2015 Carbon Dioxide Price Report

2015CarbonDioxidePrice
Forecast
March3,2015
AUTHORS
PatrickLuckow
ElizabethA.Stanton
SpencerFields
BruceBiewald
SarahJackson
JeremyFisher
RachelWilson
485MassachusettsAvenue,Suite2
Cambridge,Massachusetts02139
617.661.3248|www.synapseenergy.com
C ONTENTS
1.
EXECUTIVESUMMARY.......................................................................................1
2.
STRUCTUREOFTHISREPORT................................................................................4
3.
WHATISACARBONPRICE?.................................................................................5
4.
FEDERALCLIMATEACTIONISEXTREMELYLIKELY.......................................................8
5.
THECOSTOFIMPLEMENTINGEPASCLEANPOWERPLAN........................................19
6.
CO2PRICEFORECASTSINUTILITYIRPS................................................................25
7.
OVERVIEWOFTHEEVIDENCEFORAFUTURECO2PRICE...........................................28
8.
SYNAPSE2015CO2PRICEFORECAST..................................................................29
9.
APPENDIXA:SYNAPSEFORECASTSCOMPAREDTOUTILITYFORECASTSANDPASTSYNAPSE
FORECASTS...................................................................................................35
1.
EXECUTIVESUMMARY
Prudentandreasonableplanningrequireselectricutilitiesandotherstakeholdersincarbonintensive
industriestouseareasonableestimateofthefuturepriceofcarbondioxide(CO2)emissionswhen
evaluatingresourceinvestmentdecisionswithmultidecadelifetimes.However,forecastingaCO2price
canbedifficult.ThefederalgovernmentismovingforwardwithregulationstolimitCO2emissionsfrom
newandexistingpowerplants,butaregulationisnotyetfinalized.Tomakesoundinvestment
decisions,utilitiesmustconsiderexisting,proposed,andexpectedfutureregulations.
AlthoughthelackofadefinedpolicysettingapriceoncarbonposesachallengeinCO2priceforecasting,
anassumptionthattherewillbenoCO2priceinthelongrunisnot,inourview,reasonable.The
scientificbasisforattributingclimaticchangestohumandrivengreenhousegasemissionsisirrefutable,
asarethetypeandscaleofdamagesexpectedtobothinfrastructureandecosystems.Theneedfora
comprehensiveU.S.efforttoreducegreenhousegasemissionsisclear.WhiletheCleanPowerPlan
proposedbytheU.S.EnvironmentalProtectionAgency(EPA)inJune2014doesnotspecifyapriceon
carbon,anypolicyrequiringorleadingtogreenhousegasemissionreductionsintheelectricsectorwill
resultinhighercoststothegeneratingresourcesthatemitCO2.
This2015reportupdatesSynapsesSpring2014CO2PriceReportwiththemostrecentinformationon
federalregulatorymeasures,stateandregionalclimatepolicies,andutilityCO2priceforecasts,and
1
providesanupdatedCO2priceforecast. TheSynapseCO2priceforecastisdesignedtoprovidea
reasonablerangeofpriceestimatesforuseinutilityintegratedresourceplanning(IRP)andother
electricityresourceplanninganalyses.Wehavereviewedandupdatedoursummaryofthekey
regulatorydevelopmentsanddatafromutilityIRPs,whicharefrequentlychangingandcrucialto
understandingtheimpetusforacarbonpriceforecastandthenumberofutilitiesthathaveadoptedone
forplanningpurposes.
1.1.
KeyAssumptions
Thisreportincludesupdatedinformationonfederalregulations,stateandregionalclimatepolicies,and
utilityCO2priceforecasts,aswellasourownanalysisoftheproposedCleanPowerPlan,EPAsproposed
ruletoregulateCO2emissionsunderSection111(d)oftheCleanAirAct.TheLow,Mid,andHigh
SynapseCO2priceforecastspresentedherearesimilartothoseinourSpring2014report.Thisisthe
firstSynapseCO2priceforecastthatweextendto2050,toreflectlongtermclimatetargets.Synapses
CO2priceforecastreflectsourexpertjudgmentthatneartermregulatorymeasurestoreduce
LuckowP.,E.Stanton,B.Biewald,S.Fields,J.Fisher,F.Ackerman.2014.CO2PriceReport,Spring2014.SynapseEnergy
Economics.
SynapseEnergyEconomics,Inc.
2015CarbonDioxidePriceForecast 1
greenhousegasemissions,coupledwithlongertermcapandtradeorcarbontaxlegislationpassedby
Congress,willresultinsignificantpressuretodecarbonizetheelectricpowersector.Keyassumptionsof
ourforecastinclude:
Neartermclimatepolicyactionsreflectaregulatoryapproach;forexample,under
Section111(d)oftheCleanAirAct.
Afederalprogramestablishingapriceforgreenhousegasesisprobableinthelongrun
asitprovidesanefficient,leastcostpathtoemissionsreduction.
Futurefederallegislationsettingapriceonemissionsthroughacapandtradepolicyor
acarbontaxwilllikelybepromptedbyoneormoreofthefollowingfactors:
o
Newtechnologicalopportunitiesthatlowerthecostofcarbonmitigation;
AseriesofexecutiveactionstakenbythePresidentthatspurdemandfor
congressionalaction;
Theinabilityofexecutiveactionstomeetlongtermemissionsgoals;
ASupremeCourtdecisionmakingitpossibleforstatestosuecompanieswithin
theirboundariesthatownhighcarbonemittingresources,andcreatinga
financialincentiveforenergycompaniestoact;and
Mountingpublicoutcryinresponsetoincreasinglycompellingevidenceof
humandrivenclimatechange.
Giventhegrowinginterestinreducinggreenhousegasemissionsbystatesandmunicipalities
throughoutthenation,alackoftimely,substantivefederalactionwillresultintheenactmentofdiverse
stateandlocalpolicies.Heterogeneousandpotentiallyincompatiblesubnationalclimatepolicies
wouldpresentachallengetoanycompanyseekingtoinvestinCO2emittingpowerplants,bothexisting
andnew.Historically,therehasbeenapatternofstatesandregionsleadingwithenergyand
environmentalinitiativesthathaveintimebeensupersededatthenationallevel.Itseemslikelythat
thiswillbethedynamicgoingforward:acombinationofstateandregionalactions,togetherwith
federalregulations,thatareeventuallyeclipsedbyacomprehensivefederalcarbonprice.
Weexpectthatfederalregulatorymeasurestogetherwithregionalandstatepolicieswillleadtothe
existenceofacostassociatedwithgreenhousegasreductionsinthenearterm.Prudentandreasonable
utilityplanningrequiresthatutilitiestakethiscostintoaccountwhenengaginginresourceplanning,
evenbeforeafederalcarbonpriceisenacted.
1.2.
StudyApproach
Inthisreport,Synapsereviewsseveralkeydevelopmentsthathaveoccurredoverthepast12months.
Theseinclude:
ProposedfederalregulatorymeasurestolimitCO2emissionsfromexistingpowerplants
andanupdatedproposalfornewpowerplants;
ContinuationoftheNortheastsRegionalGreenhouseGasInitiative(RGGI)CO2policy
andthemostrecentauctionsunderbothRGGIandCaliforniasAB32CapandTrade
program;and
Synapsescollectionandanalysisofcarbonpriceforecastsfrom115recentutilityfilings.
1.3.
Synapses2015CO2PriceForecast
Basedonanalysesofthesourcesdescribedinthisreport,andrelyingonourownjudgmentand
experience,SynapsedevelopedLow,Mid,andHighcaseforecastsforCO2pricesfrom2015to2050.In
theseforecasts,theproposedCleanPowerPlantogetherwithotherexistingandproposedfederal
regulatorymeasuresplaceeconomicpressureonCO2emittingresourcesinthenextseveralyears,such
thatitisrelativelymoreexpensivetooperateahighcarbonemittingpowerplant.Thesepressuresare
followedlaterbyabroaderfederalpolicy,suchascapandtrade.InanystateotherthantheRGGIregion
andCalifornia,weassumeazerocarbonpricethrough2019;beginningin2020,weexpectCleanPower
PlancompliancewillputeconomicpressureoncarbonemittingpowerplantsthroughouttheUnited
States.Allannualallowancepricesandlevelizedvaluesarereportedin2014dollarspershorttonofCO2.
TheLowcaseforecastsaCO2pricethatbeginsin2020at$15perton,andincreasesto$25in
2030and$45in2050,representinga$26pertonlevelizedpriceovertheperiod20202050.
ThisforecastrepresentsascenarioinwhichthefinalversionoftheCleanPowerPlanisrelatively
lenientandreadilyachieved,andasimilarlevelofstringencyisassumedafter2030.
TheMidcaseforecastsaCO2pricethatbeginsin2020at$20perton,andincreasesto$35in
2030and$85in2050,representinga$41pertonlevelizedpriceovertheperiod20202050.
Thisforecastrepresentsascenarioinwhichfederalpoliciesareimplementedwithsignificant
butreasonablyachievablegoals.ThestatedgoalsoftheCleanPowerPlanareachievedand
sciencebasedclimatetargetsareenactedmandatingatleastan80percentreductioninelectric
sectionemissionsfrom2005levelsby2050.
TheHighcaseforecastsaCO2pricethatbeginsin2020at$25perton,andincreasesto
approximately$53in2030and$120in2050,representinga$52pertonlevelizedpriceoverthe
period20202050.Thisforecastisconsistent,intheshortterm,withamorestringentversionof
theCleanPowerPlan,aswellasarecognitionthatachievingsciencebasedemissionsgoalsby
2050requiressignificantneartermreductions.Inrecognitionofthisdifficulty,implementation
ofstandardsmoreaggressivethantheCleanPowerPlanmaybeginasearlyas2025.New
regulationsmaymandatethatelectricsectoremissionsarereducedto90percentormore
below2005levelsby2050,inrecognitionoflowercostemissionreductionmeasuresexpected
tobeavailableinthissector.Otherfactorsthatmayincreasethecostofachievingemissions
goalsinclude:greaterrestrictionsontheuseofoffsets;restrictedavailabilityorhighcostof
technologyalternativessuchasnuclear,biomass,andcarboncaptureandsequestration;and
moreaggressiveinternationalactions(therebyresultinginfewerinexpensiveinternational
offsetsavailableforpurchasebyU.S.emitters).
FigureES1:Synapse2015CO2PriceTrajectories
2.
STRUCTUREOFTHISREPORT
ThisreportpresentsSynapses2015Low,MidandHighCO2priceforecasts,alongwiththeevidence
assembledtoinformtheseforecasts,includingdevelopmentsfromthepast12months:
Section3discussesbroaderconceptsofCO2pricing.
Section4providesanoverviewofexistingstateandfederallegislation,includingEPAs
proposedCleanPowerPlan.
Section5discussesourrecommendationsforplanningfortheCleanPowerPlan,a
reviewofexistingstudiesofcompliancecost,andSynapsesmodelingofcompliance
withthePlan.
Section6providesarangeofcurrentCO2priceforecastsusedbyutilities.
Section7givesasummaryoftheevidencethathasguidedthedevelopmentofthe
Synapseforecasts.
Section8presentsSynapses2015Low,Mid,andHighCO2priceforecast,alongwitha
comparisontorecentutilityforecasts.
AppendixApresentsadditionalgraphscomparingthe2015forecastwithpastSynapse
forecastsandutilityforecasts.
Unlessotherwiseindicated,allpricesarein2014dollarsandCO2emissionsaregiveninshorttons.
3.
WHATISACARBONPRICE?
ThereareseveralcoexistingmeaningsforthetermcarbonpriceorCO2price:eachofthese
meaningsisappropriateinitsowncontext.Herewegiveabriefintroductiontofivecommontypesof
carbonprices,alongwithaquickguidetowhichofthecarbonpriceestimatesreviewedinthisreport
arebasedonwhichofthesemeanings.(Notethatthedefinitionofanadditionaltermthepriceof
carbonisambiguousbecauseitcanattimesmeanseveralofthefollowing.)
Carbonallowances(sometimescalledcreditsorcertificates,andbestknownfortheiruseinpolicies
calledcapandtrade):Allowancesarecertificatesthatgivetheirholdertherighttoemitaunitofa
particularpollutant.Afixednumberofcarbonallowancesareissuedbyagovernment,somesoldand,
