EPA’s Clean Power Plant Proposed Rule and Its Impact in Texas

In June, EPA introduced the Clean Power Plan Proposed Rule, a plan to cut carbon emissions from fossil fuel-fired power plants by 30 percent from 2005 levels by 2030. As proposed, the rule has two main elements: (1) specific goals setting amounts by which each state must reduce its CO2 emissions and (2) standards that states should follow when developing, submitting, and implementing plans to achieve these goals.

The proposed rule affords states tremendous flexibility in achieving emissions goals. The rule also allows up to three years for submission of final plans and up to fifteen years for full implementation of all emission reduction measures. By using 2005 as the baseline year for measuring emissions reductions, EPA is essentially giving credit to those states that have already begun reduction programs.

Each state goal centers on a rate – that is, a pollution-to-power ratio (CO2 produced per megawatt hour of electricity generated) – for existing fossil fuel-fired power plants. EPA calculated the goals  using a “best system of emission reduction” (BSER).  The BSER rests upon what EPA refers to as four “building blocks.”  From the building blocks, the EPA projected the amount by which each state could reasonably reduce CO2 emissions.

Building Blocks

The building blocks are not prescriptive.  While EPA used the building blocks to calculate goals, states are not expected to reduce emissions according to the building block estimates when working toward those goals.  States have the flexibility to select their own portfolio of abatement measures, including only one, or even all four, of the building blocks.

The building blocks include:

  • Reducing the carbon intensity of generation at individual affected electric generating units (EGUs) through heat rate improvements.
  • Reducing emissions from the most carbon-intensive affected EGUs in the amount that results from substituting generation at those EGUs with generation from less carbon intensive affected EGUs.  EPA surveyed 1800 natural gas plants in 2012, and found that, nationwide, the fleet had an average capacity factor of 45 percent. Because capacity was far less than available technology, EPA suggests that there is significant potential for increased generation from natural gas. Specifically, EPA forecasts a 70 percent capacity factor ceiling for the state’s natural gas plants. This increase would be offset by a corresponding decrease in coal generation, which could significantly reduce CO2 emissions.
  • Reducing emissions from affected EGUs in the amount that results from substituting generation at those EGUs with expanded low—or zero—carbon generation.
  • Reducing emissions from affected EGUs in the amount that results from the use of demand-side energy efficiency that reduces the amount of generation required.

Texas’ Emissions Reduction Goal

Numerically, Texas will have to make more drastic emissions reductions than most other states; there are only 12 states that will need to cut emissions by a higher percentage than Texas, including Arkansas and Louisiana. Statistically, Washington has the most work to do, requiring a 72 percent reduction in CO2 emissions, while North Dakota only needs to cut emissions by 11%, the smallest required reduction among the 50 states.

For every megawatt-hour of electricity that Texas generated as of the 2005 base year, its power plants emitted 1,284 pounds of carbon dioxide. EPA is calling for a reduction of 38 percent to 791 pounds per kilowatt hour. EPA calculated at the 38 percent goal by making certain assumptions under the four building blocks:

  • Coal-Fired Power Plant Improvements: EPA forecast that, after heat rate improvements, Texas can reduce its emissions to 1,235 pounds per kilowatt hour. These improvements would primarily come from following “best practices,” but also from installing and using equipment upgrades. These adjustments, including upgrades to boilers, steam turbines, and control systems, will improve heat rate by 4 percent and 2 percent, respectively. Heat rate improvements account for 10 percent of EPA’s forecast emissions reductions in Texas. Furthermore, using the Integrated Planning Model (IPM), a dynamic, deterministic linear programming model of the U.S. electric power sector, EPA estimates that heat rate improvements would be cost-neutral for utilities, due to fuel savings alone. Once CO2 emissions are considered, heat rate improvements become cost-negative for society as a whole. So, even if this rule does increase short-term capital costs for power plants, power plants could eventually save money as a result of long-term cost savings.
  • Shift to Existing Natural Gas Fired Power Plants: In Texas, redispatch via natural gas accounts for 52 percent of total forecast reductions, bringing the aforementioned 1,235 pounds per kilowatt hour down to 979. According to EPA, this estimation can even be achieved without significant price disruptions; using a model similar to IPM, natural gas price projections never rose more than 10 percent between 2020 and 2029. Historical natural gas price volatility indices also indicate that redispatch via natural gas, and consequently, away from coal, would not lead to large scale market disruptions.
  • Renewables: EPA grouped states into regions (Texas is in the South Central Region), and computed target renewable percentages. For the South Central Region, EPA predicts 20 percent of all generation by 2030 to come from renewables. EPA forecasts 24 percent of reductions necessary to meet the overall 38 percent goal will come from increased usage of renewables. Texas is expected to reach its 20 percent goal by 2028, which it will have achieved from a starting point of 8 percent in 2012.  According to the U.S. Energy Information Administration, Texas generated 32 million megawatt hours of electricity from wind in 2012, nearly double what was produced only four years earlier. But, EPA projects that Texas will generate an additional 53 million megawatt hours of electricity by 2028, which would enable Texas to meet its 20 percent renewables goal by 2030. or electricity supply that is available to meet consistent demand, improvements in coal power generation will still be necessary.
  • Energy Efficiency: Finally, EPA projects 14 percent of emissions reductions in Texas will come from demand-side energy efficiency (EE) improvements. EE policies include state appliance and equipment standards, building energy disclosure requirements, financing strategies, tax solutions, and “lead by example” plans targeting energy use in state operations. These improvements can also come via piecemeal progress in homes and businesses such as better light bulbs and appliances.

Because Texas has shifted significantly toward wind energy since 2005, achieving a 38 percent nominal reduction should not be as difficult as it might appear at first glance. Natural gas represents the largest percentage of the generation mix, though coal accounted for twice as much generation as natural gas as recently as 2004. Additionally, Texas continues to lead the nation in wind production, and its shift toward wind could ease the pain of achieving the carbon reductions the proposed rule would mandate.

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