# Presentation: 328301

## INFORMS 2008October 13, 2008

**Misha Adamantiades**
*Program Development Branch*
*Clean Air Markets Division*
*Office of Air and Radiation*

**EPA Power Sector Analysis using the Integrated Planning Model **

## Overview

**The Integrated Planning Model (IPM)**
- What is it?
- How does it work?
- How has it been used?
- Typical Inputs
- Typical Outputs
- Accuracy and Limitations on Its Use
***My Perspective:***
**	****Clean Air Markets Division **- Develop, design, and administer cap and trade programs to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx).
- Acid Rain Program
- NOx Trading Programs
- The Clean Air Interstate Rule
**	****Program Development Branch **- Develops cost-effective air pollution control programs that use market-based approaches, and works to lessen the administrative burden for sources and regulators.

## What is IPM?

- Long-term capacity expansion and production costing model for analyzing the electric power sector.
- Multi-regional, deterministic, dynamic linear programming model.
- Model that finds the least-cost solution to meeting electricity demand subject to environmental, transmission, fuel, reserve margin, and other system operating constraints.
- Developed by ICF International, a private consulting firm.
- Can Analyze a Single Power Company’s Operations, or  the Entire Grid.
- Can Look at a Day of Operation, or Over 30 Years.

## Power Sector Provides a Major Share of Our Air Emissions

- Sources: EPA, except CO2 which is EIA, 2006.

**SO****2**** Emissions**

***Total: 15.4 Million Tons***

**NOx Emissions**

***Total: 21.1 Million Tons***

- Note: Emissions data is for 2002 and is taken from EPA’s 2003 National Emissions Inventory.
- “Other” sources of pollutants include transportation and other mobile sources and industrial sources.

***Total: 120.3 Tons***

**Mercury Emissions**

**Power Sector Provides a Major Share of Our Air Emissions**

**Direct PM****10**** Emissions**

- 1999

- 2001

***Total: 2.6 million Tons***

- 2001 (excludes “condensibles”)

**Carbon Dioxide Emissions**

***Total: 5.9 Billion Metric Tons***

- Other Emissions:
-  Trace metals (nickel and others)
-  Trace organics
-  Others
**Emissions have substantial public health, environment, and other welfare implications**

- 2004

## How has IPM Been Used?

**EPA Has Used IPM to:**
- Support Rules: CAIR, CAMR, CAVR, Title IV NOx, NOx SIP Call, Revised NAAQS, Cooling Water Standards
- Evaluate Effects of 1990 Clean Air Act Amendments
- Analyze Environmental Impacts of Restructuring
- Investigate CO2 Reduction Strategies and Programs
- Participate in Energy Modeling Forum
- Analyze Multi-Pollutant Control Scenarios

**Other Users Include:**
- Ozone Transport Assessment Group (OTAG)
- Clean Energy Group (a lot of power companies from Northeast)
- Center for Clean Air Policy (for NYSERDA)
- Clean Air Task Force and Other Environmental Groups
- Western Regional Air Partnership (WRAP)
- Regional Greenhouse Gas Initiative (RGGI)
- National Coal Association
- Edison Electric Institute
- Electric Power Research Institute
- Southern CAL Edison, PacifiCorp, AES, Florida Power, CINergy, and Many Other Private Power Companies
- Tennessee Valley Authority
- Federal Energy Regulatory Commission

## How EPA Uses IPM

**To design policies that achieve environmental goals at the lowest possible cost to society**
**To provide a strong technical basis for policy decisions**
**To help identify and compare alternative policy options over a 20-30 year time horizon**
**To obtain fine grain projections of the impact of policy decisions on the power sector**
**To provide input data for atmospheric modeling (air quality modeling)**

## EPA’s Version of IPM Is a Large LP Application

**Electricity Demand**
**Reserve Margin **
**Environmental**
**Transmission **
**Fuel **
**Operational**

**Model plants**
- Existing Units
- Planned/Committed Units
- Potential Units
**Retrofit options**
**Repowerings and retirements**

