September 30, 2014. On June 2, the U.S. Environmental Protection Agency released a draft rule to reduce carbon dioxide (CO2) emissions from power plants. Gov. Pat McCrory’s administration has taken a number of opportunities to question the legal basis for the rule. An earlier post described a presentation by DENR Deputy Secretary Don van der Vaart to the N.C. Energy Policy Council soon after EPA released the draft rule in June. DENR actually began staking out a position in opposition to the proposed carbon rule even earlier. (See the DENR website for a number of agency policy documents related to the carbon rule.) Each time, DENR focused on legal arguments — challenging EPA’s authority to regulate a power plant’s CO2 emissions under Section 111 of the Clean Air Act — rather than the actual impact of the rule on the state and its electric utilities.
Evaluating the impact of the rule on an individual state can be challenging because the rule takes an innovative approach to reducing CO2. Instead of putting the burden and cost of CO2 reductions entirely on the power plants, the rule tries to harness other trends in energy generation — increased reliance on renewable energy; adoption of energy efficiency standards for buildings, appliances and equipment; and a shift in generation from coal-fired plants to natural gas units — to help lower CO2 emissions associated with power generation. Many of those trends developed in response to other environmental concerns (stricter air quality standards for ozone and particulates) or economic incentives (the lower cost of natural gas). EPA’s proposed carbon rule builds on those trends to also drive down CO2 emissions associated with power generation.
Steps North Carolina has taken over the last 10-15 years to increase renewable energy generation and energy efficiency seem to put the state in a favorable position to meet the CO2 reduction goal in the rule and come out the other side with competitive energy costs. This post is intended to provide some (very basic) background on how the rule works and to identify the questions that need to be answered to understand what more the state may need to do to meet the CO2 reduction goal in the proposed rule.
BASICS OF THE CLEAN CARBON RULE
♦ The rule only addresses CO2 emissions associated with electric generating units (EGUs) that burn fossil fuels; the rule does not affect industrial sources of CO2.
♦ The rule sets a carbon reduction goal for each state in the form of a rate – pounds of carbon dioxide emitted per megawatt hour of electricity generated or CO2/MWh.
♦ Instead of setting a CO2 emission limit for each EGU, EPA proposed a statewide average CO2 emission rate – allowing the goal to be met in part by shifting electric generation from high to low emission units; increasing renewable energy and nuclear generation; and creating “savings” through energy efficiency measures.
♦ The rate is based on net generation (electricity delivered to the grid) rather than gross generation measured at the EGU. Net generation excludes energy used at the power plant to run fans, pumps, motors and pollution control devices.
♦ The rule sets a final goal for each state to meet in 2030 and interim goals for 2020-2029.
♦ CO2 reduction goals differ from state to state. In calculating the goals, EPA considered the existing mix of electric generation facilities in each state (nuclear, coal, natural gas) and each state’s potential for increased renewable energy generation and growth in energy efficiency savings.
HOW EPA CALCULATED STATE REDUCTION GOALS (THIS IS REALLY IMPORTANT)
State goals are not based on simply requiring fossil-fuel burning power plants to reduce their CO2 emissions per megawatt hour from 2012 levels. Although EPA used the EGU’s 2012 reported emissions of CO2 as one factor in calculating the goals, it is not quite correct to describe 2012 as the “base year” for reductions. The state goals represent something different — reductions in EGU emissions combined with a shift in electric generation capacity to cleaner sources (such as renewable energy and nuclear power) and increases in energy efficiency. More about the rate calculation below.
To set the state CO2 emission rate goals, the EPA rule adjusted the 2012 calculation of CO2/MWh in two ways:
1. EPA reduced the net CO2 emissions reported by regulated EGUs in 2012 (the numerator in the CO2/MWh equation) by assuming those units can achieve a 6% improvement in heat efficiency. In states where there are both coal-fired plants and natural gas plants, EPA adjusted the numerator again if any natural gas plant in the state operated at less than 70% utilization. Assuming every natural gas plant could operate at 70% utilization, EPA shifted a corresponding amount of electricity generation from coal-fired plants to the underused natural gas plants and and adjusted the pounds of CO2 emitted to reflect the natural gas plants’ lower CO2 emissions rate.
So the numerator in the goal represents pounds of CO2 emitted by the state’s existing power plants after each individual plant has become more heat efficient and after power generation across the entire system has been reallocated to better utilize low-emission natural gas units. Both adjustments reduce the amount of CO2 generated by the EGUs below the amount actually reported in 2012.
2. EPA then adjusts the denominator in the CO2/MWh equation to spread the pounds of CO2 generated by the EGUs across the megawatt hours generated by all electric generating sources in the state and megawatt hours of electric generation saved through energy efficiency measures. The denominator becomes: total megawatt hours generated by the EGUs + new renewable energy generating capacity + new or preserved nuclear generation capacity + an estimate of annual avoided power generation associated with demand-side energy efficiency. (“Preserved” nuclear power refers to an existing nuclear plant operating beyond a previously announced closure date.)
The final 2030 CO2 emissions goal as a rate =
Net CO2 emissions for regulated EGUs – 6% heat efficiency*
Total net MWh (EGUs + renewable energy + new/preserved nuclear + avoided generation)
* In some cases there has also been an adjustment for under-utilized natural gas plants.
Although the rule does not propose CO2 reductions from any baseline year, EPA has estimated the rule will result in a 30% reduction in CO2 emissions as compared to 2005.