2
perhaps,somegivenaway. Subsequenttradeofallowancesinasecondarymarketiscommontothis
policydesign.Thepricethatfirmsmustpaytoobtainallowancesincreasestheircostofdoingbusiness,
therebygivinganadvantagetofirmswithcleaner,greeneroperations,andcreatinganincentiveto
loweremissionswheneveritcanbedoneforlessthanthepriceofallowances.Thenumberof
allowancesthecapinthecapandtradesystemreflectstherequiredsocietywideemission
reductiontarget.Agreaterreductiontargetresultsinalowercapandahigherpriceforallowances.In
thefieldofeconomics,pricingemissionsiscalledinternalizinganexternality:theexternal(notborne
bythepollutingenterprise)costofpollutiondamagesisassignedamarketprice(thusmakingitinternal
totheenterprise).
Inthisreport:TheNortheastsRGGIandCaliforniasCapandTradeProgramarebothcarbonallowance
tradingsystems.Inaddition,theKerryLieberman,WaxmanMarkey,andCantwellCollinsbillsall
proposedpolicymeasuresthatincludedcarbonallowancetrading.
Carbontax:Acarbontaxalsointernalizestheexternalityofcarbonpollution,butinsteadofsellingor
givingawayrightstopollute(theallowanceapproach),acarbontaxcreatesanobligationforfirmsto
payafeeforeachunitofcarbonthattheyemit.Intheory,ifthevalueofdamageswereknownwith
certainty,ataxcouldinternalizethedamagesmoreaccurately,bysettingthetaxrateequaltothe
damages;inpractice,thevaluationofdamagesistypicallyuncertain.Incontrasttothegovernment
issuanceofallowances,withacarbontaxthereisnofixedamountofpossibleemissions(nocap).A
Regardlessofwhetherallowancesareinitiallygivenawayforfreeorsold,theyrepresentanopportunitycostofemissionsto
theholder.
capandtradesystemspecifiestheamountofemissionreduction,allowingvariationintheprice;atax
specifiesthepriceonemissions,allowingvariationintheresultingreductions.Inbothcasesthereisan
incentivetoreduceemissionswheneveritcanbedoneforlessthantheprevailingprice.Inbothcases
thereistheoptiontocontinueemittingpollution,atthecostofeitherbuyingallowancesorpayingthe
tax.Whilesomeadvocateshaveclaimedthatataxisadministrativelysimplerandreducesbureaucratic,
regulatory,andcompliancecosts,ageneralaversiontonewtaxeshasmeantthatnocarbontax
proposalshavereceivedsubstantialsupportinrecentpolicydebate.
Effectivepriceofcarbon(sometimescalledthenotional,hypothetical,orvoluntaryprice):Carbon
allowancesandcarbontaxesinternalizetheclimatechangeexternalitybymakingpolluterspay.
However,manyothertypesofclimatepoliciesworknotbymakingpollutingmoreexpensiveperse,but
insteadbyrequiringfirmstouseonetechnologyinsteadofanother,ortomaintainparticularemission
limitationsinordertoavoidlegalrepercussions.Nonmarketbasedemissioncontrolregulatorypolicies
arecalledcommandandcontrol.Foranysuchnonmarketpolicythereisaneffectiveprice:a
marketpricethatifinstitutedasanallowanceortaxwouldresultintheidenticalemissionreduction
asthenonmarketpolicy.Aneffectivepricemaybeusedinternallywithinafirm,governmentagency,or
otherentitytorepresenttheeffectsofcommandandcontrolpoliciesforthepurposeofimproved
decisionmaking.RenewablePortfolioStandards,energyefficiencymeasures,andotherpolicies
designedtomitigateCO2emissionsimposeaneffectivepriceoncarbon.
Inthisreport:UtilitycarbonpriceforecastsareeffectivepricesusedforstaterequiredIRPsandinternal
planningpurposes.EPAsproposedcarbonpollutionstandardfornewsourcesofelectricgenerationisa
nonmarketbasedpolicythatwouldresultinaneffectivepriceofcarbon;similarly,buildingblocks1,3,
and4oftheCleanPowerPlan(coalplantefficiencyimprovements,renewableenergy,anddemandside
management)arealsofundamentallynonmarketpoliciesthatresultinanimputedcostofmitigation.
Marginalabatementcostofcarbon:Anabatementcostreferstoanestimateoftheexpectedcostof
reducingemissionsofaparticularpollutant.Estimationofamarginalabatementcostrequiresthe
constructionofasupplycurve:allofthepossiblesolutionstocontrollingemissions(thesemaybe
technologiesorpolicies)arelinedupinorderoftheircostperunitofpollutionreduction.Then,starting
fromtheleastexpensiveoption,onetalliesupthepollutionreductionfromvarioussolutionsuntilthe
desiredtotalreductionisachieved,andthenasks:Whatwoulditcosttoreduceemissionsbythelast
unitneededtoachievethetarget?Theansweristhemarginalcostofthatlevelofpollutionreduction;
agreaterreductiontargetwouldhaveahighermarginalcost.Themarginalabatementcostofcarbonis
notamarketpriceusedtointernalizeanexternality.Rather,itisamethodforestimatingthepricethat,
ifitwereappliedasamarketprice,wouldhavetheeffectofachievingagivenemissionreductiontarget.
Inawellfunctioningcapandtradesystem,theallowancepricewouldtendtowardsthemarginal
abatementcostofcarbon.
Inthisreport:Wedonotanalyzeanymarginalabatementcostsinthisreportseethe2012Synapse
3
CarbonDioxidePriceForecastforfurtherinformation. McKinsey&Companyhasbeenaconsistent
producerofthistypeofanalysis(see,forexample,its2010reportImpactoftheFinancialCrisison
4
CarbonEconomics:Version2.1oftheGlobalGreenhouseGasAbatementCostCurve).
Averagepolicycostversusmarginalabatementcost:Manypolicyanalysescomparethetotalbenefits
ofapolicytothetotalcoststhisrepresentsthenetcost(orbenefit)ofthepolicy.Theaveragecostof
thepolicyisthenetcostdividedbytheexpectedtonsofemissionsabated.Thisvalueisfundamentally
differentthanthemarginalcostofcompliance,whichisthecosttoreducethelasttonofemissions(i.e.,
themostexpensivetonactuallyabated).Forexample,apolicymayresultintotalnetbenefits,but
requirereductionsthroughatradingmechanismwhereinthemarketpriceissetbythemarginalcostof
emissions.Inthiscase,thenet(andaverage)policycostarenegative,butthemarginalcostof
abatementispositive.
Inthisreport:Mostpricesinthisreport,includingareCO2priceforecast,areexpressedintermsof
marginalabatementcosts.
Socialcostofcarbon:Whereasthemarginalabatementcostestimatesthepriceofstoppingpollution,
thesocialcostofcarbonestimatesthecost,perunitofemissions,ofallowingpollutiontocontinue.The
socialcostofcarbonisthesocietalcostofcurrentandfuturedamagesrelatedtoclimatechange
resultingfromtheemissionofoneadditionalunitofpollutant.Estimatingtheuncertaincostsof
uncertainfuturedamagesfromuncertainfutureclimaticeventsis,ofcourse,atrickybusiness.Ifenough
informationwereavailable,amarginalabatementcostforeachleveloffutureemissions(thesupplyof
emissionreductions)couldbecomparedtoasocialcostofcarbonforeachleveloffutureemissions(the
demandforemissionreductions)todetermineanoptimallevelofpollution(suchthatthenexthigher
unitofemissionreductionwouldcostmoretoachievethanitsvalueinreduceddamages).More
commonly,thesocialcostofcarbonisusedaspartofthecalculationofbenefitsofemissionreducing
measures.
Inthisreport:TheU.S.federalgovernmentsinternalcarbonpriceforuseinpolicymakingisintendedto
beanestimateofthesocialcostofcarbon.
Wilsonetal.2012.2012CarbonDioxidePriceForecast.SynapseEnergyEconomics.Availableat:http://www.synapse
energy.com/project/synapsecarbondioxidepriceforecast.
McKinsey&Company.2010.ImpactoftheFinancialCrisisonCarbonEconomics:Version2.1oftheGlobalGreenhouseGas
AbatementCostCurve.Page8.
4.
FEDERALCLIMATEACTIONISEXTREMELYLIKELY
Inthenearterm,comprehensivefederalclimatelegislationappearsunlikelytocomeoutofa
RepublicancontrolledCongress.TheExecutiveBranch,however,ismovingforwardwithregulatory
5
actionstolimitgreenhousegasemissions.FollowingadirectiveissuedbyPresidentObama, EPA
6
releasedrevisedCO2performancestandardsfornewpowerplantsonSeptember20,2013, andonJune
7
2,2014,useditsCleanAirActauthoritytoproposeCO2standardsforexistingpowerplants. Beyondthe
realmofelectricsectorCO2policies(whicharethefocusofthisreport),similarregulatorymeasures
havebeenproposedforthetransportation,buildings,andindustrialsectors;policiesenactedinother
sectorsincludevehicleefficiencystandardssettoriseto54.5milespergallonby2025fornewcarsand
lightdutytrucks,andnewenergyefficiencystandardsforfederalbuildingssettoreduceenergy
89
consumptionbynearly20percentbelowthepreviousstandard. , Stillotherrulesaimedatreducing
methaneemissionsfromoilandgasproductionandCO2fromaircraftsarecurrentlyunder
10,11
development.
Wecontinuetoexpectthatafederalcapandtradeprogramforgreenhousegasesisthemostlikely
policyoutcomeinthelongterm,becauseitenablesparticipantstofindthemostcosteffectivemethod
ofemissionsabatementamongmanyalternatives,ratherthanregulatingalimitedsubsetof
alternatives.Whilestateandregionalpoliciescombinedwithfederalregulatoryactionsappeartobe
morelikelythanafederalcapandtradepolicyinthenearterm,accordingtoaWorldResources
Institute(WRI)analysis,theselocalmeasuresareunlikelytobeabletomeetlongtermgoalsofreducing
MemorandumfromPresidentObamatoAdministratoroftheEnvironmentalProtectionAgency,PowerSectorCarbon
PollutionStandards(June25,2013).Availableat:http://www.whitehouse.gov/thepressoffice/2013/06/25/presidential
memorandumpowersectorcarbonpollutionstandards.
EPA.2013.2013ProposedCarbonPollutionStandardforNewPowerPlants.CarbonPollutionStandards.Availableat:
http://www2.epa.gov/carbonpollutionstandards/2013proposedcarbonpollutionstandardnewpowerplants.
EPA.CarbonPollutionEmissionGuidelinesforExistingStationarySources:ElectricUtilityGeneratingUnits.CarbonPollution
Standards.Availableat:http://www2.epa.gov/carbonpollutionstandards/cleanpowerplanproposedrule.
Vlasic,Bill.August28th,2012.USSetsHigherFuelEfficiencyStandards.TheNewYorkTimes.Availableat:
http://www.nytimes.com/2012/08/29/business/energyenvironment/obamaunveilstighterfuelefficiencystandards.html.
U.S.DepartmentofEnergy.2013.EnergyEfficiencyDesignStandardsforNewFederalCommercialandMultiFamilyHigh
RiseResidentialBuildings.ARulebytheDepartmentofEnergy.July9th,2013.Availableat:
https://www.federalregister.gov/articles/2013/07/09/201316297/energyefficiencydesignstandardsfornewfederal
commercialandmultifamilyhighriseresidential#h9.
10
SeeFactSheet:EPAsStrategyforReducingMethaneandOzoneFormingPollutionfromtheOilandNaturalGasIndustry.
Availableat:http://www.epa.gov/airquality/oilandgas/pdfs/20150114fs.pdf.
11
SeeU.S.AircraftGreenhouseGasRulemakingProcess.Availableat:http://www.epa.gov/otaq/documents/aviation/us
ghgendangermentip9314.pdf.
totalgreenhousegasemissionsto83percentbelow2005levelsby2050,eveninthemostaggressiveof
12
scenarios.
4.1.
RegulatoryMeasuresforReducingGreenhouseGasEmissions
Thereareanumberoffederalregulationsthatdirectlyandindirectlymandateareductionin
greenhousegasemissionsinthepowersector.ThesearesummarizedinTable1anddescribedindetail
below.
12
SeeWRIsanalysisofthesescenariosinthe2013reportCantheU.S.GetThereFromHere?:UsingExistingFederalLawsand
StateActiontoReduceGreenhouseGasEmissions.Availableat:http://www.wri.org/publication/canusgettherehere.

