Proposed Model Rule includes “qualified biomass”– Must justify qualified biomass– Must include methods for
emission measurements and feedstock verification
Rate Based Plan• EPA seeking comment on
Emission Rate Credit (ERC) eligibility for biomass in Proposed Federal Plan
• Qualified biomass eligible for ERCs in Model Rule‐ Must justify qualified biomass‐ Must include methods for
emission measurements and feedstock verification
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Requirements for Biomass in State Plans
To include biogenic feedstocks in plans*, states must:• Address types of biogenic feedstocks used• Justify why proposed feedstocks can be determined qualified
biomass• Address valuation of biogenic CO2 emissions• Explain evaluation and monitoring systems to properly
account for biogenic CO2 emissions • Include third party verification of qualified biomass
* The SAB Panel process and updated 2014 Framework is expected to inform how states should best address these requirements in their plans.
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States
AlabamaArizona Corporation CommissionArkansasColoradoFloridaGeorgiaIndianaKansasKentuckyLouisiana
Louisiana Dep’t of Environmental QualityMichigan Attorney GeneralMississippiMississippi Dep’t of Environmental QualityMissouriMontanaNebraskaNew JerseyNorth Carolina Dep’t of Environmental QualityNorth Dakota
OhioOklahoma Attorney GenerallOklahoma Dep’t of Environmental QualitySouth CarolinaSouth DakotaTexasUtahWest VirginiaWisconsinWyoming
UtilitiesIndustryCo‐Ops
Alabama Power CompanyAmerican Chemistry CouncilAmerican Coalition for Clean Coal
ElectricityAmerican Coke & Coal Chemicals InstituteAmerican Foundry SocietyAmerican Forest & Paper Ass’nAmerican Fuel & Petrochemical
ManufacturersAmerican Iron & Steel InstituteAmerican Public Power AssociationAmerican Wood CouncilArizona Electric Power Coop, Inc. Association of American RailroadsAssociated Electric Coop, Inc.Basin Electric Power CooperativeBig Brown Power Company LLCBig Brown Lignite Company LLCBig Rivers Electric CorporationBrazos Electric Power Coop, Inc.Brick Industry AssociationBuckeye Power, Inc.Central Montana Electric Power CoopCentral Power Electric Coop, Inc.Chamber of CommerceCO2 Task Force of the Florida Electric
Power Coordinating Group, Inc.Corn Belt Power CooperativeDairyland Power CooperativeDeseret Generation & Transmission CoopDixon Brothers Inc.
East Kentucky Power Cooperative, Inc.East River Electric Power Coop, Inc.East Texas Electric Cooperative, Inc.Electricity Consumers Resource CouncilGeorgia Power CompanyGeorgia Transmission CorporationGolden Spread Electrical Cooperative, Inc.Gulf Coast Lignite CoalitionGulf Power CompanyHoosier Energy Rural Electric Coop, Inc.International Brotherhood of Boilermakers, Iron
Ship Builders, Blacksmiths, Forgers, & HelpersJoy Global Inc.Kansas Electric Power Cooperative, Inc.Lignite Energy CouncilLuminant Big Brown Mining Company LLCLuminant Generation Company LLCLuminant Mining Company LLCMinnkota Power Cooperative, Inc.Mississippi Power CompanyMontana‐Dakota Utilities Co.Murray Energy CorporationNational Association of Home BuildersNational Association of ManufacturersNational Federation of Independent BusinessNational Lime AssociationNational Mining AssociationNational Oilseed Processors AssociationNational Rural Electric Cooperative Ass’nNelson Bros. Inc.Norfolk Southern Corp.
North Carolina Electric Membership Co.Northeast Texas Electric Cooperative, Inc.Northwest Iowa Power CooperativeNorthWestern CorporationOak Grove Management Company LLCOglethorpe Power CorporationPeabody Energy Corp.Portland Cement AssociationPowerSouth Energy CooperativePrairie Power, Inc.Rushmore Electric Power Coop, Inc.Sam Rayburn G&T Electric Coop, Inc.San Miguel Electric Cooperative, Inc.Seminole Electric Cooperative, Inc.Sandow Power Company LLCSouth Mississippi Electric Power Ass’nSouth Texas Electric Cooperative, Inc.Southern Illinois Power CooperativeSunflower Electric Power CorporationTex‐La Electric Cooperative of Texas, Inc.Tri‐State Generation & Transmission AssociationUnited Mine Workers of AmericaUpper Missouri G. & T. Electric Cooperative, Inc.Utility Air Regulatory GroupWabash Valley Power Association, Inc.Wesco International Inc.Westar Energy, Inc.Western Farmers Electric CooperativeWest Virginia Coal AssociationWolverine Power Supply Coop, Inc.
