***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***



## Regulatory Impact Analysis for the Final Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ii EPA- 452 /R - 15 - 005 July 2015

Regulatory Impact Analysis for the Final Standards of Performance for Greenhouse Gas Emissions from New, Modified, and Reconstructed Stationary Sources: Electric Utility Generating Units

U.S. Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

iii **CONTACT INFORMATION** This document has been prepared by staff from the Office of Air Quality Planning and Standards, U.S. Environmental Protection Agency. Questions related to this document should be addressed to Amanda Curry Brown, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: CurryBrown.Amanda@epa.gov ).

**ACKNOWLEDGEMENTS** In addition to EPA staff from the Office of Air Quality Planning and Standards, personnel from the U.S. EPA Office of Atmospheric Programs and Office of Policy contributed data and analysis to this document.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

iv **ACRONYMS [TO BE UPDATED]**  AEO Annual Energy Outloo k BACT Best Available Control Technology BPT Benefit - per-Ton BSER Best System of Emissions Reduction Btu British Thermal Units CAA Clean Air Act CAIR Clean Air Interstate Rule CCR Coal Combustion Residuals CCS Carbon Capture and Sequestrati on or Carbon Capture and Storage CFR Code of Federal Regulations CH 4 Methane CO 2 Carbon Dioxide CRF Capital Recovery Factor CSAPR Cross - State Air Pollution Rule CT Combustion Turbines CUA Climate Uncertainty Adder DICE Dynamic Integrated C limate and Economy Model DOE U.S. Department of Energy EAB Environmental Appeals Board EGR Enhanced Gas Recovery EGU Electric Generating Unit EIA U.S. Energy Information Administration EMM Electricity Market Module EO Executive Order EOR Enhanced Oil Recovery EPA U.S. Environmental Protection Agency ER Enhanced Recovery FERC Federal Energy Regulatory Commission FGD Flue Gas Desulfurization FOAK First of a Kind FOM Fixed Operating and Maintenance FR Federal Register FRCC Flo rida Reliability Coordinating Council FUND Framework for Uncertainty, Negotiation, and Distribution Model***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

v GDP Gross Domestic Product GHG Greenhouse Gas GS Geologic Sequestration Gt Gigaton H 2 S Hydrogen Sulfide HFC Hydrofluorocarbons IAM Int egrated Assessment Model ICR Information Collection Request IGCC Integrated Gasification Combined Cycle IOU Investor Owned Utility IPCC Intergovernmental Panel on Climate Change IPM Integrated Planning Model IRP Integrated Resource Plan kWh K ilowatt - hour lb Pound or Pounds LCOE Levelized Cost of Electricity LNB Low NO X Burners MATS Mercury and Air Toxics Standards MEA Monoethanolamine MGD Millions of Gallons per Day mg/L Milligrams per Liter mmBtu Million British Thermal Units MW Megawatt MWh Megawatt - hour N 2 O Nitrous Oxide NaOH Sodium Hydroxide NATCARB National Carbon Sequestration Database and Geographic Information

System NEEDS National Electric Energy Data System NEMS National Energy Modeling System NERC N orth American Electric Reliability Corporation NETL National Energy Technology Laboratory NGCC Natural Gas Combined Cycle NOAK Next of a Kind or Nth of a Kind NO X Nitrogen Oxide NRC National Research Council***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

vi NSPS New Source Performance Standard NSR New Source Review NTTAA National Technology Transfer and Advancement Act OFA Overfire Air OMB Office of Management and Budget PAGE Policy Analysis of the Greenhouse Gas Effect Model PFC Perfluorocarbons PM 2.5 Fine Particulate Matter ppm Parts per Million PRA Paperwork Reduction Act PSD Prevention of Significant Deterioration RCSP Regional Carbon Sequestration Partnerships RES Renewable Electricity Standards RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative RIA Regulatory Impact Analysis RPS Renewable Portfolio Standards SBREFA Small Business Regulatory Enforcement Fairness Act SC - C O 2 Social Cost of Carbon SCPC Super Critical Pulverized Coal SCR Selective Catalytic Reduction SF 6 Sulfur Hexafluoride SIP State Implementation Plan SO 2 Sulfur Dioxide Tcf Trillion Cubic Feet TDS Total Dissolved Solids TSD Technical Support Document TSM Transportation Storage and Monitoring UMRA Unfunded Mandates Reform Act U.S.C. U.S. Code US GCRP U.S. Global Change Research Program USGS U.S. Geological Survey U.S. NRC U.S. Nuclear Regulatory Commission VCS Voluntary Consensus Standards VOM Variable Operating and M aintenance***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

vii 

## Contents Acronyms ................................ ................................ ................................ ................................ .. iv Executive Summary ................................ ................................ ................................ ................... 1 ES.1 Background and Context of Final Rule ................................ ................................ .... 1 ES.2 Summary of the Final Rule ................................ ................................ ...................... 2 ES.3 Key Findings of Economic Analysis ................................ ................................ ......... 3 Chapter 1 Introduction and Background ................................ ................................ .................. 1 1.1 Introduction ................................ ................................ ................................ ............ 1 1.1.1 Statutory Requirement ................................ ................................ ............... 1 1.1.2 Regulatory Analysis ................................ ................................ ..................... 2 1.2 Background for the Final EGU New, Modified, and Reconstructed Source GHG Standards ................................ ................................ ................................ ........ 5 1.2.1 Baseline and Years of Analysis ................................ ................................ .... 5 1.2.2 Definition of Affected Sources ................................ ................................ .... 6 1.2.3 Regulated Pollutant ................................ ................................ .................... 6 1.2.4 Emission Limits ................................ ................................ ............................ 7 1.2.5 Emission Reductions ................................ ................................ ................... 8 1.3 Organization of the Regulatory Impact Analysis ................................ .................... 9 Chapter 2 Electric Power Sector Profile ................................ ................................ .................... 1 2.1 Introduction ................................ ................................ ................................ ............ 1 2.2 Power S ector Overview ................................ ................................ ........................... 1 2.2.1 Generation ................................ ................................ ................................ .. 1 2.2.2 Transmission ................................ ................................ ............................... 8 2.2.3 Distribution ................................ ................................ ................................ . 9 2.3 Sales , Expenses and Prices ................................ ................................ ...................... 9 2.3.1 Electricity Prices ................................ ................................ ........................... 10***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

viii 2.3.2 Prices of Fossil Fuels Used for Generating Electricity ................................ .. 15 2.3.3 Changes in Electricity Intensity of the U.S. Economy Between 2002 to 2012 ................................ ................................ ................................ ...... 16 2.4 Deregulation and Restructuring ................................ ................................ ........... 18 2.5 Emissions of Greenhouse Gases from Electric Utilities ................................ ........ 22 2.6 Carbon Dioxide Control Technologies ................................ ................................ .. 25 2.6.1 Carbon Capture and Storage ................................ ................................ .... 26 2.7 Geologic and Geographic Considerations for Geologic Sequestration ................ 31 2.7.2 Availability of geologic sequestration in deep saline formations ............. 35 2.7.3 Availability of CO 2 storage via enhanced oil recovery (EOR) .................... 35 2.8 GHG and Clean Energy Regulation in the Power Sector ................................ ....... 37 2.8.1 State Policies ................................ ................................ ............................. 37 2.8.2 Federal Policies ................................ ................................ ......................... 39 2.9 Revenues and Expenses ................................ ................................ ........................ 39 2. 10 Natural Gas Market ................................ ................................ ............................... 40 2.11 References ................................ ................................ ................................ ............ 44 Chapter 3 Benefits of Reducing Greenhouse gas emissions and Other Pollutants .................. 1 3.1 Overview of Climate Change Impacts from GHG Emissions ................................ ... 2 3.2 Social Cost of Car bon ................................ ................................ .............................. 3 3.3 Health Co - Benefits of SO 2 and NOx Reductions ................................ ..................... 8 3.4 References ................................ ................................ ................................ ............ 12 Chapter 4 Cost s, Economic, and Energy Impacts ................................ ................................ ...... 1 4.1 Synopsis ................................ ................................ ................................ ................... 1 4.2 Requirements of the Final GHG EGU NSPS ................................ ............................. 2 4.3 Power Sector Modeling Framework ................................ ................................ ....... 3 4.3.1 Modeling Overview ................................ ................................ ..................... 3***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ix 4.3.2 The Integrated Planning Model ................................ ................................ .. 4 4.4 Analyses of Future Generating Capacity ................................ ................................ . 6 4.4.1 Base Case Power Sector Modeling Projections ................................ .......... 6 4.4.2 Alternative Scenarios from AEO 2014 ................................ ...................... 13 4.5 Levelized Cost of Electricity Analysis ................................ ................................ .... 19 4.5.1 Overview of the Concept of Levelized Cost of Electricity ......................... 20 4.5.2 Cost and Performance of Technologies ................................ .................... 21 4.5.3 Levelized Cost of Electricity of New Generation Technologies ................ 23 4.5.4 Levelized Cost of Electricity of NGCC and Uncontrolled Coal ................... 25 4.5.5 Levelized Cost of Simple Cycle Combustion Turbine and Natural Gas Combined Cycle ................................ ................................ .................. 33 4.6 Macroeconomic and Employment Impacts ................................ .......................... 34 4.7 References ................................ ................................ ................................ ............ 35 Chapter 5 Analysis of Illustrative Cost - Benefit Scenarios ................................ ......................... 1 5.1 Synopsis ................................ ................................ ................................ ................... 1 5.2 Comparison of Emissions from Generation Technologies ................................ ...... 1 5.3 Comparison of Health and Climate Impacts from Generation Technologies ......... 5 5.4 Illustrative Analysis – Benefits and Costs of New Source Standards across a Range of Gas Prices ................................ ................................ ............................ 11 5.4.1 Likely Natural Gas Prices ................................ ................................ ........... 14 5.4.2 Unexpectedly High Natural Gas Prices ................................ ..................... 14 5.4.3 Unprecedented Natural Gas Prices ................................ ........................... 15 5.5 Illustrative Analysis – Benefits and Costs of Uncontrolled Coal and Co mpliant Coal ................................ ................................ ................................ ...... 16 5.6 Impact of the New Source Standards Considering the Cost of Lost Option Value ................................ ................................ ................................ ..................... 22 5.7 References ................................ ................................ ................................ ............ 25 Chapter 6 Modi fied and Reconstructed Source Impacts ................................ .......................... 1***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

x 6.1 Introduction ................................ ................................ ................................ ............ 1 6.2 Reconstructed Sources ................................ ................................ ........................... 1 6.3 Modified Sources ................................ ................................ ................................ .... 1 Chapter 7 Statutory and Executive Order REVIEWS ................................ ................................ . 1 7.1 Executive Order 12866, Regulatory Planning and Review, and Executive Order 13563, Improving Regulation and Regulatory Review ................................ . 1 7.2 Paperwork Reduction Act (PRA) ................................ ................................ ............. 1 7.2.1 Newly constructed EGUs ................................ ................................ ............. 2 7.2.2 Modified and Reconstructed EGUs ................................ ............................. 3 7.2.3 Information Collection Burden ................................ ................................ ... 4 7.3 Regulatory Flexibility Act (RFA) ................................ ................................ ............... 4 7.3.1 Newly constructed EGUs ................................ ................................ ............. 4 7.3.2 Modified and Reconstructed EGUs ................................ ............................. 5 7.4 Unfunded Mandates Reform Act (UMRA) ................................ .............................. 5 7.5 Executive Order 13132, Federalism ................................ ................................ ........ 6 7.6 Executive Order 13175, Consultation and Coordination with Indian Tribal Governments ................................ ................................ ................................ .......... 6 7.7 Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks ................................ ................................ ............................. 8 7.8 Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use ................................ ............................. 9 7.9 National Technology Transfer and Advancement Act ................................ ............ 9 7.10 Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low - Income Populations ................................ .......... 9 7.11 Congressional Review Act (CRA) ................................ ................................ ........... 12***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ES - 1 EO 12866_111(b) New- Mods 2060 -AQ91 RIA Final_07152015_RLSO

**EXECUTIVE SUMMARY** This R egulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the F inal Standards of Performance for Greenhouse Gas Emissions from New, Modified , and Reconstructed Stationary Sources: Electric Utility Generating Units (herein referred to as the EGU New, Modified , and Reconstructed Source GHG Standards ). **ES .**  **1 Background and Context of**  **Final Rule**  The final EGU New, Modified and Reconstructed Source GHG Standards will set emission limit s for greenho use gas emissions (GHG) from newly constructed, modified, and reconstructed fossil fuel -fired electricity generating units (EGUs) . T hese limits will apply to carbon dioxide (CO 2 ) emis sions from any affected fossil fuel -fired EGU . The United States Environmental Protection Agency ( EPA ) is finalizing requirements for these sources because CO 2 is a n air pollutant under the Clean Air Act, section 111 (a) and (b) of the Act authorize EPA to establish standards of performance for air pollutants emitted from source categories like the one here listed by EPA because the source category causes, or contributes significantly to air pollution which may reasonably be anti cipated to endanger public health or welfare. F ossil fuel -fired power plants are the country’s largest stationary source emitters of GHGs . As stated in the EPA’s Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 20 2(a) of the Clean Air Act (CAA) (74 FR 66 518 ) and s ummarized in Chapter 3 of this RIA, the anthropogenic buildup of GHGs in the atmosphere is the cause of most of the observed global warming over the last 50 years. On June 25, 2013, in conjunction with the announce ment of his Climate Action Plan, President Obama issued a Presidential Memorandum directing the EPA to issue a proposal to address carbon pollution from new power plants by September 30, 2013, and to issue “standards, regulations, or guidelines , as appropriate, which address carbon pollution from modified, reconstructed, and existing power plants.” On September 20, 2013, pursuant to authority in CAA section 111(b) , EPA Administrator Gina McCarthy signed proposed carbon pollution standards for ne wly constructed fossil fuel -fired power plants (79 FR 1430 , January 8, 2014 ) . The EPA subsequently issued a Notice of Data Availability (NODA), soliciting comment on its initial interpretation of provisions in the Energy Policy Act of 2005 and the Interna l***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ES - 2 Revenue Code, and also soliciting comment on a Technical Support Document , which addressed these provisions’ relationship to the factual record supporting the proposed rule (79 FR 10750 , February 26, 2014 ) . On June 2, 2014, Administrator McCarthy sign ed proposed standards of performance, also pursuant to CAA section 111(b), to limit emissions of CO 2 from modified and reconstructed fossil fuel -fired electric utility steam generating units and stationary combustion turbines ( 79 FR 34959 , June 18, 2014 ). In this action, the EPA is finalizing standards of performance to limit emissions of CO 2 from newly constructed, modified, and reconstructed fossil fuel -fired electric utility steam generating units and stationary combustion turbines. Consistent with the r equirements of CAA section 111 (a) and (b), these standards reflect the degree of emission limitation achievable through the application of the best system of emission reduction (BSER) that the EPA has determined has been adequately demonstrated for each ty pe of unit. **ES .**  **2 Summary of**  **the Final**  **Rule** The EPA has determined that the BSER for newly constructed steam generating units is a supercritical pulverized coal ( SCPC ) unit using post - combustion partial carbon capture and storage (CCS) technology to meet a n emission limitation of 1,400 lb CO 2/MWh - gross. The standard for modified steam generating units that conduct modifications resulting in a potential hourly increase in CO 2 emissions (mass per hour) of more than 10 percent 1 is a unit - specific emission limitation consistent with each modified unit’s best one -year historical performance (during the years from 2002 to the time of the modification) . For reconstructed steam generating units , the BSER is the most efficient demonstrated generating technology for these types of units (i.e., meeting a standard of performance consistent with a reconstructed boiler using most efficient steam conditions available, even if the boiler was not originally designed to do so). The BSER for primarily natural gas -fired sta tionary combustion turbines expected to serve intermediate and base load power demand is the use of well - designed, well - maintained, and well - operated natural gas combine d cycle (NGCC) technology. These units will be required to meet an emission standard of 1,000 lb CO 2/MWh - gross output (or 1,080 lb CO2/MWh of net energy output) . 1 More than 10 percent as compared to its highest potential during the previous five years. The EPA is not finalizing standards for units that conduct modifications with a potential hourly increase in CO 2 of 10 percent of less.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ES - 3 The BSER determination and final standards for each affected source are shown in Table ES - 1. The applicability of the se standards based on the capacity and operation of a source are described in the preamble for this final rule. The final standards for all source categories will be met on a 12 - operating month rolling average basis. **ES .3**  **Key Findings of Economic Analysis** CAA Section 111(b) requires that the new source performance standards ( NSPS ) be reviewed every eight years. As a result, this rulemaking’s analysis is primarily focused on projected impacts within the current eight -year NSPS timeframe . 2 As explained in detail in this document, energy market data and projections support the conclusion that, even in the absence of this rule, expected economic conditions will lead electricity generators to choose new generation technologies that meet the standard s without the need for additional controls. T he base case modeling the EPA performed for this rule (as well as modeling that the EPA has performed for other recent air rules) project s that, even in the absence of this action, new fossil - fuel fired capacity constructed through 2022 and the years following will most likely be NGCC capacity that complies with the final standards. Analys e s performed both by the EPA and the Energy Information Administration ( EIA ) project that new compliant natural gas - fired units and renewable sources are likely to be the technolog ies of choice fo r new generating capacity due to current and projected economic market conditions . 3

2 In some cases, conditions in the analysis year of 2022 are represented by results of power sector modeling for the year 2020. An analysis year of 2023 (8 years from finalization) would not substantively alter the overall conclusions of this RIA . 3 See the EIA’s 2009 to 201 5 Annual Energy Outlooks (AEO).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ES - 4 **Table ES** **- 1**  **. Summary of BSER and Final Standards for Affected Sources** 

**Affected Source BSER**  **Standard** Newly Constructed Fossil Fuel - Fired Steam Generating Units Partial CCS 1,400 lb CO 2/MWh - gross Modified Fossil Fuel - Fired Steam Generating Units Most efficient generation at the affected source achievable through a combination of best operating practices and equipment upgrades Sources making mo difications resultin g in an increase in CO 2 hourly emissions of more than 10 percent are required to meet a unit - specific emission limit determined by the unit’s best historical annual CO 2 emission rate (from 2002 to the date of the modification); the emission limit will be n o more stringent than: 1. 1,800 lb CO 2/MWh - gross for sources with heat input > 2,000 MMBtu/h. OR 2. 2,000 lb CO 2/MWh - gross for sources with heat input ≤ 2,000 MMBtu/h. Reconstructed Fossil Fuel - Fired Steam Generating Units Most efficient generating technology at the affected source. 1. 1,800 lb CO 2/MWh - gross for s ources with heat input > 2,000 MMBtu/h. OR 2. 2,000 lb CO 2/MWh - gross for s ources with heat input ≤ 2,000 MMBtu/h. Newly Constructed, Modified, and Reconstructed Natural Gas - Fired Stationary Combustion Turbines Efficient N atural G as C ombined Cycle (NGCC) Technology 1. 1,000 lb CO 2/MWh - gross OR 2. 1,080 lb CO 2/MWh - net Historically, t he EPA has been notified of very few EGU NSPS modifications (for criteria pollutants ) or reconstructions. As such , the EPA anticipates few covered units will trigger the reconstruction or modification provisions in the period of analysis. Therefore, based on the analysis presented in Chapter 4 of this RIA, the EPA anticipate s that the EGU New, Modified, and Reconstructed Source GHG Standards will r esult in negligible CO 2 emission changes , energy impacts, quantified benefits , costs , and economic impacts by***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

ES - 5 202 2 . Accordingly, the EPA also does not an t icipate this rule will have any signif icant impacts on the price of electricity, empl oyment or labor markets, or the US economy. Although the primary conclusion of the analysis presented in this RIA is that the standards for newly constructed EGUs will result in negligible costs and ben efits, the EPA has also performed several illustrative analyses , in Chapter 5, th at show the potential impacts of the rule if certain key assumptions were to change . This analysis finds that under conditions that deviate from current projections about natural gas prices , the monetized benefits of the standards to society likely outweigh the costs of the standards . T he analysis also presents the costs and benefits that would occur in the unlikely case where assumptions about economic conditions do not change but an operato r choose s to construct new coal -fired capacity . Even in the baseline, t he final standards provide the benefi t of regulatory certainty that any new coal -fired power plant must limit CO 2 emissions to the level of the standard of performance: 1400 lb CO 2/MWh. . The final standards also reduce regulatory uncertainty by defining the requirements to limit emissions of CO 2 from new, modified, and reconstructed fossil fuel -fired steam generating sources . In addition, the EPA intends this rule to send a clear signal about the current and future status of CCS technology . A dditional CCS applications are expected to lead to improvements in this technology’s performance and consequent reductions in its cost. I dentifying post combustion partial CCS technology as the BSER for coal -fired power plants promotes further development and encourages continued research of CCS, 4, 5 which is important for long -term CO 2 emission reductions. The final standards also provide regulatory certainty for stationary combustion turbines that, along with new renewable sources, are expected to be the primary technology options to provide new generating capacity in the analysis period. A ny new stationary combustion turbines must be well - designed, well - maintained, and well - operated .

4 Statement by Department of Energy Secretary Steven Chu. Statement by Secretary C hu. http://energy .gov/articles/building - clean - energy- partnerships - china - and -japan . 5 Friedman, Dr. Julio S. “A U.S. – China CCS Roadmap.” Lawrence Livermore National Laboratory Carbon Management Program. http://www.nrcce.wvu.edu/cleanenergy/docs/Friedmann.pdf .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 1 **CHAPTER 1 INTRODUCTION AND B** **ACK GROUND**  **1 .1**  **Introduction** In this action, the U.S. Environmental Protection Agency (EPA) is adopting emission limits for greenhouse gases (GHGs), specifically carbon dioxide (CO 2 ), emitted from fossil fuel fired EGUs. This document presents the expected economic impacts of the Electricity Generating Unit (EGU) New, Modified, and Reconstructed Source GHG Standards rule through 20 22, including some projections for years up to 2030 . Based on the analysis presented in Chapter 4, the current forecast of economic conditions (e.g., price of natural gas) will lead electricity generators to choose fuels and technologies that will meet the final stan dard s for new sources without the need for additional control, even in the absence of the rule. As a result, the final new source standards are expected to have no, or negligible, costs or quantified benefits associated with them. EPA has reached a similar conclusion for the final reconstruction and modification provisions. Based on historical information that has been reported to the EPA, we anticipate few covered units will trigger the reconstruction or modification provis ions in the period of analysis . However, should operators choose to construct new coal -fired capacity, we project that emission reductions associated with the standard may result in monetized benefits exceeding the cost of control, and would also provide unquantified benefits. ( See C hapter 5 . ) As a result, we anticipate negligible costs or benefits associated with th ose standards . This chapter contains background information on the rule and an outline of the chapters of the report. **1.1.1 Legal Basis for this Rulemaking**  Section 111 of the Clean Air Act (CAA) requires performance standards for air pollutant emissions from categories of stationary sources wh ich are listed by EPA because they may reasonably contribute to the endangerment of public health or welfare. In April 2007, the Supreme Court ruled in State of Massachusetts v. EPA that GHGs meet the definition of an “air pollutant” under the CAA. This ruling clarified that the authorities and requirements of the CAA apply to GHGs. As a result, the EPA is authorized to make decisions about whether to regulate GHGs under certain provisions of the CAA, based on relevant statutory criteria. Because CO 2 is an air pollutant emitted from a source category EPA has listed for purposes of section 111, EPA may establish standards under section 111 (a) and (b) for CO 2 for this source categ ory. In addition, t he EPA issued a final determination that emissions of certain specified GHGs endanger both the public health and the public welfare of current and future generations in the Endangerment and Cause or Contribute Findings for Greenhou se Gases Under Section 202(a) of***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 2 the CAA (74 FR 66,496; Dec. 15, 2009 ) , and has explained in detail how emissions of CO 2 from the source category here cause or contribute significantly to the air pollution which endangers. Indeed, this source category contributes more CO 2 than any other domestic source, by a wide margin. On June 25, 2013, in conjunction with the announcement of his Climate Action Plan, President Obama issued a Presidential Memorandum directing the EPA to issue a proposal to address carbon pollution from new power plants by September 30, 2013, and to issue “standards, regulations, or guidelines, as appropriate, which address carbon pollution from modified, reconstructed, and existing power p lants.” On September 20, 2013, pursuant to authority in CAA section 111(b), EPA Administrator Gina McCarthy signed proposed carbon pollution standards for newly constructed fossil fuel -fired power plants (79 FR 1430 , January 8, 2014 ). The EPA subsequently issued a Notice of Data Availability (NODA), soliciting comment on its initial interpretation of provisions in the Energy Policy Act of 2005 and the Internal Revenue Code, and also soliciting comment on a Technical Support Document , which addressed these provisions’ relationship to the factual record supporting the proposed rule (79 FR 10750 , February 26, 2014 ). On June 2, 2014, Administrator McCarthy signed proposed standards of performance, also pursuant to CAA section 111(b), to limit emissions of CO 2 from modified and reconstructed fossil fuel -fired electric utility steam generating units and stationary combustion turbines (79 FR 34959 , June 18, 2014 ). In this action, the EPA is finalizing standards of performance to limit emissions of CO 2 from newly c onstructed, modified and reconstructed fossil fuel -fired electric utility steam generating units and stationary combustion turbines. Consistent with the requirements of CAA section 111(b), these standards reflect the degree of emission limitation achievabl e through the application of the best system of emission reduction (BSER) that the EPA has determined has been adequately demonstrated for each type of unit. **1.1.2 Regulatory Analysis**  In accordance with Executive Order (EO) 12866, EO 13563, and EPA’s Guid elines for Preparing Economic Analyses, the EPA prepared this Regulatory Impact Analysis (RIA) for this “ significant regulatory action. ” This rule is not anticipated to have an annual effect on the economy of $100 million or more or adversely affect in a m aterial way the economy, a sector of***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 3 the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities and is therefore not an “ economically significant rule .” However, u nder EO 12866 (58 FR 51,735, October 4, 1993), this action is a “significant regulatory action” because it “raises novel legal or policy issues arising out of legal mandates .” As a matter of policy, the EPA has attempted to provide a thorough analysis of the pote ntial impacts of this rule, consistent with requirements of the Executive Orders. This RIA addresses the potential costs and benefits of the new, modified and reconstructed source emission limits that are the focus of this action . As described in Chapter 4, t he EPA does not anticipate that any costs or quantified benefits will result from the new source standards if utilities and project developers make the types of choices related to new generation sources that are forecasted by EPA’s and EIA’s models and that many publicly available utility integrated resource plans (IRPs) indicate are likely . However, if future economic conditions (e.g., natural gas price s ) differ from these forecasts and utilities construct new coal -fired units in the baseline , there could be some co mpliance costs. In these cases, the EPA’s analysis shows that the rule will result in net societal benefits under a range of assumptions. For new sources, the EPA and EIA through their models 1, project that new fossil -fired electric utility steam generating units and natural gas -fired stationary combustion turbines, which meet the applicability criteria, will meet their respective standards under this rule in the baseline where no such standards are implemented . These modeling analyses also do not forecast the construction of any new coal -fired units that exceed the applicable standards under this rule in the baseli ne . Some limite d new coal -fired units with federally- supported carbon capture and storage (CCS) are included in the modeling, though these units are expected to be compliant with the applicable standards under this rule. Because this rule does not change these forecasts , it is expected to have no, or negligible, costs 2 or quantified benefits. New non - compliant coal -fired units are not expected to be constructed in the baseline , due in part to the low cost of const ructing and operating new NGCC units relative to the cost of

1 See the EIA’s 2009 to 2015 Annual Energy Outlooks (AEO). 2 A ny additional monitoring or reporting costs from this rule should be negligible because new generators would already be required to monitor and report their CO 2 emissions under the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98). Costs are only incurred if there has been a violation of an emission standard cau sed by a malfunction and a source chooses to assert an affirmative defense . The owner/operator must meet the burden of proving all of the requirements in an affirmative defense. See Chapter 7 for more details on monitoring and reporting costs.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 4 new coal -fired units, relatively low forecast growth in electricity demand and an expectation that the growth in end - use energy efficiency and renewable energy resources will continue. The expect ation that no new non - compliant coal -fired units will be constructed in the baseline , and therefore that the promulgated standard of performance would not be a factor in decisions to construct holds under a range of alternative baseline s cenarios . New non - compliant natural gas -fired combustion turbine units intended to serve as intermediate and base load generators are not expected to be constructed in the baseline , due in part to the cost effectiveness of constructing and operating new combined cycle units relative to the cost of new simple cycle units. Absent significantly lower natural gas prices, the cost of electricity generated by combined cycle units operating at i ntermediate and base load are lower than simple cycle units operating at the same capacity factor. Chapter 5 complements and extends the analysis at the sector level by examining conditions (e.g., significantly high er natural gas prices ) in which conclusions regarding the future economic competitiveness of new non - compliant coal -fired units with respect to other new generation technologies may differ from those in the sector- wide analysis . The analysis evaluates the cost and benefits of adopting different competing generating technologies to serve base load demand at an individual facility level. When considering a wide range of natural gas price assumptions, along with information on historical and projected gas prices, t his illustrative facility- level analysis supports the conclusion that these final standard s are highly likely to incur no costs or quantified benefits. Furthermore, the analysis examines the costs and benefits that would occur in the unlikely c a se where an investor might choose to construct new coal - fired capacity, and shows that the result may be net monetized benefits to society. t As described in Chapter 6, EPA has reached a similar conclusion for the reconstruction and modification provisions for both steam generating units and stationary combustion turbines . The EPA has, historically, been notified of few NSPS modifications or reconstructions and, as such, the EPA anticipates few covered units will trigger the reconstruction or modification provis ions in the period of analysis . As a result, we do not anticipate any significant costs or benefits associated with this rule .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 5 **1.2 Background for the Final EGU New** **, Modified, and Reconstructed Source GHG Standards**  **1.2.1 Baseline and Years of Analysis**  The standards on which this analysis is based set GHG emission limits for new, modified and reconstructed fossil fuel -fired EGUs. The baseline for this analysis, which uses the Integrated Planning Model (IPM), includes state rules that have been finalized and/or approved by a state’s legislature or environmental agencies as well as final federal rules. Additional legally binding and enforceable commitments for GHG reduct ions considered in the baseline are discussed in Chapter 4 of this RIA. All analys e s are p resented for compliance through the year 2022 3 and all estimates are presented in 2011 dollars. CAA Section 111(b) requires that the NSPS be reviewed every eight yea rs. As a result, this rulemaking’s analysis is primarily focused on projected impacts within the current eight -year NSPS timeframe. EPA’s finding of no new non - compliant units (and therefore, no projected costs or quantified benefits) is robust beyond th e analysis period (past 2030) in both EPA’s Base Case and the EIA’s Annual Energy Outlook 2014 Reference Case modeling projections. Furthermore, this finding is robust in the analysis period across a wide range of alternative potential market, technical, a nd regulatory scenarios that influence power sector investment decisions evaluated by EIA. 4 C hapter 5 complements and extends the analysis at the sector level by examining conditions (e.g., significantly high natural gas prices, location specific conditio ns) in which these conclusions regarding the future economic competitiveness of new non - compliant coal -fired units with respect to other new generation technologies may differ. The analysis evaluates at an individual facility level the cost and benefits of adopting different competing generating technologies to serve base load demand . Benefit s and cost s presented in the illustrative analyses in Chapter 5 of this RIA represent estimates from emission reductions und er the finalized standards in a particular year. T he latent and/or ongoing damages associated with pollution from these sources in a particular analysis year are discounted to the analysis year. 5 The benefit s and cost s presented do not