Table1:Summaryofpowersectorregulatorymeasuresthatmayresultinreducedgreenhousegasemissions
Rule
Federal Regulations
Clean Air Act,

Section 111
National Ambient
Air Quality
Standards
(NAAQS)
Cross State Air
Pollution Rule
(CSAPR)
Mercury and Air
Toxics Standards
(MATS)
Coal Combustion
Residuals (CCR)
Disposal Rule
Steam Electric
Effluent Guidelines
(ELGs)
Cooling Water
Intake Structure
(316(b)) Rule
Regional Haze Rule
Current Status as of Release
Next Deadline(s)
EPA released a revised 111(b) rule, New

Source Performance Standards for GHGs
from new sources, in September 2013
Awaiting final rule; expected before or in conjunction with release of final

111(d) rule
EPA released a draft 111(d) rule controlling

GHGs from existing sources on June 2, 2014
June 2015: EPA must finalize standards for existing power plants
1-Hour SO2 NAAQS was finalized in June

2010
PM2.5 annual NAAQS was finalized on
December 2012
Initial designations based on monitoring data were made in June 2013;

additional designations expected by or before 2017
Final designations announced December 18, 2014; SIPs due in April 2018
with attainment required by 2020
SIPs for the existing (2008) standard are due in spring of 2015
Revisions to the 2008 standard must be finalized by October 1, 2015
Court lifted stay of CSAPR on October 23, 2014; on November 21,
2014, EPA published rules tolling CSAPR deadlines three years Phase 1
began January 1, 2015 and Phase II begins January 1, 2017
EPA proposed to strengthen the 8-Hour

Ozone NAAQS on November 24, 2014
The U.S. Supreme Court reinstated CSAPR
in April 2014, finding that EPA had not
exceeded its authority in crafting the rule
Pollutants Covered
CO2 and other

greenhouse gases
June 2016: States must submit state compliance plans to EPA

Sulfur dioxide; nitrogen
dioxide; carbon
monoxide; ozone;
particulate matter; and
lead
Nitrogen oxides and
sulfur dioxide
Finalized in December 2011
April 16, 2015: Compliance deadline (rule allows for a one-year

extension if certain conditions are met)
Mercury, metal toxins,

organic and inorganic
hazardous air pollutants,
and acid gases
EPA issued final rule regulating CCR on

December 19, 2014
Compliance timeline is structured to take into account overlap with yetto-be-determined ELG compliance obligations
Coal combustion
residuals (ash)
EPA released a proposed rule with eight

regulatory options in June 2013
Final rule for release of toxins into waterways must be finalized by

September 30, 2015
Toxins entering
waterways
EPA released a final rule for implementation

of Section 316(b) of the Clean Water Act on
May 19, 2014
Final rule became effective October 14, 2014 and requirements will be
implemented in NPDES permits as they are renewed
Cooling water
Regional Haze Rule issued in July 1999
States must file SIPs and install the Best Available Retrofit Technology
(BART) controls within 5 years of SIP approval
Sulfur oxides, nitrogen

