This is the second in a series of questions that highlights RFF’s Expert Forum on EPA’s Clean Power Plan.
RFF asks the experts: Who should translate the states’ assigned rate-based goals into mass-based goals—the states or EPA—and how?
EPA’s Clean Power Plan assigns each state an emissions rate goal, in pounds of carbon dioxide (CO2) per megawatt hour (MWh), but also gives states an option to translate this goal into a mass-based goal, in pounds of CO2. Ten states already have carbon trading programs with mass-based caps, and advocates of this approach argue it would have advantages. However, the methodology for translation remains a source of confusion. EPA could eliminate this confusion by presumptively translating the goals into mass-based goals or, instead, providing further guidance to states on how to translate their rate-based goals to ensure consistency in methods, assumptions, and outcomes.
Who should translate EPA’s assigned rate-based goals into mass-based goals, and how?
“EPA should translate its rate-based goals into mass-based goals. A single standardized method for translation written by EPA would clear up confusion and remove the inevitability of goal inflation if states do the translations themselves.”
—Anthony Paul, Center Fellow, Center for Climate and Electricity Policy, Resources for the Future (See full response.)
“It would be beneficial for EPA to clarify both (a) the proposed methodology for converting from rate- to mass-based goals and (b) the result of applying the methodology to calculate mass-based state goals, subject to a public notice and comment period.”
—Jennifer Macedonia, Senior Advisor, Bipartisan Policy Center (See full response.)
“Although EPA recognizes the benefits of market-based mass emissions programs, there are many questions that it will need to address to support the use of mass emissions targets for 111(d) compliance.... EPA must provide that clarity in a way that does not penalize early movers.”
—David Littell, Commissioner, Maine Public Utilities Commission (See full response.)
“The agency should assist states with translating the plan's rate-based goal to a mass-based goal by providing a presumptive translation for all states or simply providing standardized guidance on the analytical tools and assumptions needed for making the conversion. The point is to start the conversation for states and regions to utilize all of the cost saving, flexible options a mass-based standard can offer.”
—Tom Lawler, Washington, DC Representative, International Emissions Trading Association (See full response.)
Center Fellow, Center for Climate and Electricity Policy, Resources for the Future
EPA should translate its rate-based goals into mass-based goals. It has already described, in broad terms, methods for states to make the translation, but the incentive for states to inflate their mass goals when translating is unavoidable. A single standardized method for translation written by EPA would clear up confusion and remove the inevitability of goal inflation if states do the translations themselves.
The premise for the translation is made clear by EPA. “The conversion must represent the tons of CO2 emissions that are projected to be emitted by affected EGUs, in the absence of emission standards contained in the plan, if the affected EGUs [electric generating units] were to perform at an average lb CO2/MWh rate equal to the rate-based goal.” (Federal Register, Vol. 79; 34953)
I’ve added the italics to emphasize the crucial parts of the statement. “In the absence of emissions standards” implies that we need a business-as-usual (BAU) projection of generation by affected EGUs. EPA already has deployed Integrated Planning Model (IPM) version 5.13 to project a Base Case for the power sector through 2030. The confusion arises from whom are the affected EGUs? EPA’s formulation of the rate-based goals partly resolves the confusion. It is located on page 18 of the Goal Computation Technical Support Document.
rate goal [lbs/MWh] =
emissions from existing fossil [lbs] /
( generation from existing fossil +
generation from at-risk nuclear +
generation from projected renewables +
projected demand savings from energy efficiency ) [MWh]
A little algebra translates a rate goal to a mass goal. The denominator in the formula is projected generation from affected EGUs under BAU conditions plus projected energy efficiency. The product of the rate goal and the denominator is the mass goal.
The rate goal comes from EPA, but generation by affected EGUs must be produced by a model. Different models produce different projections, so allowing states to choose a model effectively invites them to manipulate the stringency of the rule. If they choose a model that projects a high level of generation then emissions will be higher and costs lower than if they choose one that projects less generation. EPA can simultaneously obviate this potential for manipulation and the burden they place on themselves to accept or reject the models chosen by the states if they employ a model themselves to project generation and make the rate-to-mass conversion.
The unresolved issue is whether states will include new generators in their compliance plans. Particularly salient are new natural gas combined-cycle and nuclear generators. Their inclusion in compliance plans is left open for comment by EPA. If they are included in compliance plans then they need to be included in the translation.
To include new generators in the translation EPA would add projected generation from those sources into generation from affected EGUs, which is multiplied by the rate goal to get the mass goal. That amounts to increasing the mass goal, but simultaneously covering more sources. The total emissions and cost consequences of including new generators are not known ex-ante. They depend upon whether states adopt rate or mass goals.