3 In IPM conditions in the analysis year of 2022 are represented by a model year of 2020. 4 For example, in the 2014 AEO low gas resource sensitivity case, one of the scenarios most favorable to the construction of new coal capacity, the operation of new no n - compliant coal capacity in the baseline is not forecast by the model until 2027. 5 The CO 2 - related benefits, which are estimated using the social cost of carbon, vary depending on the year in which the change in CO 2 emissions occurs. The social cost of carbon increases over time because future emissions are expected to produce larger incremental damages as physical and economic systems become more stressed in response to greater climatic change. EPA relied on a national - average benefit per -ton method***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 6 represent the net p resent value of a stream of benefits and costs due to emission reductions over time. **1.2.2 Definition of Affected Sources**  1 .2.2 .1 New Sources The statutory authority for this action is CAA section 111(b), which addresses standards of performance for new, modified and reconstructed sources. The final standards for newly constructed fossil fuel -fired EGUs apply to those sources that commenced cons truction on or after January 8, 2014. 1 .2. 2.2 Modified Sources A modification is any physical or operational change to a source that increases the amount of any air pollutant emitted by the source or results in the emission of any air pollutant not previo usly emitted. The final standards for modified fossil fuel -fired steam generating units apply to those sources that make modifications resulting in an increase of hourly CO 2 emissions of more than 10 percent on or after June 18, 2014. However, projects to install pollution controls required under other CAA provisions are specifically exempted from the definition of “modifications” under 40 CFR 60.14(e)(5), even if they emit CO 2 as a byproduct. 1 . 2.2.3 Reconstructed Sources The EPA’s CAA section 111 regulations provide that r econstructed sources are to be treated as new sources and, therefore, subject to new source standards of performance. The regulations define reconstructed sources, in general, as existing sources : (i) that replace components to such an extent that the capi tal costs of the new components exceed 50 percent of the capital costs of an entirely new facility and (ii) for which compliance with standards of performance for new sources is technologically and economically feasible ( 40 CFR 60.15 ) . The final standards for reconstructed fossil fuel -fired EGUs apply to those so urces that reconstruct on or after June 18, 2014. **1.2.3 Regulated Pollutant**  Th ese final standards set limit s for emissions of CO 2 from affected sources.

to estimate PM 2.5 - related health impacts of SO 2 and NO X e missions. Despite our attempts to quantify and monetize as many of the co - benefits of reducing emissions from electricity generating sources as possible, not all known health and non - health co - benefits are accounted for in this assessment. See Chapter 3 fo r details.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 7 The EPA is a ware that other GHGs such as nitrous oxide ( N 2 O ) (and to a lesser extent, methane ( CH 4 ) ) may be emitted from fossil -fuel -fired EGUs, especially from coal - fired circulating fluidized bed combustors and from units with selective catalytic reduction and selective non - catalytic reduction systems installed for nitrogen oxide ( NO X ) control. The EPA is not setting separate N 2 O or CH 4 emission limits or an equivalent CO 2 emission limit because of a lack of available data for these affected sources. Additional infor mation on the quantity and significance of emissions and on the availability of cost effective controls would be needed before setting standards for these pollutants. **1.2.4 Emission Limits**  The EPA has determined that the BSER for newly constructed steam ge nerating units is an SCPC with post - combustion partial CCS technology . The standard of performance achievable using that BSER is 1,400 lb CO 2/MWh - gross. The standard for modified steam generating units that conduct modifications resulting in a potential hourly increase in CO 2 emissions (mass per hour) of more than 10 percent 6 is a unit - specific emission limitation consistent with each modified unit’s best one -year historical performance (during the years from 2002 to the time of the modification). For reconstructed steam generating units, the BSER is the most efficient demonstrated generating technology for these types of units (i.e., meeting a standard of performance consistent with a reconstructed boiler using most efficient steam conditions available, even if the boiler was not originally designed to do so). The BSER for new, modified, and reconstructed primarily natural gas -fired combustion turbines expected to serve intermediate and base load is the use of well - designed, well maintained, and well - operated natural gas combined cycle (NGCC) technology. The standard of performance achievable using that BSE R is 1,000 lb/CO 2/MWh - gross . The applicability of these standards is based on the capacity and operation of a source and is described in the preamble for this final rule. The final standards will be met on a 12 - operating month rolling average ba sis. The BSER determination and final standards for each affected source expected to operate in intermediate or base load capacity are shown in Table 1 - 1.

6 More than 10% as compared to its highest potential to emit in the past 5 years. The EPA is deferring issuing standards for units that conduct modifications with a potential hourly increase in CO 2 of 10 percent or less.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 8 **Table 1 -**  **1. Summary of BSER and Final Standards for Affected Sources** 

**Affected Source BSER**  **Standard** Ne wly Constructed Fossil Fuel - Fired Steam Generating Units SCPC with post - combustion p artial CCS 1,400 lb CO 2/MWh - gross Modified Fossil Fuel - Fired Steam Generating Units Most efficient generation at the affected source achievable through a combination of best operating practices and equipment upgrades Sources making modifications resulting in an increase in CO 2 hourly emissions of more than 10 percent are required to meet a unit - specific emission limit determined by the unit’s best historical annual CO 2 em ission rate (from 2002 to the date of the modification); the emission limit will be no more stringent than: 1. 1,800 lb CO 2/MWh - gross for sources with heat input > 2,000 MMBtu/h. OR 2. 2,000 lb CO 2/MWh - gross for sources with heat input ≤ 2,000 MMBtu/h. Reconstructed Fossil Fuel - Fired Steam Generating Units Most efficient generating technology at the affected source. 1. 1,800 lb CO 2/MWh - gross for s ources with heat input > 2,000 MMBtu/h. OR 2. 2,000 lb CO 2/MWh - gross for s ources with heat input ≤ 2,000 MMB tu/h. Newly Constructed, Modified, and Reconstructed Natural Gas - Fired Stationary Combustion Turbines Efficient NGCC Technology 1. 1,000 lb CO 2/MWh - gross OR 2. 1,080 lb CO2/MWh - net **1.2.5 Emission Reductions**  As will be discussed in more detail in Chapter 4 of this RIA, the EPA anticipate s that the EGU New, Modified , and Reconstructed Source GHG Standards will r esult in negligible changes in GHG emission s over the analysis period . T he EPA expects that owners of new units will choose generation technologies that meet these standards in the baseline due to expected economic conditions in the marketplace. Based on historical precedent , the EPA anticipates few covered units will trigger the NSPS reconstruction or modification provis ions in the period of analysis . As a result, we do not anticipate any significant costs or monetized benefits associated with this rule .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

1 - 9 **1 .**  **3 Organization of the Regulatory Impact Analysis**  This report presents the EPA’s analysis of the potential benefits, costs, and other economic effects of the EGU New, Modified, and Reconstructed Source GHG Standards to fulfill the requirements of a n RIA . Th is RIA includes the following chapters:

 Chapter 2 , Electric Power Sector Profile, describes the industry affected by the rule.

 Chapter 3, Benefits of Reducing GHGs and Other Pollutants, describes the effects of emissions on climate and health and provides background information to support the benefits analysis.

 Chapter 4, Costs, Economic, and Energy Impacts of the New Source Standards , describes impacts of the rule for new sources .

 Chapter 5, Analysis of Illustrative Cost - Benefit Scenarios for New Sources , describes additional analyses examining potential impacts under a range of scenarios.

 Chapter 6, Modified and Reconstructed Sources, describes the potential impacts of the standards for modified and reconstructed sources.

 Chapter 7 , Statutory and Executiv e Order Impact Analyses, describes the small business, unfunded mandates, paperwork reduction act, environmental justice, and other analyses conducted for the rule to meet statutory and Executive Order requirements.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 1 **CHAPTER 2 ELECTRIC POWER SECTO**  **R PROFILE 2.1**  **Introduction** This chapter discusses important aspects of the power sector that relate to the EGU New, Modified and Reconstructed Source GHG Standards, including the types of power - sector sources affected by the regulatio n, and provides background on the power sector and EGUs. In addition, this chapter provides some historical background on trends in the past decade in the power sector, as well as about existing EPA regulation of the power sector. In the past decade there have been significant structural changes in the both the mix of generating capacity and in the share of electricity generation supplied by different types of generation. These changes are the result of multiple factors in the power sector, including normal replacements of older generating units with new units, changes in the electricity intensity of the US economy, growth and regional changes in the US population, technological improvements in electricity generation from both existing and new units, changes in the prices and availability of different fuels, and substantial growth in electricity generation by renewable and unconventional methods. Many of these trends will continue to contribute to the evolution of the power sector. The evolving economics of t he power sector, in particular the increased natural gas supply and subsequent relatively low natural gas prices, have resulted in more gas being utilized as base load energy in addition to supplying electricity during peak load. This chapter presents data on the evolution of the power sector from 2002 through 2012. Projections of new capacity and the impact of this rule on these new sources are discussed in more detail in Chapter 4 of this RIA. **2.2 Power Sector Overview**  The production and delivery of electricity to customers consists of three distinct segments: generation, transmission, and distribution. **2.2.1 Generation**  Electricity generation is the first process in the delivery of electricity to consumers. There are two important aspects of electricity generation; capacity and net generation. Generating Capacity refers to the maximum amount of production from an EGU in a typical hour, typically measured in megawatts (MW) or gigawatts (1 GW = 1000 MW). Electricity Generation refers to the amount of electricity actually produced by EGUs, measured in kilowatt - hours (kWh) or gigawatt - hours (GWh = 1 million kWh). In addition to producing***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 2 electricity for sale to the grid, generators perform other services important to reliable electricity supply, such as prov iding backup generating capacity in the event of unexpected changes in demand or unexpected changes in the availability of other generators . Other important services provided by generators include facilitating the regulation of the voltag e of supplied generation . Individual EGUs are not used to generate electricity 100 percent of the time. I ndividual EGUs are periodically not needed to meet the regular daily and seasonal fluctuations of electricity demand. Furthermore, EGUs relying on ren ewable resources such as wind, sunlight and surface water to generate electricity are routinely constrained by the availability of adequate wind, sunlight or water at different times of the day and season. U nits are also unavailable during routine and unan ticipated outages for maintenance . These factors result in the mix of generating capacity types available (e.g., the share of capacity of each type of EGU) being substantially different than the mix of the share of total electricity produced by each type of EGU in a given season or year. Most of the existing capacity generat es electricity by creating heat to create high pressure steam that is released to rotate turbines which, in turn, create electricity. Natural gas combined cycle (NGCC) units have two generating components operating from a single source of heat. The first cycle is a gas -fired turbine, which generates electricity directly from the heat of burning natural gas. The second cycle reuses the waste heat from the first cycle to genera te st eam, which is then used to generate electricity from a steam turbine. Other EGUs generate electricity by using water or wind to rotate turbines, and a variety of other methods also make up a small , but growing, share of the overall electricity suppl y. The generating capacity includes fossil - fuel -fired units, nuclear units, and hydroelectric and other renewable sources (see Table 2 - 1). Table 2 - 1 also shows the comparison between the generating capacity in 2002 and 2012. In 2012 the power sector consis t ed of over 19,000 generating units with a total capacity 1 of 1,168 GW, an increase of 188 GW (or 19 percent ) from the capacity in 2002 ( 98 0

1 As with all data prese nted in this section, this includes generating capacity not only at EGUs primarily operated to supply electricity to the grid, but also generating capacity at commercial and industrial facilities that produce both electricity used onsite as well as dispatc hed to the grid. Unless otherwise indicated, capacity data presented in this RIA is installed nameplate capacity (also known as nominal capacity), defined by EIA as “The maximum rated output of a generator, prime mover, or other electric power production e quipment under specific conditions designated by the manufacturer. ” Nameplate capacity is consistently reported to regulatory authorities with a common definition, where alternate measures of capacity (e.g., net summer capacity and net winter capacity) can use a variety of definitions and specified conditions.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 3 GW ). The 188 GW increase consisted primarily of natural gas fired EGUs (134 GW) and wind generators (55 GW), with substantially smaller net increases and decreases in other types of generating units. **Table 2 -**  **1. Existing Electricity Generating Capacity by Energy Source, 2002 and 2012**  **2002 2012**  **Change Between '02 and '12 Energy Source**  **Generator**

**Nameplate Capacity**  **(MW) % Total** 

**Capacity Generator** 

**Nameplate Capacity**  **(MW) % Total** 

**Capacity %** 

**Increase Nameplate** 

**Capacity Change**  **(MW) % of Total** 

**Capacity Increase**  Coal 338,199 35% 336,341 29% - 1% - 1,858 - 1% Natural Gas 1 352,128 36% 485,957 42% 38% 133,829 71% Nuclear 104,933 11% 107,938 9% 3% 3,005 2% Hydro 96,344 10% 99,099 8% 3% 2,755 1% Petroleum 66,219 7% 53,789 5% - 19% - 12,430 - 7% Wind 4,531 0.5% 59,629 5.1% 1216% 55,098 29% Other Renewable 14,208 1.5% 20,986 1.8% 47.7% 6,778 3.6% Misc 3,023 0.3% 4,257 0.4% 40.8% 1,234 0.7% Total 979,585 100% 1,167,995 100% 19% 188,410 100% Note: This table presents generation capacity. Actual net generation is presented in Table 2 - 2. Source: U.S. EIA Electric Power Annual, 2012. Downloaded from EIA Electricity Data Browser, Electric Power Plants Generating Capacity By Source, 2000 – 2012. Available at http://www.eia.gov/electricity/data.cfm#gencapacity . Accessed 12/19/2014 1 Natural Gas information in this chapter (unless otherwise stated) reflects data for all generating units using natural gas as the primary fossil heat source. This includes Combined Cycle Combustion Turbine (31 percent of 2012 NG -fired capacity), Gas Turbine (30 percent ), Combined Cycle Steam (19 percent ), Steam Turbine (17 percent ), and miscellaneous (< 1 percent ). The 19 percent increase in generating capacity is the net impact of newly built generating units, retirements of generating units, and a variety of increases and decreases to the nameplate capacity of individual existing units due to changes in operati ng equipment, changes in emission control s , etc. During the period 2002 to 2012, a total of 315,752 MW of new generating capacity was built and brought online, and 64,763 MW existing units were retired. The net effect of the re - rating of existing units red uced the total capacity by 62,579 MW. The overall net change in capacity was 188,410 MW, as shown in Table 2 - 1. The newly built generating capacity was primarily natural gas (226,605 MW), which was partially offset by gas retirements (29,859 MW). Wind capa city was the second largest type of***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 4 new builds (55,583 MW), augmented by 2,807 MW of solar. 2 The overall mix of newly built and retired capacity, along with the net effect, is shown on Figure 2 - 1.

**Figure 2**  **- 1**  **. New Build and Retired Capacity (MW) by Fuel Type, 2002**  **- 2012**  Source: EIA Form 860 Not displayed: wind and solar retirements = 87 MW, net change in coal capacity = - 56 MW In 2012, electric generating sources produced a net 4,058 trillion kWh to meet electricity demand , a 5 percent increase from 2002 (3,858 trillion kWh). As presented in Table 2 - 2, almost 70 percent of electricity in 2012 was produced through the combustion of fossil fuels, primarily coal and natural gas, with coal accounting for the largest single share. Although the sh are of the total generation from fossil fuels in 2012 (67 percent) was only modestly smaller than the total fossil share in 2002 (71 percent), the mix of fossil fuel generation changed substantially during that period. Coal generation declined by 18 perce nt and petroleum generation by 72 percent , while natural gas generation increased by 6 0 percent. This reflects both the increase in natural gas capacity during that period as well as an increase in the utilization of new and existing gas EGUs durin g that period. Wind generation also grew from a very small portion of the overall total in 2002 to 4.1 percent of the 2012 total.

2 Partially offset by 87 MW retired wind or solar capacity.

-50,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000

New Build Retirement Net ChangeChangeinCapacity(MW)

Coal Nat Gas Wind & Solar Oil & Other***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 5 **T able 2**  **- 2. Net Generation in 2002 and 2012 (Trillion kWh = TWh)** 

**2002 2012**  **Change Between '02 and '12 Net**  **Generation (TWh)**  **Fuel**

**Source Share**  **Net**

**Generation (TWh)**  **Fuel**

**Source Share**  **Net**

**Generation Change**  **(TWh) % Change in** 

**Net Generation**  Coal 1,933.1 50% 1,586.0 39% - 347.1 - 18.0% Natural Gas 702.5 18% 1,125.9 28% 423.5 60.3% Nuclear 780.1 20% 789.0 19% 9.0 1.1% Hydro 255.6 7% 264.7 7% 9.1 3.6% Petroleum 94.6 2.5% 26.9 0.7% - 67.7 - 71.6% Wind 10.4 0.3% 167.7 4.1% 157.3 1519.3% Other Renewable 68.8 1.8% 85.7 2.1% 16.9 24.6% Misc 13.5 0.4% 12.4 0.3% - 1.2 - 8.7% **Total 3,858**  **100% 4,058**  **100% 200**  **5%** Source: U.S. EIA Monthly Energy Review, December 2014. Table 7.2a Electricity Net Generation: Total (All Sectors). Available at http://www.eia.gov/totalenergy/data/monthly/ . Accessed 12/19/2014 Coal -fired and nuclear generating units have historically supplied “base load” electricity, the portion of electricity loads which are continually p resent, and typically operate throughout all hours of the year . T he coal units meet the part of demand that is relatively constant. Although much of the coal fleet operates as base load, there can be notable differences across various fa cilities (see Table 2 - 3 ). For example, coal -fired units less than 100 megawatts (MW) in size compose 37 percent of the total n umber of coal -fired units, but only 6 percent of total coal fired capacity. Gas -fired generation is better able to vary output and is the primary option used to mee t the variable portion of the electricity load and has historically supplied “peak” and “int ermediate” power, when there is increased demand for electricity (for example, when businesses operate throughout the day or when people return home from work and r un appliances and heating/air - conditioning), versus late at night or very early in the morni ng, when demand for electricity is reduced. Table 2 - 3 also shows comparable data for the capacity and age distribution of natural gas units. Compared with the fleet of coal EGUs, the natural gas fleet of EGUs is generally smaller and newer. While 55 percent of the coal EGU fleet is over 500 MW per unit, 77 percent of the gas fleet is between 50 and 500 MW per unit. Many of t he largest gas units are gas -fired steam - generating EGUs .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 6 **Table 2 -**  **3. Coal and Natural Gas Generating Units, by Size, Age, Capacity,**

**and Thermal Efficiency (Heat Rate)** Unit Siz e Grouping (MW) No.

Units % of All

Units Avg.

Age Avg. Net Summer Capacity (MW) Total Net

Summer Capacity (MW) % Total

Capacity Avg. Heat

Rate (Btu/kWh) COAL 0 – 24 223 18% 40.7 11.4 2,538 1% 11,733 25 – 49 108 9% 44.2 36.7 3,963 1% 11,990 50 – 99 157 12% 49.0 74.1 11,627 4% 11,883 100 - 149 128 10% 50.6 122.7 15,710 5% 10,971 150 - 249 181 14% 48.7 190.4 34,454 11% 10,620 250 - 499 205 16% 38.4 356.2 73,030 23% 10,502 500 - 749 187 15% 35.4 604.6 113,056 36% 10,231 750 - 999 57 5% 31.4 823.9 46,963 15% 9,942 1000 - 1500 11 1% 35.7 1259.1 13,850 4% 9,732 Total Coal 1257 100% 42.6 250.7 315,191 100% 11,013 NATURAL GAS 0 – 24 1992 37% 37.6 7.0 13,863 3% 13,531 25 – 49 410 8% 21.8 125.0 51,247 12% 9,690 50 - 99 962 18% 15.6 174.2 167,536 39% 8,489 100 - 149 802 15% 23.4 39.9 31,982 8% 11,765 150 - 249 167 3% 28.7 342.4 57,179 13% 9,311 250 - 499 982 18% 24.6 71.1 69,788 16% 12,083 500 - 749 37 1% 40.0 588.8 21,785 5% 11,569 750 - 1000 14 0.3% 35.9 820.9 11,492 3% 10,478 Total Gas 5366 100% 27.7 79.2 424,872 100% 11,652 Source: National Electric Energy Data System (NEEDS) v.5.1 4 Note: The average heat rate reported is the mean of the heat rate of the units in each size category (as opposed to a generation - weighted or capacity -weighted average heat rate.) A lower heat rate indicates a higher level of fuel efficiency. Table is limited to coal - steam units in operation in 2013 or earlier, and excludes those units in NEEDS with planned retirements in 2014 or 2015. In terms of the age of the generating units, 50 percent of the total coal generating capacity has been in service for more than 38 years, while 50 percent of the natural gas capacity has been in service less than 15 years. Figure 2 - 2 presents the cumulative age distributions of the coal and gas fleets, highlighting the pronounced differences in the ages of the fleets of these two types of fossil -fuel generating capacity. Figure 2 - 2 also includes the distribution of generation.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 7 **Figure 2**  **- 2**  **. Cumulative Distribution in 2010 of Coal an d Natural Gas**  **Electricity Capacity and**  **Generation, by Age** Source: National Electric Energy Data System (NEEDS) v.5.13 Not displayed: coal units (376 MW total, 1 percent of total) and gas units (62 MW, < .01 percent of total)) over 70 years old for clarity. Figure is limited to coal - steam units in NEEDS v.5.1 3 in operation in 2013 or earlier (excludes ~2,100 MW of coal - fired IGCC and fossil waste capacity), and excludes those units in NEEDS with planned retirements in 2014 or 2015. The locations of existing fossil units in EPA’ s National Electric Energy Data System (NEEDS) v.5.13 are shown in Figure 2 - 3.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 8 **Figure 2 -**  **3 .**  **Fossil Fuel -**  **Fired Electricity Generating Facilities, by Size** Source: National Electric Energy Data System (NEEDS) v.5.13 Note: This map displays fossil capacity at facilities in the NEEDS v. 5.13 IPM frame. NEEDS v.5.13 reflects generating capacity expected to be online at the end of 2015. This includes planned new builds already under construction and planned retirements. In areas with a dense concentration of facilities, some facilities may be obscured. **2.2.2 Transmission**  Transmission is the term used to describe the bulk transfer electricity over a network of high voltage lines, from electric generators to substations where power is stepped down for local distribution. In the U.S. and Canada, there are three separate interconnected networks of high voltage transmission li nes, 3 each operating synchronously. Within each of these transmission networks, there are multiple areas where the operation of power plants is monitored and controlled to ensure that electricity generation and load are kept in balance. In some areas, t he operation of the transmission system is under the control of a single regional

3 These three network interconnections are the Western Interconnection, comprising the western parts of both the US and Canada (approximat ely the area to the west of the Rocky Mountains), the Eastern Interconnection, comprising the eastern parts of both the US and Canada (except those part of eastern Canada that are in the Quebec Interconnection), and the Electric Reliability Council of Texa s (ERCOT) Interconnecti on, comprising most of Texas.” See map of all NERC interconnections at http://www.nerc.com/AboutNERC/keyplayers/Documents/NERC_Interconnections_Color_072512.jpg***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 9 operator; in others, individual utilities coordinate the operations of their generation, transmission, and distribution systems to balance their common generation and load ne eds. **2.2.3 Distribution**  Distribution of electricity involves networks of lower voltage lines and substations that take the higher voltage power from the transmission system and step it down to lower voltage levels to match the needs of customers. The tran smission and distribution system is the classic example of a natural monopoly, in part because it is not practical to have more than one set of lines running from the electricity generating sources to substations or from substations to residences and busin esses. **Over the last couple of decades, several jurisdictions in the United States began restructuring**  **the power industry to separate transmission and distribution from generation, ownership, and operation. Historically, the transmission system had been**  **developed by vertically integrated utilities, establishing much of the existing transmission**  **infrastructure. However, as parts of the country have restructured the industry, transmission infrastructure has also been developed by transmission utilities, e**  **lectric cooperatives, and merchant transmission companies, among others. Distribution, also**  **historically developed by vertically integrated utilities, is now often managed by a number of utilities that purchase and sell electricity, but do not generate it.**  **As discussed below, electricity restructuring has focused primarily on efforts to**  **reorganize the industry to encourage competition in the generation segment of the industry, including ensuring open access of generation to the transmission and**  **distribution services needed to deliver power to consumers. In many states, such**  **efforts have also included separating generation assets from transmission and distribution assets to form distinct economic entities. Transmission and distribution**  **remain price -**  **regulated throughout the country based on the cost of service.**  **2.3 Sales, Expenses and Prices**  These electric generating sources provide electric ity for commercial, industrial and residential ultimate customers. E ach of the three major ultimate categories consume roughly a quarter to a third of the total el ectricity produced 4 (see Table 2 - 4 ). Some of these uses are highly variable, such as heating and air conditioning in residential and commercial buildings, while others are relatively constant, such as industrial processes that operate 24 hours a day. The d istribution between the end use categories changed very little between 2002 and 2012.

4 Transportation (primarily urban and regional electrical trains) is a fourth ultimate customer category which accounts less than one percent of electricity consumption.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 10 **Table 2 -** **4 . Total U.S. Electric Power Industry Retail Sales in 2012 (billion kWh)** 

Source: Table 2.2, EIA Electric Power Annual, 2013 Notes: Retail sales are not equal to net generation (Table 2 - 2) because net generation includes net exported electricity and loss of electricity that occurs through transmission and distribution. Direct Use represents commercial and industrial facility use of onsite net electricity g eneration; and electricity sales or transfers to adjacent or co - located facilities for which revenue information is not available. **2.3.1 Electricity Prices** Electricity prices vary substantially across the United States, differing both between the ultimate customer categories and also by state and region of the country. Electricity prices are typically highest for residential and commercial customers because of the relatively high costs of distributing electricity to individual homes and commercial establish ments. The high price s for residential and commercial customers are the result both of the necessary extensive distribution network reaching to virtually every part of the country and every building, and also the fact that generating stations are increasin gly located relatively far from population centers (which increase transmission costs) . Industrial customers generally pay the lowest average prices, reflecting both their proximity to generating stations and the fact that industrial customers receive ele ctricity at higher voltages (which makes transmission more efficient and less expensive). Industrial customers frequently pay variable prices for electricity, varying by the season and time of day, while residential and commercial prices historically have been less variable. Overall industrial customer prices are usually considerable closer to the wholesale marginal cost of generating electricity than residential and commercial prices. On a state - by- state basis, all retail electricity prices vary considera bly. In 2011 the national average retail electricity price (all sectors) was 9.90 cents/KWh, with a range from **Sale s/**  **Dir ec** **t Use**  **(B illion kW**  **h) Shar**  **e of T** **ot al**  **En d**  **Use Sale**  **s/ Dir**  **ec t** 

**Use (Billion**  **kW h)**  **Sha re**  **of T ot**  **al End U**  **se** Resid en ti al 1, 265 35% 1, 375 36% Com mer ci al 1, 104 30% 1, 327 35% In dus tr ia l 990 27% 986 26% Tr an sp or ta ti on NA 7 0% Ot he r 106 3% NA **To ta**  **l** 3, 465 95% 3, 695 96% 166 5% 138 4% **3, 632**  100% **3, 832**  100% **2002 2012** 

**Sale s** 

**Dir ec** **t Use**  **To ta**  **l End U se** ***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 11 6.44 cents (Idaho) to 31.59 (Hawaii) The Northeast , California and Alaska have average retail prices that can be as much as double those of other states (see Figure 2 -4 ) , and Hawaii has the most expensive retail price of electricity in the country .

