Saturday, August 31, 2013

Speculation on Pending New Carbon Pollution Regulations

For Existing Power Plants

President Obama's CO2 reduction plan for power plants probably envisions a market-based approach that will have lower costs than alternative methods. The directive does not state a CO2 reduction target or compliance deadline, but in his June 25 speech, Obama recalled his stated goal of a 17 percent reduction in greenhouse gas emissions from 2005 levels by 2020.

The suggested timeline to issue proposed regulations for existing plants is June 1, 2014, final regulations by June 1, 2015, and State Implementation plans by June 30, 2016. Delays are almost certain. It took 22 years from passage of the 1990 Clean Air Act Amendments to the 2012 final Mercury and Air Toxics Standards.

EPA will probably propose a cap and trade system to regulate existing plants with performance standards under CAA §111. This approach has been successfully implemented in the past for other pollutants and is the basis for the current Acid Rain and NOx Budget Trading Programs. A similar market-based approach was also proposed for both the Clean Air Interstate Rule (CAIR) and the Cross-State Air Pollution Rule (CSAPR). The EPA could also use the experience of regional markets such as the Regional Greenhouse Gas Initiative (RGGI).

There are several issues the EPA needs to resolve before their regulatory proposal in June 2014:
  • Setting the initial compliance deadline and the emissions reduction schedule, which may include a declining cap
  • The basis for allocating allowances to existing units, as well as for future new units
  • Possible restrictions on allowance trading and banking of allowances for future use
  • Baseline year for the emission allocation budgets.
  • Ensuring our electricity supply reliability, e.g., "safety valves"
  • Treatment of oil-fired plants
The exact regulatory structure, carbon reduction target and budget, and if applicable, the price of carbon allowances are unknown and could range from being a minor to a major factor. The required State Implementation Plans also represent a significant source of uncertainty. (Power Engineering, August 2013)

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