Challengers in the CPP Lawsuit
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Supporters in the CPP Lawsuit
States
CaliforniaConnecticutDelawareDistrict of ColumbiaHawaiiIllinoisIowaMaineMarylandMassachusetts
MinnesotaNew HampshireNew MexicoNew YorkOregonRhode IslandVermontVirginiaWashington
Cities and Counties
Austin, TexasBoulder, ColoradoBroward County, FloridaChicago, Illinois
New York, New YorkPhiladelphia, PennsylvaniaSeattle, WashingtonSouth Miami, Florida
Nonprofits
Advanced Energy EconomyAmerican Lung AssociationAmerican Wind Energy AssociationCenter for Biological DiversityClean Air CouncilClean Wisconsin
Conservation Law FoundationEnvironmental Defense FundNatural Resources Defense CouncilOhio Environmental CouncilSierra Club
UtilitiesIndustryCo‐Ops
Austin EnergyCalpine CorporationNational Grid Generation, LLC
NextEra Energy Inc.Pacific Gas and Electric CompanySeattle City Light Department
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Nicholas Institute Modeling of the Clean Power Plan
Integral part of work with state decision makers
Goal: provide information to guide threshold level decisionsrate vs. mass, include new sources, trading‐ready partners
Iterative process
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Modeling scenarios
Mass covering existing units Subcategorized rate‐based
Mass covering existing + new Blended rate‐based
Different trading‐ready configurations
Sensitivities: NG price, RE costs, EE
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Output‐based Allocation Set‐Aside• This set‐aside is intended to address leakage by encouraging existing NGCC
• EPA has proposed the size of the set‐aside for each state
State Interim 2 Goal 2025‐2027Allowances in output‐
based set‐asideSet‐aside as a percent
of allowancesAlabama 60,918,973 4,185,496 6.87%Arkansas 32,953,521 2,102,538 6.38%Florida 110,754,683 12,102,688 10.93%Georgia 49,855,082 3,563,104 7.15%Kentucky 69,698,851 288,730 0.41%Louisiana 38,461,163 2,207,879 5.74%Mississippi 26,790,683 3,132,671 11.69%North Carolina 55,749,239 2,120,178 3.80%South Carolina 28,336,836 1,029,366 3.63%Tennessee 31,079,178 632,949 2.04%Virginia 28,990,999 3,011,811 10.39%West Virginia 56,762,771 0 0.00%
Proposed set‐aside for output‐based allocation for the second compliance period (short tons)
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Output‐based Allocation Set‐Aside to Address Leakage
There is a lagged accounting method• NGCC units earn output‐based allowances in one compliance period
(for example 2022‐2024) by operating above 50% CF over entire period
• Submits the confirmed generation to state (EPA) • State (EPA) awards the allowances in the next compliance period• If exceed allocation, distribute pro‐rata basis• Unused allowances distributed to affected EGUs
Allowance to existing NGCC unit
=Net
Generation over 50% CF
* 1030 lbs/MWh‐net
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RE Set‐Aside to Address Leakage
• 5% allowances in model rule• In‐state: utility‐scale wind, solar (any), geothermal and utility‐scale hydro constructed after Jan 1, 2013
• Sources apply to EPA/state with MWh projection• Allocation year prior to generation• True‐up mechanism• All allowances allocated, allowances per MWh depends on total– cannot simultaneously generate ERCs
• Set‐aside increases with retirements in model rule
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RE Set‐aside• The distribution of the allowances happens at the beginning of each year (before the RE has been generated) as follows:– The EPA approves the eligibility of a RE project, which projects its
generation and includes EM&V– The EPA distributes allowances to eligible projects on a pro‐rata basis– At the end of the generation year, the RE project must true‐up with its
projected generation
• EPA expects this set‐aside to grow, as they propose the allowances from retired EGUs get added to the RE set‐aside
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CEIP set‐aside• For early‐action EE and RE in 2020 and
2021• The state‐match allowances are pulled
from the first interim compliance period only
• For any state that takes over the allowance distributions of a federal plan, they still need a CEIP set‐aside, but they can change the amount of allowances
• A state with a model rule can opt out of the CEIP
State Set‐aside 2022 through 2024Alabama 3,122,306Arkansas 2,187,230Florida 3,230,248Georgia 2,755,623Kentucky 4,952,862Louisiana 1,497,428Mississippi 357,307North Carolina 2,674,590South Carolina 1,652,802Tennessee 2,178,084Virginia 1,386,546West Virginia 3,506,890