**Figure 2 -** **4. Average Retail Electricity Price by State (cents/kWh), 20**  **11** Av erage national overall retail electricity prices increased between 2002 and 2012 by 36.7 percent in nominal (current year $) terms. The amount of increase differed for the three major end use categories (residential, commercial and industrial). National a verage residential prices increased the most (40.8 percent), and commercial prices increased the least (27.9 percent). The nominal year prices for 2002 through 2012 are shown in Figure 2 - 5.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 12 **Figure 2 -**  **5 .**  **Nominal National Average Electricity Prices**  **for Th ree Major End**  **- Use Categories**  Source: EIA AEO 2012, Table 2.4 Electricity prices for all three end - use categories increased more than overall inflation through this period, measured by either the GDP implicit price deflator (23.5 percent) or the consumer pr ice index (CPI - U, which increased by 27.7 percent) 5 . Most of these electricity price increases occurred between 2002 and 2008; since 2008 nominal electricity prices have been relatively stable while overall inflation continued to increase. The increase in nominal electricity prices for the major end use categories, as well as increases in the GDP price and CPI U indices for comparison, are shown in Figure 2 - 6.

5 Source: Federal Reserve Economic Data, FRB St. Louis. Available at http://research.stlouisfed.org/fred2/ .

.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012ElectricityPrice(Cent/kWh,nominal$)

Residential Commercial Industrial Total***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 13 **Figure 2 -**  **6 .**  **Relative Increases in Nominal National Average Electricity Prices for Major End**  **** **Us e Categories, With Inflation Indices**  The real (inflation - adjusted) change in average national electricity prices can be calculated using the GDP implicit price deflator. Figure 2 - 7 shows real 6 (2011$) electricity prices for the three major customer categories from 1960 to 2012, and Figure 2 - 8 shows the relative change in real electricity prices relative to the prices in 1960. As can be seen in the figures, the price for industrial customers has always been lower than for either residential or commercial customers, but the industrial price has been more vol a tile. While the industrial real price of electricity in 2012 was relatively unchanged from 1960, residential and commercial real prices are 2 3% and 28% lower respectively than in 1960.

6 All prices in this section are estimated as real 2011 prices adjusted using the GDP implicit price deflator unless otherwise indicated.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 14 **Figure 2 -**  **7 . Real National Average Electricity Prices (2011$)**  **for Three Major End -**  **Use Categories**  Source: EIA Monthly Energy Revie w,A pril 201 5 , Table 9.8 0 2 4 6 8 10 12 14 16 18

1960 1970 1980 1990 2000 2010RealElectricityPrices(2011$,¢/kWh) 

### Real Electricity Prices, 1960 - 2014 (including taxes)

Residential Commercial Industrial Total***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 15 **Figure 2 -**  **8 .**  **Relative Change in Real National**  **Average Electricity Prices (2011$) for Three**  **Major End -**  **Use Categories** Source: EIA Monthly Energy Review, April 2015 , Table 9.8 **2.3.2 Prices of Fossil Fuels Used for Generating Electricity**  Another important factor in the changes in electricity prices are th e changes in fuel prices for the three major fossil fuels used in electricity generation; coal, natural gas and oil. Relative to real prices in 2002, the national average real price (in 2011$) of coal delivered to EGUs in 2012 had increased by 54 percent, while the real price of natural gas decreased by 22 percent. The real price of oil increased by 203 percent, but with oil declining as an EGU fuel (in 2012 oil generated only 1 percent of electricity) the doubling of oil prices had little overall impact i n the electricity market. The combined real delivered price of all fossil fuels in 2012 increased by 23 percent over 2002 prices. Figure 2 - 9 shows the relative changes in real price of all 3 fossil fuels between 2002 and 2012.

-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

1960 1970 1980 1990 2000 2010ChangeinRealElectricityPrices 

### Relative Change in Electricity Prices,

1960 - 2014 (including taxes)

Residential Commercial Industrial Total***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 16 **Figure 2 -**  **9 . Relative**  **Real Prices of Fossil Fuels for Electricity Generation; Change in National Average Real Price per MBtu Delivered to EGU**  Source: EIA AEO 2012, Table 9.9 **2.3.3 Changes in Electricity Intensity of the U.S. Economy Between 2002 to 2012**  An important aspect of t he changes in electricity generation (i.e., electricity demand) between 2002 and 2012 is that while total net generation increased by 4.9 percent over that period, the demand growth fo r generation has been low, and in fact wa s lower than both the populatio n growth (9.2 percent) and real GDP growth (19.8 percent). Figure 2 - 10 shows the growth of electricity generation, population and real GDP during this period.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 17 **Figure 2 -**  **10 .**  **Relative Growth of Electricity Generation, Population and Real GDP Since 2002**  Sources: U.S. EIA Monthly Energy Review, December 2014. Table 7.2a Electricity Net Generation: Total (All Sectors). U.S. Census. Because demand for electricity generation grew more slowly than both the population and GDP, the relative electric intensity of the U.S. economy improved (i.e., less electricity used per person and per real dollar of output) during 2002 to 2012. On a per capita basis, real GDP per capita grew by 10.9 percent, increasing from $44,900 (in 2011$) per person in 2002 to $49,800/pe rson in 2012. At the same time electricity generation per capita decreased by 3.9 percent, declining from 13.4 MWh/person in 2002 to 12.8 MWh/person in 2012. The combined effect of these two changes improved the overall electricity efficiency of the U.S. market economy. Electricity generation per dollar of real GDP decreased 12.5 percent, declining from 299 MWh per $1 million of GDP to 261 MWh/$1 million GDP . These relative changes are shown in Figure 2 - 11. Figures 2 - 10 and 2 - 11 clearly show the effects of the 2007 – 2009 recession on both GDP and electricity generation, as well as the effects of the subsequent economic recovery.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 18 **Figure 2 -**  **11 . Relative Change of Real GDP, Population and Electricity Generation Intensity**  **Since 2002** Sources: U.S. EIA Monthly Energy Review, December 2014. Table 7.2a Electricity Net Generation: Total (All Sectors). U.S. Census **2.4 Deregulation and Restructuring**  The process of restructuring and deregulation of wholesale and retail electric markets has changed the struct ure of the electric power industry. In addition to reorganizing asset management between companies, restructuring sought a functional unbundling of the generation, transmission, distribution, and ancillary services the power sector has historically provide d, with the aim of enhancing competition in the generation segment of the industry. Beginning in the 1970s, government policy shifted against traditional regulatory approaches and in favor of deregulation for many important industries, including transporta tion (notably commercial airlines), communications, and energy, which were all thought to be natural monopolies (prior to 1970) that warranted governmental control of pricing. However, deregulation efforts in the power sector were most active during the 19 90s. Some of the primary drivers for deregulation of electric power included the desire for more efficient investment choices, the economic incentive to provide least - cost electric rates through market competition, reduced costs of combustion turbine techn ology that opened the door for more companies to sell power with smaller investments, and complexity of monitoring utilities’ cost of service and establishing cost - based rates for various customer classes. Deregulation and market restructuring in the power sector involved the divestiture of generation from utilities, the formation of organized wholesale spot energy markets with economic mechanisms for the***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 19 rationing of scarce transmission resources during periods of peak demand, the introduction of retail ch oice programs, and the establishment of new forms of market oversight and coordination. The pace of restructuring in the electric power industry slowed significantly in response to market volatility in California and financial turmoil associated with bankr uptcy filings of key energy companies. By the end of 2001, restructuring had either been delayed or suspended in eight states that previously enacted legislation or issued regulatory orders for its implementation (shown as “Suspended” in Figure 2 - 12). Eigh teen other states that had seriously explored the possibility of deregulation in 2000 reported no legislative or regulatory activity in 2001 (EIA, 2003) (“Not Active” in Figure 2 - 12). Currently, there are 15 states plus the District of Columbia where price deregulation of generation (restructuring) has occurred (“Active” in Figure 2 - 12). Power sector restructuring is more or less at a standstill; by 2010 there were no active proposals under review by the Federal Energy Regulatory Commission (FERC) for actio ns aimed at wider restructuring, and no additional states have begun retail deregulation activity since that time.

**Figure 2**  **- 1**  **2 .**  **Status of State Electricity Industry Restructuring Activities** Source: EIA 2010. “Sta tus of Electricity Restructuring by State.” Available online at: http://www.eia.gov/cneaf/electricity/page/restructuring/restructure_elect.html. One major effect of the restructuring and deregulation of the power sector was a significant change in type of ownership of electricity generating units in the states that deregulated prices. Throughout most of the 20th century electricity was supplied by vertically***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 20 int egrated regulated utilities. The traditional integrated utilities generation, transmission and distribution in their designated areas, and prices were set by cost of service regulations set by state government agencies (e.g., Public Utility Commissions). Deregulation and restructuring resulted in unbundling of the vertical integration structure. Transmission and distribution continued to operate as monopolies with cost of service regulation, while generation shifted to a mix of ownership affiliates of trad itional utility ownership and some generation owned and operated by competitive companies known as Independent Power Producers (IPP). The resulting generating sector differed by state or region, as the power sector adapted to the restructuring and deregula tion requirements in each state. By 2002 the major impacts of adapting to changes brought about by deregulation and restructuring during the 1990s were largely in place. The resulting ownership mix of generating capacity (MW) in 2002 was 62 percent of the generating capacity owned by traditional utilities, 35 percent owned by IPPs 7, and 3 percent owned by commercial and industrial producers. The mix of electricity generated (MWh) was more heavily weighted towards the utilities, with a distribution in 2002 of 66 percent, 30 percent and 4 percent for utilities, IPPs and commercial/industrial, respectively. Since 2002 IPPs have expanded faster than traditional utilities, substantially increasing their share by 2012 of both capacity (58 percent utility, 39 perc ent IPPs, and 3 percent commercial/industrial) and generation (58 percent, 38 percent and 4 percent). The mix of capacity and generation for each of the ownership types is shown in Figures 2 - 13 (capacity) and 2 - 14 (generation). The capacity and generatio n data for commercial and industrial owners are not shown on these figures due to the small magnitude of those ownership types. Figures 2 - 13 and 2 - 14 present the mixes in 2002 and 2012. A portion of the shift of capacity and generation is due to sales and transfers of generation assets from traditional utilities to IPPs, rather than strictly the result of newly built units.

7 IPP data presented in this section include both combined and non - combined heat and power plants.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 21 **Figure s**  **2 -**  **2 3 & 2**  **- 14**  **. Capacity and Generation Mix by Ownership Type, 2002 & 2012** 

**Figures 2 -**  **15 and 2 -**  **16. Generation Capacity Built and Retired between 2002 and 2012 by**  **Ownership Type** 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Utility IPPRetiredCapacity(MW) 

### Capacity Retirements 2002 - 2012 by Ownership T

ype

Coal Gas Wind & Solar Other 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000Capacity(MW) 

### Capacity Mix, 2002 & 2012

Nuclear Coal Gas Hydro Wind All Other

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000

Utility IPPNewCapacity(MW) 

### Capacity Built 2002 - 2012 by Ownership T

ype

Coal Gas Wind & Solar Other 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000Generation(GWh) 

### Generation Mix, 2002 & 2012

Nuclear Coal Gas Hydro Wind All Other***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 22 The mix of capacity by fuel types that have been built and retired between 2002 and 2012 also varies significantly by type of ownership. Figure 2 - 15 presents the new capacity built during that period, showing that IPPs built the majority of both new wind and solar generating capacity, as well as somewhat more natural gas capacity than the traditional utilities built. Figure 2 - 16 presents comparable da ta for the retired capacity, showing that utilities retired more coal and “other” capacity (mostly oil -fired) than IPPs retired, while the IPPs retired more natural gas capacity than the utilities retired. The retired gas capacity was primary (60%) steam a nd combustion turbines. **2.5 Emissions of Greenhouse Gases from Electric Utilities**  The burning of fossil fuels, which generates about 69 percent of our electricity nationwide, results in emissions of greenhouse gases. The power sector is a major contributor of CO 2 in particular, but also contributes to emissions of sulfur hexafluoride (SF 6 ), CH 4, and N 2 O. In 2012, the electricity generation accounted for 38 percent of national CO 2 emissions. Including both generation and transmission (a source of SF 6 ) , the power sector accounted for 31 percent of total nationwide greenhouse gas emissions, measured in CO 2 equivalent . Table 2 - 5 and Figure 2 - 1 7 show the GHG emissions 8 from the power sector relative to other major economic sectors . Table 2 - 6 shows the contributions of CO 2 and other GHGs from the power sector and other major emitting economic sectors. **Table 2 -**  **5 .**  **Domesti c Emissions of Greenhouse Gases, by Economic Sector (million metric** 

**tonnes of CO 2**  **equivalent)**

**2002 2012**  **Change Between '02 and '12 Sector/Source**  **GHG**

**Emissions % Total** 

**GHG Emissions**  **GHG**

**Emissions % Total** 

**GHG Emissions**  **Change in**

**Emissions % Change** 

**in Emissions**  **% of Total**

**Change in Emissions**  Electric Power Industry 2,313 33% 2,064 32% - 249 - 11% 48% Transportation 1,958 28% 1,837 28% - 121 - 6% 23% Industry 1,419 20% 1,278 20% - 140 - 10% 27% Agriculture 561 8% 614 9% 53 10% - 10% Commercial 365 5% 353 5% - 12 - 3% 2% Residential 374 5% 321 5% - 53 - 14% 10% 8 CO 2 equivalent data in this section are calculated with the IPCC SAR (Second Assessment Report) GWP potential factors.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 23 US Territories 52 1% 58 1% 6 11% - 1% Total Emissions 7,041 100% 6,526 100% - 516 - 7% 100% Sinks and Reductions - 885 - 979 - 94 11% Net Emissions 6,156 5,546 - 610 - 10% Source: EPA, 2014 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 - 2012”, Table 2 - 12. Includes CO 2, CH 4, N 2 O and SF 6 emissions.

**Figure 2 -**  **1 7**  **. Domestic Emissions of Greenhouse Gases from Major Sectors,**  **2002 and 2012 (million metric tonnes of CO**  **2 equivalent)**  Source: EPA, 2014 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 - 2012”, Table 2 - 12 The amount of CO 2 emitted during the combustion of fossil fuels varies according to the carbon content and heating value of the fuel used. The CO 2 emission factors used in IPM v5.14 (same as used in v5.13) are shown in Table 2 - 7. Coal has higher carbon content than oil or natural gas, and thus releases more CO 2 during combustion. Coal emits around 1.7 times as much carbon per unit of energy when bur ned as natural gas (EPA 2013). **T able 2**  **- 6**  **. Greenhouse Gas Emissions from the Electricity Sector (Generation, Transmission** 

**and Distribution), 2002 and 2012 (million metric tonnes of CO 2**  **equivalent)**

**2002 2012**  **Change Between '02 and '12**  0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

2002 2012GHGEmissions(MillionTonnes)

Electric Power Industry Transportation Industry Agriculture Commercial Residential***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 24 **Gas/Fuel Type or So urce**  **GHG Emissions**  **% of Total**

**GHG Emissions**  **from Power Sector**  **GHG**

**Emissions % of Total** 

**GHG Emissions**  **from Power Sector**  **Change in**

**GHG Emissions**  **% Change**

**in Emissions**  CO 2 2,287 98.9% 2,039 98.8% - 248 - 11% Fossil Fuel Combustion 2,273 98.2% 2,023 98.0% - 250 - 11% Coal 1,890 81.7% 1,511 73.2% - 379 - 20% Natural Gas 306 13.22% 492 23.85% 187 61% Petroleum 76.8 3.32% 18.8 0.91% - 58.0 - 76% Geothermal 0.4 0.02% 0.4 0.02% 0.0 0% Incineration of Waste 11.8 0.51% 12.2 0.59% 0.4 3% Other Process Uses of Carbonates 2.6 0.11% 4.0 0.19% 1.4 54% CH 4 0.4 0.02% 0.5 0.02% 0.1 25% Stationary Combustion* 0.4 0.02% 0.5 0.02% 0.1 25% Incineration of Waste + + N 2 O 12.4 0.54% 18.6 0.90% 6.2 50% Stationary Combustion* 12.0 0.52% 18.3 0.89% 6.3 53% Incineration of Waste 0.4 0.02% 0.4 0.02% 0.0 0% SF 6 13.3 0.57% 6.0 0.29% - 7.3 - 55% Electrical Transmission and Distribution 13.3 0.57% 6.0 0.29% - 7.3 - 55% **Total GHG Emissions 2,313**  **2,064 -**  **249 -**  **11%** Source: EPA, 2014 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 - 2012”, Table 2 - 13 * Includes only stationary combustion emissions related to the generation of electricity. ** SF 6 is not covered by this rule, which specifically regulates GHG emissions from combustion. + Does not exceed 0.05 Tg CO 2 Eq. or 0.05 percent. **Table 2 -**  **7. Fossil Fuel Emission Factors in EPA Base Case 5.14 IPM Power Sector Modeling** 

**Application Fuel Type**  **Carbon Dioxide (lb /MMBtu)**  Coal Bituminous 202.8 – 209.6 Subbituminous 209.2 – 215.8 Lignite 212.6 – 219. Natural Gas 117.1 Fuel Oil Distillate 161.4 Residual 161.4 – 173.9***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 25 Biomass 195 Waste Fuels Waste Coal 204.7 Petroleum Coke 225.1 Fossil Waste 321.1 Non - Fossil Waste 0 Tires 189.5 Municipal Solid Waste 91.9 Source: Documentation for IPM Base Case v.5.13, Table 11 - 5. The emission factors used in Base Case 5.14 are identical to the emission factors in IPM Base Case 5.13. Note: CO 2 emissions presented here for biomass account for combustion only and do not reflect lifec ycle emissions from initial photosynthesis (carbon sink) or harvesting activities and transportation (carbon source). **2.6 Carbon Dioxide Control Technologies**  In the power sector, current approaches available for significantly reducing the CO 2 emissions o f new fossil fuel combustion sources to meet a 1,400 lb CO 2/MWh emission rate include the use of: (1 ) highly efficiency coal -fired designs (e.g., modern supercritical or ultra supercritical steam units ) with up to 40% natural gas co -firing, (2 ) , integrated coal gasification combined cycle (IGCC) with < 10% CCS or co -firing with up to 10% natural gas , (3 ) natural gas combined cycle (NGCC) combustion tu rbine/steam -turbine units , and/or ( 4 ) conventional coal fired generation with carbon capture and storage (CCS) . Investment decisions for the optimal choice in a particular situation of the type of new generating capacity capable of meeting the 1,400 lb CO 2/MWh standard of performance depend in part on the intended primary use of new generating capacity. Daily pea k electricity demands, involving operation for relatively few hours per year, are often most economically met by simple - cycle combustion turbines (CT). Stationary CTs used for power generation can be installed quickly, at relatively low capital cost. They can be remotely started and loaded quickly, and can follow rapid demand changes. Full - load efficiencies of large current technology CTs are typically 30 - 33 percent but can be has high as 40 percent or more (high heating value basis), as compared to efficiencies of 50 percent or more for new combined - cycle units that recover and use the exhaust heat otherwise wasted from a CT. A simple - cycle CT’s lower efficiency causes it to burn much more fuel to produce a MWh of electricity than a combined - cycle unit. Thus, when burning natural gas its CO 2 emission rate per MWh could be 40 - 60 percent higher than a more efficient NGCC unit.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 26 Base load electricity demand can be met with NGCC generation, coal and other fo ssil fired steam generation, and IGCC technology, as well as generation from sources that do not emit CO 2 , such as nuclear and hydro. IGCC employs the use of a gasifier to transform fossil fuels into synthesis gas (“syngas”) and heat. The syngas is used to fuel a combined cycle generator, and the heat from the syngas conversion can produce steam for the steam turbine portion of the combined cycle generator. Electricity can be generated through this IGCC process somewhat more efficiently than through conv entional boiler- steam generators. Additionally, with gasification, some of the syngas can be converted into other marketable products such as fertil izers and chemical feedstocks for Fisher-Tropsch process es to manufacture liquid hydrocarbons (e.g., fu els and lubricants ) , and CO 2 can be captured for use in EOR. Figure 2 - 18 shows the array of products (including electricity) and by- products that can be produced in a syngas process (NETL )

**Figure 2 -**  **1 8**  **. Marketable products from Syngas**  **Generation** Source: National Energy Technology Lab. Gasifipedia. Available at http://www.netl.doe.gov/research/coal/energy systems/gasification/gasifipedia/co -generation***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 27 **2 .**  **6 .1**  **Carbon Capture and Storage**  CCS can be achieved through either pre - combustion or post - combustion capture of CO 2 from a gas stream associated with the fuel combusted. Furthermore, CCS can be designed and operated for full capture of the CO 2 in the gas stream (i.e., above 90 percent) or for partial capture (below 90 per cent). Post - combustion capture processes remove CO 2 from the exhaust gas of a combustion system – such as a utility boiler. It is referred to as “post - combustion capture” because the CO2 is the product of the combustion of the primary fuel and the capture takes place after the combustion of that fuel. This process is described in more detail in the preamble. (See preamble section V.D.) This process is ill ustrated for a pulverized coal power plant in Figure 2 - 1 9 . For post - combustion, a station's net generating output will be lower due to the energy needs of the capture process.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 28 **Figure 2 -**  **1 9**  **. Post**  **- Combustion CO**  **2 Capture for a Pulverized Coal Power**  **Plant** Source: Interagency Task Force on Carbon Capture and Storage 2010 Pre - combustion capture is mainly applicable to IGCC facilities, where the fuel is converted into gaseous components (“syngas”) under heat and pressure and some percentage of the carbon cont ained in the syngas is captured before combustion. 9 For pre - combustion technology, a significant amount of energy is needed to gasify the fuel(s). This process is illustrated in Figure 2 - 20 . Application of post - combustion CCS with IGCC can be designed to use no water - gas shift, or single - or two - stage shift processes, to obtain varying percentages of CO 2 removal – from a “partial capture” percentage to 90 percent “full capture.” Pre - combustion CCS typically has a lesser impact on net energy output than do es post - combustion CCS. For more detail on CCS technology, see the “Report of the Interagency Task Force on Carbon Capture and Storage” (2010). 10

9 Note that pre - combustion CCS is not considered the best system of emission reduction for this standard. This information is provided for background purposes. 10 For more information on the cost and performance of CCS, see http://www.netl.doe.gov/energyanalyses/baseline_studies.html .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 29 **Figure 2**  **- 20**  **. Pre**  **- Combustion CO**  **2 Capture for an IGCC Power Plant**  Source: Interagency Task Force on Carbon Capture and Storage 2010 Carbon capture technology has been successfully applied since 1930 on several smaller scale industrial facilities and more recently in a number of demonstration phase projects worldwide for power sector applications. In October 201 4 the first commercial - scale coal -fired capture and storage project for electricity generation began operation at the Boundary Dam Power Station in Saskatchewan, Canada. The Boundary Dam Station is owned by the Province of Saskatchewan, and operated by SaskPower, a provincially owned corporation that is the primary electric utility in the Province. The commercial - scale demonstration project retrofit Unit 3 (a 130 MW, coal fired built in 1970, and rebuilt in 2013) at a total cost of approximately $1.5 billion (Canadian, or about $1.2 billion US), including a partial subsidy of $240 million (Canadian) by the Canadian federal government. The carbon capture system is a post combustion process designed to capture 90 percent of the CO 2 emitted by Unit #3. Retrofitting the carbon capture system reduced the capacity of the u nit to 110 MW. The majority of the captured CO 2 is used for an EOR project in southern Saskatchewan. The portion of the CO 2 is being stored in a nearby research and monitoring geological storage facility, where the captured CO 2 will be injected 3.4 kilome ters underground into a sandstone formation located***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 30 below the major coal field supplying lignite to Unit # 3. The remaining captured CO 2 will be injected into deep saline formations. In the United States there are two commercial - scale CCS facilities nearin g completion: 1) the Kemper County Carbon Dioxide Capture and Storage Project in Mississippi , and 2) The W.A. Parish Petra Nova CCA Project near Houston, Teas. Construction began on the Kemper project in 2010, and the startup is currently scheduled for May, 2016. The Kemper project is constructing a new 524 MW lignite unit as well as a 58 MW natural gas unit. Mississippi Power (a division of Southern Power) is building and will operate the Kemper project. The control system is designed to ca pture 65 percent of the CO 2 generated by the plant, and is projected to capture 3.5 million tons of CO 2 per year. The resulting CO 2 emission rate is expected to be ~800 pounds per MWh produced. The current total cost estimate is $5.6 billion, a substantia l increase from the original $2.4 billion estimate . 11The construction has received a $270 million grant from the US Department of Energy, and $133 million in investment tax credits from the Internal Revenue Service. The captured CO 2 will be transported via a 60 mile pipeline and used for EOR projects in mature Mississippi oil fields. 12 The only other commercial - scale electricity power sector CCS project currently under construction in the United States is the W.A. Parish Pet ra Nova CCS Project near Houston, Texas. The Parish Petra project is a 50/50 partnership between NRG Energy (an integrated electricity company generating and supplying electricity to 1.6 million customers in Texas) and the Nippon Oil and Gas Exploration Company. The Parish project will retrofit a post - combustion CCS system on a portion of the flue gas from the existing 610 MW coal fired Unit # 8. The CCS system will treat a 240 MW slipstream of the flue gas, and is designed to capture 90 percent of the CO 2 in the treated flue gas. The capacity rating of Unit # 8 will not be reduced due to the CCS project because an 85 MW custom - built natural gas fired combustion turbine co generation unit is being built on - site to provide both electricity and steam to th e CCS unit. The

11 The Mississippi Public Utilities Staff authorized an independent monitor to conduct a review of the project. The findings of the review are provided in a summary report available a t: http://www.psc.state.ms.us/InsiteConnect/InSiteView.aspx?model=INSITE_CONNECT&queue=CTS_ARCHIVEQ &docid=328417 12 Carbon Capture and Sequestration Technologies Program at MIT. Accessed 1/23/2015. https://sequestration.mit.edu/tools/projects/kemper.html***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 31 total cost of the CCS project is estimated to be $1 billion (including a $167 million grant from the US Department of Energy), and the project is expected to extract 1.4 – 1.6 million tons of CO 2 per year. The construction contract was awar ded in July, 2014, and operation is expected to begin in early 2016. The CO 2 will be piped 85 miles to a reservoir for EOR in the West Ranch Oil Field. 13 **2 .**  **7 Geologic and Geographic Considerations for Geologic Sequestration**  Geologic sequestration (GS) (i.e ., long -term containment of a CO 2 stream in subsurface geologic formations) is technically feasible and available throughout most of the United States. ( See generally preamble to final rule at sections V. M and N. ) GS is feasible in different types of geologic formations including deep saline formations (formations with high salinity formation fluids) or in oil and gas formations, such as where injected CO 2 increases oil production efficiency through a process referred to as enhanced oil recovery (EOR). CO 2 may also be used for other types of enhanced recovery, such as for natural gas production. Reservoirs , such as unmineable coal seams , also offer the potential for g eologic storage. The geographic availabili ty of deep saline formations, EOR , and unmine able coal seams is shown in Figure 2 - 2 1 . E stimates of CO 2 storage resources by state compiled by the DOE’s National Carbon Sequestration Database and Geographic Information System (NATCARB) and published in DOE’s 2012 United States Carbo n Utilization and Storage Atlas (discussed below) are provided in Table 2 - 8 .

