Saturday, January 21, 2012

Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act
Under authority granted by the Clean Air Act, the Environmental Protection Agency is developing performance standards for existing stationary sources, such as power plants and industrial facilities. Coal-fired electricity generators represent an important part of this regulatory effort as they account for about one-third of annual U.S. carbon dioxide (CO2) emissions. New research from RFF’s Josh Linn, Erin Mastrangelo, and Dallas Burtraw confirms that there are important, low-cost opportunities to reduce emissions at existing coal-fired facilities in the short run.

The novelty and potential of the electricity sector standards raise three questions:
  1. What are the available abatement opportunities from existing coal-fired power plants?
  2. What are the costs of reducing emissions?
  3. What is the increase in utilization at plants after they become more efficient?
The authors analyze the actual operating efficiency of the entire fleet of coal units in the United States, finding that fleetwide, emissions rate reductions of up to 5 percent may be technically feasible without changing the amount of electricity generated with coal.

Using the response of units to previous changes in fuel prices for the years 1985–2009, they estimate the costs of efficiency improvements to be as low as or perhaps somewhat lower than the engineering estimates currently used by EPA. They also find that efficiency improvements would lead to increased utilization of plants, which would erode up to 15 percent of the emissions reductions achievable by efficiency improvements.

The research provides the first empirical information about the actual magnitude and cost of these potential efficiency improvements across the fleet of existing generating units. Substantial long-term reductions in GHG emissions from the power sector will require greater use of nonemitting sources (renewables, nuclear), lower-emitting sources (natural gas), or postcombustion control of carbon. However, this analysis provides evidence that there exist important opportunities to reduce emissions in the short run.

Abstract: The Clean Air Act has assumed the central role in U.S. climate policy, directing the Environmental Protection Agency to develop regulations governing the emissions of greenhouse gases from existing coal-fired power plants. The cost and environmental effectiveness of policy options depend on abatement costs, the magnitude of emissions reduction opportunities, and the sensitivity of plant utilization. This paper examines the operation of electricity-generating units over 25 years to estimate the marginal costs and potential magnitude of emissions reductions that could result from improvements in their operating efficiency. We find that a 10 percent increase in coal prices causes a 0.3 to 0.9 percent heat rate reduction, broadly consistent with engineering assessments of abatement costs and opportunities. We also find that coal prices have a significant effect on utilization, but that will vary depending on the policy design. The results are used to compare cost-effectiveness of alternative policies.

Resources For the Future (RFF)
January 10, 2012

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