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Reliability in the Electricity Industry under New Environmental Regulations

May 18, 2012

Reliability in the Electricity Industry under New Environmental Regulations
RFF Feature
May 18, 2012

Power lines
The U.S. Environmental Protection Agency has released two new rules to reduce air pollution from the electricity sector. The Cross-State Air Pollution Rule aims to curb emissions of nitrogen dioxide and sulfur dioxide in the eastern half of the country that contribute to air pollution in downwind states. The Mercury and Air Toxics Standards seek to reduce emissions of mercury and other toxic pollutants nationwide. Together, these two rules pose substantial new pollution limits on fossil-fuel generators, and, in particular, coal plants.

In anticipation of these regulations taking effect, numerous studies have sought to predict how the electricity industry will react. Several have concluded that the regulations would force many coal plants to shut down, which could lead to reliability problems in the electricity sector. However, in a new RFF discussion paper, Dallas Burtraw, Karen Palmer, Anthony Paul, Blair Beasley, and Matt Woerman find that the electricity sector is expected to comply with the rules without major disruptions. The authors analyze the impact of the EPA regulations using a detailed simulation model of the U.S. electricity market. Their findings suggest that few coal generators will be forced to retire and retail electricity prices will increase only slightly.

The new air pollution rules are not without impact, however. The authors find that the regulations lead to reductions in emissions, including large decreases in mercury. These reductions are a direct result of substantial investments in new pollution-control technologies, which are paid for by both electricity generators through lower profits and consumers through higher prices. ​