13 US DOE (2010) “ Recovery Act: W.A. Parish Post - Combustion CO 2 Capture and Sequestration Project ”. http://www.netl.doe.gov/research/proj?k=FE0003311 Accessed 1/23/2015***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 32 **Figure 2**  **- 2**  **1 Geologic Sequestration in the Continental United States**  Source s : EPA Greenhouse Gas Reporting Program; Department of Energy, NATCARB; Department of Transportation, National Pipeline Management System.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 33 **Table 2 -**  **8. Total CO**  **2 Storage Resource**  **(DOE -**  **NETL )**  **14 Million Metric Tons** *

**State Low Estimate**  **High Estimate** ALABAMA 122,490 694,380 ALASKA 8,640 19,750 ARIZONA 130 1,170 ARKANSAS 6,180 63,670 CALIFORNIA 33,890 420,630 COLORADO 37,610 357,190 CONNECTICUT not assessed by DOE - NETL not assessed by DOE - NETL DELAWARE 40 40 DISTRICT OF COLUMBIA not assessed by DOE - NETL not assessed by DOE - NETL FLORIDA 102,740 555,010 GEORGIA 145,340 159,050 HAWAII not assessed by DOE - NETL not assessed by DOE - NETL IDAHO 40 390 ILLINOIS 10,020 116,820 INDIANA 32,020 68,210 IOWA 10 50 KANSAS 10,880 86,340 KENTUCKY 2,920 7,650 LOUISIANA 169,500 2,103,980 MAINE not assessed by DOE - NETL not assessed by DOE - NETL MARYLAND 1,860 1,930 MASSACHUSETTS not assessed by DOE - NETL not assessed by DOE - NETL

14 The United States 2012 Carbon Utilization and Storage Atlas, Fourth Edition, U.S Department of Energy, Office of Fossil Energy, National Energy Technology Laboratory (NETL).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 34 **Table 2 -**  **8. Total CO**  **2 Storage Resource**  **(DOE -**  **NETL )**  **, cont. Million Metric Tons** * **State Low Estimate**  **High Estimate** MICHIGAN 19,050 47,210 MINNESOTA not assessed by DOE - NETL not assessed by DOE - NETL MISSISSIPPI 145,010 1,185,030 MISSOURI 10 170 MONTANA 84,580 912,720 NEBRASKA 23,770 113,240 NEVADA not assessed by DOE - NETL not assessed by DOE - NETL NEW HAMPSHIRE not assessed by DOE - NETL not assessed by DOE - NETL NEW JERSEY 0 0 NEW MEXICO 42,760 359,090 NEW YORK 4,640 4,640 NORTH CAROLINA 1,340 18,390 NORTH DAKOTA 67,090 147,480 Offshore Federal Only 489,840 6,440,090 OHIO 13,460 13,460 OKLAHOMA 56,950 244,550 OREGON 6,810 93,700 PENNSYLVANIA 22,100 22,100 RHODE ISLAND not assessed by DOE - NETL not assessed by DOE - NETL SOUTH CAROLINA 30,100 34,180 SOUTH DAKOTA 8,760 24,030 TENNESSEE 430 3,860 TEXAS 443,800 4,329,930 UTAH 25,470 240,910 VERMONT not assessed by DOE - NETL not assessed by DOE - NETL VIRGINIA 440 2,910 WASHINGTON 36,620 496,730 WEST VIRGINIA 16,650 16,650 WISCONSIN not assessed by DOE - NETL not assessed by DOE - NETL WYOMING 72,690 684,850 **U.S. Total 2,296,680**  **20,092,180** * States with a “zero” value represent estimates of minimal CO 2 storage resource. States that have not yet been assessed by DOE - NETL have been identified.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 35 **2. 7**  **.2 Availability of geologic sequestration in deep saline formations**  DOE and the United States Geological Survey (USGS) have independently conducted preliminary analyses of the availability and potential CO 2 sequestration capacity of deep saline formations in the United States. DOE estimates are compiled by the DOE’s National Carbon Sequestration Database and Geographic Information System (NATCARB) usi ng volumetric models and published in a Carbon Utilization and Storage Atlas . 15 DOE estimates that areas of the United States with appropriate geology have a sequestration potential of at least 2,035 billion metric tons of CO 2 in deep saline formations. Acc ording to DOE , at least 39 states have geologic characteristics that are amenable to deep saline GS in either onshore or offshore locations. In 2013, the USGS completed its evaluation of the technically accessible GS resources for CO 2 in U.S. onshore a reas and state waters using probabilistic asse ssment. 16 The USGS estimates a mean of 3,000 billion metric tons of subsurface CO 2 sequestration potential, including saline and oil and gas reservoirs, across the basins studied in the United States. As shown i n Figure 2 - 2 1 , there are 39 states for which onshore and offshore deep saline formation stora ge capacity has been identified . 17 **2. 7.3**  **Availability of CO 2**  **storage via enhanced oil recovery (EOR)** Although the regulatory impact analysis for this rule relies on GS in deep saline formations, the EPA also recognizes the potential for securely sequestering CO 2 via EOR . EOR has been successfully used at numerous production fields throughout the United States to increase oil recovery. The oil industry in the Unite d States has over 40 years of experience with EOR. An oil industry study in 2014 identified more than 125 EOR projects in 98 fields in the United States. 18 More than half of the projects evaluated in the study have been in operation for more than 10 years, and many have been in operation for more than 30 years. This experience provides a strong foundation for demonstrating successful CO 2 injection and monitoring technologies, which are needed for safe and secure GS that can be used for deployment of CCS acro ss geographically diverse areas.

15 The United States 2012 Carbon Utilization and Storage Atlas, Fourth Edition, U.S. Department of Energy, Office of Fossil Energy, National Energy Technology Laboratory (NETL). 16 U.S. Geologic al Survey Geologic Carbon Dioxide Storage Resources Assessment Team, 2013, National assessment of geologic carbon dioxide storage resources — Results: U.S. Geological Survey Circular 1386, p. 41, http://pubs.usgs.gov/circ/1386/. 17 Alaska is not shown in the figu re ; it has deep saline formation storage capacity, geology amenable to EOR operations, and potential GS capacity in unmineable coal. 18 Koottungal, Leena, 2014, 2014 Worldwide EOR Survey, Oil & Gas Journal, Volume 112, Issue 4, April 7, 2014 (corrected tables appear in Volume 112 , I ssue 5, May 5, 2014).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 36 Currently, 12 states have active EOR operations and most have developed an extensive CO 2 infrastructure, including pipelines, to support the continued operation and growth of EOR. An additional 18 states are within 1 0 0 k ilometers (62 miles ) of curr ent EOR operations ( s ee Figure 2 - 2 1 ) . 19 The vast majority of EOR is conducted in oil reservoirs in the Permian Basin, which extends through southwest Texas and southeast New Mexico. States where EOR is utilized include Alabama, Colorado, Louisiana, Michigan, Mississippi, New Mexico, Oklahoma, Texas, Utah, and Wyoming. At the project level, the volume of CO 2 already injected for EOR and the duration of operations are of similar magnitu de to the duration and volume of CO 2 expected to be captured from fossil fuel -fired EGUs. The volume of CO 2 used in EOR operations can be large (e.g., 55 million tons of CO 2 were stored in the SACROC unit in the Permian Basin over 35 years), and operation s at a single oil field may last for decades, injecting into multiple parts of the field. 20 According to data reported to the EPA’s Greenhouse Gas Reporting Program (GHGRP), approximately 60 million metric tons of CO 2 were supplied to EOR in the United Sta tes in 2013. 21 Approximately 70 percent of this total CO 2 supplied was produced from natural (geologic) CO 2 sources , and approximately 30 percent was captured from anthropogenic sources. 22 A DOE - sponsored study has analyzed the geographic availability of ap plying EOR in 11 major oil producing regions of the United States and found that there is an opportunity to significantly increase the application of EOR to areas outside of current operations. 23 DOE sponsored geologic and engineering analyses show that ex panding EOR operations into areas additional to the capacity already identified and applying new methods and techniques over the next 20 years could utilize 18 billion metric tons of anthropogenic CO 2 and increase total oil production by 67 billion barrels . The availability of anthropogenic CO 2 in areas outside of current sources could drive new EOR projects by making more CO 2 locally availab le.

19 The distance of 100 kilometers reflects the assumptions in the DOE - NETL cost estimates. 20 Han, Weon S., McPherson, B J., Lichtner, P C., and Wang, F P. “Evaluation of CO 2 trapping mechanisms at the SACROC northern platform, Permian basin, Texas, site of 35 years of CO 2 injection.” American Journal of Science 310. (2010): 282 - 324. 21 Greenhouse Gas Reporting Program, data reported as of August 18, 201 4 . 22 Greenhouse Gas Repo rting Program, data reported as of August 18, 201 4 . 23 “Improving Domestic Energy Security and Lowering CO 2 Emissions with “Next Generation” CO 2 - Enhanced Oil Recovery”, Advanced Resources International, Inc. (ARI), 2011. Available at: http://www.netl.doe.go v/research/energy- analysis/publications/details?pub=df02ffba - 6b4b -4721 - a7b4 - 04a505a19185.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 37 **2. 8**  **State Policies on GHG and Clean Energy Regulation in the Power Sector**  Several states have also established emission performance standards or other measures to limit emissions of GHGs from new EGUs that are comparable to or more stringent than this rulemaking. In 2003, then - Governor George Pataki sent a letter to his counterparts in the Northeast and Mid -Atlantic inviting them to participate in the development of a regional cap - and -trade program addressing power plant CO 2 emissions. This program, known as the Regional Greenhouse Gas Initiative (RGGI), began in 2009 and sets a regional C O 2 cap for participating states. The currently participating states include: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. The cap covers CO 2 emissions from all fossil -fired EGUs greater than 2 5 MW in participating states, and limits total emissions to 91 million short tons in 2014 . The 2014 emissions cap is a 51 percent reduction below the initial cap in 2009 to 2011 of 188 million tons . This emissions budget is reduced 2.5 percent annually fr om 2015 to 2020. RGGI CO 2 allowances are sold in a quarterly auction. RGGI conducted their 27 th quarterly allowance auction in March, 2015 the market clearing price was $5.41 per ton of CO 2 for current allowances, which was a record high price (the February ’15 price of $5.21 was the previous record). A total of allowances for 15.3 million tons were sold in the March ’15 auction, well below the record of 38.7 million tons sold in June ’13 for $3.21 per ton. In September 2006, California Governor Schwarzene gger signed into law Senate Bill 1368. The law limits long-term investments in baseload generation by the state's utilities to power plants that meet an emissions performance standard jointly established by the California Energy Commission and the Californ ia Public Utilities Commission. The Energy Commission has designed regulations that establish a standard for new and existing baseload generation owned by, or under long-term contract to publicly owned utilities, of 1,100 lb CO 2/MWh - net . In 2006 Govern or Schwarzenegger also signed into law Assembly Bill 32, the Global Warming Solutions Act of 2006. This act includes a multi - sector GHG cap - and -trade program which covers approximately 85 percent of the state GHG emissions. EGUs are include d in phase I of the program, which began in 2013. Phase II begins in 2020 and includes upstream sources. The cap is based on a 2 percent reduction from total 2012 expected emissions, and declines 2 percent annually through 2014, then 3 percent each year until 2020. The AB32 cap and trade program began functioning in 2011, and functioning market is now operating on the NYMEX futures commodity market. The final 2014 market price for 2014 carbon allowances was***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 38 $12.38/tonne of carbon. On April 17, 2015 the 2015 allowance futures price was $12.65/tonne, and the spot price was $12.46/tonne. In May 2007, Washington Governor Gregoire signed Substitute Senate Bill 6001, “Baseload Electric Generation Performance which established statewide GHG emissions reduction goals, and imposed an emission standard that applies to any baseload electric generation that commenced operation after June 1, 2008 and is located in Washington, whether or not that generation serves loa d located within the state. Baseload generation facilities must initially comply with an emission limit of 1,100 lb CO 2/MWh - net . In 2013 the State of Washington revised 24 the emission limit to 970 lb CO 2/MWh - net based on a survey of available NGCC genera tion units commercially available in the United States. In 1997 Oregon required a new baseload gas fired power plants to meet a CO2 emission standard that was 17% below the most efficient NGCC unit operating in the United States. In 2000 Oregon establishe d that the effective 17% below most efficient was 675 lb CO 2/MWh - net In July 2009, Oregon Governor Kulongoski signed Senate Bill 101, which mandated that facilities generating baseload electricity, whether gas - or coal -fired, must have emissions equal to or less than 1,100 lb CO 2/MWh - net regardless of fuel type , and prohibited utilities from entering into long -term purchase agreements for baseload electricity with out - of- state facilities that do not meet that standard. Natural gas - and petroleum distillate -fired facilities that are primarily used to serve peak demand or to integrate energy from renewable resources are specifically exempted from the performance standard. In August 2011, New York Governor Cuomo signed the Power NY Act of 2011. Implementing regulation s establishe d CO 2 emission standards for new and modified electric generators greater than 25 MW. The standards vary based on the type of facility: base load facilities must meet a CO 2 standard of 925 lb/MWh - net or 120 lb/MMBtu, an d peaking facilities must meet a CO 2 standard of 1,450 lb/MWh - net or 160 lb/MMBtu - net . Several other states have enacted CO 2 regulations affecting EGUs that do not set emission limits, but set other regulatory requirements limiting CO 2 emissions from EGU s. For example, Montana enacted a law in 2007 requiring the Public Service Commission to limit approvals of new equity interests in or leases of a facility used to generate coal - based electricity

24 Washington Department of Commerce, 2013. “Greenhouse Gas Emission Performance Standard for Baseload Electric Generation ”. Available at http://www.commerce.wa.gov/Documents/Concise - Expl - Stmt - WSR - 13 - 06 - 074.pdf .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 39 to facilities that capture and sequester at least half of t heir CO 2 emissions. Minnesota enacted the Next Generation Energy Act in 2007 requiring increases in power sector greenhouse gas emissions from any new large coal energy facilities built in Minnesota or the import of electricity from such a facility locate d out of state to be offset by equivalent emission reductions. New Mexico enacted legislation in 2007 authorizing tax credits and cost recovery incentives for qualifying coal -fired facilities. To qualify, plants must capture and store emissions so that th ey emit less than 1 , 100 lbs CO 2/MWh, among other requirements. Additionally, most states have implemented Renewable Portfolio Standards (RPS), or Renewable Electricity Standards (RES). These programs are designed to increase the renewable share of a state’s total electricity generation. Currently 29 states , the District of Columbia and Guam have enforceable RPS or other mandatory renewable capacity policies, and 8 states , Puerto Rico and Guam have voluntary goals. 25 These programs vary widely in structure, enforcement, and scope. **2. 9**  **Revenues and Expenses** Due to lower retail electricity sal es, total utility operating revenues declined in 2012 to $271 billion from a peak of almost $300 billion in 2008. Despite revenues not returning to 2008 levels in 2012, operating expenses were appreciably lower and as a result, net income also rose in comp arison to 2008 (see Table 2 - 9). Recent economic events have put downward pressure on electricity demand, thus dampening electricity prices and consumption (utility revenues), but have also reduced the price and cost of fossil fuels and other expenses. In 2 012 electricity generation was 1.28 percent below the generation in 2011, and has declined in 4 of the past 5 years. Table 2 - 9 shows that investor- owned utilities (IOUs) earned income of about 13.0 percent compared to total revenues in 2012. The 2012 retur n on revenue was the third highest year for the period 2002 to 2012 (average: 11.9 percent range: 10.6 percent to 13.32 percent). **Table 2 -**  **9 .**  **Revenue and Expense Statistics for Major U.S. Investor -**  **Owned Electric Utilities**

**for 2010 (nominal $millions) 2002**  **2008 2012**  **Utility Operating Revenues 219,609**  **298,962 270,912**  Electric Utility 200,360 266,124 249,166

25 CESA 2013***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 40 Other Utility 19,250 32,838 21,745 **Utility Operating Expenses 189,062**  **267,263 235,694**  Electric Utility 171,604 236,572 220,722 Operation 116,660 175,887 152,379 Production 90,715 140,974 111,714 Cost of Fuel 24,149 47,337 38,998 Purchased Power 58,810 84,724 54,570 Other 7,776 8,937 18,146 Transmission 3,560 6,950 7,183 Distribution 3,117 3,997 4,181 Customer Accounts 4,168 5,286 5,086 Customer Service 1,820 3,567 5,640 Sales 264 225 221 Admin. and General 13,018 14,718 18,353 Maintenance 10,861 14,192 15,489 Depreciation 16,199 19,049 23,677 Taxes and Other 26,716 26,202 29,177 Other Utility 17,457 30,692 14,972 **Net Utility Operating Income 30,548**  **31,699 35,218**  Source: Table 8.3, EIA Electric Power Annual, 2012 Note: This data does not include information for public utilities, nor for Independent Power Producers (IPPs). **2. 10**  **Natural Gas Market** The natural gas market in the United States has historically experienced significant price volatility from year to year, between seasons within a year, can undergo major price swings during short - lived weather events (such as cold snaps leading to short - run spikes in hea ting demand) , and has seen a dramatic shift since 2008 due to increased production from shale formations . Over the last decade, the annual average nominal price of gas delivered to the power sector peaked in 2008 at $9.02/mmBtu and ha s since fallen dramatically to a low of $3.42/mmBtu in 2012 . During that time, the daily price 28 of natural gas reached as high as $18.48/mmBtu and as low as $2.03. Adjusting for inflation using the GDP implicit price deflator, in $2011 the annual averag e price of natural gas delivered to the power sector peaked at $9.38/mmBtu in 2008 and ha s fallen dramatically to a low of $3.36 in 2012. The

28 Henry Hub daily prices. Henry Hub is a major gas distribution hub in Louisiana; Henry Hub prices are generally seen as the primary metric for national gas prices for all end uses. The price of natural g as delivered to electricity generation differs substantially in different regions of the country, and can be higher or lower than the Henry Hub national benchmark price.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 41 annual natural gas prices in both nominal and real (2011$) terms are in Figure 2 - 2 2 . A comparison of the trends in the real price of natural gas with the real price s of delivered coal and oil are shown in Figure 2 - 2 3 . Figure 2 - 2 3 shows that while the real price of coal and oil increased from 2002 to 2012 (+54 percent and +203 percent respectively), th e real price of natural gas declined by 22 percent in the same period. Most of the decline in real natural gas prices occurred between 2008 (the peak price year) and 2012, during which real gas prices declined by 64 percent while coal and oil prices both i ncreased by 9 percent . The sharp decline in natural gas prices from 2008 to 2012 was primarily caused by the rapid increase in natural gas production from shale formations.

**Figure 2 -**  **2 2**  **. Nominal and Real (2011$) Prices of Natural Gas Delivered to the P**  **ower Sector ($/mmBtu)**  Source: http://www.eia.gov/totalenergy/data/monthly/#prices . Downloaded 2/15/2015. $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00

2002 2004 2006 2008 2010 2012NaturalGasPrices($/mmBTU)

Nominal Price Real Price***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 42 **Figure 2**  **- 2**  **3 .**  **Relative Change in Real (2011$) Prices of Fossil Fuels Delivered to the Power**  **Sector ($/mmBtu)** Source: http://www.eia.gov/totalenergy/data/monthly/#prices . Downloaded 2/15/2015. Current and projected natural gas prices are considerably lower than the prices observed over the past decade, largely due to advances in hydraulic fracturing and horizontal drilling techniques that have opened up new shale gas resources and substantially increased the supply of economically recoverable natural g as. According to AEO 2012 (EIA 2012): Shale gas refers to natural gas that is trapped within shale formations. Shales are fine grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizon tal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States. The U.S. Energy Information Administration's Annual Energy Outlook 201 4 estimates that the United States possessed 2,2 66 trillion cubic feet (Tcf) of technically recoverable dry natural gas resources as of January 1, 20 12 . Proven reserves make up 15 percent of the technically recoverable total estimate, with the remaining 85 percent from unproven reserves. -50% 0% 50% 100% 150% 200% 250%

2002 2004 2006 2008 2010 2012 Coal Oil Gas Average***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 43 Natural gas from proven and unproven shale resources accounts for 611 Tcf of this resource estimate. Many shale formations, especially the Marcellus 29, are so large that only small portions of the entire formations have been intensively production -tested. Furthermore, estimates from the Marcellus and other emerging fields with few wells already drilled are likely to shift significantly over time as new geologica l and production information becomes available. Consequently, there is some uncertainty in estimate of technically recoverable resources , and it is regularly updated as more information is gained through drilling and production. At the 2012 rate of U.S. consumption (about 25.6 Tcf per year), 2,266 Tcf of natural gas is enough to supply nearly 90 years of use. The AEO 2014 estimate of the shale gas resource base is modestly higher than the AEO 2012 estimate (2,214 Tcf) of shale gas production , driven by lower drilling costs and continued drilling in shale plays with high concentrations of natural gas liquids and crude oil, which have a higher value in energy equivalent terms than dry natural gas. 30 EIA’s projections of natur al gas conditions did not change substantially in AEO 2014 from either the AEO 2012 or 2013, and EIA is continues to forecast abundant reserves consistent with the above findings. Recent historical data reported to EIA is also consistent with these trends, with 2014 being the highest year on record 31 for domestic natural gas production. 32

29 The Marcellus formation, underlying most of Pennsylvania and West Virginia, along wi th portions of New York and Ohio, in 2014 produced 36% of the U.S. total natural gas extracted from shale formations. 30 For more information, see: http://www.eia.gov/forecasts/archive/aeo11/IF_all.cfm#prospectshale ; http://www.eia.gov/energy_in_brief/about_shale_gas.cfm 31 The total dry gas production in 2012 from the lower 48 states, including both onshore and offshore production, was 23.97 Tcf, a 1.5% increase from 2013 and a 7.9% total increase from 2011 32 http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2014&subject=8 -AEO2014&table=72 - AEO2014®ion=0 - 0&cases=ref2014 - d102413a***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 44 **2 .1**  **1 References**  Advanced Resources International . Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2 - Enhanced Oil Recovery (CO2 - EOR). 2011. Available online at: http://www.netl.doe.gov/research/energyanalysis/publications/details?pub=df02ffb a - 6b4b - 4721 - a7b4 - 04a505a19185 . Clean Energy States Alliance (CESA). The State of State Renewable Portfolio Standards . June 2013. Available Online at Ha n, Weon S., McPherson, B J., Lichtner, P C., and Wang, F P. Evaluation of CO2 trapping mechanisms at the SACROC northern platform, Permian basin, Texas, site of 35 years of CO2 injection. American Journal of Science 310. (2010): 282 - 324. Independent Monitor’s Prudency Evaluation Report for the Kemper County IGCC Project. April 15, 2014. Available online at: http://www.psc.state.ms .us/InsiteConnect/InSiteView.aspx?model=INSITE_CONNECT&q ueue=CTS_ARCHIVEQ&docid=328417 . Interagency Task Force on Carbon Capture and Storage. Report of the Interagency Task Force on Carbon Capture and Storage . August 2010. Available online at: http://www.epa.gov/climatechange/downloads/CCS -Task- Force - Report - 2010.pdf . Intergovernmental Panel on Climate Change. Climate Change 2001: The Scientific Basis . 2001. Availab le online at: http://www.grida.no/publications/other/ipcc_tar/?src=/climate/ipcc_tar/wg1/218.htm . International Energy Agency (IEA). Tracking Clean Energy Progress 2013. Input to the Clean Energy Ministerial. 2013. Available online at: http://www.iea.org/etp/tracking/ . Koottungal, Leena . 2014 Worldwide EOR Survey, Oil & Gas Journal, Volume 112, Issue 4, April 7 , 2014 (correct ed tables appear in Volume 112, I ssue 5, May 5, 2014). National Energy Technology Laboratory (NETL). Reducing CO2 Emissions by Improving the Efficiency of Existing Coal- fired Power Plant Fleet . July 2008. Available online at: http://www.netl.doe.gov/energy- analyses/pubs/CFPP%20Efficiency- FINAL.pdf . National Energy Technology Laboratory (NETL). The United States 2012 Carbon Utilization and Sto rage Atlas, Fourth Edition . 2012. Available online at: http://www.netl.doe.gov/technologies/carbon_seq/refshelf/atlasIV/ . National Energy Technology Laboratory (NETL). Energy Analyses: Cost and Performance Baselines for Fossil Energy Plants. 2013. Available online at: http://www.netl.doe.gov/energy- analyses/baseline_studies.html .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 45 Pacific Northw est National Laboratory (PNNL). An Assessment of the Commercial Availability of Carbon Dioxide Capture and Storage Technologies as of June 2009. June 2009. Available online at: http://www.pnl.gov/science/pdf/PNNL- 18520_Status_of_CCS_062009.pdf . U.S. Energy Information Administration (U.S. EIA). Carbon Dioxide Emissions from the Generation of Electric Power in the United States. July 2000. Available online at: ftp://ftp.eia.doe.gov/environment/co2emiss00.pdf . U.S. Energy Information Administration (U.S. EIA). Electric Power Annual 2003. 2003. Available online at: http://www.eia.gov/electricity/annual/archive/03482003.pdf . U.S. Energy Information Administration (U.S. EIA). Electric Power Annual 2009 . 2009. Available online at: http://www.eia.gov/electricity/annual/archive/03482009.pdf . U.S. Energy Information Administration (U.S. EIA). Electric Power Annual 2011 . 2013. Available online at: http://www.eia.gov/electricity/annual/ . U.S. Energy Information Administration (U.S. EIA). “Status of Electricity Restructuring by State.” 2010a. Available online at: http://www.eia.gov/cneaf/electricity/page/restructuring/restructure_elect.html . U.S. Energy Information Administration (U.S. EIA). AEO 2010 Retrospective Review . 2010b. Available online at: http://www.eia.gov/forecasts/aeo/retrospective/. U. S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2010 . 2010c. Available online at: http://www.eia.gov/oiaf/archive/aeo10/index.html . U.S. Energy Information Administration (U.S. EIA). Annual Energy Review 2010 . 2010d. Available online at: http://www.eia.gov/totalenergy/data/annual/pdf/aer.pdf . U.S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2011 . 2011. Available online at: http://www.eia.gov/forecasts/archive/aeo11/ . U.S. Energy Information Administration (U.S. EIA). Annual Energy Ou tlook 2012 (Early Release) . 2012. Available online at: http://www.eia.gov/forecasts/aeo/ . U.S. Energy Information Administration (U.S. EIA). Today in Energy: Most states have Renewable Portfolio Standards. 2012a. Available online at: http://www.eia.gov/todayinenergy/detail.cfm?id=4850 . U.S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2013 . 2013. Available online at: http://www.eia.gov/forecasts/aeo/ . U.S. Energy Information Administration (U.S. EIA). Monthly Energy Review, April 2015 . 2015. Available online at: http://www.eia.gov/totalenergy/data/monthly/ .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

2 - 46 U.S. Environmental Protection Agency (U.S. EPA). Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–

2011 . April 2013. Available online at: http://www.epa.gov/climatechange/Downloads/ghgemissions/US - GHG - Inventory- 2013 - Main -Text.pdf . U.S. Geological Survey (USGS) Carbon Dioxide Storage Resources Assessment Team. National assessment of geologic carbon dioxide storage resources – Results: U.S. Geological Survey Circular 1386 . Available online at: http://pubs.usgs.gov/circ/1386/ .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 1 **CHAPTER 3 BENEFITS OF REDUCING**  **GREENH OUSE**  **G AS**  **E MISSIONS AND OTHER P**  **OLLUTANTS** This rule is designed to set emission limits for carbon dioxide ( CO 2 ) , thereby limiting potential increases in future emissions and atmospheric CO 2 concentrations. This will reduce the risk of adverse effects of climate change . As discussed in Chapter 4, the . EPA anticipate s n egligible CO 2 emission changes resulting from the rule relative to baseline conditions, due to market baseline market conditions . The final standards provide the benefit of regulatory certainty that any new coal -fired power plant must limit its CO 2 emissions to a level reflecting the performance of a highly efficient super critical pulve rized coal ( SCPC ) unit utilizing post combustion partial carbon capture and storage ( CCS ) . As explained in preamble section V.P.1.b, there are documented instances of project developers abandoning projects using CCS due to this lack of regulatory certain ty. In addition, the history of regulatory actions has shown that emission standards that are based on the performance of advanced control equipment lead to increased use of that control equipment, and that the absence of a requirement stifles technology development. (See preamble section V.P.1.b.)

