New EIA Insights on Clean Power Plan Must Be Taken With a Grain of Salt

Since its unveiling in June 2014, the Environmental Protection Agency’s (EPA) proposed Clean Power Plan has dominated much of the climate change discourse in Washington. Introduced under section 111(d) of the Clean Air Act, the proposal would for the first time regulate carbon dioxide (CO2) emissions from the nation’s power sector, and is a trademark feature of President Obama’s Climate Action Plan. Overall, the plan aims to curb carbon pollution from power plants 30 percent below 2005 levels by 2030, giving each state an individualized target emissions rate which it must achieve by 2030. The EPA is expected to finalize its Clean Power Plan in August.

This May, the U.S. Energy Information Administration (EIA) released a comprehensive study, Analysis of the Impacts of the Clean Power Plan, on the implications of the potential EPA rule. The study, which provides a wealth of data and findings for policymakers to interpret, was produced in response to a request from Rep. Lamar Smith (R-TX), Chairman of the House Committee on Science, Space and Technology.

From a climate perspective, the EIA report suggests a strong start for the proposed plan, at least relative to stated EPA goals. The study finds power plant carbon emissions could fall as much as 35 percent below 2005 levels by the year 2025, dipping close to 1,500 million metric tons of carbon annually, a benchmark not seen since the early 1980s. After 2025, EIA predicts emissions may begin to gradually rise again, hitting levels around 1,600 million metric tons in 2030. This level, while higher than the 2025 nadir, still amounts to a 34 percent reduction from 2005 levels.

Beyond 2030, emissions may continue to gradually rise. This is due to a potential increase in overall electricity demand, which would require additional power generation. The increase in emissions, despite a supposedly flat emissions standard, reflects the way the Clean Power Plan is written: carbon emissions can rise, as long as the ratio of emissions to total power production remains constant. This allows additional coal power plants to come online, as long as sufficient renewable energy and energy efficiency is also implemented.

However, EIA also studied a “policy extension” scenario, in which the Clean Power Plan is extended after 2030 with additional targets. In this scenario, CO2 emissions begin a new descent in 2030, reaching 45 percent below 2005 levels by the year 2040. The EIA study uses its Annual Energy Outlook 2015, which doesn’t account for the introduction of the proposed EPA policy, as its reference case. The “base policy” scenario EIA examined shows how the current draft proposal of the Clean Power Plan would affect power sector emissions.*

The study provides significant insights into the way the EPA plan would alter the power sector. In its early years, the limits imposed by the rule would manifest in a large transition to natural gas in order to compensate for the declining role of coal, followed by steady growth in renewable energy generation like solar and wind through 2030. EIA also notes that natural gas has already begun to take a larger role in the electricity mix at coal’s expense, even before the plan's enactment. Under a scenario with bountiful and cheap oil and gas resources continuing through 2040, renewable energy deployment suffers, and natural gas is the primary way states comply with the Clean Power Plan.

The nation’s stakeholders haven’t embraced the EPA proposal universally. Interestingly, the Clean Power Plan has come under fire from some environmentalists, who argue it doesn’t do enough to address the urgent climate crisis. Power plants only produce around 40 percent of U.S. carbon emissions, and CO2 is only one (albeit major) of many greenhouse gases polluting the atmosphere. The natural gas industry, expected to grow substantially under the EPA plan, is notorious for its leakage of methane, a greenhouse gas 84 times more potent than CO2 over a 20-year period. This has led some groups, such as the Union for Concerned Scientists (UCS), to call for the EPA to put in place more ambitious estimates for renewable energy utilization under the plan. UCS notes that some of EPA’s expectations for renewable energy use are below what is required by state renewable energy portfolio standards, leading to an underestimate of the renewable energy coming online in the coming years.

At the other end of the spectrum, critics argue that the rule will kill jobs in the coal industry, increase the cost of electricity, and hurt the U.S. economy. EIA predicts that about twice the expected number of coal plants will shut down by 2040 if the plan is finalized, with many closing shop by 2020. EIA also estimates electricity prices will be three to seven percent higher than they would otherwise have been from 2020 to 2025, eventually returning to baseline levels in 2030—although price impacts differ regionally. The study also indicated that gross domestic product (GDP), industrial shipments and consumption will be reduced 0.17-0.25 percent relative to baseline under the Clean Power Plan. EIA added that these deleterious economic effects would be mitigated under high economic growth or high-cost oil and gas resource scenarios.

These predictions, however, do not account for the wealth of new opportunities expected in the renewable and natural gas industries, which by some estimates could generate as many as 273,000 jobs. EIA also does not model the economic advantages of energy independence and security that the proposal would facilitate, and it only examines rate-based emissions reductions, although states have the option of choosing mass-based, or absolute, reduction targets. Last but certainly not least, the EIA analysis leaves out the environmental and public health benefits of the EPA plan. The future economic costs of unmitigated climate change are difficult to quantify, but are likely on the order of trillions of dollars. .

Clearly, therefore, it is important to take all of EIA’s assessments with a grain of salt, even if they are the most comprehensive analyses available. An abundance of factors make accurately predicting the nation’s energy future an incredibly difficult task. Just this week, EIA reported that renewable energy sources accounted for 13.93 percent of net U.S. electrical generation in the first quarter of 2015. A release from the same agency just two years ago predicted this level wouldn’t be attained until 2040.

Author: Billy Lee