_**318,872 Constraints**_

_**4,495,012 Variables **_

**Defined over 32 power market regions, 6 load segments, 14 coal grades, nearly 40 coal supply and demand regions, 2 seasons, over a 27-year modeling horizon**

## IPM Outputs - Middle & Lower Levels

## Model Structure

## Model Regions

## EPA Analysis of Climate Proposals

- Recently, EPA has been asked to estimate the economic impacts of various economy-wide climate proposals.**  **
- The Climate Stewardship and Innovation Act of 2007 (S. 280, McCain and Lieberman)
- The Low Carbon Economy Act of 2007 (S. 1766, Bingaman and Specter)
- The Lieberman-Warner Climate Security Act of 2007 (S. 2191) *[Analysis in progress]*
- Generally, these proposals place an emissions cap on all GHGs in the Transportation, Electricity, Industrial, and Commercial sectors, establish an auction and after-market for emission allowances, allow for domestic and/or international offsets.  S. 1766 and S. 2191 contain significant incentives for advanced coal with carbon capture and storage technology.
- For analyses of economy-wide climate proposals, EPA uses a suite of modeling tools.  Computable general equilibrium (CGE) models are used to simulate a market economy, where prices and quantities adjust so that all markets clear in response to a new policy.**  **
- These models are best suited for capturing long-run equilibrium responses, and unique characteristics of specific sectors of the economy.
- EPA also uses the Integrated Planning Model (IPM) to provide a more detailed picture of the electricity sector in the short-run (through 2025), which complements the long-run (through 2050) equilibrium response represented in the CGE models.
- EPA incorporates a CO2 allowance price into IPM from the CGE models.

## A Comparison of Legislative Climate Change Targets in the 110th Congress

- Source: WRI

***2050 Targets:***
- S. 280: 60% below 1990 emission level
- S. 1766: At least 60% below 2006 levels (assuming international action)
- S. 2191: 70% below 2005 emissions levels from covered facilities

## Coverage of US GHG Emissions (based on 2005 GHG inventory)
S. 280: ~73%
S. 1766: ~83% 
S. 2191: ~87%  
Cap rate of decline
S. 280: Step down decrease every 10 years 
S. 1766: Annual decrease
S. 2191: Annual decrease
Cost Control (i.e., safety valve)
S. 280: no safety valve 
S. 1766: $12/ton of CO2e in 2012 rising at a real rate of 5%
S. 2191: no safety valve
Use of offsets
S. 280: 30% of compliance from domestic offsets and international credits 
S. 1766: Unlimited specified domestic offsets can be used to meet the emission cap level
Specified offset project categories include CH4 from landfills, coal mines, and animal waste, and SF6 from electric power systems
The President can implement an international offset program, allowing not more than 10% of compliance to be met through this program
S. 2191: 15% of compliance from domestic offsets; and 15% of compliance from international credits

- S. 280: ~73%
- S. 1766: ~83%
- S. 2191: ~87%
**Cap rate of decline**
- S. 280: Step down decrease every 10 years
- S. 1766: Annual decrease
- S. 2191: Annual decrease
**Cost Control (i.e., safety valve)**
- S. 280: no safety valve
- S. 1766: $12/ton of CO2e in 2012 rising at a real rate of 5%
- S. 2191: no safety valve
**Use of offsets**
- S. 280: 30% of compliance from domestic offsets and international credits
- S. 1766: Unlimited specified domestic offsets can be used to meet the emission cap level
- Specified offset project categories include CH4 from landfills, coal mines, and animal waste, and SF6 from electric power systems
- The President can implement an international offset program, allowing not more than 10% of compliance to be met through this program
- S. 2191: 15% of compliance from domestic offsets; and 15% of compliance from international credits