. This chapter summarizes the adverse effects on public health and public welfare from the emissions of CO2, which is a well - mixed greenhouse gas . This form of air pollution was determined by EPA in the 2009 Endangerment Finding to endanger public health and welfare. 1 The major assess ments by the U.S. Global Change Research Program (USGCRP), the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council (NRC) served as the primary scientific bas es for the Endangerment Finding . A discussion of climate

1 Endangerment and Caus e or Contribute Findings for Greenhouse Gase s Under Section 202(a) of the Clean Air Act , 74 Fed. Re g. 66,496 (Dec. 15, 2009 ). See also Coalition for Responsible Regulation v. EPA , 684 F. 3d at 119 - 126, upholding the Endangerment Finding in all respects, and noting that “[t]he body of scientific evidence marshaled by EPA in support of the Endangerment Finding is substantial” (id. at 120).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 2 science findings from newer assessments can be found in the Preamble. This chapter also provides a general discussion about how the climate - related and human health benefits of emissions reductions are estimated. These valuation a pproaches are used in Chapter 5 to quantify and monetize the relative differences in emissions between electric generating technologies that may be constructed in the future . **3.1 Overview of Climate Chan**  **ge Impacts from GHG Emissions** Thro ugh the implementation of CAA regulations, the EPA addresses the negative externalities caused by air pollution. The preamble to the final rule summarizes the public health and public welfare impacts that were detailed in the 2009 Endangerment Finding. For health, these include the increased likelihood of heat waves, negative impacts on air quality, more intense hurricanes, more frequent and inten se storms and heavy precipitation, and impacts on infectious and waterborne diseases. For welfare, these include reduced water supplies in some regions, increased water pollution, increased occurrences of floods and droughts, rising sea levels and damage t o coastal infrastructure, increased peak electricity demand, changes in ecosystems, and impacts on indigenous communities. The preamble also summarizes new scientific assessments and recent climatic observations. Major scientific assessments released sinc e the 2009 Endangerment Finding have further i mproved scientific understanding of climate change , and provide even more evidence that GHG emissions endanger public health and welfare for current and future generations. The National Climate Assessment ( NCA3), in particular, assessed the impacts of climate change on human health in the United States , finding that, Americans will be impacted by “ increased extreme weather events, wildfire, decreased air quality, threats to mental health, and illnesses tr ansmitted by food, water, and disease - carriers such as mosquitoes and ticks.” The IPCC reported similar conclusions in its Fifth Assessment Report, finding that it is likely that adverse health impacts related to heat exposure are already being exacerbated by climate change and that, if unabated, climate change will lead to a greater risk of morbidity and mortality due to more intense heat waves, undernutrition, and increased prevalence of food - and water- borne illnesses. These assessments also detail the r isks to vulnerable groups such as children, the elderly and low income households. Furthermore, the assessments present an improved understanding of the impacts of climate change on public welfare, improved projections of future warming over the next centu ry, higher projections of future sea level rise than had been previously estimated due in part to improved understanding of the Antarctic and Greenland ice sheets, more detailed description of U.S. impacts based on the National Climate Assessment, improved understanding of changes in rainfall and droughts, and new assessments of the***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 3 impacts of climate change on permafrost and ocean acidification. The impacts of GHG emissions will be realized worldwide, independent upon their location of origin, and impacts outside of the United States will produce consequences relevant to the United States. **3.2 Social Cost of**  **Carbon** The social cost of carb on (SC - C O 2 ) is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 emissions in a given year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural productivity and human h ealth, property damage from increased flood risk, and changes in energy system costs , such as reduced costs for heating and increased costs for air conditioning . It is typically used to assess the avoided damages as a result of regulatory actions ( i.e. , be nefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 emissions ) . This section discusses the development of the SC - CO 2 estimates and the Chapter 5 analysis applies the SC - CO 2 estimates to illustrate the value to society of th e difference in CO 2 emissions among different generation technologies . The SC - CO 2 estimates used in this analysis were developed over many years, using the best science available, and with multiple opportunities for input from the public, which is discussed further below . 2 Specifically, an interagency working group (IWG) that included the EPA and other executive branch agencies and offices used three integrated assessment models (IAMs) to develop the SC - CO 2 estimates and recommended four global val ues for use in regulatory analyses. As noted in the Government Accountability Office’s 2014 review, this interagency working group (1) used consensus - based decision - making, (2) relied on existing academic literature and modeling, and (3) took steps to disc lose limitations and incorporate new information by considering public comments and revising the estimates as updated research became available . The SC - CO 2 estimates were first released in February 2010 and updated in 2013 using new versions of each IAM. As discussed further below, the IWG published two minor corrections to the SC - CO 2 estimates in July 2015. These estimates are published in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 ( “current SC - CO 2 TSD ” ) and henceforth we refer to them as the “SC - CO 2 estimates.” 2 Ample opportunity for public comment on all aspects of the SC - C O 2 estimates has been provided, including the estimates selected by the IWG in 2009 and in the numerous proposed rules issued by EPA and other Federal agencies between February 2010 and May 2013 that made use of the estimates.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 4 The SC - CO 2 estimates were developed using an ensemble of the three most widely cited integrated assessment models in the economic s literature with the ability to estimate the SC CO 2 . A key objective of the IWG was to draw from the insights of the three models while respecting the different approaches to linking GHG emissions and monetized damages taken by modelers in the published l iterature. After conducting an extensive literature review, the interagency group selected three sets of input parameters (climate sensitivity, socioeconomic and emissions trajectories, and discount rates) to use consistently in each model. All other model features were left unchanged, relying on the model developers’ best estimates and judgments, as informed by the literature. Specifically, a common probability distribution for the equilibrium climate sensitivity parameter, which informs the strength of cl imate’s response to atmospheric GHG concentrations, was used across all three models. In addition, a common range of scenarios for the socioeconomic parameters and emissions forecasts were used in all three models. Finally, the marginal damage estimates fr om the three models were estimated using a consistent range of discount rates, 2.5, 3.0, and 5.0 percent. See the 2010 SC - CO 2 TSD for a complete discussion of the methods used to develop the estimates and the key uncertainties, and the current SC - CO 2 TSD for the latest estimates. The SC - CO 2 estimates represent global measures because of the distinctive nature of the climate change, which is highly unusual in at least three respects. First, emissions of most GHGs contribute to damages around t he world independent of the country in which they are emitted. The SC - CO 2 must therefore incorporate the full (global) damages caused by GHG emissions to address the global nature of the problem. Second, the U.S. operates in a global and highly interconnected economy, such that impacts on the other side of the world can affect our economy. This means that the true costs of climate change to the U.S. are larger than the direct impacts that simply occur within the U.S. Third, climate change represents a classic public goods problem because each country’s reductions benefit everyone e lse and no country can be excluded from enjoying the benefits of other countries’ reductions, even if it provides no reductions itself. In this situation, the only way to achieve an economically efficient level of emissions reductions is for countries to c ooperate in providing mutually beneficial reductions beyond the level that would be justified only by their own domestic benefits. In reference to the public good nature of mitigation and its role in foreign relations, thirteen prominent academics noted th at these “are compel ling reasons to focus on a global [ SC - C O 2 ] ” in a recent article on the SC - C O 2 (Pizer et al., 2014). In addition, as noted in OMB’s Response to Comments on the SC - C O 2 , there is no bright line between domestic and global damages. Adverse impacts***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 5 on other countries can have spillover effects on the United States, particularly in the areas of national security, international trade, public health and humanitarian concerns. 3

The 2010 SC - CO 2 TSD noted a number of limitations to the SC - CO 2 analysis, incl uding the incomplete way in which the integrated assessment models capture catastrophic and non catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and a ssumptions regarding risk aversion. Current integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature due to a lack of precise informati on on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. The limited amount of research linking climate impacts to economic damages makes the modeling exercise even more difficu lt. These individual limitations do not all work in the same direction in terms of their influence on the SC - CO 2 estimates, though taken together they suggest that the SC - CO 2 estimates are likely conservative. In particular, the IPCC Fourth Assessment Repo rt (2007), which was the most current IPCC assessment available at the time of the IWG’s 2009 - 2010 review, concluded that “It is very likely that [SC - CO 2 estimates] underestimate the damage costs because they cannot include many non - quantifiable impacts.” Since then, the peer- reviewed literature has continued to support this conclusion. For example, the IPCC Fifth Assessment report observed that SC - C O 2 estimates continue to omit various impacts that would likely increase damages. The 95th percentile estimat e was included in the recommended range for regulatory impact analysis to address these concerns. The EPA and other agencies have continued to consider feedback on the SC - CO 2 estimates from stakeholders through a range of channels, including public comment s on this rulemaking and others that use the SC - CO 2 in supporting analyses and through regular interactions with stakeholders and research analysts implementing the SC - CO 2 methodology used by the interagency working group. The SC - CO 2 comments received on t his rulemaking covered a wide range of topics including the technical details of the modeling conducted to develop the SC - CO 2 estimates, the aggregation and presentation of the SC - CO 2 estimates, and

3 See: (1) Endangerment and Caus e or Contribute Findings for Greenhouse Gase s Under Section 202(a) of the Clean Air Act, 74 Fed. Reg. 66,496, 66,535 (Dec. 15, 2009) and (2) Nationa l Research Council: Climate and Social Stress: Implications for Security Analysis. Washington, DC: The National Academies Press, 2013.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 6 the process by which the SC - CO 2 estimates were derived. The EPA Response to Comments document provides a summary and response to the SC - CO 2 comments submitted to this rulemaking. Many of the comments EPA received in this proceeding mirrored those that OMB received in response to a separate reque st for public comment on the approach used to develop the estimates and EPA has carefully considered those comments and responses here. After careful evaluation of the full rang e of comments submitted to OMB , the IWG continue **d** to recommend the use of these SC - CO 2 estimates in regulatory impact analysis . The IWG remains committed to ensuring that the SC - CO2 estimates continue to reflect the best available scientific and economic information on climate change. In light of this commitment , the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine . 4 The Academies process will be informed by the public comments received and focus on the technical merits and challenges of potential approaches to improving the SC - CO 2 estimates in future updates . OMB also has published a revised TSD that informed our analysis here. T he revision to the TSD is limited to two minor technical corrections to the current estimates. One technical correction addressed an inadvertent omission of climate change damages in the last year of analysis (2300) in one model and the second addressed a minor indexing error in another mode l. On average the revised recommended SC- CO 2 estimates are one dollar less than the mean SC - CO 2 estimates reported in the November 2013 revision to the May 2013 TSD. The change in the estimates associated with the 95th percentile estimates when using a 3% discount rate is slightly larger, as those estimates are heavily influenced by the results from the model that was affected by the indexing error. EPA has examined the minor technical corrections in the revised TSD and the public comments — including those submitted to OMB’s separate SC - CO 2 comment process — here as

4 See h ttps://www.whitehouse.gov/blog/2015/07/02/estimating - benefits - carbon - dioxide - emissions - reductions 5 The current version of the TSD is available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc tsd -final -july - 2015.pdf . Unrounded numbers from the current SC - CO2 TSD were adjusted to 2011$ using the GDP Implicit Price Deflator (1.0613744) from the National Income and Product Accounts Tables; the unrounded 2011$ estimates are used in the Chapter 5 illustrative analysis. The RIA presents SC - CO2 estimates rounded to two significant digits.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 7 part of its consideration of w hether and how to use SC - CO 2 estimates in this proceeding. Based on this examination, EPA concurs with the consensus - based interagency working group, of which it is an active member, and finds that it is reasonable, and scientifically appropriate, to use the current SC - CO2 estimates for purposes of analysis here.

The four SC - CO 2 estimates the EPA is selecting to use in its analysis here are as follows: $14, $4 6 , $ 68 , and $140 per metric ton of CO 2 emissions in the year 2022 (2011$). 5 The first three values are based o n the average SC - CO 2 from the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. SC - CO 2 estimates for several discount rates are included because the literature shows that the SC - CO 2 is quite sensitive to assumptions about the discount r ate, and because no consensus exists on the appropriate rate to use in an intergenerational context (where costs and benefits are incurred by different generations). The fourth value is the 95th percentile of the SC - CO 2 from all three models at a 3 percent discount rate. It is included to represent higher-than - expected impacts from temperature change further out in the tails of the SC - CO 2 distribution (representing less likely, but potentially catastrophic, outcomes). Table 3 - 1 presents the global S C - CO 2 estimates for the years 2015 to 2050. In order to calculate the dollar value for emission reductions, the SC - CO 2 estimate for each emissions year would be applied to changes in CO 2 emissions for that year, and then discounted back to the analysis yea r using the same discount rate used to estimate the SC - CO 2 . The SC - CO 2 increases over time because future emissions are expected to produce larger incremental damages as physical and economic systems become more stressed in response to greater climate cha nge. Note that the interagency group estimated the growth rate of the SC - CO 2 directly using the three integrated assessment models rather than assuming a constant annual growth rate. This helps to ensure that the estimates are internally consistent with ot her modeling assumptions.

5 The current version of the TSD is available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc tsd -final -july - 2015.pdf . Unrounded numbers from the current SC - CO2 TSD were adjusted to 2011$ using the GDP Implicit Price Deflator (1.0613744) from the National Income and Product Accounts Tables; the unrounded 2011$ estimates are used in the Chapter 5 illustrative analysis. The RIA presents SC - CO2 estimates rounded to two significant digits.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 8 **Table 3 -**  **1 .**  **Social Cost of CO 2** **, 2015 -**  **2050 a**  **(in 2011$**  **)**

**Year Discount Rate and Statistic** 

**5% Average 3% Average**  **2.5% Average 3%**  **95 th**  **percentile** 2015 $12 $38 $59 $110 2020 $13 $45 $66 $130 2022 $14 $46 $68 $140 2025 $15 $49 $72 $150 2030 $17 $53 $77 $160 2035 $19 $58 $83 $180 2040 $22 $64 $89 $190 2045 $24 $68 $94 $210 2050 $28 $73 $100 $230 a The SC - CO 2 values vary depending on the year of CO 2 emissions and are defined in real terms. These SC - CO 2 values are stated in $/metric ton. Unrounded numbers from the current SC - CO 2 TSD were adjusted to 2011$ using the GDP Implicit Price Deflator (1.0613744); the unrounded 2011$ estimates are used in the Chapter 5 illustrative analysis. The SC - CO2 estimates shown in this table have been rounded to two significant digits . **3.3 Health Co**  **- Benefits of**  **SO 2**  **and NOx Reductions** T he EPA anticipates that th is rule will result in negligible emission changes over the baseline by 2022. However, if CO 2 emissions are reduced from new EGUs under this rule , then emissions of other pollutants from the power sector w ould also likely be reduced . For example, reducing CO 2 emissions through the adoption of CCS by coal -fired boilers may also yield sulfur dioxide ( SO 2 ) and emission reductions , which in turn would yield health benefits (we refer to these additional benefits as “co - benefits”). SO 2 is a precursor for fine particulate matter formation , which is particulate matter 2.5 micrometers in diameter and smaller (PM 2.5 ) , while NO X is a pre cursor for PM 2.5 and ground level ozone formation. As such, reductions of SO 2 and NO X would in turn lower overall ambient concentrations of PM 2.5 and ozone. Reducing exposure to PM 2.5 and ozone is associated with human health benefits including avoided mortality and morbidity. Researchers have associated PM 2.5 and ozone exposure with adverse health effects in numerous toxicological, clinical, and epidemiological studies (U.S. EPA, 2009; U.S. EPA, 2013a). Health effects associated with exposure to PM 2.5 incl ude premature mortality for adults and infants, cardiovascular morbidity such as heart attacks and hospital admissions, and respiratory morbidity such as asthma attacks, bronchitis, hospital and emergency room visits, work loss days, restricted activity da ys, and respiratory symptoms . Health effects associated with exposure to ozone include premature***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 9 mortality and respiratory morbidity such as hospital admissions, emergency room visits, and school loss days. In addition to human health co - benefits associate d with PM 2.5 and ozone exposure, reducing SO 2 and NO X emissions under this rule would result in reduced health impacts from direct exposure to these pollutants. For example, ambient concentrations of SO 2 are associated with respiratory symptoms in children, emergency department visits, and hospitalizations for respiratory conditions. 75 FR at 35524 (June 22, 2010). Reducing SO 2 and NO X emissions would also result in other human welfare (non - health) improvements including improvements in ecosystem services. SO 2 and NO X emissions can adversely impact vegetation and ecosystems through acidic deposition and nutrient enrichment, and can affe ct certain manmade materials, visibility, and climate (U.S. EPA, 2009; U.S. EPA, 2008). The avoided incidences of health effects and monetized value of health or non - health improvements that result from SO 2 and NO x emissions reductions depend on the locat ion of those reductions. For a full discussion of the human health, ecosystem and other benefits of reducing SO 2 and NO X emissions from power sector sources, please refer to the Regulatory Impact Analysis for the Final Carbon Pollution Guidelines for Exist ing Power Plants (U.S. EPA, 2015) . As described in Chapter 4, t he EPA anticipates that th is rule will result in n o emission changes by 2022 . As a result we did not need to perform a full health co - benefit impact assessment for a specific modeled compliance scenario. In Chapter 5, the EPA presents results for several illustrative plant - level analyses that show the potential impacts of the rule if certain key assumptions were to change substantially . When assessing the co - benefits of differences in emissions from different generation technologies in Chapter 5, the EPA does not assume a specific location for the illustrative new unit. 6 Instead, the EPA relied on a nat ional - average benefit per-ton (BPT) method to estimate PM 2.5 - related health impacts of SO 2 and NO X emissions. The BPT approach provide s an estimate of the total monetized human health benefits (the sum of premature mortality and morbidity) of reducing one ton of PM 2.5 precursor (i.e., NO X and SO 2 ) from the sector . To develop the BPT estimates used in this analysis the EPA utilized detailed air quality modeling of the entire power sector SO 2 and NO X emissions along

6 If the EPA conjectured a location for a particular new unit it may be possible to perform a full health impact assessment of different technology options for generating electricity at that location. Doing so for a number of locations i s beyond the scope of this analysis and would be better captured in sector -wide modeling.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 10 with the BenMAP model 7 to estimate the bene fits of air quality improvements using projected 2020 population, baseline incidence rates, and economic factors. The SO 2 - and NO X- related BPT estimates utilized in this analysis are derived from the Technical Support Document (TSD) on estimating the BPT o f reducing PM 2.5 and its precursors (U.S. EPA, 2013b). These BPT values are estimated in a methodologically consistent manner with those reported in Fann et al. (2012) . They differ from those reported in Fann et al. (2012) as they reflect the health impact studies and population data updated in the benefits analysis of the final PM NAAQS RIA (U.S. EPA, 2012) . The recalculation of the Fann et al. (2012) BPT values based on the updated data from the PM NAAQS RIA (U.S. EPA, 2012) is described in the TSD (U.S. EPA, 2013b). The BPT values are for the entire electricity sector and are not differentiated by fuel or generator type. The methods used for this analysis are consistent with those used to estimate the health co - benefits from secondary PM 2. 5 formation for the Regulatory Impact Analysis for the Final Carbon Pollution Guidelines for Existing Power Plants (U.S. EPA, 2015 ) . One notable difference between the BPT values used in the two analyses is that this analysis utilizes national - average BPT estimates beca use EPA does not assert a specific location for the illustrative new unit , whereas the BPT estimates used in the RIA for the final existing source guidelines differ by region. 8 Despite our attempts to quantify and monetize as many of the co - benefits of reducing emissions from electricity generating sources as possible, not all known health and non - health co - benefits fr om reducing SO 2 and NO x are accounted for in this assessment . For more information about u nquantified health and non - health co - benefits of SO 2 and NO x please refer to tables 5 - 2 and 6 - 2 of the PM NAAQS RIA (U.S. EPA, 2012) , respectively . Furthermore, the analysis that follows does not account for known differences in other air and water pollutants between the different generating technologies, including, for example, ozone or directlyemitted PM . The reason and implications for limiting our consideration of co - benefits to pollutants that cause secondary PM 2.5 is discussed in Chapter 5. As we do not assume a specific location for the new units being compared, t his RIA is unable to include the type of detailed uncertainty assessment found in the PM NAAQS RIA (U.S.

7 Available at http://w ww.epa.gov/air/benmap . 8 Separate BPT values are generated for California, the Eastern U.S., and the Western U.S. excluding California. For further information, see EPA 2015,***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 11 EPA, 2012). However, the results of the uncertainty analyses presented in the PM NAAQS RIA can provide some information regarding the uncertainty inherent in the benefits results presented in this anal ysis. In addition to the uncertainties described in the PM NAAQS RIA, the use of BPT estimates come with additional uncertainty. Specifically, these national - average BPT estimates reflect a specific geographic distribution of SO 2 and NO X reductions resulti ng in a specific reduction in PM 2.5 exposure and may not fully reflect local or regional variability in population density, meteorology, exposure, baseline health incidence rates, timing of emissions, or other factors that might lead to an over- estimate or under- estimate of the actual benefits associated with PM 2.5 precursors in a specific location. T hese estimates are illustrative as the EPA does not assume a specific location for the illustrative electricity generation technologies and is therefore unable to specifically determine the population that would be affected by their emissions. Therefore, the benefits for any specific unit can be different than the estimates shown here. Notwithstanding these limitations , reducing one thousand tons of annu al SO 2 from U.S. power sector sources has been estimated to yield between 4 and 9 incidences of premature mortality avoided and monetized PM 2.5 - related health benefits (including these incidences of premature mortality avoided) between $38 million and $ 85 million in 2020 (2011$) using a 3% discount rate or between $34 million and $76 million (2011$) using a 7% discount rate. Additionally, reducing one thousand tons of annual NO X from U.S. EGUs has been estimated to yield up to 1 incidence of premature mort ality avoided and monetized PM 2.5 - related health benefits (including these incidences of premature mortality avoided) of between $5.5 million and $ 12 million in 2020 (2011$) using a 3% discount rate or between $5.0 million and $11 million (2011$) using a 7 % discount rate . For each pollutant, t he range of estimated benefits for each discount rate is due to the EPA’s use of two alternative primary estim ates of PM 2.5 - related mortality impacts: a lower primary estimate based on Krewski et al. (2009) and a highe r primary estimate based on Lepeule et al. (2012) . The benefit per ton values are reported in Table 3 - 2.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 12 **Table 3 -**  **2. Monetized**  **Health Benefits Per Ton**  **of PM**  **2.5 Precursor**  **Reductions in 2020**  **a (in** 

**2011$ )**  **PM 2.5**  **Precursor SO**  **2 NO**  **X** 3% Discount Rate Krewski et al. (2009) $38 ,000 $5,500 Lepeule et al. (2012) $85 ,000 $12,000 7% Discount Rate Krewski et al. (2009) $34,000 $5,000 Lepeule et al. (2012) $76 ,000 $11,000 a These estimates are from U.S. EPA, 2013a (electricity generating units) and are adjusted to 2011$ using the Gross Domestic Product implicit price deflator reported by the Department of Commerce . **3.4 References**  40 CFR Chapter I [EPA– HQ –OAR–2009–0171; FRL

–9091–8] RIN 2060–ZA14, “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / Rules and Regulations. Fann, N., K.R. Baker, C.M. Fulcher. 2012. Characterizing the PM2.5 - related health benefits of emission re ductions for 17 industrial, area and mobile emission sectors across the U.S. Environment International, Volume 49, 15 November 2012, Pages 141 - 151, ISSN 0160 - 4120, http://dx.doi.org/10.1016/j.envint.2012.08.017. Interagency Working Group (IWG) on Social C ost of Carbon (SC - CO2). 2010. Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. Docket ID EPA- HQ- OAR - 2009 - 0472 - 114577. Participation by Council of Economic Advisers, Council on Environmental Quali ty, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of Management and Budget, Office of Science a nd Technology Policy, and Department of Treasury. <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for - agencies/Social - Cost of- Carbon - for- RIA.pdf> Accessed March 31, 2015.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 13 Interagency Working Group (IWG) on Social Cost of Carbon (SC - CO2). 2013 , R evised July 2015 . Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. Docket ID EPA- HQ- OAR - 2013 - 0495. Participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Council, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. < http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc -tsd -final -july- 2015.pdf > Accessed July 2 , 2015. Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report . Contribution of Working Groups I, II an d III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (AR4) [Core Writing Team, Pachauri, R.K and Reisinger, A. (eds.)]. IPCC, Geneva, Switzerland, 104 pp. <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_ assessment_rep ort_synthesis_report.htm>. Accessed March 30, 2015. Intergovernmental Panel on Climate Change (IPCC). 2014. Climate Change 2014: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Fifth Assessment Report of the In tergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. Krewski, D., R.T. Burnett, M.S. Goldbert, K. Hoover, J. Siemiatycki, M. Jerrett, M. Abrahamowicz, and W.H. White. 2009. “Reanalysis of th e Harvard Six Cities Study and the American Cancer Society Study of Particulate Air Pollution and Mortality.” Special Report to the Health Effects Institute. Cambridge, MA. July. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure t o Fine Particles and Mortality: An Extended Follow - Up of the Harvard Six Cities Study from 1974 to 2009.” Environ Health Perspect. In press. Available at: http://dx.doi.org/10.1289/ehp.1104660. Medina - Ramon, M. and J. Schwartz, 2007: Temperature, temperatu re extremes, and mortality: a study of acclimatization and effect modification in 50 U.S. cities. Occupational and Environmental Medicine, 64(12), 827 - 833. Natio nal Research Council (NRC). 2009 . Hidden Cost of Energy: Unpriced Consequences of Energy Production and Use . National Academies Press. Washington, DC. National Research Council (NRC). 2013. Climate and Social Stress: Implications for Security Analysis . The National Academies Press. Washington, DC. Pizer, W., M. Adler, J. Aldy, D. Anthoff, M. C ropper, K. Gillingham, M. Greenstone, B. Murray, R. Newell, R. Richels, A. Rowell, S. Waldhoff, J. Wiener. 2014. “Using and improving the social cost of carbon.” Science , Vol. 346, No. 6214, 12/05/14, pp 1189 - 1190.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

3 - 14 U.S. Environmental Protection Agency (U.S . EPA). 2008. Integrated Science Assessment for Oxides of Nitrogen and Sulfur – Ecological Criteria National (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. EPA/600/R - 08/139. December. Available on the Internet at h ttp://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=201485. U.S. Environmental Protection Agency (U.S. EPA). 2009 . Integrated Science Assessment for Particulate Matter (Final Report). EPA- 600 - R - 08 - 139F . National Center for Environmental Assessment – RTP Div ision. December. Available on the Internet at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546 . U.S. Environmental Protection Agency (U.S. EPA). 2011. Regulatory Impact An alysis for the Final Mercury and Air Toxics Standards. Office of Air Quality Planning and Standards, Research Triangle Park, NC. December. Available on the Internet at http://www.epa .gov/ttn/ecas/regdata/RIAs/matsriafinal.pdf . U.S. Environmental Protection Agency (U.S. EPA). 2012. Regulatory Impact Analysis (RIA) for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. Office of Air Quality Plannin g and Standards, Research Triangle Park, NC. December. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/finalria.pdf. U.S. Environmental Protection Agency (U.S. EPA). 2013a. Integrated Science Assessment for Ozone and Related Photochem ical Oxidants. EPA/600/R - 10/076F. Research Triangle Park, NC: U.S. EPA. February. Available on the Internet at http://oaspub.epa.gov/eims/eimscomm.getfile?p_download_id=511347. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Technical Support Docum ent Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 17 Sectors. Office of Air Quality Planning and Standards, Research Triangle Park, NC. January. Available on the Internet at http://www2.epa.gov/sites/production/files/2014 - 10/documents/so urceapportionmentbpttsd.pdf U.S. Environmental Protection Agency (U.S. EPA). 2015. Regulatory Impact Analysis for the Final Carbon Pollution Guidelines for Existing Power Plants . [ UPDATE LOCATION WHEN AVAILABLE ] U.S. Global Change Research Program ( USGCRP ) . Global Climate Change Impacts in the United States. Thomas R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge University Press, 2009.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 1 **CHAPTER 4 COSTS, ECONOMIC** **, AND ENERGY IMPACTS**  **OF THE NEW SOURCE ST AND** **ARDS 4**  **.1 Synopsis**  This chapter reports the compliance cost, economic, and energy impact analyses performed for the final EGU New Source GHG Standards . 1 The EPA analyzed and assessed a wide range of potential scenarios and outcomes, using a detailed power sector model, other government projections for the power sector, and additional economic assessments and analyses to determine the potential impacts of this acti on. The primary finding of this assessment is that in the baseline , all projected unplanned 2 capacity additions affected by these standards during the analysis period would already be compliant with the rule’s requirements (e.g., natural gas combined cycle units, low capacity factor natural gas combustion turbines, and small amounts of coal -fired units with carbon capture and storage ( CCS ) su pported by Federal and State funding). The analysis period is defined as through 2022 3 to reflect that CAA Section 111(b) requires that the NSPS be reviewed every eight years. The EPA’s conclusion was based on:

 EIA power sector modeling projections,

 EPA p ower sector modeling projections,

 Electric utility integrated resource planning (IRP) documents,

 Projected new EGUs reported by industry to EIA. The EPA’s forecast of no new non - compliant coal -fired capacity remains robust beyond the a nalysis period (past 2030 in both EIA and EPA baseline modeling projections) and across a wide range of alternative potential market, technical, and regulatory scenarios that influence power sector investment decisions. As a result, the EGU New Source GHG Standards are not expected to change GHG emissions for newly constructed EGUs , and are anticipated to yield no

1 Chapter 6 reports the compliance cost, economic, and energy impact analyses performed for the final EGU Modified and Reconstructed Standards. 2 Unplanned capacity represents projected capacity additions that are not under construction. 3 In some cases, conditions in the analysis year of 2022 are represented by results of power sector modeling for the ye ar 2020. An analysis year of 2023 (8 years from finalization) would not substantively alter the overall conclusions of this RIA. IPM output for subsequent years has been made available in the docket and is discussed where appropriate throughout the documen t .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 2 monetized benefits and impose negligible costs, economic impacts, or energy impacts on the electricity sector or society. While the EPA does no t project any new coal - fired EGUs without CCS to be built in the absence of this rule , this chapter presents an analysis of the project - level costs of building new coal - fired capacity with and without CCS to demonstrate that a requirement of partial CCS wo uld not preclude new coal construction due to economic conditions . An additional illustrative analysis, presented in C hapter 5 , shows that even in the unlikely event that new, noncompliant EGU capacity would be built , the final EGU New Source GHG Standards would provide net social benefits under a range of assumptions. **4.2 Requirements of the**  **Final GHG EGU NSPS**  In this action, the EPA is finalizing standards of performance for two basic categories of new units that have not commenced construction by January 8, 2014: (i) fossil fuel -fired electric utility steam generating units (boilers and IGCC units) ; and (ii) natural gas -fired stationary combustion turbines that generate electricity for sale and meet certain applicability criteria. The EPA is finalizing standards of performance for affected sources within the following two categories: (1) all fossil fuel - fired steam generating units (steam generating units, boilers and IGCC units ), and (2) all natural gas -fired stationary combustion turbines , regardless of the size of the stationary turbine unit. All affected new fossil fuel -fired EGUs would be required to meet an output - based emission rate of a specific mass of CO 2 per MWh of electricity generated energy output on a gross basis. New fossil fuel -fired steam generating units ( boilers and IGCC units ) would be re quired to mee t an emission standard of 1,4 00 lb CO 2/MWh of gross energy output. Newly constructed natural gas -fired stationary c ombustion turbines will be required to meet a standard of 1,000 lb CO 2/MWh of gross energy output (or 1,080 lb CO 2 /MWh of net energy output ). This emission limit applies to all affected natural gas - fired stationary combustion units regardless of size. The natural gas combustion turbine standard, however, will only apply to units that will exceed a sales threshold on the amount of electricity generated that is sold to the electric grid. The purpose of the sales threshold criterion is to permit gas fired comb ustion turbines that only sell a small portion of the gross electricity generated to the grid (“peaking units”) to not have to meet the same emission standard as a combustion turbine unit designed primarily to generate base and intermediate electricity to be sold to the grid. Please refer to the preamble for additional detail concerning affected sources and standa rds of performance .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 3 **4.3 Power Sector Modeling Framework**  **4.3.1 Modeling Overview**  Over the last decade, the EPA has conducted extensive analyses of regulatory actions impacting the power sector. These efforts support the Agency’s understanding of key policy variables and provide the framework for how the Agency estimates the costs and benefits associated with its actions that impact the power sector . C urrent forecasts for the utilization of new and existing generating capacity are a key input into evaluatin g the impact of this rule . Given excess capacity within the existing fleet and relatively low forecasts of electricity demand growth, there is limited new capacity - of any type - expected to be constructed over the next decade . A small number of new coa l -fired power plants have been completed and brought online in recent years; however, the EPA does not expect the construction of any new non compliant coal -fired capacity through the analysis period. The EPA also does not expect any new non - compliant natural gas -fired stationary combustion turbines meeting the applicability criteria to be built. This conclusion is based in part on the Agency’s own power sector mode ling utilizing IPM as well as EIA’s Annual Energy Outlook 2014 (AEO 2014) projections. IPM , developed by ICF International, Inc, is a state - of-the - art, peer reviewed, dynamic linear programming model that can be used to project power sector behavior under future business as usual conditions and examine prospective air pollution control policies throughout the United States for the entire electric power system. The EPA used IPM to project likely future electricity market conditions with and without this rul e . In addition to using IPM, the EPA has closely examined modeling results from a number of alternative baseline scenarios in the AEO 2014 from the EIA. To produce the AEO, EIA employs the National Energy Modeling System (NEMS), an energy- economy modelin g system of the United States. According to EIA: 4 “NEMS projects the production, imports, conversion, consumption, and prices of energy, subject to assumptions on macroeconomic and financial factors, world energy markets, resource availability and costs, behavioral and technological choice criteria, cost and performance characteristics of energy technologies, and demographics.” The Electricity Market Module of NEMS produces projections of power sector behavior that minimize the cost of meeting electricity demand subject to the sector’s inherent