oxides, and particulate
matter
TheCleanAirAct
Asaresultofthe2007SupremeCourtfindinginMassachusettsv.EPA,greenhousegasemissionswere
determinedtobesubjecttotheCleanAirActand(inalaterruling)tocontributetoairpollution
anticipatedtoendangerpublichealthandwelfare.In2009,EPAissuedanendangermentfinding,
obligatingtheagencytoregulateemissionsofgreenhousegasesfromstationarysourcessuchaspower
13
plants. IncompliancewithSection111(b)oftheCleanAirAct,EPAreleaseddraftNewSource
PerformanceStandards(NSPS)fortheelectricsectorinApril2012andrevisedNSPSstandardsin
September2013.TherevisedstandardslimitCO2emissionsfromnewfossilfuelpowerplantsto1,000
1,100poundsofCO2perMWh(lbs/MWh)alevelachievablebyanewnaturalgascombinedcycle
plant.TheexactlimitofCO2emissionswithinthatrangedependsonthetypeofplantandperiodover
14
whichtheemissionratewouldbeaveraged.
UnderSection111(d)oftheCleanAirAct,onceEPAhassetstandardsunderSection111(b)fornew
sourcesofapollutantthatisnotcoveredbyanothersectionoftheAct(inthiscase,CO2),EPAmust
proposestandardsforexistingsourcesofthatpollutantaswell.OnJune2,2014,EPAproposedwhatit
iscallingtheCleanPowerPlanunderSection111(d)oftheCleanAirAct.TheCleanPowerPlanaimsto
regulateemissionsofCO2fromexistingfossilfuelfiredpowerplantsbysettingbinding,statespecific
carbonemissionreductiongoalsforallaffectedelectricgeneratingunits.Theseemissionsreduction
goalsreflectthedegreeofemissionsreductionsachievablethroughtheapplicationofthebestsystem
ofemissionreduction.StateswillberequiredtoreducetheiraverageCO2emissionrateforaffected
generatingunitsfroma2012baselineratetoalowertargetrateby2030.Overall,EPAexpectstheClean
PowerPlanwillyieldCO2reductionsofapproximately30percentbelow2005levelsby2030.
TheCleanPowerPlansreachisbroadandseekstoexplicitlyimpactelectricpowerplanning,dispatch,
andprocurement,withprovisionsthatencourageswitchingfromhighemittingcoaltoloweremitting
gas,renewableenergyprocurement,andincreasedenergyefficiency.Theproposedruleprovidesfor
flexibilityinstatecompliance,includingoptionsforstatestomeetfleetwideemissionratelimits(in
tonsofCO2perMWh)ormassbasedemissionstargets(intons)throughheatrateimprovementsat
coalfiredgenerators,increaseddispatchofmoreefficientcombinedcyclenaturalgasgenerating
resources,renewableenergyprograms,energyefficiency,and/orcapandtradeprograms.Statescan
actindependently,orenterintoregionalagreementswithotherstatestoachievecompliance.
EPAiscurrentlyreviewingthenearly4millioncommentsitreceivedontheproposedCleanPowerPlan,
andthefinalruleisanticipatedinmidsummerofthisyear.Theexactrequirementsofthefinalruleare
13
EPA.2013.EndangermentandCauseorContributeFindingsforGreenhouseGasesunderSection202(a)oftheCleanAir
Act.ClimateChange.Availableat:http://www.epa.gov/climatechange/endangerment/.
14
EPA.StandardsofPerformanceforGreenhouseGasEmissionsfromNewStationarySources:ElectricUtilityGenerating
Units.Availableat:http://www2.epa.gov/carbonpollutionstandards/2013proposedcarbonpollutionstandardnew
powerplants.
stilluncertainatthistime,butitisverylikelythatrenewableenergyandenduseenergyefficiencywill
beanimportantpartofacomprehensivecompliancestrategy.Manystateswillbeabletoachieve
complianceatalowercostthroughthestructuresoftheirexistingrenewableportfolioandenergy
efficiencyresourcestandards.
Theprecisemeansofdemonstratingcompliancewiththefinalruleisalsostillbeingdetermined,but
EPAsproposalinvolvesaprocesssimilartoSection110oftheCleanAirAct,underwhichstateswillbe
requiredtosubmitplansthatspecifyhowtheyintendtocomplywiththeCleanPowerPlan.Statescan
developindividualplansorcreateamultistatecompliancestrategy.EPAwillthendecidewhethera
proposedplanmeetsthetermsoftheregulation.Ifastatefailstosubmitaplan,orthesubmittedplan
doesnotmeettherequirementsoftherule,thenEPAcanimposeafederalcomplianceplan.
UnderthescheduleproposedbyEPA,bothnewsourceperformancestandardsunderSection111(b)
andexistingsourceperformancestandardsunderSection111(d)willbefinalizedbymidsummer2015.
UnderSection111(d),stateswouldthenberequiredtosubmitcomplianceplanstoEPAwithinoneyear,
withthepossibilityofanextensionforanadditionalyear.Statesthatcollaborateonamultistateplan
wouldgetanadditionaltwoyearstosubmittheirplan.
Thesependingperformancestandardsfornewandexistingsourceswillaffectdecisionsmadeby
utilitiesregardingoperation,expansion,andretirements.EnforcementoftheCleanAirActcreatesan
opportunitycostofgreenhousegasabatement:prudentutilitieswilltakeCleanAirActcomplianceinto
considerationintheirplanning,eitherexplicitlyasamaximumallowableemissionsrate,orimplicitlyas
aneffectiveCO2price.Section5ofthisreportdiscussesseveralindependentanalysesofthecompliance
costoftheCleanPowerPlan.Whilecostsvarydependingontheassumptionsusedbythemodeling
teams,2030compliancescoststendtohoveraround$30pershortton.
Otherregulatorymeasuresputeconomicpressureoncarbonintensivepowerplants
AsuiteofcurrentandproposedEPAregulationsrequirepollutionintensivepowerplantstoinstall
environmentalcontrolsforcompliance.Thecostofcomplyingwithenvironmentalregulationsreduces
theprofitabilityoftheworstpolluters,sometimesrenderingthemuneconomic.Thesepolicies
demonstratemomentumtowardsappropriatelyregulatingorpricingenvironmentallyharmfulactivities
intheelectricsector.Totheextentthatplantswithhighemissionsofotherpollutantsalsohavehigh
carbonemissions,thesepolicieswouldtendtolowerthefutureCO2pricenecessarytoachieveagiven
reduction;asmorepollutionintensiveplantsretireinresponsetootherEPAregulations,thenecessary
carbonpriceisreduced.Specificregulatorymeasuresinclude:
NationalAmbientAirQualityStandards(NAAQS)setmaximumhealthbasedairquality
limitationsthatmustbemetatalllocationsacrossthenation.EPAhasestablished
NAAQSforsixpollutants:sulfurdioxide(SO2),nitrogendioxides(NO2),carbonmonoxide
(CO),ozone,particulatemattermeasuredasparticulatematterlessthanorequalto
10micrometersindiameter(PM10)andparticulatematterlessthanorequalto2.5
micrometersindiameter(PM2.5)andlead.
TheCrossStateAirPollutionRule(CSAPR)establishestheobligationsofeachaffected
statetoreduceemissionsofNOXandSO2thatsignificantlycontributetoanotherstates
PM2.5andozonenonattainmentproblems.ImplementationofCSAPRwasdelayed
whentherulewasvacatedbytheU.S.CourtofAppealsfortheDistrictofColumbiain
August2012;itwasthenreinstatedbytheSupremeCourtonApril29,2014.
Significantly,theSupremeCourtfoundthatEPAhadnotexceededitsauthorityin
craftinganemissioncontrolprogramthatutilizedcapandtradeandconsideredcostas
afactorwherethelanguageoftheCleanAirActwasambiguousinaddressingthe
complexproblemofinterstatetransportofpollution.
MercuryandAirToxicsStandards(MATS):ThefinalMATSrule,approvedinDecember
2011,setsstackemissionslimitsformercuryandothermetaltoxins,organicand
inorganichazardousairpollutants,andacidgases.CompliancewithMATSisrequiredby
2015,withapotentialextensionto2016.Manyutilitieshavealreadycommittedto
capitalimprovementsattheircoalplantstocomplywiththestandard.Infact,theU.S.
EnergyInformationAdministration(EIA)recentlyfoundthatapproximately70percent
15
ofU.S.coalfiredpowerplantsalreadycomplywithMATS.
CoalCombustionResiduals(CCR)DisposalRule:OnDecember19,2014,EPAissueda
finalruleregulatingCCRunderSubtitleDoftheResourceConservationandRecovery
Act.Inthefinalrule,EPAdesignatescoalashasmunicipalsolidwaste,ratherthan
hazardouswaste,whichallowsitscontinuedbeneficialreuseinproductssuchas
cement,wallboard,andagriculturalamendments.Theruleappliestonewandexisting
landfillsandashpondsandestablishesminimumsitingandconstructionstandardsfor
newCCRfacilities,requiresexistingashpondsatoperatingcoalplantstoeitherinstall
linersandgroundwatermonitoringorpermanentlyretire,andsetsstandardsforlong
termstabilityandclosurecare.Therulealsoestablishesanumberofrequirementsfor
facilitiestomakemonitoringdataandcomplianceinformationavailabletothepublic
online,whichissignificantastheSubtitleDdesignationmakestheCCRregulationsself
implementing,meaningEPAhasnoformalroleinimplementingorenforcingthe
regulations.Instead,enforcementisexpectedtobeachievedthroughcitizensuitsunder
theSolidWasteDisposalAct.Statesmaybutarenotrequiredtoincorporatethe
federalCCRrequirementsintotheirownsolidwastemanagementplans.
SteamElectricEffluentLimitationGuidelines(ELGs):OnJune7,2013,EPAreleasedeight
regulatoryoptionsfornew,proposedsteamelectricELGstoreduceoreliminatethe
16
releaseoftoxinsintoU.S.waterways.AfinalruleisrequiredbySeptember30,2015.
15
SeeU.S.EnergyInformationAdministrationwebsite.AccessedFebruary4,2015.Availableat:
http://www.eia.gov/todayinenergy/detail.cfm?id=15611.
16
SeeU.S.EnvironmentalProtectionAgencywebsite.AccessedFebruary4,2014.Availableat:
http://water.epa.gov/scitech/wastetech/guide/steamelectric/amendment.cfm.
Newrequirementswillbeimplementedin2015to2020throughthefiveyearNational
17
PollutantDischargeEliminationSystempermitcycle.
4.2.
CoolingWaterIntakeStructure(316(b))Rule:InMarch2011,EPAproposedalong
expectedruleimplementingtherequirementsofSection316(b)oftheCleanWaterAct
atexistingpowerplantsthatwithdrawlargevolumesofwaterfromnearbywater
bodies.Underthisrule,EPAwouldsetnewstandardstoreducetheimpingementand
entrainmentoffishandotheraquaticorganismsfromcoolingwaterintakestructuresat
electricgeneratingfacilities.ThefinalrulewasreleasedonMay19,2014.The
requirementsoftherulewillbeimplementedthroughrenewalofafacilitysNPDES
permit,whichmustberenewedeveryfiveyears,andwillbedeterminedonacaseby
18
casebasis.
RegionalHazeRule:TheRegionalHazeRule,releasedinJuly1999,requiresstatesto
developstateimplementationplans(SIPs)forreducingemissionsthatimpairvisibilityat
pristineareassuchasnationalparks.TherulealsorequiresperiodicSIPupdatesto
ensureprogressisbeingmadetowardimprovingvisibility.Theinitialdevelopmentof
SIPs,whichisjustnowbeingcompleted,requiresBestAvailableRetrofitTechnology
(BART)controlsforSOX,NOX,andPMemissionsonlargeemissionsourcesbuiltbetween
1962and1977thatarefoundtobecontributingtovisibilityimpairment.BARTcontrols
mustbeinstalledwithinfiveyearsofSIPapproval.
ProposedCapandTradeLegislation
Overthepastdecade,therehavebeenseveralcongressionalproposalstolegislatecapandtrade
programs,withthegoalofreducinggreenhousegasemissionsbymorethan80percentbelowrecent
levelsby2050throughafederalcap.Suchprogramswouldallowtradingofallowancestopromote
leastcostreductionsingreenhousegasemissions.
ComprehensiveclimatelegislationwaspassedbytheHousein2009:theAmericanCleanEnergyand
SecurityAct,alsoknownasWaxmanMarkeyorH.R.2454.However,theSenatedidnotvoteoneither
ofthetwoclimatebillsbeforeitinthe20092010session(KerryLiebermanAPA2010andCantwell
CollinsS.2877).WaxmanMarkeywasacapandtradeprogramthatwouldhaverequireda17percent