**Major Provisions:****Lieberman-Warner (S. 2191) – Bingaman-Specter (S. 1766) – Lieberman-McCain (S. 280) **

## Detailed Electricity Sector Modeling with IPM

- _Motivation for Using the Integrated Planning Model (IPM):_
- The CGE models used for this analysis do not have detailed technology representations; they are better suited for capturing long-run equilibrium responses than near-term responses.
- Since the electricity sector plays a key role in GHG mitigation, and the near-term response in the electricity sector is of particular interest, we have employed the Integrated Planning Model (IPM) model to shed further light on the near-term impact of S. 2191 on the electricity sector as a complement to the broader picture presented by the CGE models.
- _Power Sector Modeling (EPA Base Case v3.01 using IPM):_
- This version of IPM builds off recently released EPA Base Case v3.0, with the following updates for purposes of modeling carbon policies:
- Carbon capture and storage (for new plants)
- Biomass co-firing option
- Constraints on new nuclear, renewable, and advanced coal (with CCS) capacity
- _Modeling Approach:_
- For this analysis, EPA’s Base Case v3.01 using IPM was used and incorporated two sets of data from the ADAGE model:
- CO2 allowance price projections
- Percent change in electricity demand

## CO2 Allowance Prices and Power Sector CO2 Emissions (IPM)

**CO****2**** Allowance Prices and Power Sector CO****2**** Emissions (IPM)**

- CO2 Allowance Price (inputs to IPM)

- Power Sector CO2 Emissions

## Electricity Generation Mix (IPM)

**Electricity Generation Mix (IPM)**

## New Generation Capacity (IPM)

**New Generation Capacity (IPM)**

- New Generation Capacity, Cumulative

- Note: New capacity additions less that 1 GW of capacity are not indicated.

- S. 2191 contains an allowance bonus provision, which is capped, for CO2 emissions that are captured and sequestered, resulting in significant penetration of new coal capacity with CCS technology (S. 1766 has a similar provision).
- Bonus allowances go unused in 2015 only, when there is a 5 GW constraint on new adv. coal with CCS (the bonus is used entirely in all years post-2015).
- In 2025, adv. coal with CCS is economic even without the bonus.
- S. 2191 also results in significant penetration of new nuclear and renewable capacity.
- More capacity is built under S. 2191 because a significant amount of the existing fossil fleet is not economic to operate and must be replaced.

| New Capacity Limitations in IPM (Incremental/Cumulative) |  |  |  |  |
| --- | --- | --- | --- | --- |
| GW | 2010 | 2015 | 2020 | 2025 |
| Nuclear | N/A | 4 | 20 / 24 | 20 / 44 |
| Adv. Coal w/ CCS | N/A | 5 | 70 / 75 | 70 / 145 |
| Renewables (Cumulative Only) | 4 | 24 | 44 | 64 |

## Coal Production for Electricity Generation & Retirements of Existing Capacity (IPM)

**Coal Production for Electricity Generation & Retirements of Existing Capacity (IPM)**

- Note: Regional coal production data includes coal production for power generation only.

- Coal Production for Electricity Generation

- Retirements of Existing Capacity

- There is are also considerable re-powering of coal to natural gas in the S. 2191 case.

## Power Sector Natural Gas Consumption, Prices, and Retail Electricity Prices (IPM)

**Power Sector Natural Gas Consumption, Prices, and Retail Electricity Prices (IPM)**

**Natural Gas Consumption and Average Delivered Prices (Electric Power)**

**Average Nationwide Retail Electricity **
**Prices Under S. 2191**

- Source: 2007 data is from EIA, projections are from EPA’s IPM Outlook 2006 and analysis of S. 2191 using IPM.
- Note: Natural gas prices and consumption presented here are determined endogenously in IPM and do not reflect changes in supply/demand (and thus prices) outside the power sector as a result of S. 2191 (the ADAGE model is the economy-wide model that EPA uses to reflect this dynamic).  To the extent that natural gas demand increases outside the power sector, the price impacts reflected here may be a bit lower than if the total demand for natural gas were reflected in IPM.  However, demand for natural gas in ADAGE outside the power sector is not projected to increase significantly, so the price projections presented here would not be greatly impacted by demand from other sectors.