4 http://www.eia.gov/oiaf/aeo/overview/***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 4 constraints, including the availability of existing generation capacity, transmission capacity and cost, cost of utility and nonutility technologies, expected load shapes, fuel markets, regulations, and other factors . EIA’s AEO projections independently corroborate the EPA’s conclusions in that it projects no new generation capacity being constructed through the analysis period that would not already meet the final new source standard s . Both the IPM and AEO 2014 NEMS modeling results are presented in Section 4.4. **4.3.2 The**  **I ntegrated**  **P lanning**  **M odel**  IPM is a multi - regional, dynamic, deterministic linear programming model of the U.S. electric power sector. It provides forecasts of least cost capacity expansion, electricity dispatch, and emission control strategies while meeting energy demand and enviro nmental, transmission, dispatch, and reliability constraints. The EPA has used IPM for over two decades to better understand power sector behavior under future business as usual conditions and evaluat e the economic and emission impacts of prospective environmental policies . T he model is designed to reflect electricity markets as accurately as possible. 5 The EPA uses the best available information from utilities, industry experts, gas and coal market experts, financial institutions, and government statisti cs as the basis for the detailed power sector modeling in IPM. T he model documentation provides additional information on the assumptions discussed here as well as all other model assumptions and inputs. 6, 7 Although the Agency typically focuses on broad system effects when assessing the economic impacts of a particular policy, the EPA’s application of IPM includes a detailed and sophisticated regional representation of key power sector variables and its organization . When considering which new units are m ost cost effective to build and operate, the model considers the relative economics of various te chnologies based on a wide spectrum of current and future considerations, including capital costs, operation and maintenance costs, fuel costs , utility sector regulations, and emission profiles. The capital costs for new units account for regional differences in labor, material, and construction costs. T hese regional cost differentiation factors are based on assumptions used in the EIA’s AEO 2013 . As part of IPM’s assessment of the relative economic value of building a new power plant, the model incorporates a detailed representation of the fossil - fuel supply system that is used to forecast equilibrium fuel price s , a key component of new power plant economics. The

5 http://www.epa.gov/airmarkt/progsregs/epa - ipm/index.html 6 http://www.epa.gov/airmarkets/programs/ipm/psmodel.html 7 http://www.epa.gov/airmarkets/documents/ipm/EPA_Base_Case_v514_Incremental_Documentation.pdf***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 5 model includes an endogenous representation of the North American natural gas supply system through a natural gas module that reflects full supply/demand equilibrium of the North American gas market. This module consists of 11 8 supply, demand , and storage nodes , 1 5 liquefied natural gas regasification facility locations and 3 LNG export facility locations that are tied together by a series of link age s (i.e., pipelines) that represent the North American natural gas transmission and distribution networ k. IPM also endogenously models the coal supply and demand system throughout the continental U.S . , and reflects non - power sector demand and imports/exports. IPM reflects 36 coal supply regions, 465 coal supply curves for each of 9 years , 1 4 coal sulfur gr ades, and the coal transport network, which consists of 4,947 link age s representing the costs of transporting coal via rail, barge, and truck and conveyer linkages connecting 41 regions with 575 individual coal - fired generating stations . T he coal supply c urves and the transport network costs used in IPM are publicly available 8, and were developed during a thorough bottom - up, mine - by- mine approach that depict s the coal choices and associated supply costs that power plants will face over the modeling time ho rizon. The IPM documentation outlines the methods and data used to quantify the economically recoverable coal reserves, characterize their cost, and build the 84 coal supply curves. These curves have been independently reviewed by industry experts and have been made available for public review on several occasions over the past two years during other rulema king processes . The EPA has used IPM extensively over the past two decades to analyze options for reducing power sector emissions . T he model has been used to forecast the costs, emission changes , and power sector impacts for the Clean Air Interstate Rule (CAIR) , Cross - State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS) , and the proposed GHG emission guidelines for existing source EGUs . 9 Recently IPM has also been used to estimate the air pollution reductions a nd power sector impacts of water and waste regulations affecting EGUs, including Cooling Water Intakes (316(b)) Rule , Disposal of Coal Combustion Residuals from Electric Utilities (CCR) and Steam Electric Effluent Limitation Guidelines ( ELG ) .

8 T he IPM coal supply curves are presented in detail in Appendix 9 - 24 of the IPM Base Case documentation, which is available at http://www.epa.gov/airmarkets/programs/ipm/psmodel.html . Th e coal transport network costs are in Appendix 9 - 23, available at that same link. 9 T he IPM projection conducted for this rulemaking is available at EPA’s website and in the public docket.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 6 The model und ergoes periodic formal peer review, which includes separate expert panels for both the model itself and the EPA’s key modeling input assumptions. 10 The rulemaking process also provides opportunity for expert review and comment by stakeholders, including owners and operators of the electricity sector that is represented by the model, public interest groups, and other developers of U.S. electricity sector models . EPA is required to respond to significant comments submitted regarding the inputs used in IPM, its structure, and application. The feedback that the Agency receives provides a detailed check for key input assumptions, model representation, and modeling results. IPM has received extensive review by energy and environmental modeling experts in a var iety of contexts . For example, from the mid - 1990s through 2011 the Science Advisory Board reviewed IPM as part of the CAA A mendments Section 812 studies of the Clean Air Act costs and benefits that are periodically conducted. 11 The model has also undergon e considerable interagency scrutiny when it has been used to conduct over one dozen legislative analys e s (performed at Congress’ request) over the past decade. In addition, Regional Planning Organizations throughout the U.S. have extensively examined IPM as a key element in the state implementation plan ( SIP ) process for achieving the N ational A mbient A ir Quality Standards . T he Agency has also used the model in a number of comparative modeling exercises sponsored by Stanford University’s Energy Modeling F orum over the past 15 years . IPM has also been employed by states (e.g., for RGGI , the Western Regional Air Partnership, Ozone Transport Assessment Group), other Federal and State agencies, environmental groups, and industry, all of whom subject the model to their own review procedures. States have also used the model extensively to inform issues related to ozone in the northeastern U.S. This groundbreaking work set the stage for the NO x SIP call, which has helped reduce summer NO x emissions and the formation of ozone in densely populated areas in the northeast. **4.4 Analyses of Future Generating Capacity**  **4.4 .**  **1 Base Case Power Sector Modeling Projections**  The “ b ase c ase” for this analysis is a business - as - usual scenario that would be expected under market and regulatory conditions in the absence of this rule. As such, the IPM base case represents the baseline for this regulatory impact analysis. EPA frequently updates the IPM base case to reflect the latest available electricity de mand forecasts, as well as expected costs 10 http://www.epa.gov/airmarkets/progsregs/epa - ipm/past - modeling.html 11 http://www.epa.gov/air/sect812/index.html***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 7 and availability of new and existing generating resources, fuels, and emissions control technologies. EPA conducted analysis and modeling in support of the April 2012 EGU GHG New Source Standards proposal, and con cluded that new unplanned noncompliant base load power plants are not expected to be built through the analysis period ( 2020 for the original proposal ) and beyond ( 77 FR 22392, April 13, 2012 ). The EPA conducted an analysis of the economic impacts by modeling a base case scenario of future electricity market conditions . The EPA’s IPM modeling for the 2012 proposal utilized the IPM v. 4.10 base case, and relie d on the AEO 2010 for the electric demand forecast for the U . S . and employ ed a set of the EPA’s assumptions regarding fuel supplies, the performance and cost of electric generation technologies, pollution controls, and numerous other parameters . For the 2012 proposal EPA also conducted three addi tional base case sensitivity analyses using IPM. 12 After considering public comments received on the 2012 proposal, the EPA issued a new proposal for carbon emissions from new power plants (79 FR 1430, January 8, 2014) . The EPA’s IPM mod eling of the 2013 111(b) proposal relied on the AEO 2013 electric demand forecast, and was analyzed using the IPM v. 5.13 base case. EPA also conducted three additional base case sensitivity analyses using IPM. 13 For the analysis of the final 111(b) rule, the EPA used the IPM v. 5.14 base case, which relied on the electric demand forecast in AEO 2014. The v. 5.14 base case updated v. 5.13 unit level specifications (including control configurations) based on comments received and EGU compliance plans in resp onse to environmental regulations. The base case accounts for the effects of the finalized MATS and CSAPR rules, New Source Review settlements and state rules through 2014 impacting sulfur dioxide (SO 2 ), NO x, directly emitted particulate matter and CO 2, a nd final actions the EPA has taken to implement the Regional Haze Rule. The EPA’s IPM base case also includes two federal non - air rules effecting EGUs: the Cooling Water Intakes (316(b)) Rule and the Disposal of Coal Combustion Residuals from Electric Utilities Rule (CCR). Table 4 - 1 reports the unplanned capacity additions forecast by the IPM base case. Unplanned capacity additions are those that the model forecasts to be built in response to forecast economic conditi ons (e.g., fuel prices and demand growth) . The EPA’s IPM base case

12 http://www2.epa.gov/sites/production/files/2013 - 09/documents/20120327proposalria.pdf 13 http://www2.epa.gov/sites/production/files/2013 - 09/documents/20130920proposalria.pdf and http://www.epa.gov/airmarkets/programs/ipm/proposedEGU_GHG_NSPS.html***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 8 forecast find s that EGUs are projected to adopt technology for new steam and combustion turbine generation capacity that is expected to be compliant with the standards, even in the absence of this rule . Only s ome new coal -fired units with carbon capture and storage (CCS) technology which are receiving partial federal financial support are included in the baseline modeling . Furthermore, new simple - cycle combustion turbines (CTs) constructed in the EPA’s IPM base case are assumed to operate at an emissions rate above the standard . However, m irroring real world behavior, relatively low levels of CT generation are projected in the base case . I n the base case new CTs are forecast to operate , on average in each domestic model region, at capacity factors well below the applicability requirements of this rule. In the base case the maximum average capacity factor for individual new CTs is 14 % or less across all domestic regions and all simulation years. The emission rate of new natural gas combined cycle ( NGCC ) units in the EPA’s IPM base case emit below the emissions rate standard of this final rule , although this is by assumption. However, assuming an emissions rate for new NGCC units that is below the emissions rate standard is consistent with the detailed emissions rate analysis described in the preamble for this rule . That analysis carefully considered emissions rate data on newly constructed NGCC units and GHG limitations in recently issued construction permits for NGCC facilities and found that these facilities operated below the standard or were permitted to operate below the standard . The EIA projections that are reflected in AEO 2014 reference case are summarized in the following tables alongside the EPA base case projections. According to the EIA, the AEO 2014 reference case is “projection is a business - as - usual trend estimate, given known technology and technological and demographic trends.” 14 It represents existing policies and regulations influencing the power sector . 15 A s shown in Table 4 - 1, n ew coal - fired capacity through 2030 in is projected to be ent irely CCS - equipped and would be in compliance with these standards (300 M W) in the AEO 2014 reference case . The projected CCS - equipped capacity is assumed to occur in response to existing Federal , State, and local incentives for the technology. 16 T he AEO 2014 reference case forecasts that the vast majority of new, unplanned generating capacity will be eit her natural gas -fired or renewable. 17 T he reference case projects a capacity factor for

14 http://www.eia.gov/forecasts/archive/aeo14/pdf/0383(2014).pdf 15 Reference case assumptions are described in Assumptions to the Annual Energy Outlook 2014 (U.S. EIA 2014b). . 16 These programs include the Emergency Economic Stabilization Act of 2008, the American R einvestment and Recovery Act of 2009 (which assisted in funding for such programs as the Clean Coal Power Initiative through DOE and tax credits for Clean Energy Manufactures through DOE and the Treasury Department), as well as loans provided by USDA for CO 2 capture projects. See also preamble section 3.H.3.g discussing the EPAct 2005 . 17 http://www.eia.gov/forecasts/aeo/chapter_legs_regs.cfm***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 9 simple cycle combustion turbines of less than 20% in all regions and in all years , and therefore these units are projected to operate below the applicability limit for this final rule. As in the IPM - based analysis , the emission rate for new NGCC units in the AEO 2014 reference case is assumed to be below the applicable standard in this final rule. As described in detail in 4.4. 2, t he economics favoring new natural gas combined cycle ( NGCC ) additions instead of coal -fired additions are robust under a range of sensitivity cases examined in the AEO 2014 . S ensitivity cases that EIA conducted in th e AEO 2014, as well as the AEO 2013, separately examine higher economic growth, lower coal prices, no risk premium for greenhouse gas emissions liability from conventional coal, and lower oil and natural gas resources , all of which forecast no unplanned additions of coal -fired capacity without CCS in the analysis period . This has been a consistent finding in the AEO , which led the DOE to conclude that “the low capital expense, technical maturity, and dispatchability of natural gas generatio n are likely to dominate investment decisions under current policies and projected prices." 18 **Table 4 -**  **1. Unplanned Cumulative Capacity Additions (GW)**  **EPA Base Case**  **AEO 2014 Reference Case Capacity Type**  **2020 2020**  **2025 2030**  Conventional Coal 0 0 0 0 Coal with CCS 0.3 0.3 0.3 0.3 Natural Gas CC 6.9 9.8 28.8 95.7 Natural Gas CT 2.6 14.1 34.5 49.2 Nuclear 0 0 0 0 Renewables 19 15.9 17.4 19.3 22.5

18 Department of Energy (2011). Report on the First Quadrennial Technology Review. Available at http://energy.gov/sites/prod/files/QTR_report.pdf . 19 Renewable projections in 2020 are larger in the AEO 2014 reference case than in EPA’s IPM v 5.14 base case primarily due to differences in modeling assumptions regarding the amount of ‘planned’ renewable capacity additions and ‘unplanned’ additions in the AEO forecast. The overall amount of total renewable capacity in use by 2020 is largel y similar in the two forecasts. The EPA planned cumulative renewable capacity additions include utility - scale onshore wind, solar PV, geothermal and biomass built between 2015 and 2020. The AEO 2014 unplanned renewable capacity additions includes c onventio nal hydroelectric, geothermal, wood, wood waste, all municipal waste, landfill gas, biomass (not co - fired with coal) , PV and thermal solar, and wind powe r built between 2012 and 2020.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 10 Distributed Generation 20

- 1.6 3.3 4.6 **Total 25.8**  **43.2 86.3**  **141.4** Notes: The sum of the table values in each column may not match the total figure due to rounding. EPA capacity data is net nameplate capacity, AEO capacity data is net summer generating capacity. Source: EPA 2020 projection from IPM v. 5.14 base case ; EIA 2020 - 2030 p rojection from EIA Annual Energy Outlook 201 4, Table A9. The capacity projections of EIA and the EPA represent a continuation of current trends , where natural gas -fired capacity has been the technology of choice for base load and intermediate load power g eneration over the last few years (see Figure 4 - 1), due in large part to its significant levelized cost of electricity 21 (LCOE) advantage over coal -fired generating technologies. A greater discussion of the relative LCOE of different generating technologie s is provided beginning in Section 4.4.

20 The term “Distributed Generation” refers to two different concepts. AE O defines the term distributed generation as “p rimarily peak- load capacity fueled by natural gas. ” The EPA forecasts using the IPM model do not model new construction of distributed generation or capacity, which in the IPM model refers to small scale gener ation such as roof top PV, household geothermal, etc. Such small scale generation does not generate net electricity that can be sold to the grid, although it can reduce peak load demands on the grid system. 21The l evelized c ost of electricity is an economic assessment of the cost of electricity from a new generating unit or plant, including all the costs over its lifetime: initial investment, operations and maintenance , cost of fuel, and cost of capital.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 11 **Figure 4 -**  **1 .**  **Historical U.S. Power Plant Capacity Additions, by Technology, 1891**  **- 201**  **3** S ource: Form EIA- 860 (2013) Note s: Figure reflects all capacity brought online from 1891 – 2013, including 77 GW subsequently retired. Total capacity shown: 1,126 GW, including 12 GW built pre - 1940. Renewables include: hydro, biomass, solar, landfill gases, solid waste combustion and geothermal. Other includes: petroleum & distillates, petroleum coke, propane, other gases and w aste heat not otherwise included. In addition to new builds, increased electricity demand is expected to be partially fulfilled by increased utilization of existing generating capacity . Generation projections are the result of least - cost economic modeli ng both in IPM and AEO 2014, and reflect the most cost effective dispatch and investment decisions modeled, given a variety of variables and constraints. Even without the deployment of new conventional coal -fired capacity, U.S. electricity demand will con tinue to be met by a diverse mix of electricity generation sources with coal projected to continue to provide the largest share of electricity (36% of total 2020 generation in AEO 2014 and 37% in EPA’s projections), as displayed in Table 4 - 2.

0 10,000 20,000 30,000 40,000 50,000 60,000Pre1940194219451948195119541957196019631966196919721975197819811984198719901993199619992002200520082011Capacity(GW)



### First Year of Operation (range: 1891 - 1913)***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 12 **Table 4 -**  **2. 20**  **12 U.S. Electricity Net Generation and Projections for 2020** **, 2025, and 2030**

**(Billion kWh)**

**Historical EPA**  **Base Case**  **AEO 2014 Reference Case 201**  **2 2020**  **2020 2025**  **2030** Coal 1,512 1, 534 1,646 1,689 1,692 Oil 23 47 18 19 19 Natural Gas 1,228 1,156 1,286 1,410 1,552 Nuclear 769 815 779 711 782 Hydroelectric 274 282 288 291 294 Wind 142 251 218 218 219 Other Renewables 48 121 102 133 154 Other 71 - 7 65 151 103 **Total 4,067**  **4, 199**  **4,402 4,622**  **4,815** Source: Historical data from Form EIA- 860, 201 2 . EPA 2020 projection from IPM 5.14 base case ; EIA 2020 - 2030 projection from EIA Annual Energy Outlook 201 4, Tables A8 and A16 Note s : The sum of the table values in each column may not match the total figure due to rounding. “ Other Renewable s” include biomass, geothermal, waste and solar electric generation capacity. “Other” includes pumped storage (net loss, non biogenic waste, batteries, hydrogen, and other misc. generation and storage technologies. Negative value reflects net energy loss from pumped storage. It has been previously noted that the current projections for key market variables , such as natural gas prices, and state and regional regulations are now even less favorable to the development of non - compliant coal - fired capacity compared to the 2012 proposal . State and regional regulations have changed since the 2012 proposal , as noted in section 2.8 above , most notably regulations of GHG emissions from the power sector and state renewable portfolio standards (RPS):

 State regulations addressing CO 2 emissions – Several states have adopted measures to address emissions of CO 2 from the power sector. These approaches include flexible market - based programs like California’s Assembly Bill 32 and the RGGI in the Northeast, and specific GHG performance standards for new power plants in California, Oregon, New York, and Washington.

 State Renewable Portfolio Standards (RPS) – There are now 29 states , the District of Columbia and Puerto Rico than have an enforceable RPS, or similar laws. 22 Eight other States , the Virgin Islands and Guam have voluntary goals. These

22 http://www.cesa.org/assets/2013 - Files/RPS/State - of- State - RPSs - Report - Final -June - 2013.pdf***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 13 measures, in conjunction with Federal financial incentives, are key drivers of the significant growth in new renewable energy seen over the past few years and expected over the next decade. Only 12 states do not currently have an e nforceable RPS. 24

 State and Uti lity IRPs – IRPs, which are usually adopted by utilities in response to state requirements, allow regulators and utilities to consider a broader array of measures to meet future electric demand most cost effectively. IRPs als o help electric planners to consider key strategic and policy goals like electric reliability, environmental impacts, and the economic efficiency of power sector investments. 25 In general, these plans confirm the expectation that utilities anticipate that a ny new sources of generation will be from sources that meet the standards set in this regulation , in response to state and federal regulations and incentives, and natural gas prices. Furthermore, these plans reflect an expectation of relative ly low demand growth due, in part, to policies and regulations to reduce the electricity consumption such as energy efficiency regulations and policies, evolution of the Smart Grid, and demand response measures. **4.4 .**  **2 Alternative Scenarios from**  **AEO 2014** As described in the previous section, i n addition to EPA’s own analysis, EPA reviewed EIA’s recent forecasts of new capacity in the electricity sector for the AEO 2014 . The AEO 2014 reference case forecasts no new non - compliant capacity would be built. P o wer sector modeling by EIA also projects that their conclusion of there being no new coal -fired capacity built in the EIA analysis period is robust under a range of alternative assumptions that influence the industry’s decisions to build new power plants. For example, EIA typically supplements the AEO with scenarios that explore key market, technical, and regulatory issues . Of the 31 scenarios conta ined in the AEO 2014, none project new coal -fired capacity in the analysis period used by the EPA for this RIA, including the four scenarios that may be considered most favorable to the development of coal - fired capacity displayed in Table 4 - 3.

24 In January 2015 West Virginia repealed the West Virginia Alternative Renewable Energy Portfolio Act, which was enacted in 2009. E.g, http://www.governor.wv.gov/media/pressreleases/2015/Pages/GOVERNOR -TOMBLIN APPROVES - REPEAL- OF -ALTERNATIVE - RENEWABLE - ENERG Y- PORTFOLIO -ACT.aspx 25 See Integrated Resource Plan Technical Support Document for more information.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 14 **Table 4 -**  **3 .**  **AEO 2014 Reference Case**  **and Alternative Scenario Forecasts of Unplanned Cumulative Capacity Additions by 2020, GW** 

**Capacity Type Reference**  **High Growth**  **Low Coal**

**Cost Low Gas** 

**& Oil Resource**  **No GHG**

**Concern** Conventional Coal 0 0 0 0 0 Coal with CCS 0.3 0.3 0.3 0.3 0.3 Natural Gas 23.9 34.4 19.8 16.3 22.7 Nuclear 0 0 0.0 2.5 0.0 Non - H ydro Renewables 17.4 19.7 17.6 23.7 17.5 Other 1.6 2.0 1.5 0.8 1.6 **Total 43.2**  **56.5 39.3**  **43.6 42.1**  Note: The AEO 2014 scenario definitions are : High Economic Growth increases annual real GDP growth by 2.8%/year through 2040; Low Coal Cost assumes 2.4% greater regional coal mining productivity growth than in the reference case, and lower wages, equipment, and declining transportation costs for the coal industry than in the reference case, falling to 25% below the reference case by 2040; Low Oil and Gas Resource reduces the ultimate estimated recovery of shale gas, tight gas, and tight oil by 50%; No GHG Concern removes the perceived risk of incurring costs under a futur e GHG policy from market investment decisions. **4.4.3 Power Sector Fuel Price**  **Dynamics and Trends**  Expectations about what new fossil - fired generation would serve future demand have changed over the past decade from generating sources that use coal to those, primarily combined cycle systems that use natural gas. As mature technologies, the cost and performance characteristics of conventional coal -fired capacity and NGCC are projected by EPA to be relatively stable over time . 27 Therefore, expectations of future fuel prices play a key role in determining the overall cost competitiveness of conventional coal -fired units versus NGCC units. Current and projected natural gas prices are considerably lower than observ ed prices over the past decade. This is largely due to advances in hydraulic fracturing and horizontal drilling techniques that have opened up new shale gas resources and substantial ly increased the supply of economically recoverable natural gas. Accordin g to EIA: Shale gas refers to natural gas that is trapped within shale formations. Shales are fine - grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and

27 http ://www.epa.gov/airmarkets/documents/ipm/Chapter_4.pdf***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 15 hydraulic f racturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States. Of the natural gas consumed in the U nited States in 2011, about 95% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas should enable the United States to consume a predominantly domestic supply of gas for many years and produce more natural gas than it consumes. 28 The AEO 2014 projects U.S. natural gas production will increase by 13.3 trillion cubic feet (Tcf) , a 55% increase ( from 2 4 . 3 Tcf in 201 4 to 37.5 Tcf in 2040 ) . Over 75% of th is forecasted i ncrease in domestic natural gas production is due the projected doubling of shale gas production, which is forecast to increase by 10.2 TCF ( from 9.6 TCF in 201 4 to 19.8 TCF in 2040 ) . 29 Recent historical data reported to EIA is also consistent with these trends, with 2014 being the highest year on record for domestic natural gas production. 30 Gas production in 2014 was 6.3% above production in 2013, which is the larges t annual growth rate since 1984. The average real (2011$) natural gas price delivered to the power sector was $ 4.39 per MMBtu in 2014, an increase from $4. 25 /MMBtu in 2013. 31 , 32 I ncreases in the natural gas resource base have led to fundamental changes in the outlook for natural gas. W hile sources may disagree on the absolute level of increases from shale resources, there is general agreement that recoverable natural gas resources will be substantially higher for the foreseeable future than prev iously anticipated , exert ing downward pressure on natural gas prices. 33 , 34 Modeling by the EPA and EIA incorporates the impact of

28 For more information, see: http://www.eia.gov/forecasts/archive/aeo11/IF_all.cfm#prospectshale ; http://www.eia.gov/energy_in_brief/about_shale_gas.cfm 29 AEO 2014, Appendix A, Table A14. Oil and Gas Supply 30 http://www.eia.gov/dnav/ng/hist/n9010us2a.htm 31 http://www.eia.gov/dnav/ng/hist/n3045us3A.htm ; Assumes that 1 TCF = 1.023 MMBtu natural gas ( http ://www.eia.gov/tools/faqs/faq.cfm?id=45&t=8 ) 32 The relative prices of natural gas and coal rather than the price of any single fuel drive power sector investment decisions. The projections for relative fuel prices are discussed in Section 4.4.4. 33 Nationa l Petroleum Council. 2011. Prudent Development: Realizing the Potential of North America's Abundant Natural Gas and Oil Resources. http://www.npc.org/reports/rd.html (see Figure 1.2 on p. 47).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 16 these additional resources o n the forecasts of the price of natural gas used by electric generating units. The increases in th e natural gas resource base are reflected not only in current natural gas prices and projections (e.g., AEO 2014) , but also in current capacity planning by utilities and electricity producers across the country. The North American Electric Reliability Corporation’s (NERC) Long Term Reliability Assessment, which is based on utility plans for new c apacity over a 10 -year period, reinforces this consensus by stating that “gas -fired generation [is] the primary choice for new capacity . ” 35 EPA’s and EIA’s modeling frameworks are designed to reflect the longer term, fundamentals - based perspective that electric utilities and developers employ in evaluating capital investments, while analyzing alternative scenario s to account for broader fuel market uncertainties. Short -term fuel price volatility is not the most relevant factor in this context because new power plants have asset lives measured in decades, not in months or years, and new capacity investment decisions are based on long - run expected prices, not month -to month, or even year-to year, variations in fuel prices. Shorter-term prices will affect how units are dispatched, but these potential dispatch impacts are considered with other factors over a longer time horizon and factored into the choice of which type of plant to build. In contrast, the uncertainty surrounding long -term fuel prices will exert significantly greater influence on the technology selected for new capacity additions. In a modelin g context with perfect for esight, this longer term uncertainty may be evaluated by the comparisons of alternative scenario s presented throughout this Chapter . In addition to major changes in the gas supply outlook, there have been notable c hanges in the coal supply outlook. Coal costs have generally increased over the past few years due primarily to increased production costs. These costs have increased as the most accessible and economically viable mines are depleted, requiring movement i nto coal reserves that are more costly to mine. The basic trends in coal supply are not expected to change for the foreseeable future. 36

34 EIA. 201 4 . U.S. Crude Oil and Natural Gas Proved Reserves, 201 3 . http://www.eia.gov/naturalgas/crudeoilreserves/pdf/us reserves .pdf 35 NERC, Long -Term Reliability Assessments for 2012. New c apacity includes both planned and conceptual resources as defined by NERC. 36 http://www.eia.gov/forecasts/aeo/assumptions/pdf/coal.pdf***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 17 Taken together, current and expected natural gas and coal market trends are contributing to a recent fundamental shift in the economic conditions for new power plant development that utilities and developers have recognized and responded to in planning. 37 **4.4.4 Power Sector Fuel Projections**  To examine the potential impacts of uncertainty inherent in natural gas and coal markets, the EIA used scenario analysis to generate the 2020 fuel price projections in Table 4 - 4. The relative prices of available fuels partially drive power sector investment decisions. Even under scenarios where the spread between the MMBtu price of gas and coal is highest , no construction of new non - compliant generating capacity is projected in 2020 , as shown in Table 4 - 3 . **Table 4 -** **4 .**  **National Delivered 2020 Fuel Prices by AEO 2014 Scenario (2011$/MMBtu) Scenario**  **Natural Gas Coal**  Refe rence 4.99 2.57 High Growth 5.28 2.59 Low Growth 4.97 2.55 High Coal Cost 5.13 2.90 Low Coal Cost 4.88 2.27 High Gas/Oil Resource 4.30 2.45 Low Gas/Oil Resource 5.63 2.63

37 For example: "We don’t have any plans to build new coal plants. So the rules won’t have much of an impa ct. Any additional generation plants we’d build for the next generation will be natural gas." American Electric Power, 3/26/2012, National Journal ; “As we look out over the next two decades, we do not plan to build another coal plant. ... As the evidence i s coming in, [shale gas] is proving to be the real deal. If we have no plans, as one of the largest utilities and largest users of coal in this country, no plans to build a new coal plant for two decades, the regulations are not relevant.” Jim Rogers (Duke ), 3/27/2012, NPR All Things Considered. ; “If you actually look at the economics today, you would be burning gas, not coal,” Jack Fusco, Calpine, 12/1/2010, Marketplace; “Coal’s most ardent defenders are in no hurry to build new ones in this environment.” John Rowe, Exelon, 9/2011, EnergyBiz; “With low gas prices, gas -fired generation kind of snowplows everything else” Lew Hay, NextEra, 11/1/2010, Dow Jones. “The Demise of Coal - Fired Power Plants” , Washington Post, Nov 23, 2012 (new EGU construction is nat ural -gas fired, even in Kentucky coal country).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 18 Note: AEO 2014 scenario definitions: High Economic Growth increases annual real GDP growth by 0.4%; Low Economic Growth decreases real GDP growth by 0.6%; High Coal Cost assumes lower regional productivity growth rates and higher wages, equipment, and transportation costs for the coal industry; Low Coal Cost assumes greater regio nal productivity growth rates and lower wages, equipment, and transportation costs for the coal industry; High Oil and Gas Resource expands the ultimate estimated recovery of shale gas, tight gas, and tight oil by 100%; Low Oil and Gas Resource reduces the ultimate estimated recovery of shale gas, tight gas, and tight oil by 50%. However, given that power plant s are long- lived assets, capacity planning decisions are necessarily undertaken with a forward view of expected market and regulatory conditions. In producing the AEO 2014, EIA capacity expansion projections are informed by a lifecycle cost analysis over a 30 -year period in which the expectations of future prices are consistent with the projections realized in the model (i.e. the model executes decisi ons with perfect foresight of future market, technical, and regulatory conditions) . Therefore, the fuel price s that inform capacity expansion decisions in 2020 is not only the p rice s that year, but the entire future fuel price stream. For example, Figure 4- 2 displays EIA’s natural gas price projections for the Reference Case and several key scenarios through 20 5 0.