17
SeeU.S.EnvironmentalProtectionAgency.SteamElectricELGRulemaking.UMRAandFederalismImplications:Consultation
Meeting.October11,2011.Availableat:http://water.epa.gov/scitech/wastetech/guide/upload/SteamElectricELG
RulemakingUMRAandFederalismImplicationsConsultationMeetingPresentation.pdf.
18
SeeU.S.EnvironmentalProtectionAgencywebsite.AccessedMay21,2014.Availableat:
http://water.epa.gov/lawsregs/lawsguidance/cwa/316b/index.cfm.
19
reductioninemissionsfrom2005levelsby2020,andan83percentreductionby2050. Further
20
analysisoftheseproposalsisprovidedinSynapses2012CarbonDioxidePriceForecast.
Congressionalinterestinclimatepolicyhasbeenongoing.InMarch2012,SenatorBingamanintroduced
theCleanEnergyStandardActof2012(S.2146),whichwouldhaverequiredlargerutilitiestomeeta
percentageoftheirsaleswithelectricgenerationfromsourcesthatproducefewergreenhousegas
emissionsthanaconventionalcoalfiredpowerplant.Creditsgeneratedbythesecleantechnologies
wouldhavebeentradablewithamarketprice.InFebruary2013,SenatorsSandersandBoxer
introducednewcomprehensiveclimatechangelegislation,theClimateProtectionActof2013.Thisbill
proposedafeeof$20pertonofCO2orCO2equivalentcontentofmethane,risingat5.6percentper
yearoveratenyearperiod.Finally,inNovember2014,SenatorsWhitehouseandSchatzintroducedthe
AmericanOpportunityCarbonFeeAct,whichwouldassessafeeforeverytonofCO2pollutionemitted
byallcoal,oil,andnaturalgasproducedinorimportedtotheUnitedStates.Thebillwouldalsocover
largeemittersofnoncarbongreenhousegases(suchasmethane)andCO2fromnonfossilfuelsources.
Thefeewouldstartat$38pershorttonin2015andincreaseannuallybyaninflationadjusted2
percent,followingtheObamaAdministrationsestimateofthesocialcostofcarbon.Allrevenue
generatedbythebillwouldbereturnedtotheAmericanpeoplethroughanasyetundetermined
21
mechanism.Thebillhasnotyetbeenbroughttoavote.
Asdiscussedearlier,weexpectthatfederalcapandtradelegislationwilleventuallybeenactedbutthat
itisunlikelytohappeninthenearterm.Federalcarbonregulationsareineffectorunderdevelopment
today,andtheeconomicpressureoropportunitycostthattheycreatemayberepresentedasan
effectivepriceofgreenhousegasemissions.Regulatorymeasuresareunlikelytomeetlongtermgoals
ofreducingtotalgreenhousegasemissionstoapproximately80percentbelow2005levelsby2050,and
abroaderapproachwillbeincreasinglyattractiveinordertomeetthesegoalsatlowercosts.Our
judgmentindicatesthisismostlikelytotaketheformofafederalcapandtradesystem.
4.3.
StateandRegionalPolicies
TherearetworegionalandstatecapandtradeprogramsintheUnitedStatestoday:theNortheasts
RegionalGreenhouseGasInitiative(RGGI)andCaliforniasCapandTradeProgramunderthestates
19
U.S.EnergyInformationAdministration(EIA);EnergyMarketandEconomicImpactsoftheAmericanPowerActof2010(July
2010).Availableathttp://www.eia.gov/oiaf/servicerpt/kgl/index.html.EIA;EnergyMarketandEconomicImpactsofH.R.
2454,theAmericanCleanEnergyandSecurityActof2009(August2009).Availableat
http://www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html.
20
Wilsonetal.2012.2012CarbonDioxidePriceForecast.SynapseEnergyEconomics.Availableat:http://www.synapse
energy.com/project/synapsecarbondioxidepriceforecast.
21
IntroducingtheAmericanOpportunityCarbonFeeAct(November2014).Availableat:
http://www.whitehouse.senate.gov/news/release/introducingtheamericanopportunitycarbonfeeact.
GlobalWarmingSolutionsAct(AssemblyBill32).Inaddition,atotalof20statesplustheDistrictof
22
Columbiahavesetgreenhousegasemissionstargetsaslowas80percentbelow1990levelsby2050.
RegionalGreenhouseGasInitiative
RGGIisacapandtradegreenhousegasprogramforpowerplantsinthenortheasternUnitedStates.
CurrentparticipantstatesareConnecticut,Delaware,Maine,Maryland,Massachusetts,New
Hampshire,NewYork,RhodeIsland,andVermont.RGGIhashadmorethansixyearsofsuccessfulCO2
23
allowanceauctions,withAuction26inDecember2014resultinginaclearingpriceof$5.21perton.
RGGIisdesignedtoreduceelectricitysectorCO2emissionstoatleast45percentbelow2005levelsby
24
2020. RGGIisalsoapotentialavenueforCleanPowerPlancomplianceforthesestates.
WhenRGGIwasestablishedin2007,theexpectationwasthattheCO2emissionsallowanceauction
wouldgeneraterevenuesforconsumerbenefitprogramssuchasenergyefficiency,renewableenergy,
andcleanenergytechnologies.WhileRGGIhasprovidedsignificantrevenuesforconsumerbenefit,its
allowancepriceshavegenerallyremainednearthestatutoryminimumpriceuntilrecently.External
influences,includingchangestofuelprices,causedashiftfromcoalandoiltolowercarbonnaturalgas
generation.Comparedtothoseexternalfactors,theeffectoftheoriginalRGGIcaprequirementswere
25
relativelyminorinmeetingthegoalsofreducingCO2emissionsinthepowersector.
In2012and2013,theRGGIstatesevaluatedanumberofplansfortighteremissionscapswiththegoal
ofraisingallowanceprices.InFebruaryof2013,participatingstatesagreedtolowertheCO2capfrom
165millionto91millionshorttonsin2014,tobereducedby2.5percenteachyearfrom2015to2020.
RGGIanalysisindicatedthatwiththeselowercaps,allowancepriceswillriseto$10.60pershorttonby
26
2020.
InMarch2014,thefirstauctionunderthenewcapclearedat$4pershortton.Thisauctionusedall
availablecostcontainmentreserveallowancesfortheyearafixedadditionalsupplyofallowances
(abovethecap)atafixedprice($4in2014,risingto$10in2017)usedtopreventrapidincreasesinthe
allowancepricewhenauctionpricesriseaboveasettrigger.Nomorecostcontainmentreserve
22
CenterforClimateandEnergySolutions.GreenhouseGasEmissionsTargets.U.S.ClimatePolicyMaps.Accessed
September13,2013.Availableat:http://www.c2es.org/usstatesregions/policymaps/emissionstargets.
23
RGGIAuction23resultsavailableat:http://rggi.org/market/co2_auctions/results/Auction23.
24
RGGI.2013.RGGIStatesProposeLoweringRegionalCO2EmissionCap45%,ImplementingaMoreFlexibleCostControl
Mechanism.PressRelease.Availableat:http://www.rggi.org/docs/PressReleases/PR130207_ModelRule.pdf.
25
EnvironmentNortheast.2010.RGGIatOneYear:AnEvaluationoftheDesignandImplementationoftheRegional
GreenhouseGasInitiative.Availableat:http://www.usclimatenetwork.org/resourcedatabase/rggiatoneyearan
evaluationofthedesignandimplementationoftheregionalgreenhousegas
initiative/.http://www.envne.org/public/resources/pdf/ENE_2009_RGGI_Evaluation_20100223_FINAL.pdf.
26
RGGI.2013.RGGIStatesProposeLoweringRegionalCO2EmissionCap45%,ImplementingaMoreFlexibleCostControl
Mechanism.PressRelease.Availableat:http://www.rggi.org/docs/PressReleases/PR130207_ModelRule.pdf.
Allowancespriceshavebeenconvertedto2014dollars.
allowanceswereavailablefortheremainingthreeauctionsin2014,andpricesroseto$5.21pershort
tonbytheendoftheyear.
TheDecember2014clearingpricewasthehighesteverclearingpriceataRGGIauction.In2015,the
numberofcostcontainmentreserveallowanceswillrisefrom5millionto10million,alongsidean
increaseinthetriggerpricefrom$4to$6pershortton.Weexpectthistoresultinacontinuationofthe
slowbutsteadyriseinRGGIallowanceprices.
CaliforniasCapandTradeProgramunderAB32
Withthegoalofreducingthestatesemissionsto1990levelsby2020,CaliforniasGlobalWarming
SolutionsAct(AB32)hascreatedtheworldssecondlargestcarbonmarket,aftertheEuropeanUnions
EmissionsTradingSystem.ThefirstcomplianceperiodforCaliforniasCapandTradeProgrambeganon
January1,2013andcoverselectricitygenerators,CO2suppliers,largeindustrialsources,andpetroleum
27
andnaturalgasfacilitiesemittingatleast27,600shorttonsofCO2equivalentsperyear. Thisfirst
phaseoftheprogramincludedelectricitygeneratorsandlargeindustrials.PhaseIIbeganin2015,and
alsoincludestransportationfuels,naturalgassuppliers,andsmallerindustrialsources.In2015the
annualallowancebudgetrisesto434millionshorttons,from176millionshorttons,duetothe
28
increasingscopeofthepolicy.
OnJanuary1,2014,CaliforniaandQubecformallylinkedtheircarbonmarkets.Thefirstjointauction
29
washeldinNovember2014andclearedat$10.98pershortton. Thesecondjointauctionwasheldon
February18,2015,andclearedat$11.08.Thiswasthefirstauctiontoincludetransportationfuels,and
sold73.6millionallowances,ascomparedtoonly23millionallowancesinthepriorNovember2014
30
auction.
WhilethecurrentcapandtradeprograminCaliforniaonlyrunsthrough2020,severalbillswere
introducedin2014suggestingdirectionthrough2030.Whilenoneweretakentoafinalvote,thereisan
27
CaliforniaAirResourcesBoard.2013.CaliforniaCaponGreenhouseGasEmissionsandMarketBasedCompliance
MechanismstoAllowfortheUseofComplianceInstrumentsbyLinkedJurisdictions.Availableat:
http://www.arb.ca.gov/cc/capandtrade/ctlinkqc.pdf.Legislatedvalueis25,000metrictons,convertedheretoshorttons.
28
CARBAB32FinalRegulationOrder.Availableat:
http://www.arb.ca.gov/cc/capandtrade/capandtrade/unofficial_c&t_012015.pdf.
29
CaliforniaAirResourcesBoard.2015.CaliforniaCapandTradeProgramSummaryofAuctionResults.Updated1/12/2015.
Availableat:http://www.arb.ca.gov/cc/capandtrade/auction/results_summary.pdf.
30
CaliforniaAirResourcesBoard.2015.CaliforniaCapandTradeProgramandQuebecCapandTradeSystemFebruary2015
JointAuction#2SummaryResultsReport.Availableat:http://www.arb.ca.gov/cc/capandtrade/auction/feb
2015/summary_results_report.pdf.
Auctionsclearindollarspermetrictonsvaluesherehavebeenconvertedtoshorttons.
31
expectationthattheywillbereconsideredin2015. ICISindustriesforecastsCaliforniaCO2allowance
32
pricestohit$45pershorttonby2030.
4.4.
AssessmentofCO2PriceforFederalRulemaking
In2010,theU.S.federalgovernmentbeganincludingacarboncostinregulatoryrulemakingstoaccount
33
fortheclimatedamagesresultingfromeachadditionaltonofgreenhousegasemissions; updated
34
valueswerereleasedin2013. The2013EconomicReportofthePresidentacknowledgesthatthese
35
valueswillcontinuetobeupdatedasscientificunderstandingimproves.
AnInteragencyWorkingGroupontheSocialCostofCarboncomposedofmembersoftheDepartment
ofAgriculture,DepartmentofCommerce,DepartmentofEnergy,EnvironmentalProtectionAgency,
DepartmentofTransportation,andOfficeofManagementandBudget,amongotherswastaskedwith
developingaconsistentvalueforthesocialbenefitsofclimatechangeabatement.Fourvalueswere
developed(seeSection3formoreexplanationofthesocialcostofcarbonmethodology).These
values$11,$36,$57,and$103pershorttonofCO2in2013,andrisingovertimerepresentaverage
(mostlikely)damagesatthreediscountrates,alongwithoneestimateatthe95thpercentileofthe
36
assumeddistributionofclimateimpacts. Whilesubjecttosignificantuncertainty,thismultiagency
31
EnvironmentalDefenseFund.CarbonMarketCaliforniaYearTwo:2014.Availableat:
http://www.edf.org/sites/default/files/content/carbonmarketcalifornia
year_two.pdfhttp://www.edf.org/sites/default/files/content/carbonmarketcaliforniayear_two.pdf.
32
