September 2014: U.S. EPA’s Proposed Clean Power Plan (Continued)

Last issue we discussed the proposed Clean Power Plan released on June 2 by the United States Environmental Protection Agency (U.S. EPA). This issue discusses the rule in more detail.

U.S. EPA established a target of 20 percent reduction for Indiana. This is not an emission reduction, but a reduction in the rate of pollution divided by the energy produced (pounds of carbon dioxide/net megawatt–hour).

U.S. EPA arrived at this target by looking at four building blocks. The first building block is heat rate improvements. In other words, utilities are expected to make improvements that will result in more energy output per amount of coal that they burn. U.S. EPA expects an increase of 6 percent in this category based on one utility study. The authors of that study are refuting U.S. EPA’s claim and think the number should probably be closer to 1 percent. Utilities are also expected to carry out these changes without triggering New Source Review, a program that would have significant consequences for other criteria pollutants.

Building block 2 is to dispatch up to 70 percent of the natural gas generating capacity available. In Indiana’s case, we have some new natural gas generating capacity that will come on line in the next several years. We therefore may be able to increase the amount of electricity generated via natural gas.

The third building block is renewable energy. U.S. EPA expects Indiana to get 7 percent of its electricity from renewable energy by 2030. One complication with renewable energy is that a state gets credit for the renewable energy sold to that state, not what is produced within that state. If we build solar or wind power projects and the energy gets sold out of state, we get no credit for these investments. Since we do not control where power gets sold, we have no way to guarantee how much renewable energy will be available in the future or where it will be sold.

The final building block is demand side efficiency. An example is a utility offering a rebate for a homeowner to buy a new refrigerator (and removing the old refrigerator). U.S. EPA expects an 11.1 percent reduction in electrical demand due to these types of projects. We do not believe that any such reductions can be achieved. These appliances also have a useful life of only about 10 years, so they will need to be replaced before 2030. Accurately accounting for these energy reductions is extremely difficult yet we are expected to commit and carry out this task.

One further assumption that U.S. EPA made was to assume that electrical energy use would increase 0.1 percent per year based on a study done in 2010. An updated study, done in 2013 by the same group, shows an annual growth rate of 1.0 percent per year. This difference when carried out for 15 years can make a large difference in the target.

Many states believe that only building block 1 is legal because it deals with the source of the emissions. Going outside the fence to control other sources is not within U.S. EPA’s authority. This issue will be tried in the courts.

So whether we can achieve the target U.S. EPA established depends upon whether U.S. EPA’s assumptions are correct and whether they have the authority to rely on all four building blocks. We will comment on the proposed rule discussing some of these concerns, but the key will be exactly what gets changed in the final rule. Stay tuned. I’m sure there is much more to come on this topic.