$4 $5 $6 $7 $8 $9 $10 $11**D e** **l i** **v e** **r e** **d G** **a s** **P r** **i c** **e (** **2 0** **1 1** **$ /** **M M** **B t** **u )**  Reference High growth Low growth High coal cost Low coal cost High resource Low resource***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 19 **Figure 4 -**  **2. National Real Price of Natural Gas Delivered to EGUs for Select AEO 2014** 

**Scenarios ( 2011$** **/MMBtu)** Note: The AEO gas price forecasts go through 2040. The AEO forecasted prices are interpolated to 20 5 0 by applying the average annual rate of pri ce increase from 2035 to 2040 in each AEO scenario to all subsequent years from 2041 through 2049 **.** Natural gas prices are expected t o increase after 2020 in all scenarios 39 ; however, rising natural gas prices through 2040 – including in EIA’s low gas/oil resource scenario - are still not sufficient to support new, non - compliant coal - fired generation through 2022 in these scenarios , demonstrating that natural gas prices at currently low levels are not required to persist for NGCC to maintain its economic advantage over coal -fired technologies. While the uniformity of EIA scenarios in projecting no new non - co mpliant coal - fired capacity through the analysis period is compelling, the scenario projections cannot fully illustrate the extent of the economic advantage that NGCC maintains over conventional coal – only that the advantage remains intact across a broad range of market and technical scenarios. To identify potential market conditions that could fully erode the cost advantages of NGCC over coal - fired technologies during the analysis period, an analysis in section 5. 4 adopts a unit - level engineering cost analysis to compare these technologies . That analysis builds on the unit - level cost comparisons presented in the following subsections of this chapter. **4.5 Levelized Cost of Electricity Analysis**  New capacity projections from the EPA and EIA reviewed in the previous section indicate that the NSPS is not projected to require changes in the design or construction of new EGU s from what would be expected in the absence of the rule . Thus, under both the baseline projections and alternative scenarios analyzed in AEO 2014, the final EGU New Source GHG Standards are projected to result in negligible emission reduction s, quantified benefits, or costs. To further examine the robustness of these conclusions the EPA conducted additional analysis using the levelized cost of electricity (LCOE) for different types of new generation technologies. The LCOE is a widely used metric that represents the cost, in d ollars per output, of building and operating a generating facility over the entirety of its economic life. Evaluating competitiveness on the basis of the LCOE is particularly useful in establishing cost comparisons between generation types with similar op erating characteristics but with different cost and financial characteristics. The typical cost components associated with the LCOE include capital,

39 Coal prices are also expected to rise in all scenarios.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 20 fixed operating and maintenance (FOM), variable operating and maintenance (VOM), transportation, storage a nd maintenance (TS&M) and fuel. ( See preamble section V. H. 5. ) **4.5 .1**  **Overview of the Concept of Levelized Cost of Electricity**  The levelized capital and FOM costs may be calculated by taking the annualized capital and FOM (expressed in $/kW -yr) costs and spreading the expense over the annual generation of the facility using the expected average annual capacity factor (the percent of full load at which a unit would produce its actual annual generation if it operated for 8760 hours). The annualized capital c ost (expressed in $/kw -yr) is the product of the $/kW capital cost and the capital recovery factor (CRF). A CRF may be calculated using the project’s interest rate and book life . 40 The VOM cost, which is already expressed in terms of cost per unit output, may be presented with or without the fuel expense. The fuel expense is typically the largest component of VOM costs (non - fuel components to VOM include start - up fuel, consumables, inspections, etc.) and for certain capacity types – such as NGCC – fuel expense may represent the majority of the LCOE. Because levelized costs consider the entire lifecycle of the facility, fuel expenses are represented by the levelized fuel price which captures the forecast of annual delivered fuel prices over the economic life of the facility at a given discount rate. 41 Levelizing fuel prices recognizes the necessity to consider the trajectory of fuel costs over the facility’s entire economic life.

40 The interest rate assumed for NGCC and CT projects is 9.06%; the interest rate assumed for coal -fired projects is 9.57%. All 3 types of projects are assumed to have a 30 -year book life, res ulting in a capital recovery factor of 9.78% for NGCC and CT projects and 10.23% for coal - fired projects. 41 As an illustration of applying a discount rate to a stream of future fuel prices, the levelized fuel price will be less than the mean fuel price if prices are increasing; equal to the mean if fuel prices are constant; and greater than the mean if fuel prices are declining. The weighting of nearer -term prices through the application of a discount rate is consistent with modeling economic behavior of in vestors . The EPA used a 5% discount rate to calculate levelized fuel prices, a value consistent with the discount rate embedded in IPM. The model applies a discount rate of 4.77% for optimizing the sector’s decision - making over time. IPM’s discou nt rate, designed to represent a broad range of private - sector decisions for power generation, rates differs from discount rates used in other analyses in this RIA, such as the benefits analysis which each assume alternative social discount rates of 3% and 7%. These discount rates represent social rates of time preference, whereas the discount rate in IPM represents an empirically - informed price of raising capital for the power sector. Like all other assumed price inputs in IPM, EPA uses the best available information from utilities, financial institutions, debt rating agencies, and government statistics as the basis for the capital charge rates and the discount rate used for power sector modeling in IPM.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 21 It should be noted that there are other important considerations beyond the LCOE that impact power plant investment decisions. New power plant developers must consider the particular demand characteristics in any particular region, the existing mix of generators, operational flexibility of different types of generatio n, prevailing and expected electricity prices, other potential revenue opportunities (e.g., the capacity value of a particular unit, where certain power markets have mechanisms to compensate units for availability to maintain reliability, sale of co - products, etc.), and the varying financial risks associated with different generation technologies. Broader system - wide power sector modeling – such as the analyses conducted by the EPA and EIA – is able to more effectively capture some of these considerations. **4.5 .**  **2 Cost and Performance of Technologies**  The following sections compare the LCOE of individual technologies that are affected EGUs of this final rule . This section reports those LCOEs. The NGCC and coal - fired generation technology cost and performance assumptions that form the basis for the LCOE analysis in this RIA are from the DOE’s National Energy Technology Laboratory (NETL). 42 NETL cost and performance characteristics were selected for coal -fired technologies because the NETL estimates wer e unique in the detail of their cost and performance estimates for a range of CO 2 ca pture levels for both new super critical pulverized coal (SCPC) and integrated gasification combined cycle (IGCC) facilities . 43 , 45 In particular, the NETL costs released in 2015 include vendor quotes for new technology deployed. The use of NETL cost and performance characteristics also allows for comparisons to be made across generating technologies using a single, internally

42 http://www.netl.doe.gov/File%20Library/Research/Ene rgy%20Analysis/Publications/Gerdes - 08022011.pdf 43 All potential build types are compliant with all current environmental regulations, including the EPA’s MATS . 45 The NETL cost data intend to represent the next commercial offering, and relies on vendor cost estimates for component technologies. It also applies process contingencies at the appropriate subsystem levels in an attempt to account for expected but undefi ned costs (a challenge for emerging technologies). The cost estimates for plant designs that only contain fully mature technologies which have been widely deployed at commercial scale (e.g., PC power plants without CO2 capture) reflect nth - of- a - kind (NOAK) on the technology commercialization maturity spectrum. The costs of such plants have dropped over time due to “learning by doing” and risk reduction benefits that result from serial deployments as well as from continuing R&D. The cost estimates for plant designs that include technologies that are not yet fully mature (e.g., IGCC and any plant with CO2 capture) use the same cost estimating methodology as for the mature plant designs, which does not fully account for the unique cost premiums associated with the initial, complex integrations of emerging technologies in a commercial application. Thus, it is anticipated that initial deployments of the IGCC and capture plants may incur costs higher than those reflected within this report. Actual reported project costs for all of the plant types are also expected to deviate from the cost estimates in this report due to project - and site specific considerations (e.g. contracting strategy, local labor costs, seismic conditions, water quality, financing parameters, lo cal environmental concerns, weather delays, etc.) that may make construction more costly. Such variations are not captured by the reported cost uncertainty.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 22 consistent framework. The CO 2 capture sensitivity analysis included an evaluation of the cost, performance, and environmental profile of these facilities under different configurations that were tailored to achieve a sp ecific level of carbon capture. For simple cycle CTs NETL cost and performance estimates were not available or sufficiently recent so EPA adopted EIA’s AEO 2014 estimates of the LCOE. To represent a new SCPC facility, NETL assumed a new boiler with a combination of lowNOx burners with overfire air and a selective catalytic reduction system for NOx control. The plant was assumed to have a fabric filter and a wet limestone flue gas desulfurization scrubber for particulate matter and SO 2 control, respectively. For con figurations including CCS, the plant was assumed to have a sodium hydroxide polishing scrubber to ensure that the flue gas entering the CO 2 capture system has a SO 2 concentration of 10 ppmv or less. The SCPC unit treating a slip stream with partial post - co mbustion CCS were assumed to be equipped with the CO 2 removal system designed by Shell Cansolv, the system currently in full - scale commercial use at the Boundary Dam facility. 46 Estimated costs for the system reflect the latest vendor quotations. Specific to the partial capture configurations for SCPC, t he NETL study identified two options. The first option identified was to process the entire flue gas stream through the MEA capture system, but at reduced solvent circulation rates. The second option was to maintain the sa me high solvent circulation rate and stripping steam requirement as would be used for full capture, but only treat a portion of the total flue gas stream. The NETL report determined that this “slip stream” ap proach was the most economical because a reducti on in flue gas flow rate will: (1) decrease the quantity of energy consumed by flue gas blowers; (2) reduce the size of the CO 2 absorption columns; and (3) trim the cooling water requirement of the direct contact cooling system . 47 The “slip stream” approach – which leads to lower capital and operating costs

– was therefore adopted by the EPA for cost and performance estimates under partial capture.

48 In summary, the technology cost and performance characteristics utilized by t he EPA in developing the LCOE estimates discussed in this chapter and Chapter 5 are listed below in Table 4 - 5 .

46 NETL 2015 at 59, 137. 47 NETL based this determination primarily upon a review of the literature. See page 2 of http://www.netl.doe.gov/energy - analyses/pubs/Gerdes - 08022011.pdf 48 For additional detail and discussion on the specific technology configurations selected for t his analysis, please refer to the preamble.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 23 **Table 4 -**  **5. Technology Cost and Performance Specifications (2011$)**  **Capacity Type**  **Total Overnight**

**Capital Cost ($/kw) Fixed** 

**Operations & Maintenan**  **ce ($/kw** **- yr)**  **Variable**

**Operations & Maintenance**  **($/MWh) TS&M** 

**($/MWh) Levelized** 

**Fuel Cost ($/MMBtu)**  **Net Plant**

**HHV Efficiency**  **(%)** NGCC 89 1 26.7 1.8 - 6. 19 5 0.2 SCPC 2,507 71.5 9.1 - 2.52 40.7 SCPC w/ Partial CCS (1,400 lb/MWh gross) 3,042 85.6 10.1 1.4 2.52 39.2 SCPC Co Firing Natural Gas (1,400 lbs/MWh gross) 2,507 71.5 9.6 - 3.02 40.7%

IGCC 3,036 96 9.4 - 2.52 39.0 IGCC Co Firing Natural Gas (1,400 lbs/MWh) 3,036 96 9.4 - 2.73 39.0 Notes: Cost from NETL 2015. The coal assumed is a bituminous coal with a sulfur content of 2.8% (dry) at a real (2011$) price of $2. 80/MMBtu, consistent with AEO 2014 Reference Case forecast levelized delivered coal (all types) price. The natural gas price is the EIA AEO 2014 forecast levelized real (2011$) delivered gas price from EIA’s AEO 2014 Reference Case. NETL ( 201 5 ) explains that t here are a range o f future potential costs that are up to 15% below, or 30% above the ir central estimate, consistent with a “feasibility study” level of design engineering applied to the various cases in this study. The value of th e studies lie not in the absolute accuracy of the individual case results but in the fact that all cases were evaluated under the same set of technical and economic assumptions. This consistency of approach allows meaningful comparisons among the cases evaluated. **4.5 .**  **3 Levelized Cost of**  **Electricity of New Generation Technologies**  To support and provide context for the sectoral modeling results presented above, t his section presents two LCOE comparisons 49 :

49 As the sectoral modeling may not capture all considerations, particularly local ones, under which a non compliant coal unit may be built, Section 5.5 provides a comparison of the cost of a non - compliant c oal unit to a compliant c oal unit, either with partial CCS or natural gas cofiring. The analysis demonstrate s that the standard could be accommodated and would not, based on the cost increment of constructing and operating a***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 24 **1.** NGCC to Non - compliant Coal – to demonstrate the cost advantages of NGCC across a range of natural gas prices and regional market conditions. **2.** NGCC to CT – to demonstrate the low likelihood of a new combustion turbine being built with the expectation of meeting the applicability criteria based on utilization and thus being cover ed by these standards . The illustrative unit cost and performance characteristics used in this section assume representative costs associated with spatially dependent components, such as connecting to existing fuel delivery infrastructure and the transmission grid. In practice u nits may experience higher or lower costs for these components depending on where they are located. It should be noted that the LCOE comparisons presented in this section only represent the cost to the generator and do not reflect the additional social co sts that are associated with emissions of greenhouse gas es or other air pollutants. A broader consideration of the health and welfare impacts of emissions from these technologies is considered in Chapter 5. I t is also important to note that both the EIA and EPA apply a climate uncertainty adder (CUA) - represented by a three percent increase to the weighted aver age cost of capital – to new, conventional coal -fired capacity types. 50 EIA developed the CUA to address inconsistencies between power sector modeling absent GHG regulation and the widespread use of a cost of CO2 emissions in power sector resource planning While baseline po wer sector modeling scenarios may not specify potential future G HG regulatory requirements, i nvestors in the industry typically incorporate some expectation of a future cost to limit CO 2 emissions in resource planning evaluations that influence investment decisions . Therefore, t he CUA refle cts the additional planning cost typically assigned by project developers and utilities to GHG intensive projects in a context of climate uncertainty. T he EPA believes the inclusion of the CUA in LCOE estimates is consistent with the industry’s cur rent planning and evaluation framework for future projects (demonstrable through IRPs and public utility commission orders) and is therefore pertinent when evaluating the cost competitiveness of alternative generating technologies 52 CCS, preclude new coal construction . The section also demonstrates how the cost to a non - compliant coal unit of complying with the final standard is mitigated by the emission reduction benefits of controlling its emissions. 50 While this statement is true in the AEO Reference Case, EIA evaluates No GHG Concern where the CUA is removed. Results from this scenario on investment in new technology are reported in Table 4 - 3. 52 For example, a 2011 Synapse Report lists 15 utilities that adopted a value for estimating CO 2 emissions liability in their integrated resource planning. http://www.synapse - energy.com/Downloads/SynapsePaper.2011 -***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 25 In defining the CUA, EIA states that “the adjustment should not be seen as an increase in the actual cost of financing, but rather as repre senting the implicit hurdle being added to GHG intensive projects to account for the possibility they may eventually have to purchase allowances or invest in other GHG emission - reducing projects that offset their emissions.” 53 Therefore, the EPA recognizes the application of the CUA is context dependent – as a part of the planning process it is appropriately applied in an evaluative sense to prospective projects, and then removed once a project transitions from planning to execution. While omitting the CUA is inconsistent with an analysis considering how project characteristics and market conditions would lead a developer or utility to select a certain project, as is the purpose of this section , for transparency the cost estimates based on the 2015 NETL analysis for non - compliant coal - fired projects are presented in the following analysis both with and without the CUA. All LCOE estimates of coal -fired facilities with CCS are presented without the CUA, to represent the reduced CO 2 liability associated with such technologies . **4.5.4 Levelized Cost of Electricity of NGCC and**  **Non -**  **compliant Coal**  The EPA’s base LCOE estimates for NGCC, SCPC, and IGCC are displayed in Figure 4 - 3 by cost component (capital, FOM, VOM , TS&M and fuel) and assume a construction date of 2020 and an 85% capacity factor . Although the EPA believes that this cost data is broadly representative of the economics between new coal and new natural gas facilities, this analysis assumes repr esentative new units and does not reflect the full array of new generating sources that could potentially be built. To the extent that other types of new units that would be affected by this rule are built, they may exhibit different costs than those pres ented here. For example, new conventional coal facilities of a size smaller than what is assumed in the base estimate would tend to exhibit a relatively higher LCOE, while some technologies could potentially display a lower LCOE if – all else equal - fuel could be obtained at a lower price than that assumed in this analysis (such as may be the case for petroleum coke or waste coal facilities). These potential differences do not fundamentally change the analysis presented in this RIA . On a levelized cost basis, NGCC is significantly cheaper than all of the uncontrolled coal fired options. For technologies that are included the IPM Base Case and the AEO , their LCOE values are comparable to the LCOE values calculated from the NETL study. The difference in the 02.0.2011 - Carbon - Paper.A0029.pdf . In addition to utilities, several state commissions have mandat ed the inclusion of potential financial liabilities associated with CO 2 emissions in long -term planning (e.g., Minnesota utilities must adopt a price beginning in 2017). 53 http://www.eia.gov/forecasts/aeo/electricity_generation.cfm***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 26 LCOE of NGCC and noncompliant coal technologies explains the finding in the sectoral modeling described above that natural gas generation is forecast to be the source of new fossil - fired generation. In addition to the disparity in LCOE totals, the cost composition exhibits fundamental differences between natural gas - and coal -fired facilities, with NGCC dominated by fuel expense and the levelized cost of coal - fired technologies driven by capital expense. Consequently, this section will explore the impact of changes in natural gas price and the capital costs of coal -fired facilities to better quantify the magnitude of the relative cost advantage NGCC e xhibits over coal - fired alternatives.

**Figure 4 -**  **3. Illustrative Wholesale Levelized Cost of Electricity of Alternative New**  **Generation**

**Technologies by Cost**  **Componen t**  Notes: (1) The coal assumed is a bituminous coal with a sulfur content of 2.8% (dry) an d a real delivered price of $2.80/MMBtu. $2.80/MMBtu is the levelized real (2011$) delivered average coal price from the AEO 2014 reference case for all coals during the 20 year forecast period 2020 - 2039. The $2.80/MMBtu coal price is assumed for all years ; therefore, the price serves as both the 2020 fuel cost as well as the levelized fuel cost over any future period of time.

$60 $79 $90 $96 $83 $99 $115 $101

$0 $25 $50 $75 $100 $125

NGCC SCPC SCPC w.CUA SCPC

18% CCS SCPC w.

co-firing IGCC IGCC

w.CUA IGCC w.

co-firingLCOE($2011/MWh)

Capital Fixed O&M Var. O&M TSM Fuel***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 27 (2) The levelized delivered price of natural gas is $6.07/MMBtu (2011$).This price is the levelized real (2011$) delivered gas price from the AEO 2014 reference during the 20 year forecast period 2020 - 2039. (3) SCPC and IGCC without CCS are shown first without any CUA and then with a 3% CUA. (4) The cost of CO 2 transport, storage and monitoring (TS&M) is included as part of LCOE for SCPC with 18% CCS, which captures and sell s CO 2 . (5) A capacity factor of 85 percent is assumed across all technologies . (6) For comparison, EIA estimates of levelized costs in 2019 under AEO 201 4 Reference Case assumptions for SCPC and IGCC are $9 4.4/MWh and $1 14.7/MWh ( both in 2012$) , respectively, including a 3% CUA and excluding transmission investment costs. 54 The levelized costs presented above are based on NETL assumptions and wi ll necessarily differ from AEO 2014 levelized costs for a variety of reasons, including cost and performance characteristics, financial assumptions, and fuel input prices. Figure 4 - 4 presents the LCOE of an NGCC facility at four alternative levelized natural gas price levels. For comparison , the LCOE estimates for SCPC and IGCC (with no CO 2 control) including the CUA are provided as well. 55

54 http://www.eia.gov/forecasts/aeo/electricity_generation.cfm 55 Some new units could be designed to combust waste coal or petroleum coke (pet coke), which may be affected by this rule. These technologies could exhibit different local economics , particularly in the delivered price of fuel. From a capital and operating perspective, the EPA believes the cost and performance of these units are broadly similar and therefore well represented by new, conventional coal - fired facilities (e.g. SCPC).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 28 **Figure 4 -** **4. Illustrative**  **Wholesale Levelized Cost of Electricity of Alternativ e New Generation** 

**Technologies Across**  **Alternative Natural Gas Prices**  It is only when natural gas prices exceed $ 10/ MM Btu on a levelized basis (in 2011$) that new coal - fired generation without CCS approaches parity with NGCC in terms of the LCOE . N one of the AEO 2014 scenarios described in this chapter project national average natural gas prices near that level . 56 To achieve a $10/MMBtu levelized price in 2020 would require a significantly more pessimistic natural gas outlook than what is contained in AEO’s low natural gas resource scenario. To illustrate, Table 4 - 6 report the levelized natural gas prices (initial year of 2020) for both a 20 -year period (to accommodate the end of EIA’s modeling projections in 2040) and 30 - yea r period (calculated by continuing the projected level of price increases through 2050). **Table 4 -**  **6 .**  **Levelized Natural Gas Prices by Select AEO 2014 Scenario (201 1**  **$/MMBtu )**  **Scenario 20** **- Year AEO**  **Projection 30** **- Year AEO**  **- Based** 

**Projection**

56 As noted earl ier in this chapter, investment decisions require consideration of fuel price projections over long periods of time; similarly, the power sector modeling cited here make fuel price projections over long periods of time. Neither these modeling projections nor these LCOE calculations are meant to suggest that the gas price could not reach as high as $10/MMBtu at any given point in time; the point is that these analyses do not expect such a price level to be sustained over a period of time that would influenc e an economic assessment of which type of new capacity offers a better investment.

$60 $86 $93 $113 $90 $115

$0 $20 $40 $60 $80 $100 $120 $140

NGCC ($6.07/MMBtu) NGCC

($10/MMBtu) NGCC

($11/MMBtu) NGCC

($14/MMBtu) SCPC (w. CUA) IGCC (w. CUA)LCOE,$/MWh(2011$)***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 29 **(2020 -**  **2039) (2020** **- 2049**  **)** Reference 6.07 6.53 High Growth 6.32 6.96 Low Growth 5.78 6.20 High Coal Cost 6.19 6.69 Low Coal Cost 6.03 6.47 High Gas/Oil Resource 4.80 4.85 Low Gas/Oil Resource 7.70 8.45 Note: Discount rate of 5%, consistent with IPM assumptions. The 30 -year natural gas price is calculated by applying the average annual rate of price increase from 2035 to 2040 in all subsequent years from 2041 through 2049. The scenarios are described in Table 4 - 4 . One potential price path that would achieve a $10/MMB tu on a 20 -year levelized basis in 2020 is a natural gas price path 30% higher than EIA’s low resource scenario in all years; see Figure 4 - 5 below. This illustrative price path to achieve a $10/MMBtu levelized price would result in a $11.02/MMBtu annual r eal price in 2030 and a $13.81/MMBtu real price in 2040. What this information indicates is that natural gas price forecasts need to be notably higher than the highest forecast in the AEO 2014 scenarios before we would expect that general market dynamics w ould favor new non - compliant coal generation over new compliant natural gas generation as the fossil -fuel technology of choice to satisfy demand. Chapter 5 discusses this finding further by bringing in the consideration of the emissions damages associated with these technologies.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 30 **Figure 4 -**  **5. Projected Real National Delivered Natural Gas Price for Select AEO 2014** 

**Scenarios and Illustrative Path for > $10/MMBtu Levelized Price**  It is important to note that the LCOE calculations are based on assumptions regarding the representative national cost of generation at new facilities. 57 It is known that there is significant spatial variation in the costs of new generation due to design differences, labor productivity and wage differences, and delivered fuel prices, among other potential factors. For example, EIA utilizes capital cost scalars to capture regional differences in labor,

57 Actual reported project costs for all of the plant types are also expected to deviate from the cost estimates in this report due to project - and site - specific consideratio ns (e.g. contracting strategy, local labor costs, seismic conditions, water quality, financing parameters, local environmental concerns, weather delays, etc.) that may make construction more costly. Such variations are not captured by the reported cost unc ertainty $6.07 $4.80 $7.70 $10.00

$0 $2 $4 $6 $8 $10 $12 $14

2015 2020 2025 2030 2035 2040GasPriceDeliveredtoEGUs(2011$/MMBtu)

Reference Low Gas & Oil Resources

High Gas & Oil Resources Illustrative Path to $10 Gas Levelized Price***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 31 material and construction costs. 59 The minimum and maximum capital cost scalars across all regions in AEO 2014 for SCPC, IGCC, and NGCC build options are presented below in Table 4 - 7: 60 **Table 4 -**  **7 .**  **AEO 2014 Regional Capital Cost Scalars by Capacity Type Capacity Type**  **Minimum Capital Cost**  **Scalar Maximum Capital Cost**  **Scalar** SCPC 0.885 1.152 IGCC 0.908 1.136 NGCC 0.893 1.205 Applying the regional capital cost scalars displayed above to the base LCOE estimates from NETL developed earlier in this section produces only a small change in the relative competitiveness of the technologies as seen in Table 4 - 8. **Table 4 -**  **8. LCOE Estimates with Minimum and Maximum AEO 2014 Regional Capital Cost** 

**Scalars (2011$/MWh) Capacity Type**  **Re ference**  **LCOE LCOE Using** 

**Minimum Capital Cost Scalar**  **LCOE Using**

**Maximum Capital Cost Scalar**  SCPC (no CCS, with out CUA) 79 70 91 SCPC (no CCS, with CUA) 90 80 104 IGCC (no CCS, without CUA) 99 90 112 IGCC (no CCS, with CUA) 115 104 131 NGCC 60 5 4 7 2 The LCOE of SCPC in the lowest capital cost region still results in an LCOE that is 1 1 % higher than an NGCC located in the most expensive capital cost region when including the CUA . The IGCC LCOE is 2 5 % above NGCC in the most expensive region , even without considering the CUA . The other primary driver in determining the regional impact on competitiveness of new build options is delivered fuel prices. As part of the AEO, EIA releases electric power projections – including fuel prices – for each of the 22 Electricity Market Module (EMM) regions. The two regions with the highest projected 2020 natural gas prices in the AEO 2014 are the Western Electricity Coordinating Council/Southwest (‘Southwest’) and the Florida Reliability C oordinating Council (FRCC). The 20 -year levelized natural gas and coal price

59 http://www.eia.gov/oiaf/beck_plantcosts/pdf/updatedplantcosts.pdf 60 Excluding the New York City and Long Island areas, as well as those areas of the country that prohibit the de velopment of new, non - compliant coal -fired facilities.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 32 forecasts (2020 - 2039) in the AEO 2014 reference case are displayed in Figure 4 - 6 for both regions.