ICIS.2015.ICISlaunches2030ForecastforCaliforniaCarbonAllowances.PressRelease.January2015.Availableat:
http://www.icis.com/pressreleases/icislaunches2030forecastforcaliforniacarbonallowances/.
Forecastinmetrictons,valuehereconvertedtoshorttons.
33
InteragencyWorkingGroupontheSocialCostofCarbon,U.S.G.2010.Appendix15a.Socialcostofcarbonforregulatory
impactanalysisunderExecutiveOrder12866.InFinalRuleTechnicalSupportDocument(TSD):EnergyEfficiencyProgram
forCommercialandIndustrialEquipment:SmallElectricMotors.U.S.DepartmentofEnergy.Availableat:
http://go.usa.gov/3fH.
34
InteragencyWorkingGroupontheSocialCostofCarbon.2013.TechnicalSupportDocumentTechnicalUpdateoftheSocial
CostofCarbonforRegulatoryImpactAnalysisUnderExecutiveOrder12866.Availableat:
http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf.
Reportedvalueshavebeenconvertedto2014dollarspershortton.
35
TheWhiteHouse.2013.ClimateChangeandthePathTowardSustainableEnergySources.2013EconomicReportofthe
President.Availableat:http://www.whitehouse.gov/sites/default/files/docs/erp2013/ERP2013_Chapter_6.pdf.
36
Ina2012paper,AckermanandStantonmodifiedtheInteragencyWorkingGroupsassumptionsregardinguncertaintyinthe
sensitivityoftemperaturechangetoemissions,theexpectedlevelofdamagesatlowandhighgreenhousegas
concentrations,andtheassumeddiscountrate,andfoundvaluesforthesocialcostofcarbonrangingfromtheWorking
Groupsleveluptomorethananorderofmagnitudegreater[FrankAckermanandElizabethA.Stanton.2012.ClimateRisks
andCarbonPrices:RevisingtheSocialCostofCarbon.Economics:TheOpenAccess,OpenAssessmentEJournal,Vol.6,
201210.http://dx.doi.org/10.5018/economicsejournal.ja.201210].Similarly,LaurieJohnsonandChrisHopemodified
discountratesandmethodologiesandfoundresultsupto12timeslargerthantheWorkingGroupscentralestimate[Laurie
T.Johnson,ChrisHope.2012.ThesocialcostofcarboninU.S.regulatoryimpactanalyses:anintroductionandcritique.
JournalofEnvironmentalStudiesandSciences;DOI:10.1007/s1341201200877].
effortrepresentsaninitialattemptatincorporatingthebenefitsassociatedwithCO2abatementinto
federalpolicy. ThesevaluesarepresentedinFigure1.
Theseestimatescontinuetobeusedinfederalgovernmentrulemakingsforthepurposeofcalculating
costsandbenefitsofnewandupdatedpolicies.WhileaCO2priceforfederalrulemakingassessmentsis
afundamentallydifferentkindofcostmetricthantheothersdiscussedinthisreport,itnonetheless
representsadollarvalueforgreenhousegasemissionscurrentlyinusebytheU.S.federalgovernment.
Figure1:RangeofFederalCO2PricesforRulemakings,bydiscountrate
$250
5.00%
2014$/short ton
$200
3.00%
2.50%
3% (95th percentile)
$150
$100
$50
$0
2005
5.
2010
2015
2020
2025
2030
2035
2040
2045
2050
THECOSTOFIMPLEMENTINGEPASCLEANPOWERPLAN
InSection4,wediscusstheEPAsCleanPowerPlaninthecontextoffederalclimatelegislationthatmay
resultinreducedgreenhousegasemissions.AstheproposalaimstoregulateCO2emissionsdirectlyand
representsasignificantchangeinneartermclimatepolicycertaintyascomparedtoourpreviousCO2
priceforecast,weexamineitmorefullyinthissection.Wediscussfactorsthatwillaffectstates
implementationmethods,aswellastheexpectedcostsofcomplianceasmodeledbyEPA,Synapse,and
thirdpartyanalysts.
5.1.
IssuesinImplementingtheCleanPowerPlanforUtilityPlanning
TheCleanPowerPlanisEPAsproposaltomeetCO2emissionslimitationsfromexistingsourcesusinga
BestSystemofEmissionsReductions(BSER).EPAhasstructuredtheCleanPowerPlanaroundfour
fundamentalbuildingblocksthatrepresentpossiblemeansforachievingtheestablishedemissions
standard:(1)increasingexistingcoalplantefficiency,(2)displacingcoalgenerationwithexistingnatural
gas,(3)increasingrenewableenergyacquisitions,and(4)implementingenergyefficiencyprograms.
Takentogether,EPAestimatesthattheseprogramswillreduceemissionsbyacertainamountineach
state.EPAstargetsforeachstatearesetasarate,measuredinpoundsofCO2permegawatthour
(lbs/MWh).Theratehasbeenasourceofconfusiontomanyparties:itrepresentsbothprojected
emissionsfromexistingsources,aswellasgenerationfromnewrenewableenergyandenergyefficiency
programs.
EPAsproposalallowsstatestochoosethemetricbywhichtheymeasurecompliance:statescaneither
meettheratebasedtargetusingacombinationofthebuildingblocksorotherprograms,ormeetan
alternatemassbasedtarget,measuredintotaltonsofCO2.
Themassbasedcompliancerouteisfundamentallyacaponsectoralemissionsonastatebystatebasis.
Itisnotunreasonabletoassumethatimplementingstatesmightchoosetouseacapandtradescheme,
suchasiscurrentlyemployedfornationalSO2emissionsundertheAcidRainProgram,regionallyforNOX
budgettradingprogram,andforCO2inCaliforniaandRGGIstates.Planningandmodelingunderamass
basedcapisfairlywellunderstood;itinvolvesamarginalabatementcostappliedtoelectricsector
emissionsreducesemissions.Thepriceisadjustedeitherbythemarketoranadministrativebodysuch
thattotalemissionshittherequiredtarget.Modelingmassbasedcomplianceeffectivelyrequires
findingaprice(eitherrealorshadow)forCO2thatmaintainsemissionsunderthecap.Utilitiesmayelect
toeitherreviewtheirproratashareofmassbasedemissionsreductionsunderthecap,ormodelthe
impactofmasscomplianceonthestatefleettodetermineaneffectiveCO2price.Forutilitiesthattrade
electricitybilaterallyorontheopenmarket,themarketpriceofelectricityshouldalsoaccountforthe
CO2priceimpacts.
Theratebasedcompliancemechanismsetsaratetargetforindividualstatesbasedonan(outwardly)
simpleformula,inwhichemissionsfromexistinggeneratorsaredividedbygenerationfromexisting
generatorsplusgenerationfromrenewableenergyandenergyefficiency(EERE).Statesorutilities
seekingtomodeltheimpactoftheCleanPowerPlanunderaratebasedcomplianceschemeneedto
findaleastcostsolutionthatreducestheemissionsrateofexistingfossilgeneratorswhileincludingthe
amountofEEREasanadditionalfactorinthatemissionsrate.Effectively,modelingaratebased
compliancemechanismrequiresutilities(andstates)tosimultaneouslyoptimizepowerplantoperations
andEERE,whilealsoaccountingforhowcomplianceinneighboringutilities(andstates)impacts
generatorsandthepriceformarketelectricity.Stateswithdifferentratetargets(ordifferentratebased
mechanisms)mayimposedifferentrestrictionsonfossilgenerators,andthussignificantlyimpact
marketelectricityprices.
5.2.
ExpectedPricingandStringencyofEPAsCleanPowerPlan
Asofthedateofpublicationofthisreport,theCleanPowerPlanisstillaproposalandleavesnumerous
openquestionsandambiguities.Whileitisexpectedthatmanyoftheseambiguitieswillberesolvedby
thetimethefinalruleispublished,theexactimplicationsoftherulearestilldifficulttofullyresolve.
Dependingoninterpretationsofvariousopenquestions,includingtheroleofnewgasandthe
treatmentofEERE,therulemayprovetobefairlylowcost,orhighercost.Itispossibletoenvisionhigh
andlowcostscenariosforbothhighandlowefficacyruleimplementations.Allestimatesinthissection
havebeenconvertedto2014dollarspershortton.
EPAsEstimates
SeveralstudieshaveattemptedtoquantifythecostsandbenefitsofimplementingtheproposedClean
37
PowerPlan. Indevelopingtheproposedrule,EPAestimatedtheaveragecompliancecostforeachof
38
thebuildingblocks. EPAfoundthat:
Heatrateimprovementsatexistingcoalfireunits(BuildingBlock1)wouldhavenet
costsbetween$6and$11pershortton
Substitutinggenerationfromexistingnaturalgasplantsforgenerationfromexisting
coalplans(BuildingBlock2)wouldhavenetcostsofabout$283pershortton
Encouragingnewrenewableenergyanddiscouragingtheretirementofexistingnuclear
powerplants(BuildingBlock3)wouldhavecostsbetween$9and$38pershortton
Demandsideenergyefficiency(BuildingBlock4)wouldrangefrom$15to$23pershort
ton
EPAalsousedtheIPMelectricitycapacityexpansionmodeltoanalyzecomplianceinamoreintegrated
framework,findingaveragecompliancecostsof$28pershorttonin2030(rangingfromzeroto$106
pertondependingonthestate).Theyalsomodeledaregionalcomplianceapproach,wherenearby
statescouldworktogethertoreducecosts.Thisapproachresultedinaveragecostsof$29pershortton
in2030(rangingfrom$26to$34pertondependingontheregion).
IndependentAnalyses
TheRhodiumGroupandCSISEnergyusedtheEIAsNEMSmodeltoprojecttheeffectsoftheproposed
CleanPowerPlan.NEMSisamodelthatconsidersnotonlytheelectricitysector,butotherelementsof
theenergyeconomy,includingtransportation,industrial,commercial,andresidentialuses.Theyfound
simplestatebystatecompliancetobehighlyunlikely,andasaresultcomparedanationalcompliance
approach(withasinglerateormassbasedstandard)toamorefragmented22regionapproach.With
theinclusionofenergyefficiency,theyfoundexpendituresonelectricitydecreasedby2.4percentunder
anationalcomplianceapproachrelativetoabasecasewithouttheCleanPowerPlan.Underregional
37
Resultsfrompublicmodelinganalyseswereconvertedto2014dollarsusingpricedeflatorstakenfromtheU.S.Bureauof
EconomicAnalysis,andareavailableat:http://www.bea.gov/national/nipaweb/SelectTable.asp.
38
EPA.2014.CleanPowerPlanProposedRule(June2014release).Availableat:http://www2.epa.gov/carbonpollution
standards/cleanpowerplanproposedrule.
39
compliance,electricityexpendituresincreased0.6percent. Thissmallchangeinexpendituresindicates
thatCleanPowerPlancompliancecanbeimplementedatarelativelymodestcost.Theuseofan
economywideenergymodelalsoallowedthisstudytodemonstratetheimpactsonnationalgas
demand;RhodiumGroupandCSISEnergyprojectedtotalnationalgasdemandtoincrease10.9billion
cubicfeetperdayby2030,ascomparedtoanopolicycase.Thishighergasdemandresultedinan
increaseinHenryHubgaspricesof$0.48perMMBtu.
SNLEnergycompletedmodelingoftheproposedruleusingAuroraXMP,ahighresolutionelectricsector
modelincorporatingbothcapacityexpansionanddispatch.Theymodeledthepolicyasamassbased
target,includingemissionsfromnewbuilds,withregionalcomplianceacrossfiveregionsintheEastern
Interconnect.SNLimposedaCO2constraint,andreportedtheresultingshadowprices.Theirvalues
rangedfrom$13to$29pershorttonforthe20202029averagetargets,risingto$21to$33pershort
tonin2030.ThisanalysisimpliedthattheRGGIstatescouldlargelymeettheirtargetundertheexisting
RGGIsystem,PJMcouldcomplyatacostof$21perton(wellbelowthepricesimpliedintheEPAIPM
analysis),andotherregionscouldcomplyatcostsquitesimilartothoseassumedbyEPAunderregional
40
cooperation.
EnergyVenturesAnalysisconductedasimilarstudyfortheNationalMiningAssociation,usingthesame
modelasSNLbutfocusingonstate,ratherthanregional,compliance.TheyfoundaverageCO2prices
overthe20202030periodrangingfrom$10to$31pershorttonformoststates,althoughpricesin
Arizona,Nevada,Oregon,andWashingtonweremuchhigher:$55perton,$83perton,$54perton,and
41
$70perton,respectively.
Severalindependentsystemoperators(ISOs)areintheprocessofconductingtheirownanalyses.MISO
usedtheEGEASelectricitycapacityexpansionmodeltoconsidercomplianceapproachesdirectly
42
followingEPAsbuildingblocks,aswellasagenericCO2constraintbasedonEPAsmassbasedtargets.