Senior Advisor, Bipartisan Policy Center
The translation of a rate-based state goal into a mass-based state goal is intended to produce an equivalent value. However, depending on which assumptions and methodology are applied, a variety of outcomes is possible. These potential differences impact the stringency of what is required within each state to implement Section 111(d). If the stringency can vary based on available methodological choices, is there truly an “equivalent” value?
Although conceptually simple—Emission Rate (lbs/MWh) * Generation (MWh) = Mass Emissions (tons)—there are at least three thorny aspects to the translation from rate to mass in practice.
- Future generation is unknown. Like equating speed and distance when time is undefined, converting an emissions rate to an equivalent mass of emissions for a future year is challenging because the amount of future electricity generation is unknown.
- Measures that will be enforceable under the state plan are to be excluded from the projection scenario. EPA proposes the use of a projected scenario to convert from rate- to mass-based goals and proposes that any programs that will be enforceable under the state plan should be excluded from the scenario. This sets up a decisionmaking loop, where the goal conversion is dependent on decisions to be made in developing a state plan to implement the goal.
- The state goal is not an emissions rate. The conversion is further complicated because the state goal is not in the form of a simple emissions rate. In setting up a mechanism to credit what is, in essence, a mass-based quantity (the CO2 emissions avoided through various actions that offset generation and emissions from affected fossil-fired generators), EPA created a new metric for state goals (see discussion here). This quasi-emissions rate includes adjustments to account for CO2 avoidance from renewable energy, a portion of nuclear energy, and end-use energy efficiency measures.
The quasi-emissions rate means it is not mathematically correct to simply multiply the rate times generation to get mass emissions, as suggested in the equation above. This adds another twist to an already challenging problem of determining the appropriate generation for converting the rate-based goal to a mass-based goal.
Such uncertainty has the potential to create confusion, lead to delays, and produce inequalities across states. Given the tight timing, the importance of state-specific analysis to develop an implementation plan that meets state objectives, and the time required for potential collaboration with stakeholders, legislatures, and other states, it would be detrimental to find out years into that effort that EPA did not find the translation to a mass-based goal approvable.
States and stakeholders would benefit from upfront clarity regarding an acceptable methodology and assumptions, as well as an opportunity to comment on the proposed conversion in a transparent way and before all of the detailed work is done to analyze, negotiate, and develop a plan. Thus, it would be beneficial for EPA to clarify both (a) the proposed methodology for converting from rate- to mass-based goals and (b) the result of applying the methodology to calculate mass-based state goals, subject to a public notice and comment period.
Commissioner, Maine Public Utilities Commission
Former Chairman, Regional Greenhouse Gas Initiative
When EPA released the proposed Clean Power Plan in June, states were assigned emissions rate goals (CO2 per MWh) for reducing carbon emissions from existing power sources. EPA also provided states with the option to translate these emissions rates into mass emissions targets (CO2 tons). Moreover, EPA recognized the effectiveness of market-based regional mass emissions programs like the Regional Greenhouse Gas Initiative (RGGI).
Market-based greenhouse gas reduction programs have proven to be one of the best and most cost-effective methods to reduce carbon emissions. The RGGI states have experienced a 40 percent reduction in power sector CO2 emissions since 2005, due to a combination of factors, including market forces, RGGI and other state clean energy programs, and multi-pollutant control programs. These emissions reductions have been realized even as the regional economy has grown.
Multi-state programs with mass-based compliance more closely align with the regional nature of the electricity grid and foster regional cooperation to deploy the least-cost solution to comply. The RGGI states have witnessed how our regional structure has allowed for efficiencies that would have been otherwise constrained by state borders.
Programs like RGGI enable compliance through market mechanisms that allow market participants to seek out the least expensive emissions reductions across the region. By expanding the geographic scope of compliance, obligated entities are able to take advantage of a portfolio of assets to comply at the lowest costs. Multi-state approaches increase market liquidity and help mitigate risk by spreading risk across more entities and a larger region. All of this supports cost-effective compliance.
A regional program, specifically a mass-based approach, provides for a simple, transparent, and verifiable compliance mechanism. The RGGI states are often asked if managing and accounting for a regional mass budget program is difficult. Our answer is no, as we have developed systems to effectively track emissions, allowance distribution, and compliance at both the state and regional level. Without a mass cap, it is more complex to document and verify emissions reductions attributable to programs that support renewable energy and energy efficiency. With a mass emission budget, emissions are limited by allowances distributed. The emissions reduction benefits of multiple policies are captured by the emissions budget. The regional mass-cap serves as a transparent, simple, and effective compliance tracker.