|  |  | Natural Gas Consumption and Prices |  |  |  |  |  | Retail Electricity Prices (¢/kWh) |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | 2007 | 2010 | 2015 | 2020 | 2025 |  | 2007 | 2010 | 2015 | 2020 | 2025 |
| Nat. Gas Consumption (TCF) | Ref. Case | 6.8 | 5.4 | 6.4 | 6.1 | 5.1 | Ref. Case | 8.9 | 8.2 | 8.1 | 8.0 | 7.9 |
|  | S. 2191 |  | 5.6 | 6.3 | 7.0 | 6.2 | S. 2191 (allocation as specified) |  | 8.3 | 9.0 | 9.5 | 10.1 |
| Nat. Gas Price ($/mmBtu) | Ref. Case | 6.90 | 6.30 | 5.80 | 5.60 | 5.80 | S. 2191 (free allocation) |  | 8.3 | 8.6 | 9.0 | 9.6 |
|  | S. 2191 |  | 6.30 | 5.70 | 6.00 | 6.30 | S. 2191 (full auction) |  | 8.3 | 9.4 | 9.9 | 10.4 |

## Emission Reductions Occur through Projected Installation of Advanced Air Pollution Control Technology in 2015...

## IPM is a powerful analytical tool
Using a bottom-up model like IPM
Imposes scientific and technical discipline that can improve EPA decision making process
Increases opportunities for broad public & expert review and input 
A great deal of effort is expended to ensure
High quality input data 
Assumptions based on latest engineering and economic experience
IPM’s high level of detail is necessary for EPA applications
IPM uses a tested and proven modeling technique (linear programming)
IPM helps EPA analysts make better policy decisions

*Using a bottom-up model like IPM*
***Imposes scientific and technical discipline that can improve EPA decision making process***
***Increases opportunities for broad public & expert review and input ***
*A great deal of effort is expended to ensure*
***High quality input data ***
***Assumptions based on latest engineering and economic experience***
*IPM’s high level of detail is necessary for EPA applications*
*IPM uses a tested and proven modeling technique (linear programming)*
*IPM helps EPA analysts make better policy decisions*

**Messages**

## IPM Modeling Limitations

**IPM model timeframe only goes through 2025.**
- Model does not see longer term changes in electricity demand and CO2 allowance prices (due to lowering of the cap post-2025).
- This can affect projections for new capacity additions and retrofit decisions in later years.
**EPA’s Base Case v3.01 does not incorporate several technological innovations that can become available over time (e.g., ultra-supercritical coal, advanced renewables).**
**The recent labor/material shortfalls on future construction prices and the timing of power system adjustments have not been modeled.**
**Geographic deployment, cost and performance of CCS is highly uncertain.**
**Allowance allocation and auctioning are not fully accounted for in the modeling.**
**While IPM endogenously builds new capacity, the model places an exogenous constraint on the total amount of new capacity builds. **
- The assumed limitations on new nuclear capacity reflect the recent EPRI analysis “The Power to Reduce CO2 Emissions: The Full Portfolio” (August 2007) (_[http://epri-reports.org/DiscussionPaper2007.pdf](http://epri-reports.org/DiscussionPaper2007.pdf)__)_
- There are non-economic considerations for significant expansion of nuclear power capacity which are not reflected in IPM.

## Information Resources

**Information Resources**

- Environmental Protection Agency
- 	http://www.epa.gov/
- Clean Air Markets Division
- 	http://www.epa.gov/airmarkets/
- The Integrated Planning Model
**	**http://www.epa.gov/airmarkets/progsregs/epa-ipm/index.html
- EPA Analysis of Climate Bills
**	**http://www.epa.gov/climatechange/economics/economicanalyses.html
- EPA Climate Home Page
**	**http://www.epa.gov/climatechange/index.html

**Misha Adamantiades**
**202/343-9093**
**202/343-2359 (fax)**
**adamantiades.mikhail@epa.gov**