THE NORTH CAROLINA CO2 REDUCTION GOAL
The proposed 2030 goal for North Carolina is 992 lbs CO2/ MWh. By comparison, North Carolina’s electric generating units reported 2012 emissions of 1647 lbs CO2/ MWh. (Source: Congressional Research Service report.) The EPA rule would require North Carolina to reduce CO2 emissions from:
1647 lbs of CO2 per megawatt hour of electricity generated by fossil fuel EGUs
992 lbs of CO2 per megawatt hour of electricity generated by fossil fuel EGUs + estimated new renewable energy generation+ new or preserved nuclear capacity+ electricity generation avoided by energy efficiency measures
The Clean Power Plan goal does not require North Carolina power plants to reduce CO2 emissions by 40%. The rule requires the state’s electric generation system as a whole to meet demand for electric power at a 40% lower rate of CO2 emissions.
MEETING THE GOAL
The draft EPA rule requires states to use four “building blocks” to comply; the building blocks correspond to the factors EPA used to calculate each state’s CO2 reduction goal:
1. Increased heat efficiency at EGUs — EPA has assumed each EGU can achieve 6% improvement in heat efficiency.
2. Increased “dispatch” of power generation from higher emission coal-fired units to lower emission Natural Gas Combined Cycle (NGCC) plants — EPA has assumed every NGCC unit can be operated at 70% utilization.
3. Increased generation of electricity from renewable sources and new or preserved nuclear generation. EPA has estimated the potential for growth in renewable energy generation and new or preserved nuclear generation individually for each state.
4. Energy efficiency measures to lower demand, measured by megawatt hours of generation avoided. EPA set a goal of increasing demand-side efficiency by 1.5% annually.
The individual building block goals set out for each state are not requirements. EPA used these assumptions and estimates to calculate each state’s CO2 reduction goal, but the rule allows a state to weight the building blocks differently in its compliance plan. For example, difficulty meeting EPA’s expectations for demand-side energy efficiency can be offset by increasing renewable energy generation (or vice-versa).
RELYING ON EXISTING PROGRAMS
Media reports have reflected a lot of confusion about the impact of the proposed rule on states like North Carolina that have already taken significant steps to increase renewable energy and energy efficiency. The proposed federal rule actually stresses reliance on programs already in place and gives the states credit for expanded renewable energy generation or growth in energy efficiency as a result of existing programs.
In talking about the final state emission rate goals, the rule notes that “EPA is also proposing that measures taken by a state or its sources after the date of this proposal, or programs already in place, and which result in CO2 emission reductions at affected EGUs during the 2020-2030 period, would apply toward achievement of the state’s CO2 goal.”
The rule makes a similar statement about renewable energy generation: “We note that with the exception of hydropower, the renewable energy generation levels represent total amounts of renewable energy generation, rather than incremental amounts above a particular baseline level. As a result, this RE generation can be supplied by any RE capacity regardless of its date of installation.”
Table 6 in the proposed rule shows North Carolina’s 2012 renewable energy generation as 2% and a proposed final 2030 goal for North Carolina of 10%. The N.C. Utilities Commission has reported that North Carolina electric utilities met the first state Renewable Energy Portfolio Standard (REPS) goal of 3% of retail electricity sales in 2012. The final goal under the existing state law will be 10% of retail sales for electric membership corporations/ municipal systems (by 2018) and 12.5% of retail sales for the electric public utilities (by 2021). Under the EPA rule, the state will get credit for any new or expanded renewable energy generation in 2014 or later as a result of the existing state REPS requirement.
Since the state REPS goal requires electric utilities to continue to increase renewable energy generation and energy efficiency through 2021, the increases realized between 2014 and 2021 will also move North Carolina toward the federal goal. To know whether the proposed carbon rule will require the state to do more on renewable energy, the state will need a gap analysis. The analysis will have to separate renewable energy generation from energy efficiency savings; the two have been combined in the state REPS goal, but are calculated separately under the federal rule.
The federal rule sets a goal of having every state achieve a 1.5% annual incremental savings based on demand-side energy efficiency measures. EPA assumes that states already realizing a 1.5% in annual incremental savings will continue and maintain that rate through 2029 — giving states that engaged in energy efficiency measures early full credit for the incremental energy savings achieved through existing programs. To understand how close North Carolina may already be to meeting the carbon rule’s energy efficiency goal, the state will need to calculate the incremental annual demand side savings that can be attributed to the state REPS goal and add incremental savings associated with other energy efficiency programs (such as energy efficiency standards incorporated in the State Building Code).
The big question to be answered is this: How far will North Carolina’s existing renewable energy and energy efficiency programs go toward closing the gap between 1647 lbs CO2/MWh generated by EGUs that burn fossil fuels and 992 lbs CO2/ MWh generated by power plants+ renewable energy + new/preserved nuclear + generation avoided by energy efficiency?
It appears the remaining gap may be small, giving North Carolina an advantage over states that haven’t adopted policies supporting renewable energy generation and energy efficiency. If so, the advantage will be economic as well as environmental by holding down increases in state energy costs.
Text of the Clean Carbon Rule (from the June 18, 2014 Federal Register notice)
Congressional Research Service Report: State CO2 Emission Rate Goals in EPA’s Proposed Rule for Existing Power Plants, Jonathan Ramseur, Specialist in Environmental Policy, July 21, 2014.
2013 NC Utilities Commission Annual Report Regarding Renewable Energy and Energy Efficiency Portfolio Standard in North Carolina