Although EPA recognizes the benefits of market-based mass emissions programs, there are many questions that it will need to address to support the use of mass emissions targets for 111(d) compliance. While some anticipated that EPA would release a mathematical calculation for translating the rate targets to mass emissions targets, EPA instead released several technical support documents, including one that discusses potential analytic approaches for translating from the rate-based emissions goal to a mass-based goal, and projecting the emissions performance that would be achieved through state plans.
The modeling described by EPA in the technical support document requires a state to develop assumptions and projections for electricity, load growth, cost and performance of electric generating technologies, and transmission capability and expansion. Electricity system modeling is regularly done but is no small task and states would not only be developing assumptions for their state, but also other states in their region or power pool. While the state-specific burden is lessened for states developing multi-state plans, assumptions still be need to be made for neighboring states to those in the multi-state plan. How much will these assumptions vary in different state modeling and how could these differences impact the mass emissions translation across states? One thinks EPA will want some consistency in modeling approaches, resource and load, and new transmission build assumptions.
The modeling process includes a reference case, alternatively called a baseline case, and a mass-based emissions policy scenario where the mass emissions target is generated by applying the rate-based goals. There is also a state policy plan case. Clarity on which current state policies and plans are included in the reference case versus the state plan case is necessary; I would argue EPA must provide that clarity in a way that does not penalize early movers. If an early mover’s energy efficiency, carbon reduction, and renewable energy programs are incorporated into the reference case, it follows that all on-the-books programs are taken as part of the baseline introducing a serious first-mover penalty.
Another area for clarification is the calculation of a regional target from individual state rate targets. If modeling is necessary to determine the emissions targets, do states model the individual state rate targets, or model a regional target to determine the mass emissions? Should the regional target be weighted by each state’s contribution to fossil fuel generation (111[d] affected generation) or total generation? Should this be based on past generation (e.g., 2012 generation), or projected future generation (e.g., 2030 generation)?
And what about 111(b) new sources and the translation to mass emissions? Where do they fit into the translation to mass if the EPA state rates targets are for 111(d)-affected sources? Presumably, new sources are excluded unless a state opts to include them, in which case, presumably, the new sources would be counted in the rate and mass calculations for those 111(b) sources a state opts into its 111(d) program.
While these questions need to be addressed, EPA should be commended for developing a rule that raises these issues and recognizes the diversity of state energy policies to achieve real and cost-effective carbon reductions.
Washington, DC Representative, International Emissions Trading Association (IETA)
Fundamentally, IETA supports market solutions as the best means to drive emission reductions at the lowest cost to the economy. We believe enabling states to convert the proposal’s rate-based goal to mass-based goals is a necessity if states are going to be able to harness many of the flexibilities the proposal contemplates. Currently, the most effective programs being implemented by states are the cap-and-trade programs of California and RGGI, as well as the utility planning approaches utilized by Colorado and Minnesota. Having a mass-based goal is an important starting point for other states to be able to contemplate whether these types of approaches would be the best method for complying with the Clean Power Plan.
However, as the proposal’s technical support document recognizes, there is not a simple method for making the conversion. A state must undergo a very complex and expensive modeling exercise to determine the mass-based equivalent to the proposal’s goals.
Unfortunately, because of the amount of effort and resources a state would have to expend to simply determine whether a mass-based goal would be a workable approach, we are concerned that states will forego that option. Additionally, it is our belief that the lack of mass-based equivalent goals is a major barrier to regional cooperation. Due to the state-specific nature of the proposed goals, it is very difficult for states to discuss a regional approach without having a means to make an “apples to apples” comparison of their states’ reduction requirements.
The agency should assist states with translating the plan’s rate-based goal to a mass-based goal by providing a presumptive translation for all states or simply providing standardized guidance on the analytical tools and assumptions needed for making the conversion.
Simply put, we believe this information is needed, and we have written EPA requesting that the agency provide presumptive mass-based standards for each state. We believe this information will inform many states’ and businesses’ comments on the rule, and it should be provided while they have an opportunity to respond during the formal commenting process.
We recognize that developing this conversion requires several specific assumptions to be made as part of the modeling process. This is why the information should be provided while the comment period is still open, and why the goals should be “presumptive.” If a state would like to challenge any or all of the assumptions that drive the outcome of the conversion, the state should be able to run their own numbers and justify why the assumptions should be different. The point is to start the conversation for states and regions to utilize all of the cost-saving, flexible options a mass-based standard can offer.