ThebuildingblockapproachresultedinanoverallCO2costof$60pertonreduced,whilethemore
flexiblemassbasedapproachcost$38pertonreduced.TheMISOanalysisonlyfocusedonexisting
sourceCO2emissionsanyemissionsfromnewgasplantstoberegulatedunder111(b)arenot
counted.Asaresult,themassbasedapproachabovemaycreatealoopholeintheproposedpolicy
designwherebynewgascombinedcycleplantscouldreplacegenerationfromoldgascombinedcycle
39
Larsenetal.2014.RemakingAmericanPower:PotentialEnergyMarketImpactsofEPAsProposedGHGHEmission
PerformanceStandardsforExistingElectricPowerPlants.CSISandRhodiumGroup.Availableat:
http://csis.org/publication/remakingamericanpower.
40
Gelbaughetal.2014.CriticalMass:AnSNLEnergyEvaluationofMassbasedcomplianceundertheEPACleanPowerPlan.
Availableat:http://center.snl.com/Resources/Whitepaper.aspx?id=4294973757.
41
EnergyVenturesAnalysis.2014.EPACleanPowerPlan:CostsandImpactsonUSEnergyMarkets.EnergyVenturesAnalysis
forNationalMiningAssociation.Availableat:http://www.countoncoal.org/assets/ExecutiveSummaryEPACleanPower
PlanCostsImpacts.pdf.
42
MISO.2014.GHGRegulationImpactAnalysisInitialStudyResults.September17,2014.Availableat:
http://www.eenews.net/assets/2014/09/18/document_ew_01.pdf.
plantstoreduceemissionsunderthe111(d)umbrellawithoutactuallyreducingoverallsystem
emissions.ItislikelythatEPAwilladdresssuchpotentiallimitationsinthefinalrule.
PJMusedthePROMODhourlyproductioncostmodeltoreviewthecostofcomplianceundermass
43
basedtargets,assumingthatnewgasunitsareregulatedunderCleanAirActsection111(b). PJM
analyzedanumberofdifferentscenariosofrenewableenergyandenergyefficiencyimplementation
andgasprices.RequiredCO2pricesrangedfrom$5to$30pershorttonin2030,exceptforscenarios
withhighnaturalgaspriceswhichrangedfrom$35to$55pershortton.
OtherstudieshavefocusedonmodelingtheratebasedprovisionsoftheCleanPowerPlanandreported
changesintotalsystemcostsandelectricityprices,butnotCO2prices.TheMissouriutilityAmeren
foundanincrementalcostof$4billiontoachievetheCleanPowerPlangoals,ascomparedtoitslatest
44
IRPthatwouldachievethesamegoalsby2035. ANERAEconomicConsultingreportfound
incrementalcostsof$366billion(in$2013presentvalue)nationwide,or$479billionwithoutthe
45
availabilityofenergyefficiencyandrenewableenergy. ThePJMstudycitedabovefoundincremental
costsin2029of$0.1billionto$3.5billioninthehighnaturalgaspricecaseforthePJMsystemasa
whole.
SynapseAnalysis:WhatWouldtheCostBewithNationwideCooperation?
SynapseusedtheReEDS(RegionalEnergyDeploymentSystem)model,builtbytheNationalRenewable
EnergyLab,toestimateexpectedallowancepricesundertwoscenariosoffullnationalcooperationin
meetingtheCleanPowerPlan.ReEDSselectsthetypesofpowergenerationtobuildandoperatein
differentpartsofthecountrywiththegoalofachievingtheleasttotalcost;itdrawsmanyofits
assumptionsfromtheEIAs2014AnnualEnergyOutlook.OurCleanPowerPlanscenariosincludedacap
46
onCO2emissionsconsistentwithEPAsmassbasedtargets. Modelingresultswereproducedusing
bothannualandaverageassumedtargets.TheannualapproachmatchestheEPAmassbased
targetsineachyearbeginningin2020,whiletheaverageapproachmatchesthe20202029average
mass.Figure2reportsyearlyemissionsforbothtypesoftargets.AsshowninFigure3,allowanceprices
typicallyrangefrom$16to$25pershortton(in2012dollars)throughoutthe20202030timeframe.
43
Sotkiewics,PaulandAbdurRahman,Muhsin.2014.EPAsCleanPowerPlanProposalReviewofPJMAnalysesPreliminary
Results.PJMMembersCommitteeWebinarNovember17,2014.Availableat:
http://www.pjm.com/~/media/documents/reports/20141117epascleanpowerplanproposalreviewofpjmanalyses
preliminaryresults.ashx.
44
Ameren.2015.AmerensAlternativetotheEPAsproposedGreenhouseGasRules.Availableat:https://www.ameren.com/
/media/CorporateSite/Files/aboutameren/amerensalternativeghgwhitepaper.pdf?la=en.
45
NERAEconomicConsulting.2014.PotentialEnergyImpactsoftheEPAProposedCleanPowerPlan.Availableat:
http://americaspower.org/sites/default/files/NERA_CPP%20Report_Final_Oct%202014.pdf.
46
EPA.2014.CleanPowerPlanProposedRule:TranslationofStateSpecificRateBasedCO2GoalstoMassBased
Equivalents.November6,2014.Availableat:http://www2.epa.gov/carbonpollutionstandards/cleanpowerplan
proposedruletranslationstatespecificratebasedco2.
Usingtheaveragetargets,pricesstartlowerin2020beforegraduallyrisingasthepolicybecomesmore
stringent.ThesetwocasescanbeseenasalowendestimateforthecostofcompliancewiththeClean
PowerPlan.Lesscooperationbetweenstateswouldresultinhighercostsbyreducingthenumberof
lowcostcomplianceoptionsavailabletoeachstate.
Figure2:U.S.CO2emissionsundertwoReEDSCleanPower
Planscenarios(millionshorttons)
Million Short Tons
2,500
Figure3:U.S.CO2allowancepricesundertwoReEDSClean
PowerPlanscenarios($/shortton)
Annual
Average
2,000
1,500
1,000
500
0
2014
2018
2022
2026
2030
ComparisonofPriceEstimates
Figure4belowcomparesSynapsesnationwideanalysis(referredtoasSynapse/ReEDS)totherangeof
otheranalysesdiscussedinthissection.TheSynapseanalysisfallswellwithinthisrange.Modeled
compliancecostsdependonanumberoffactors,includingassumptionsaboutcooperation,fuelprices,
renewableandenergyefficiencycosts,andretirements.
CO2 Price Range (2014$/short ton)
Figure4:SummaryofCleanPowerPlanstudyCO2priceestimates(2014dollarspershortton)
$120
$100
$80
$60
$40
$20
$0
6.
CO2PRICEFORECASTSINUTILITYIRPS
Agrowingnumberofelectricutilitiesincludeprojectionsoftheexpectedcostsassociatedwith
greenhousegasemissionsintheirresourceplanning.InadditiontothepoolofrecentIRPsreviewedfor
thisforecast,whicharecharacterizedbelow,Synapsehaspreviouslyconductedanextensivestudyof
resourceplansdatingbackto2003:
Noneofthe15IRPspublishedfrom20032007thatwereviewedincludedaCO2price
forecast.
Ofthe56IRPsfrom20082011thatwereviewed,23includedaCO2priceforecast.This
jumpintheinclusionofcarbonpriceprojectionsinIRPsfrom2008onwardscoincided
withtheintroductionoftheWaxmanMarkeybillinCongress,whichsoughttolegislate
acapandtradesystem.Asaresultofthisbill,theinclusionofcarbonpricing
sensitivitiesinIRPsbecameparamounttoprudentplanningbeginningin2008;a
majorityoftheIRPsinour2015reviewreflectanunderstandingthatinclusionofa
methodologytoreflectfutureenvironmentalregulationsisprudentplanning.
Ofthe115IRPsreleasedin20122015reviewedbySynapse(referredtobelowasour
currentsample),66includeaCO2priceinatleastonescenario,including61witha
CO2priceintheirreferencecasescenario(53percent).
Moreover,ofthe24IRPsreleasedin20142015reviewedbySynapse,20includeaCO2
priceinatleastonescenario,ofwhich19includeaCO2priceintheirreferencecase
scenario(79percent).
ThesedatashowthattheresourceplansinthecurrentsampleincludesasimilarfractionofIRPswitha
CO2priceforecastasthe20082011sample,whenmajorclimatebillswereactivelyunderconsideration
(57percentin20122015ascomparedto50percentin20082011).
Table2:IRPdatabasesummarystatistics
20032007
20082011
20122015
20122013
20142015
Numberof
NumberofIRPs
IRPReviewed withCO2considered
15
0
56
23
115
66
91
46
24
20
HowwelldoesourcurrentsamplerepresentutilityplanningacrosstheUnitedStates?Atotalof3,412
47
utilitiesoperatedintheUnitedStatesin2012. Intermsofgeneration,thetop5percent170
47
EIAForm860,2012(ReleasedOct.10,2013).
utilitiesaccountedfor77percentoftotalU.S.generationin2012.OursampleincludesIRPsfrom33
utilitieswithinthislargest5percent.Ofthose33,29utilitieshaveIRPswithnonzeroCO2prices.This
meansthatalmostalloftheIRPswereviewedfromthelargestutilitiesinthecountryincludeanonzero
CO2priceintheirplanningprocess.
NotallutilitiesproduceIRPs.Infact,11stateshavenofilingrequirementsforlongtermplanning,while
48
10otherstatesrequirelongtermplans,butnotIRPs. Whilelongtermplanningisanimportantpartof
theprocurementprocessinregionswithwholesaleenergymarkets,traditionalutilitycentricIRPsare
lesscommon.Asaresult,regionswithwholesalemarketsarenotwellrepresentedinoursample.
Figure5belowdisplaysnonzeroreferencecaseCO2priceforecastsfrom46utilityIRPsovertheperiod
49
of20142044. Althoughwereferaboveto61nonzeroCO2pricereferencecaseforecastsinthe
currentsample,fifteenoftheseforecastsareexcludedfromthischartforvariousreasons.Insome
cases,oursampleincludesIRPsfromcompaniesin2012and2014,inwhichcaseweonlyincludethe
mostrecentforecast.Theremainingnonzeroforecaststhatarenotincludedinthefigurebeloware
fromcompaniesthatoperateinmultiplestatesbutproducethesameCO2forecast,areconfidential,or
forecastapricethatbeginsfollowingtheendoftheIRPplanningperiod.
48
See:Wilson,R.andB.Biewald.BestPracticesinElectricUtilityIntegratedResourcePlanning.June1,2013.SynapseEnergy
Economics.Availableat:http://www.synapseenergy.com/Downloads/SynapseReport.201306.RAP.BestPracticesinIRP.13
038.pdf.
49
Wealsoprovideafigureshowingonlyforecastsproducedin2014and2015inAppendixA.Theseforecastsdonotappear
materiallydifferentthantherangeof2012to2015forecastsshownbelow.
50
Figure5:Utilitynonzeroandnonconfidentialreferencecaseforecastsfrom20122015
$70
CO2 Price(2014$pershorttonCO2)
$60
$50
$40
$30
$20
$10
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
NVNevadaPower(2012)MidCarbonCase
UTPacifiCorp2012BaseCase($16CO2)(Dec2011)
WASeattleCityLight(2012)
NMSouthwesternPS(2012)
NM/TXElPasoElec.(2012)
ORPacificorp(2013)Base
ORPortlandG&E(2012)
CALADWP(2012)
CAPWP(2012)
WA/ORCascadeNW(2012)
OKPublicServiceCoofOK(2012)FleetTransition:CSAPR
WACowlitzPUD(2012)
WATacomaElectric(2012)
NENPPD(2013)
IDIdahoPower(2013)
HIHECO(2013)
INDukeEnergyIndiana(2013)
IN/MIINMIPower(2013)
AKAlaskaEnergyAuthority(2012)Medium
COColoradoSpringsUtilities(2012)Low
INIndianaMunicipalPowerAgency(2013)Reference
MNWIGreatRiverEnergy(2012)Mid
WAPugetSoundEnergy(2013)Base
WASnohomishCountyPUD(2013)BaseCarbonPrice
WAGraysHarborPUD(2012)
NYConEd(2012)RGGI
MTNorthWesternEnergy(2013)
LACLECO(2013)
SCSCEG(2012)Base
NC/SCDukeEnergyCarolinas(2014)Base
OKOG&E(2014)Reference
NC/VADominion2014Carbon(2014)
MOAmerenMO(2014)MidCase
VTGreenMountainPower(2014)LaCapraRGGIForecast
INVectren(2014)IRPBaseCase
AZAPS(2014)BaseCase
CTCTDEEP(2014)RGGI
NMPNM(2014)Reference
AZUniSourceEnergy(2014)
WABentonPUD(2014)Federal
WACowlitzPUD(2014)Federal
LASWEPCO(prelim)(2015)Base
NCSCDukeEnergyProgress(2014)WithCO2
AZTucsonElectricPower(2014)
LAEntergyLADraft(2015)ReferenceCase
KSKansasCityBPU(2014)BaseCO2
50
Anumberofnonzero,nonconfidentialreferencecaseforecastsareexcluded,discussedfurtheronpage24.
FouroftheutilityforecastsdisplayedinFigure5areparticularlylowinthecontextoftheother
forecasts.TwoIRPsfromtheNortheastCommonwealthEdisonofNewYorkandtheConnecticut
DepartmentofEnergyandEnvironmentalProtectionbasetheirreferencecaseforecastsonRGGI
pricesbeforetherecentRGGIrevisionsdiscussedinSection4,resultinginpricesjustunder$2pershort
