This is the tenth in a series of questions that highlights RFF’s Expert Forum on EPA’s Clean Power Plan.
RFF asks the experts: Should EPA modify how it treats new natural gas plants in the Clean Power Plan? And, if so, how?
Building new natural gas plants to replace existing coal plants can be a cost-effective way to achieve emissions reductions. However, EPA’s Clean Power Plan is designed to regulate carbon emissions from existing power plants, so the potential for emissions reductions from new natural gas plants (natural gas combined cycle units) are not counted in the plan’s emissions targets. Some believe that including these plants as compliance options for states provides more flexibility. Others argue that making such investments are a short-term and imperfect fix, and that achieving even larger emissions reductions in the future will require even cleaner technologies. Should EPA modify the way it treats new natural gas plants in the Clean Power Plan? And, if so, how?
"Considering that power plants are long-lived investments, the construction of new plants today to meet the moderate goals of the current EPA proposal may be regrettable in later years if goals for emissions reductions tighten." See full response.
—Anthony Paul, Center Fellow, Resources for the Future
"It is important to remember that considering new [natural gas plants] as part of a ‘best system of emission reduction’ would change the stringency of emissions rate goals for some states, but it would not require any state to build new [natural gas plants]." See full response.
—John Larsen, Senior Analyst, Rhodium Group LLC
"EPA should modify the Clean Power Plan so that it accounts for the emissions impacts of new natural gas combined cycle generators. Not appropriately accounting for emissions from new natural gas plants would encourage utilities to increase their dependence on natural gas, resulting in more fracking and more pollution." See full response.
—Kate DeAngelis, Climate and Energy Campaigner, Friends of the Earth
Anthony Paul
Center Fellow, Resources for the Future
EPA requested comments on whether investments in new natural gas combined cycle power plants should be allowed to be covered under state plans for compliance with the Clean Power Plan. Our modeling results suggest that the construction of new natural gas plants along with the retirement of some of the most inefficient coal boilers may be a cost-effective means for states to achieve carbon dioxide (CO2) emissions mitigation. However, this strategy may not be cost-effective if the objective is to achieve reductions well beyond what is called for in the Clean Power Plan. Considering that power plants are long-lived investments, the construction of new plants today to meet the moderate goals of the current EPA proposal may be regrettable in later years if goals for emissions reductions tighten. Some commentators have referred to natural gas as a “bridge” to further emissions reductions in the future, but some environmental advocates worry that the bridge will carry us to a circumstance where it would be necessary to prematurely retire the natural gas plants that might be built in this decade to achieve future emissions goals.
The role for new natural gas plants depends on whether states choose emissions reduction policies that are rate- or mass-based. For example, a cap-and-trade program and a fee on carbon emissions are mass-based policies in that generators must pay for their tons (mass) of emissions. Considering that EPA has proposed targets in rate terms (pounds of CO2 per MWh), states may choose to implement a rate-based policy, such as a tradable performance standard. This approach provides incentives for power generators to reduce their emissions rate, but does not directly address the actual mass of emissions being released into the atmosphere. The inclusion or exclusion of new natural gas plants has different effects when implemented as part of a rate-base or mass-based policy.
Under a rate-based, policy the regulator sets an emissions rate target that must be met, on average, across the fleet of power generators that are covered by the policy in the regulator’s state. Any covered generator with an emissions rate that is above the target must pay a tax on each MWh of generation based on the difference between their emissions rate and the target. However, covered generators with emissions rates below the target receive a subsidy on the difference. New natural gas plants project to have the lowest emissions rates in the fossil fleet; for most states that rate is below their targets in the Clean Power Plan. In these states, including new natural gas plants in compliance plans under a rate-based policy will encourage investment in such generators. If the technology is not covered as a mechanism for compliance, then they would not receive a subsidy and it would be a less attractive investment.
Under a mass-based policy, every generator that is covered by the policy simply pays a tax. It is therefore appealing to every type of fossil generator to be excluded from coverage, including new natural gas plants.
To summarize, more new investments in natural gas combined cycle power plants will occur under a rate-based policy in most states if they are included as an option for complying with the Clean Power Plan. Under a mass-based policy, coverage of new natural gas plants will discourage investment in the technology. Whether or not investment in new natural gas plants is desirable depends on the long-run trajectory of the power sector. In the short run, investment in new natural gas plants is a cost-effective means to emissions reductions. In the long run, such investments may become a burden.
John Larsen
Senior Analyst, Rhodium Group LLC
Although the EPA Clean Power Plan (CPP) proposal does not account for emissions reductions that could be achieved from building new natural gas combined cycles (NGCCs) to displace existing fossil generation, it does take comment on whether or not it should. EPA’s recently released Notice of Data Availability (NODA) also contemplates the option.
The CPP as currently proposed does provide an incentive to deploy new NGCCs even if EPA doesn’t consider them to be part of its “best system of emission seductions.” In our Remaking American Power CPP analysis (done jointly with the Center for Strategic and International Studies) we found the CPP could drive anywhere from 30 to 100 gigawatts of additional new NGCC capacity by 2025. This suggests that there are cost-effective options for reducing emissions from existing units by building new NGCCs.