Proposed CEIP Early Action Allowance Set‐Aside in the Mass‐Based Federal Plan (Short Tons)
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Example of all Mass Set‐Asides
aRE set‐aside proposed to grow as EGUs retire
Example of allowance set‐asides for South Carolina – varies by state
Mass Goal
CEIP set-aside
Output-based allocation
RE set-asidea
Set-asides as a percentage of the
mass budget
Interim Phase 1 31,025,518 1,652,802 0 1,551,276 10.33%
Interim Phase 2 28,336,836 0 1,029,366 1,416,842 8.63%
Interim Phase 3 26,834,962 0 1,029,366 1,341,748 8.84%
Final 25,998,968 0 1,029,366 1,299,948 8.96%
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Affected EGU ERCs Accounting Example
Example 1:An NGCC facility with an average emissions rate of 700 that generates 1,000 MWh in a final compliance period with the final NGCC compliance standard of 771:
ERCs = (771 ‐700)/771 * 1000 = 92.1 or 92 ERCs earned
Example 2:An NGCC facility with average emissions rate of 800 that generates 1,000 MWh in a final compliance period with the final NGCC compliance standard of 771:
ERCs = (771‐800)/771 * 1000= (‐29/771) *1000= ‐37.6 or 38 ERCs owed
ERCs = (EGU standard – EGU operating rate)/EGU standard * generation
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Gas‐Shift ERCs
• GS‐ERCs can be created by all existing NGCC• GS‐ERCs are independent of the NGCC standard and can be used for steam generation compliance only
• The same NGCC facility might be creating GS‐ERCs and still need to surrender ERCs to meet their rate target
GS‐ERC = NGCC Generation
* Incremental Generation
Factor
GS‐ERC Emission Factor
*
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Gas Shift‐ERC Equation**in federal plan proposal
The GS‐ERC Emission Factor represents how much lower an individual NGCC’s emission rate is compared against the fossil steam standard
GS‐ERC Emission Factor
= 1
GS‐ERC = NGCC Generation
* Incremental Generation
Factor
GS‐ERC Emission Factor
*
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Clean Energy Incentive Program
What ERCs to retire?• ERCs must be created• Pull ERCs from CEIP recipient?
2020 2021 2022 20223 2024 2025…
Gen(MWh)
262,800 262,800 262,800 262,800 262,800 262,800
EPA ERCs 131,400 131,400
State ERCs 131,400 131,400 131,400 131,400 262,800 262,800
Illustrative example100 MW wind farm with a 30% capacity factor
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Clean Energy Incentive Program
EPA providing credits/allowances from 300 million ton poolState provides matching credits/allowances• EPA matching credits/allowances are additional• State credits/allowances cannot add to supply in compliance periods
Where do state matching allowances/credits come from?
Mass based model rule: from allowance set‐aside in 1st interim compliance period pulling from future• Change in allocation, supply of allowances unchanged
Rate based: EPA requires states to do something analogous• Suggests retiring future ERCs or adjusting the rate targets
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Trading Options in State Plan Pathways
Multi‐State Plan with Defined Trading
Partners and Multi‐State Goal
Intra‐state Trading Only
“Trading Ready” Plan with Single
State Goal
• Only trading option for state‐defined rates
• Allowable in all plan types
• Required for interstate trading with blended rate
• Allowable in all plan types except state‐defined rates
• New relative to proposed rule
• Allowed for all types of mass based plans and subcategorized‐rates
All Plan Types Certain Plan Types
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Why Trade?1. Electrons do not stop at state borders
• Flexibility to manage grid2. Cost
• Wider markets tend to lower overall cost3. Growth
• Access to markets for additional allowances 4. Reliability
• Potential benefits of geographic diversity
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0
500
1000
1500
2000
WV KY TN SC NC AR LA GA AL MS
VA FLCarbon
Emission
sRate (lb
s/MWh)
Proposed Goal Final Goal
Decreased Variability Between States (Southeast states blended rate comparison)
• The final rate goals are much less variable across the country compared to the proposal
• 31 states have less stringent targets (16 have more stringent targets) compared to the proposal
Source: EPA Data File Goal Computation Appendix 1‐5.
Fossil Steam Final Rate
NGCC Final Rate
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Source: https://www3.epa.gov/climatechange/ghgemissions/sources.html
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EPA’s MAPPING OF THE STATE PLAN APPROACH OPTIONS