ton.TwootherIRPsPugetSoundEnergyandSnohomishCountyPUDuseaWashingtonState
mandatedCO2priceof$0.32pershorttonfortheirbasecaseanalyses.
Thefiveutilitiesthatassumea$0CO2priceintheirreferencecasesalsoconsiderseveraladditionalnon
51
zeroscenarios.TheseareprovidedinAppendixA.
Table3summarizestherangeofCO2pricesforecastedfor2020and2030.Notallforecastsstartby
2020,andthosethatdoaregenerallybelow$20perton.OftheutilitieswithanonzeroCO2price,all
butfourassumeapricein2025.
Table3:NumberofutilityCO2Forecastsfrom20122015inseveralpricerangesin2020and2030
>$0<$10
$10$20
$20$30
$30$40
>$40
7.
ComplianceYear
2020
2030
14
5
17
18
6
11
2
2
0
4
OVERVIEWOFTHEEVIDENCEFORAFUTURECO2PRICE
OurCO2priceforecastsaredevelopedbasedonthedatasourcesandinformationpresentedaboveand
reflectareasonablerangeofexpectationsregardingfutureeffortstolimitgreenhousegasemissions.
ThefollowingevidencehasguidedthedevelopmentoftheSynapseforecasts:
RegulatorymeasureslimitingCO2emissionsfrompowerplantswillbefinalizedinthe
nearterm.TheEPAhasproposedemissionsstandardsfornewandexistingpower
plantsunderSection111(d)oftheCleanAirAct,tobefinalizedbymidsummer2015.
Theseactionsrepresentaneffectivepricethatwillaffectutilityplanningand
operationaldecisions.
Environmentalregulationcan,andoftendoes,evolveincrementallyovertime.Initial
awarenessofenvironmentaldamages,followedsuccessivelybymeasurementandstudy
51
IndianapolisPower&LightsEnvironmentalCaseCO2forecastisprovidedonlyasatrajectorywithnovaluesonitsaxes,
andisexcludedfromAppendixA.
ofthedamagesandinitialattemptstoregulatetheresponsiblesources(andassociated
debateandlegalchallenges),areeventuallyfollowedbymoredetailedornuanced
regulations.Forclimatechangeandgreenhousegasemissionsfromtheelectricpower
sectorintheUnitedStates,thisprocesshasbeeninprogressforseveraldecades,andin
ourviewthetrendsarelikelytocontinue,asrisksareincreasinglyapparentand
regulatoryandpolicyresponsetoaddresstherisksisdemanded.
8.
StateandregionalactionlimitingCO2emissionsisongoingandgrowingmore
stringent.IntheNortheast,theRGGICO2caphasbeentightened,andrecentauctions
haveusedallavailablecostcontainmentreserves,resultinginhigherCO2pricesfor
electricgeneratorsintheregion.CaliforniasCapandTradeProgram,whichrepresents
anevenlargercarbonmarketthanRGGI,hasheldmanysuccessfulallowanceauctions,
hasbeensuccessfullydefendedagainstnumerouslegalchallenges,andwasexpanded
toincludenaturalgasandtransportationfuelsin2015.
ApriceforCO2isalreadybeingfactoredintofederalrulemakings.Thefederal
governmenthasdemonstratedacommitmenttoconsideringthebenefitsofCO2
abatementinrulemakingssuchasfueleconomyandappliancestandards.
OngoinganalysisoftheCleanPowerPlanproposalsuggestsawiderangeofpossible
prices.Importantfactorsincludethelevelofregionalcooperation,theavailabilityof
renewableenergyandenergyefficiency,andnaturalgasprices.
ElectricsupplierscontinuetoaccountfortheopportunitycostofCO2abatementin
theirresourceplanning.Prudentplanningrequiresutilitiestoconsideradequatelythe
potentialforfuturepolicies.TherangeofCO2pricesreportedinSection6indicatesthat
manyutilitiesbelievethatby2020therewilllikelybesignificanteconomicpressure
towardslowcarbonelectricgeneration.
SYNAPSE2015CO2PRICEFORECAST
Basedontheevidencediscussedinthisreport,SynapsehasdevelopedLow,Mid,andHighcase
forecastsforCO2pricesfrom2015to2050.TheseforecastsreflectourbestunderstandingofClean
PowerPlancompliancecosts,aswellasfutureexpectedcostsafter2030tomeetsciencebased
emissionstargets.Webelieveitishighlylikelythatneighboringstateswithlargedisparitiesinmitigation
costswillworktogethertotheirmutualbenefittoreduceoverallcompliancecosts.EPAhasindicatedit
isopentosuchcooperation.Asaresult,weprovideasinglenationallevelCO2priceanddonotattempt
toprovidestatelevelforecasts.Figure6andTable4showtheSynapseforecastsoverthe20152050
52
period.
Figure6:Synapse2015CO2PriceTrajectories
52
Figure11inAppendixAalsoprovidesacomparisonofthisupdatedSynapseCO2forecasttothe2013Synapseforecast.
Theseforecastsdonotdiffersubstantially.Twokeydifferencesareatighterrangeofpricesin2020resultingfromgreater
policycertainty,aswellashigher2015forecastsforthemidandhighcases,resultingfromtheindicatedstringencyofthe
CleanPowerPlan.The2015forecastisalsothefirstSynapseforecasttoextendto2050.
Table4:Synapse2015CO2priceprojections(2014dollarspershorttonCO2)
Intheseforecasts,theCleanPowerPlan,togetherwithotherfederalregulatorymeasures,place
economicpressureonCO2emittingresourcesinthenextseveralyears,suchthatitisrelativelymore
expensivetooperateahighcarbonemittingpowerplant.Thesepressuresarefollowedlaterbya
broaderfederalpolicy,suchascapandtrade.InanystateotherthantheRGGIregionandCalifornia,we
assumeazerocarbonpricethrough2019;beginningin2020,weexpectCleanPowerPlancompliance
willputeconomicpressureoncarbonemittingpowerplantsthroughouttheUnitedStates.Allannual
allowancepricesandlevelizedvaluesarereportedin2014dollarspershorttonofCO2.
TheLowcaseforecastsaCO2pricethatbeginsin2020at$15perton,andincreasesto
$25in2030and$45in2050,representinga$26pertonlevelizedpriceovertheperiod
20202050.ThisforecastrepresentsascenarioinwhichCleanPowerPlancomplianceis
relativelyeasy,andasimilarlevelofstringencyisassumedafter2030.Lowcaseprices
arealsorepresentativeoftheincrementalcosttoproduceelectricitywithgasovercoal,
asindicatedintheEIAs2014AnnualEnergyOutlook.
TheMidcaseforecastsaCO2pricethatbeginsin2020at$20perton,andincreasesto
$35in2030and$88in2050,representinga$42pertonlevelizedpriceovertheperiod
20202050.Thisforecastrepresentsascenarioinwhichfederalpoliciesare
implementedwithsignificantbutreasonablyachievablegoals.CleanPowerPlan
complianceisachievedandsciencebasedclimatetargetsareenactedmandatingat
leastan80percentreductioninelectricsectionemissionsfrom2005levelsby2050.
TheHighcaseforecastsaCO2pricethatbeginsin2020at$25perton,andincreasesto
approximately$54in2030and$120in2050,representinga$59pertonlevelizedprice
overtheperiod20202050.ThisforecastisconsistentwithastringentlevelofClean
PowerPlantargetsthatrecognizesthatachievingsciencebasedemissionsgoalsby2050
willbedifficult.Inrecognitionofthisdifficulty,implementationofstandardsmore
aggressivethantheCleanPowerPlanmaybeginasearlyas2025.Newregulationsmay
mandatethatelectricsectoremissionsarereducedto90percentormorebelow2005
levelsby2050,inrecognitionoflowercostemissionreductionmeasuresexpectedtobe
availableinthissector.Otherfactorsthatmayincreasethecostofachievingemissions
goalsinclude:greaterrestrictionsontheuseofoffsets;restrictedavailabilityorhigh
costoftechnologyalternativessuchasnuclear,biomass,andcarboncaptureand
sequestration;andmoreaggressiveinternationalactions(therebyresultinginfewer
inexpensiveinternationaloffsetsavailableforpurchasebyU.S.emitters).
Thesepricetrajectoriesaredesignedforplanningpurposes,sothatareasonablerangeofemissions
costscanbeusedtoinvestigatethelikelycostsofalternativeresourceplans.WeexpectanactualCO2
priceincurredbyutilitiesinallstatestofallsomewherebetweenthelowandhighestimatesthroughout
theforecastperiod.
InFigure7,theSynapseforecastsareshownincomparisontothereferencecaseutilityforecasts
presentedearlier.InFigure8,theSynapseforecastsarecomparedtoasummaryoftheotherevidence
presentedinthisreport,includingthefederalCO2priceforrulemakings;existingCleanPowerPlan
studies;andutilityreference,low,andhighscenarios.TheforecastsarealsocomparedtotheSynapse
2013forecastsandthefederalCO2priceforrulemakingsinAppendixA.
Figure7:Synapseforecastcomparedtorecentutilityreferencecaseforecasts
$120
$100
$80
$60
$40
$20
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
NVNevadaPower(2012)MidCarbonCase
WASeattleCityLight(2012)
NM/TXElPasoElec.(2012)
ORPortlandG&E(2012)
CAPWP(2012)
OKPublicServiceCoofOK(2012)FleetTransition:CSAPR
WATacomaElectric(2012)
IDIdahoPower(2013)
INDukeEnergyIndiana(2013)
AKAlaskaEnergyAuthority(2012)Medium
INIndianaMunicipalPowerAgency(2013)Reference
WAPugetSoundEnergy(2013)Base
WAGraysHarborPUD(2012)
MTNorthWesternEnergy(2013)
SCSCEG(2012)Base
CTCTDEEP(2014)RGGI
SynapseLow
SynapseHigh
UTPacifiCorp2012BaseCase($16CO2)(Dec2011)
NMSouthwesternPS(2012)
ORPacificorp(2013)Base
CALADWP(2012)
WA/ORCascadeNW(2012)
WACowlitzPUD(2012)
NENPPD(2013)
HIHECO(2013)
IN/MIINMIPower(2013)
COColoradoSpringsUtilities(2012)Low
MNWIGreatRiverEnergy(2012)Mid
WASnohomishCountyPUD(2013)BaseCarbonPrice
NYConEd(2012)RGGI
LACLECO(2013)
NC/SCDukeEnergyCarolinas(2014)Base
AZAPS(2014)BaseCase
SynapseMed
Figure8:SynapseCO2forecastsfor2020comparedtoothersources
$140
$120
2012$/shortton
$100
$80
$60
$40
$20
$0
FederalCarbon
Pricefor
Rulemakings
CPPstudies
UtilityLow
Cases
Utility
Reference
Cases
UtilityHigh
Cases
Synapse
9.
APPENDIXA:SYNAPSEFORECASTSCOMPAREDTOUTILITY
FORECASTSANDPASTSYNAPSEFORECASTS
Figure9:RangeofCO2pricescenariosforutilitieswith$0referencecases(2014$/shortton)
Note:Referenceforecastsarepresentedinblue.Allothersensitivitiesareingrey.
Figure10:2014and2015utilityreferencecaseforecasts
$60
$50
$40
$30
$20
$10
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
AZAPS(2014)BaseCase
CTCTDEEP(2014)RGGI
Figure11:Comparisonof2013and2015SynapseCO2priceforecasts
AllowancePrice(2014$pershortton)
120
100
Low2015
Low2013
Mid2015
Mid2013
High2015
High2013
80
60
40
20
0
2010
2015
2020
2025
2030
2035
2040
2045
2050
Figure12:SynapseMidcasecomparedtofederalCO2priceforrulemakings(3%discountrate)
$120
2014$/shortton
$100
SynapseMidCase
FederalCarbonPriceforRulemakings
$80
$60
$40
$20
$0
2015
2020
2025
2030
2035
2040
2045
2050

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2015 Carbon Dioxide Price Report

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2015CarbonDioxidePrice

Clean Air Act,

Current Status as of Release

EPA released a revised 111(b) rule, New

Awaiting final rule; expected before or in conjunction with release of final

EPA released a draft 111(d) rule controlling

1-Hour SO2 NAAQS was finalized in June

Initial designations based on monitoring data were made in June 2013;

EPA proposed to strengthen the 8-Hour

CO2 and other

June 2016: States must submit state compliance plans to EPA

Finalized in December 2011

April 16, 2015: Compliance deadline (rule allows for a one-year

Mercury, metal toxins,

EPA issued final rule regulating CCR on

EPA released a proposed rule with eight

Final rule for release of toxins into waterways must be finalized by

EPA released a final rule for implementation

Regional Haze Rule issued in July 1999

Sulfur oxides, nitrogen

Million Short Tons

CO2 Price Range (2014$/short ton)

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