One option EPA could use to determine how new NGCC deployment could reduce emissions rates in a state’s existing fossil fleet starts with reviewing recent trends in the power sector. Looking at data from the US Energy Information Administration, between 2008 and 2012, 32 states saw the retirement of base and intermediate-load fossil capacity totaling roughly 32 gigawatts (50 percent coal, 48 percent oil-gas steam, 2 percent NGCC). In those same states over the same period, 43 gigawatts of new base and intermediate-load fossil capacity was built (70 percent NGCC, the rest coal). Meanwhile national electric demand was flat. This suggests that most of the new capacity additions were built to replace retiring capacity, not to supply new demand.
Overall, between 2008 and 2012, annual average replacement capacity additions in states that saw capacity retire represented 2.5 percent of the average total capacity of fossil steam generators. EPA could apply this “annual replacement rate” to existing fossil steam capacity in a given state as a starting point for determining how much cost-effective new NGCC capacity could be deployed annually to displace existing fossil generation. For example, if a state has 10 gigawatts of coal capacity, EPA could assume that 250 MW of new NGCC capacity could be built each year. Assuming the new capacity runs at a 70 percent capacity factor, it would displace 1,533,000 MWHs of coal generation as part of the building block calculation. The corresponding coal generation and associated emissions would be subtracted from the denominator and numerator respectively. Meanwhile, the new generation and emissions would not be added into the emissions rate calculation, because new NGCCs are not subject to regulation under Section 111(d). Other factors EPA could consider as part of this approach include a state’s access to adequate natural gas pipeline capacity, timing required to build new infrastructure, and overall abatement cost relative to other building blocks.
It is important to remember that considering new NGCCs as part of a “best system of emission reduction” would change the stringency of emissions rate goals for some states, but it would not require any state to build new NGCCs. Assuming the rest of the building blocks in the CPP proposal do not change, considering new NGCCs would only influence emissions rate goals for states that have a substantial amount of coal generation and no or very few existing NGCCs. States that fall into this category tend to have modest emissions rate goals under the current proposal relative to other states. As a result, the most carbon-intensive states would need to achieve more emissions reductions than in the current proposal, whereas the remaining states would see little or no change to their goals.
Kate DeAngelis
Climate and Energy Campaigner, Friends of the Earth
Natural gas and the methods used for its extraction produce large amounts of pollution that endanger public safety. Fracking, one of the most common methods to extract natural gas, presents a serious danger to the climate. Fracking damages air quality and water resources, leads to an increase in earthquakes, and emits large amounts of methane—a greenhouse gas that is 86 times more potent than carbon dioxide over a 20 year timeframe. Recent studies have found that the volume of methane leaked from natural gas wells could be up to 1,000 times what EPA has estimated. This pollution has led many scientists to conclude that natural gas could be worse for the climate than other fossil fuels, such as coal.
The formula that EPA used to calculate the states’ emissions reduction goals did not correctly account for the emissions from new natural gas combined cycle generation. States that increase new natural gas combined cycle generation will not be accounting for the accompanying rise in emissions, so the Clean Power Plan will not be able to appropriately account for the emissions from these states. This defect allows states to treat new natural gas combined cycle generation as a zero-emissions source, creating a perverse incentive for utilities to increase their reliance on new natural gas.
Therefore, EPA should modify the Clean Power Plan, so that it accounts for the emissions impacts of new natural gas combined cycle generators. Not appropriately accounting for emissions from new natural gas plants would encourage utilities to increase their dependence on natural gas, resulting in more fracking and more pollution. This increase would have devastating impacts on the climate as even more methane leaks into the atmosphere.
Moreover, new natural gas plants require investment in additional infrastructure, including pipelines, roads, and processing facilities. Committing more money to natural gas means doubling down on this energy source and cementing our dependence on it for decades to come. This investment in natural gas will divert current and future investment from clean, renewable technologies. Without this investment, innovations in the wind and solar industries will be much slower, delaying the necessary transition to a clean, sustainable energy future. In addition, more natural gas will encourage more liquefied natural gas to be exported, which would cause even greater greenhouse gas emissions, as liquefied natural gas has a greater impact on the climate than coal.
Instead, the rule should provide greater incentives for clean renewables such as wind and solar. In the proposed rule, EPA assumes that states will only grow their renewable energy capacity at approximately the rate of their neighbors, as mandated by their current renewable energy policies. This approach means that renewable energy targets are woefully below Greenpeace’s estimates of the renewable energy potential in the country. The Union of Concerned Scientists finds that EPA underestimates by about half the proportion of cost-effective renewable energy that could be included in the state emissions reduction targets. Rather than adjusting the treatment of new natural gas, the final rule should adjust its treatment of renewables by assuming greater reliance as deemed possible by the National Renewable Energy Laboratory.
President Obama has spoken boldly about the need to take action on climate change. In order to keep to the promises he has made both domestically and internationally, the Clean Power Plan must properly account for new natural gas combined cycle generation in calculating compliance with greenhouse gas emissions reductions. Otherwise, the rule will promote natural gas over renewables, such as wind and solar, and will not result in the necessary emissions reductions to keep global warming to 1.5 degrees Celsius above pre-industrial levels.