**Figure 4 -**  **6. Levelized Regional Fuel Price from AEO 2014 Reference Case, 2020**  **- 2039** 

**(2011$/MMBtu)** 61 While the FRCC region experiences the highest overall natural gas prices, the Southwest region realizes a greater $/MMBtu differential between coal and natural gas prices under the AEO projections; the impact on the LCOE of the SCPC, IGCC, and NGCC technologies without CCS is reported in Table 4 - 9 for both sets of fuel prices, as well as the national average for comparison. **Table 4 -**  **9 .**  **LCOE Estimates For Minimum and Maximum AEO 2014 Regional Fuel Prices**  **(2011$/MWh) Capacity Type**  **LCOE Using National**  **Average Fuel Prices**  **LCOE Using FRCC** 

**Fuel Prices LCOE Using** 

**Southwest Fuel Prices**  SCPC ( no CCS, w ith out CUA) 79 89 78 SCPC (no CCS, with 3% CUA) 90 100 90 IGCC ( n o CCS, without CUA) 9 9 109 98 IGCC (no CCS, with 3% CUA) 115 125 114 NGCC 60 87 70

61 Assuming 5% discount rate. $10.12 $7.61

$3.67 $2.46 $0 $2 $4 $6 $8 $10 $12

FRCC WECC-SouthwestLevelizedCostofDeliveredFuels(2011$/MMBtu)

Gas Coal***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 33 Due to the greater fuel price differential, the more favorable region for the development of coal - fired facilities from an LCOE perspective is the Southwest, where the regional fuel prices reduce the LCOE advantage of NGCC to $28/MWh over SCPC (compared with a $32 advantage with national fuel prices) and $23/MWh over IGCC (compared with a $37 advantage with national fuel prices. In conclusion, even the most favorable combination of regional variab ility in capital costs and delivered fuel prices represented by EIA are insufficient to support new, unplanned, conventional coal -fired capacity in the analysis period. **4.5.5 Levelized Cost of Simple Cycle Combustion Turbine and Natural Gas Combined Cycle**  Simple Cycle CTs fulfill a fundamentally different function in power sector operations than that of NGCC and fossil -fired steam facilities. CTs are designed to start quickly in order to meet demand for electricity during peak operati ng periods and are generally less expensive to build (on a capital cost basis) but are also less fuel efficient than combined cycle technology (which employs heat recovery systems). Due to lower fuel efficiencies, CTs produce a significantly higher cost of electricity (cost per kWh) at higher capacity factors and consequently are typically utilized at levels below the applicability requirements for sources affected by the EGU New Source GHG Standards. Specifically, the final emission standards do not app ly to stationary combustion turbines subject to a federally enforceable permit condition limiting annual electric sales to the specific design efficiency of the combustion turbine multiplied by the unit’s potential electric output or less. New CTs are expe cted to most often be built to ensure reserve margins are met during peak periods (typically in the summer), and in some instances be able to generate additional revenues by selling capacity into power markets. Thus, in practice, EPA expects that potentia l CT units would not meet the applicability requirements finalized in this rule and would therefore, not be subject to the standard s of performance . To illustrate the economic incentives of utilizing combustion turbines in an intermediate and base load mode of operation, Figure 4 - 7 presents the LCOE estimates for a new CT, Advanced CT and NGCC at increasing capacity factors. The estimates utilize the AEO 201 4 Reference Case levelized natural gas price for 20 20.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 34 **F igure 4** **- 7**  **. Levelized Cost of**  **Electricity Across a Range of Capacity Factors, CT and NGCC** 

**(2011 $** **/MWh at $ 6.07** **/MMBtu Levelized Natural Gas Price)** In the LCOE figure above, utilizing a CT for generation is less expensive than an NGCC unit only at capacity factors of less than 20%. 62 If expected utilization is greater than 20%, it can reasonably be expected that a utility or developer would seek to deploy NGCC over CT for a host of economic, environmental, and technical reasons. Furthermore, t he design net efficiencies for current ly available potentially impacted aeroderivative simple cycle combustion turbines range from approximately 32 percent for smaller designs to 39 percent for the largest intercooled designs. The efficiencies of industrial frame units range from 30 percent fo r smaller designs to 36 percent for the largest units. 63 The EPA therefore does not expect new CT units to be constructed, that would meet the applicability requirements. **4.6 Macroeconomic and Employment Impacts**  Th ese final EGU New Source GHG Standards are anticipated to result in negligible emission changes in the electricity sector in the analysis period , and therefore are anticipated to impose negligible costs or quanti fied benefits. EPA typically analyzes impacts on employment or labor markets associated with rules based on the estimated compliance costs and other energy impacts (e.g., changes in electricity prices) , which serve as an input to such analyses.

62 CT cost, performance, and financial assumptions from AEO 2013. 63 These efficiency values follow the methodology the EPA has historically used and are based on the higher heating value (HHV) of the fuel. $0 $50 $100 $150 $200 $250 $300 $350

0% 20% 40% 60% 80% 100%LCOE(2011$/MWh)

Capacity Factor

NGCC Conventional CT Advanced CT***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 35 However, since the EPA does not forecast a change in behavior relative to the baseline in response to this rule, there are no notable macro economic or employment impacts expected as a result of this rule. **4. 7**  **R eferences**  Fann, N., K.R. Baker, C.M. Fulcher. 2012 . Characterizing the PM2.5 - related health benefits of emission reductions for 17 industrial, area and mob ile emission sectors across the U.S. Environment International , Volume 49, 15 November 2012, Pages 141 - 151, ISSN 0160 - 4120, http://dx.doi.org/10.1016/j.envint.2012.08.017 . Krewski, D., R.T. Burnett, M.S. Goldbert, K. Hoover, J. Siemiatycki, M. Jerrett, M. Abrahamowicz, and W.H. White. 2009. “Reanalysis of the Harvard Six Cities Study and the American Cancer Socie ty Study of Particulate Air Pollution and Mortality.” Special Report to the Health Effects Institute. Cambridge, MA. July. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow - Up of the Harvard Six Cities Study from 1974 to 2009.” Environ Health Perspect. In press. Available at: http://dx.doi.org/10.1289/ehp.1104660 . Malik, N.S. 2010, November 1. NextEra CEO s ees clean energy stan dards replacing recent climate p roposals [Radio transcript]. Dow Jones News [Online]. Available: Dow Jones Interactive Directory: Publications Library. Mufson, S. January 2, 2011. “Coal’s Burnout.’ The Washington Post. Retrieved from: http://www.washingtonpost.com/newssearch. National Energy Technology Laboratory (NETL). Cost and Performance of PC and IGCC Plants for a Range of Carbon Dioxide Capture . Revised Sept. 16, 2013. Available online at: http://www.netl.doe.gov/energyanalyses/pubs/Gerdes - 08022011.pdf . National Energy Technology Laboratory (NETL). Cost and Performance Baseline for Fo ssil Energy Plants Supplement: Sensitivity to CO2 Capture Rate in Coal - Fired Power Plants . June 22 , 2015. Available online at: http://www.netl.doe.gov/research/energy- analysis/energybaseline - studies. Rosenberg, M. 2011, September/October. “The R eign of C heap G as. ” EnergyBiz Magazine. Retrieved from http://www.energybiz.com/magazine/article/234577/reign - cheap - gas . Tong, S. 2010, November 1. Placing B ets on Clean E nergy. [Radio transcript]. American Public Media: Marketplace [Online]. Available: Marketplace Programs on Demand. National Petroleum Council. 2011. Prudent Development: Realizing the Potential of North America's Abundant Natural Gas and Oil Resources . Ava ilable online at: http://www.npc.org/reports/rd.html .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

4 - 36 U.S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2010 . 2010. Available online at: http://www.eia.gov/oiaf/archive/aeo10/index.html . U.S. Energy Information Administration (U.S. EIA a ). Annual Energy Outlook 201 4 . 201 4 . Available online at: http://www.eia.gov/forecasts/aeo/ . U.S. Energy Information Administration (U.S. EIA). U.S. Crude Oil and Natural Gas Proved Reserves, 2013 Available online at: http://www.eia.gov/naturalgas/crudeoilreserves/pdf/usreserves.pdf U.S. Energy Information Administration (U.S. EIAb). Assumptions to the Annual Energy Outlook 201 4. 2014. Available online at: http://www.eia.gov/forecasts/aeo/assumptions/pdf/0554(2014).pdf U.S. Environmental Protection Agency (U.S. EPA). 2011. Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards . Office of Air Quality Planning and Standards , Research Triangle Park, NC . December . Avai lable on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/matsriafinal.pdf . U.S. Environmental Protection Agency (U.S. EPA). 201 2 . Regulatory Impact Analysis (RIA) for the Fi nal Revisions to the National Ambient Air Quality Standards for Particulate Matter . Office of Air Quality Planning and Standards , Research Triangle Park, NC . December . Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/finalria.pdf . U.S. Environmental Protection Agency (U.S. EPA). 201 3a . Technical Support Document Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 17 Sectors . Office of Air Quality Planning and Standards , Research Triangle Park, NC . January . Available on the Internet at : http://www.epa.gov/airquality/benmap/models/Source_Apportionment_BPT_TSD_1_3 1_13.pdf . U.S. Environmental Protection Agency (U.S. EPA). 2013b . Integrated Science Assessment for Ozone and Related Photochemical Oxidants. EPA/600/R - 10/076F . Research Triangle Park, NC : U.S. EPA. February. Available on the Internet at http://oaspub.epa.gov/eims/eimscomm.getfile?p_download_id=511347 .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 1 **CHAPTER 5 ANALYSIS OF ILLUSTRA** **TIVE BENEFIT** **- COST**  **SCENARIOS FOR NEW SOURCES**  **5.1 Synopsis**  The previous chapter of this regulatory impact analysis (RIA) presents the U.S. Environmental Protection Agency’s (EPA) analysis and projections from the U.S. Energy Information Administration (EIA) that support the conclusion that the EGU New Source Standards 1 will result in negligible costs and benefits in the period of analysis. The EPA recognizes that this conclusion is based on underlying expected economic conditions (e.g., fuel prices) and assumptions about considerations investors would weigh in deciding whether to build new non - compliant coal -fired power plants . Extending the analysis in the previous chapter that considers those factors in evaluating the robustness of the findings from the sectoral analysis , this chapter presents the results of several illustrative analyses that show, under a range of alternative conditions, the potential costs and benefits of these standards for individual investments that provide bas e load dispatchable generation. We evaluate conditions under which different generator types are constructed in lieu of a non - compliant supercritical coal unit and estimate the social benefit of adopting the investment that is compliant with the standards. This also allows us to consider idiosyncratic circumstances under which a **new** unit that does not comply with these standards may be constructed. While the analysis in Chapter 4 focuses on national level conditions, the analysis in this chapter explores the potential impacts to individual investments. The analysis in this chapter finds that under unlikely conditions , in which the EPA’s conclusions regarding the future economic competitiveness of new non - compliant coal -fired units with respect to other ne w generation technologies no long e r apply, or under specific idiosyncratic situations that favor the construction of non - compliant units , that the quantifiable benefits of the standards to society outweigh the costs. **5. 2**  **Comparison of Emissions from Generation Technologies** As discussed in Chapter 4, natural gas combined cycle (NGCC) units are on average expected to be more economic al to build and operate than new coal units ( s ee section 4. 5 ). Therefore, as our point of departure for comparing the costs and benefits of an individual investment decision, we evaluate the private cost of a new NGCC unit that is compliant with the finalized standards with the private cost of a new, non - c ompliant conventional supercritical

1 The standards for modified and reconstructed sources are addressed in Chapter 6.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 2 pulverized coal (SCPC) coal -fired unit. 2 When evaluating the costs and benefits associated with these standards, it is also important to understand the difference in emissions associated with these units. In addition to being more economical, new NGCC units have lower emission profiles for CO 2 and criteria air pollutants than new coal units . For example, a typical new SCPC facility that burns bituminous coal in compliance with current utility regulations (e.g., the M ercury and Air Toxics Standards (MATS )) would have considerably greater CO 2 , sulfur dioxide ( SO 2 ) , nitrogen dioxide ( NO x ), toxic metals, acid gases, and particulate emissions than a comparable NGCC facility. Table 5 - 1 shows that emission s of these pollutants from a typical new NGCC unit are significantly lower than those from a new coal -fired unit. 3 The e mission characteristics are based on, and thus consistent with , the cost and performance assumptions of the illustrative units described in LCOE a nalysis in section 4. 5 . That is, these are base load units of the same net capacity operating at an 85 percent capacity factor, the coal unit is assumed to be using bituminous coal with a sulfur content of 2.8% dry, they are in compliance with current util ity regulations (e.g., the MATS), etc. The typical new NGCC unit would emit about 2.3 fewer million metric tons of CO 2 per year than the typical new SCPC unit, as well as roughly 1,700 fewer short tons of SO 2 and about 1, 3 00 fewer short tons of NO x per year than the SCPC unit . Table 5 - 1 also provide s comparable information for a representative integrated gasification combined cycle ( IGCC ) unit providing the same amount of electricity and using the same coal . The new IGCC unit would emit less CO 2 , SO 2 and NO x than a typical coal -fired SCPC unit, but has higher emissions of each of these pollutants than a new NGCC unit. Reductions in SO 2 emissions are a particularly significant driver for monetized health benefits, as SO 2 is a p recursor to the formation of particulates in the atmosphere , and particulates are associated with premature death and other serious health effects. NO X is both an ozone precursor, and is associated with formation of secondary fine nitrate PM 2.5 . Both ozo ne and fine nitrate PM 2.5 are associated with significant adverse health effects, including premature mortality. Further information on these pollutants’ health and welfare effects is described in Chapter 3. Table 5 - 1 also shows the same representative coal units’ emissions of these same pollutants when meeting the promulgated standard of performance of 1400 lb CO 2 MWh. Two

2 As discussed in section 4.4.1 and in the preamble , we expect new NGCC capacity built in the period of analysis will be compliant with the standard even in the absence of the standard. As a result, there are no compliance costs anticipated for new NGCC units. 3 E stimated emissions of CO 2, SO 2, and NO X for the illustrative new coal and NGCC units could vary depending on a variety of assumptions including heat rate, fuel type , and emission controls , amongst others .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 3 compliant SCPC units are presented ; one uses carbon capture and storage (CCS) and another that co -fires natural gas . The compliant IGCC unit is assumed to co -fire natural gas. For the compliant SCPC unit using CCS, i n addition to reductions of CO 2 , SO 2 emissions would also decrease due to the need to scrub acid gases to very low levels prior to carbon capture in order to prevent degr a dation of the solvent involved in the capture process. 4 The NO X emission rate, measured on a net - basis, i s slightly lower for noncompliant units than both compliant SCPC units. This is because there is a fuel efficiency loss associated with both compliance technologies and because N O X emission rate standards for new sources are on a gross - basis. While we account for these increases in the NO X emission rate in the analysis below, i n some cases, NO X emission s from fossil -fired sources are also subject to mass limit s on the total NO X emissions across EGUs (e.g. in states subject to the Cross - State Air Pollution Rule annual NO X program ), so these emissions may be offset by NO X reductions from other generating units .

4 See NETL 2015 at 161.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 4 **Table 5 -**  **1. Illustrative Emissions Profiles, New Coal and Natural Gas** **- Fired** 

**Generating Units Natural Gas CC**  **SCPC SCPC+Partial CCS**  **(1,400 lb/MWh Gross)**  **SCPC+Co -**  **Fire Nat Gas**  **IGCC IGCC+Co**  **- Fire Nat**  **Gas**

Emissions Emission

Rate Emissions Emission

Rate Emissions Emission

Rate Emissions Emission

Rate Emissions Emission Rate Emissions Emission Rate SO 2 84 0.0 0 41 1, 5 00 0.7 1 1, 2 00 0.6 1 1, 5 00 0.7 1 18 0.0 087 18 0.0 087 NO x 130 0.06 1 1, 5 00 0. 74 1, 5 00 0. 7 5 1, 5 00 0. 74 1, 1 00 0.52 1, 1 00 0.52 CO 2 1. 5 million 80 0 3.2

million 1, 7 00 2.8

million 1, 5 00 2.7

million 1, 5 00 3. 2 million 1, 7 00 3. 1 million 1, 7 00 Notes: Emissions from NETL 2015. Emissions are in tons/year ( SO 2 and NO x in short tons, CO 2 in metric tons ) and Emission Rates are in lb/MWh. Values rounded to two significant digits. E mission characteristics are based on, and thus consistent with the cost and performance assumptions of, the illustrative units described in LCOE analysis in section 4. 5 (i.e., these are base load units running at 85 percent capacity factor, all coal units are assumed to be using bituminous coal with a sulfur content of 2.8% dry, etc.). The tons of emissions are estimated for a coal -fired facility that achieves the gross - output standard of 1,400 lb/MWh and presented in this table on a net output basis. For the post - combustion CCS system assumed in the SCPC case, acidic gases (e.g., SO 2 , HCl) need to be scrubbed to very low levels prior to going to the CCS system to avoid degradation of the solvent. Therefore, SO 2 emissions are lower in the case of the SCPC unit with partial CCS. See preamble for discussion about the format of the standard. Here we further assume all units are of the same capacity (600 MW net).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 5 **5. 3**  **Comparison of Health and Climate**  **Impacts from Generation Technologies** As discussed in the previous section , the emissions of GHGs and other pollutants associated with new sources of electricity generation are greater for coal -fired units than for NGCC units. Reducing the emissions associated with electricity generation results in climate, human health and non - health benefits. To consider the health and climate benefits associated with the adoption of lower emitting new generation technologies, we apply the 2022 social benefit values discussed in Chapter 3 to the differences in illustrative emission profiles between the technologies in Table 5 - 1 . 1 Specifically, we multiply the difference in CO 2 emissions between two technologies by the estimates of the social cost of carbon dioxide ( SC- C O 2 ) (Table 3 - 1), multiply the difference in sulfur dioxide ( SO 2 ) and nitrogen dioxide (NO X ) emission s by the PM 2.5 - related SO 2 and NO X benefit per ton (BPT) estimates (Table 3 - 2), and add those values to get a measure of the 2022 social benefits attributable to differences in emissions of adopting the lower emitting new generation technology. We subsequently divide by the amount of generation (in MWh ) underlying the annual emissions estimates to derive the social benefits attributable to the differences in emissions per unit of generation. Only the direct emissions of CO 2 , SO 2 , and NO X are considered i n this illustrative exercise. Other air and water pollutants emitted by these technologies and emissions from the extraction and transport of the fuels used by these technologies are not considered. For example, coal has higher mercury emissions than natur al gas, but the relative benefits from the difference in mercury emissions are not considered. A similar example of emissions not considered are those of directly emitted PM 2.5 . Furthermore, there may be differences in upstream greenhouse gas emissions (in particular, methane) from different technologies which were not quantified for this assessment . Table 5 - 2 reports the 2022 incremental climate and health benefits associated with a new NGCC unit relative to a new coal -fired SCPC and IGCC units, given different mortality risk studies and assumptions about the discount rate. These benefits are based on the emissions presented in Table 5 - 1. The benefits presented in Table 5 - 2 are estimated on an output basis to

1 Due to data limitations, we are not able to estimate annualized benefits from the stream of emissions over the lifetime of the generating technologies. Because the benefit per-ton of emission reductions increases over time, due in part to population growth, the single year estimate results in a co nservative comparison of benefits to costs where LCOE represents annualized lifetime costs of generating technologies.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 6 enable easier comparisons to the potential costs of investing in a new non - compliant coal -fired unit relative to a new NGCC unit. These incremental benefits should be relatively invariant across natural gas prices and other economic factors. D epending on t he discount rate and mortality risk study used, 2022 incremental benefits associated with generation from a representative new NGCC unit relative to a new coal -fired SCPC or IGCC unit are $ 7. 0 to $ 91 per MWh (20 11 $). 3 T he health and welfare benefits associated with reduced emissions can depend on a number of factors, including the specific fuels combusted and the location of the emissions . While the benefits of reduced CO 2 emissions do not depend on the location of generation because the location of CO 2 emissions does not influence their impact on the evolution of global climate conditions , the precise incremental health co - benefits will be location specific and depend on the specific fuels used. However, these factors will not change the qualitative conclusion. There will be incremental

3 Different discount rates are applied to SC - C O 2 than to the other benefit estimates because CO 2 emissions are long - lived and subsequent damages occur over many years. Moreover, several rates are applied to SC - C O 2 because t he literature shows that it is sensitive to assumptions about discount rate and because no consensus exists on the appropriate rate to use in an intergenerational context. The SC - C O 2 interagency working group centered its attention on the 3 percent discoun t rate but emphasized the importance of considering all four SC C O 2 estimates. See the 2010 SC - C O 2 TSD. Docket ID EPA- HQ- OAR - 2009 - 0472 - 114577 or http://www.whitehouse.gov/sites/default/files/omb/inforeg/for - agencies/Social - Cost - of- Carbon -for- RIA.pdf for details.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 7 **Table 5 -**  **2. Incre**  **mental Benefits ($/MWh, 2011$) of Emission Reductions from Illustrative New**

**Natural Gas Combined Cycle Generation Relative to**  **New Non**  **- Compliant**  **SCPC or IGCC Coal Generation**  **in 2022 1**  SCPC IGCC **CO 2** **- Related Benefits using SC** **- C**  **O 2**  5% Discount Rate $ 5.7 $ 5.8 3% Discount Rate $ 19 $ 19 2.5% Discount Rate $ 28 $ 28 3% Discount Rate (95 th percentile) $ 56 $ 57 **Total PM**  **2.5 -**  **Related Co**  **- Benefits from SO**  **2 and NO**  **X Changes**  3% discount rate Krewski et al. (2009) $ 15 $ 1. 3 Lepeule et al. (2012) $ 34 $ 3. 0 7% discount rate Krewski et al. (2009) $ 14 $ 1. 2 Lepeule et al. (2012) $ 31 $ 2. 7 **Combined CO 2** **- Related and PM**  **2.5 -**  **Related Benefits** Discount Rate Applied to PM 2.5 - Related Benefits (range based on adult mortality function) SC - C O 2 Discount Rate 3% 7% 3% 7% 5% Discount Rate $ 21 to $ 40 $ 19 to $ 37 $ 7. 1 to $ 8.8 $ 7. 0 to $ 8. 5 3% Discount Rate $ 34 to $ 53 $ 33 to $ 50 $ 2 0 to $ 22 $2 0 to $ 22 2.5% Discount Rate $ 43 to $ 62 $ 42 to $ 59 $ 30 to $ 31 $ 30 to $ 31 3% Discount Rate (95 th percentile) $ 72 to $ 91 $ 70 to $ 87 $ 59 to $ 60 $ 58 to $ 60 Notes: The emission rates and operating characteristics of the units being compared in this table are reported in Table 5.1. Benefits are estimated for a 2022 analysis year. The range of benefits within each SC - C O 2 value and discount rate for PM 2.5 - related benefits pairing reflects the use of two core estimates of PM 2.5 - related premature mortality. 2 The EPA has evaluated the range of potential impacts per MWh by combining all SC - C O 2 values with health benefits values at the 3 percent and 7 percent discount rates. Combining the 3 percent SC - C O 2 values with the 3 percent health benefit values assumes that there is no difference in discount rates between intragenerational and intergenerational impacts. PM 2.5 - relat ed co - benefits are estimated using 2020 m onetized h ealth b enefits - p er-t on of PM 2.5 p recursor r eductions (Table 3 - 2), which are representative of 2022.

1 This analysis assumes representative new units and does not reflect the full array of new generating sources th at could potentially be built (e.g., a comparison of a small new conventional coal -fired unit with a small natural gas -fired unit, or a comparison of a waste coal or petroleum coke -fired unit to a natural gas -fired unit of a comparable size and capacity factor ). However, the damages associated with other units that could be built, and which would be subject to this rule , would not change noticeably (i.e., these new facilities would be subject to emissions standards for other pollutants and wou ld emit similar levels of SO 2, NO X, and CO 2, on an output basis) except for differences in location, as discussed previously . 2 T he range of estimated benefits for each discount rate is due to the EPA’s use of two alternative primary estim ates of PM 2.5 - rel ated mortality impacts: a lower primary estimate based on Krewski et al. (2009) and a higher primary estimate based on Lepeule et al. (2012) .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 8 climate and human health benefits associated with a new NGCC unit relative to a new coal -fired unit, in dependent of the location. The conclusion from this analysis is that there are significant environmental and health benefits associated with electricity generation from a representative new NGCC unit relative to a new non - compliant coal -fired unit. Other studies of the social costs of coal and natural gas fired generation provide similar findings (Muller et. al . , 2011; NRC, 2009). 1

1 Muller et al. 2011 conclude that, “coal -fired power plants have air pollution damages larger than their value ad ded”, while the same is not true for natural gas plants (see Table 5 in Muller et al. ). However, these comparisons are based on typical existing coal and natural gas units, including natural gas boilers, and are not sensitive to location (although the unde rlying analysis in the study does account for differences in the location of existing units when estimating damages). The NRC 2009 study shows that only the most polluting natural gas units may cause greater damages than even the least polluting existing c oal plants ( compare Tables 2 - 9 and 2 - 15 ). However, the NRC comparison does not compare new units located in the same place, and so some of the natural gas units with the greatest damages may be attributable to their location, and includes natural gas steam boilers, which have a higher emission rates per unit of generation than NGCC units. Despite these caveats, the finding of these two studies are consistent with the findings in this section.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 9 **As explained previously, the power sector has**  **move d**  **away from the construction of coal**  

** fired power plants in favor of natural gas** **- fired power plants due, in part, to the**  **significant cost differential. Even so, it is possible that a limited number of currently**  **unplanned coal -** **fired power plants would**  **be cons tructed**  **through 2022 .**  **In these circumstances, the construction of compliant coal**  **- fired units**  **in place of non**  **- compliant**  **coal -** **fired units would result in relative climate and human health and non**  **- he**  **alth benefits. Table 5**  **- 3 reports the 2022 incremental benefits**  **associated with a new**  **SCPC coal**  **- fired unit with CCS relative to**  **a new SCPC**  **coal**   ** fired unit****, given different mortality risk studies and assumptions about the discount rate.**  **The values are calculated based on the emissions presented in**  **Table 5 -**  **1. Depending on**  **the discount rate**  **use d**  **and mortality risk study used, 2022 incremental benefits associated with generation from a representative new**  **SCPC coal**  **- fired unit with CCS relative to a new**  **SCPC unit without CCS are $**  **3. 1**  **to $**  **18 per MWh (2011$)**  **, factoring in the disbenefit from a small increase in NOx**  **emissions .**  **2 These incremental benefits will be referenced in the analyses**  **presented in subsequent sections .**  **Table 5 -**  **3 .**  **Incremental Benefits ($/MWh, 2011$) of Emission Reductions from**  **Compliant Coal**  **- Fired**  **Generation with CCS meeting 1,400 lb /MWh**  **Standard Relative**  **to New Non**  **** **Compliant Coal**  **- Fired Generation**  **in 2022** SCPC **CO 2** **- Related Benefits using SC** **- C**  **O 2**  5% Discount Rate $ 1. 3 3% Discount Rate $ 4.4 2.5% Discount Rate $ 6.6 3% Discount Rate (95th percentile) $ 1 3 **Total PM2.5**  **- Related Benefits from SO**  **2 and NO**  **X Changes**  3% discount rate Krewski et al. (2009) $ 1.9 Lepeule et al. (2012) $ 4. 3 7% discount rate Krewski et al. (2009) $ 1.7 Lepeule et al. (2012) $ 3.9 **Combined CO 2** **- Related and PM**  **2.5 -**  **Related Benefits** Discount Rate Applied to PM 2.5 - Related Benefits (range based on adult mortality function) 2 Different discount rates are applied to SC - CO 2 than to the oth er benefit estimates because CO 2 emissions are long - lived and subsequent damages occur over many years. Moreover, several rates are applied to SC - CO 2 because the literature shows that it is sensitive to assumptions about discount rate and because no consensus exists on the appropriate rate to use in an intergenerational context. The SC - CO 2 interagency group centered its attention on the 3 percent disco unt rate but emphasized the importance of considering all four SC - CO 2 estimates. See the 2010 SC - CO 2 TSD for details. Docket ID EPA- HQ- OAR - 2009 - 0472 - 114577 or http://www.whitehouse.gov/sites/default/files/omb/inforeg/for - agencies/Social - Cost - of- Carbon -for- RIA.pdf .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 10 SC - C O 2 Discount Rate 3% 7% 5% Discount Rate $ 3. 2 to $ 5.6 $ 3. 1 to $ 5.2 3% Discount Rate $ 6.3 to $ 8.7 $ 6.1 to $ 8 .3 2.5% Discount Rate $ 8 .5 to $ 1 1 $ 8 .3 to $ 1 0 3% Discount Rate (95th percentile) $ 1 5 to $ 18 $ 1 5 to $ 17 Notes: Benefits are estimated for a 2022 analysis year. The range of be nefits within each SC - C O 2 value and discount rate for PM 2.5 - related benefits pairing reflects the use of two core estimates of PM 2.5 - related premature mortality. 3 The EPA has evaluated the range of potential impacts per MWh by combining all SC - C O 2 values w ith health benefits values at the 3 percent and 7 percent discount rates. Combining the 3 percent SC - C O 2 values with the 3 percent health benefit values assumes that there is no difference in discount rates between intragenerational and intergenerational i mpacts. PM 2.5 - related co - benefits are estimated using 2020 m onetized h ealth b enefits - p er-t on of PM 2.5 p recursor r eductions (Table 3 - 2), which are representative of 2022. Table 5 -4 reports the 2022 incremental benefits associated with a new compliant coal fired unit co -firing natural gas relative to a new non - compliant coal -fired unit, given different mortality risk studies and assumptions about the discount rate. The values are calculated based on the emissions presented in Table 5 - 1. Depending on wh ether the unit is SCPC or IGCC, the discount rate used , and mortality risk study used, 2022 incremental benefits associated with generation from a representative new coal -fired unit co - firing natural gas relative to a new coal fired unit that does not co - fire natural gas are 0. 25 to $ 1 4 per MWh (2011$). 4 These incremental benefits will be used in the analyses presented in subsequent sections. **Table 5 -** **4 .**  **Incremental Benefits ($/MWh, 2011$) of Emission Reductions from Compliant** 

**Coal -**  **Fired Generation with Co**  **- Firing Natural Gas**  **Relative to New**  **Non**   ** Compliant** **Coal -**  **Fired Generation in 2022**  SCPC Co - Firing Natural Gas IGCC Co - Firing Natural Gas **CO 2** **- Related Benefits using SC** **- C**  **O 2**  5% Discount Rate $1. 5 $0. 2 5 3% Discount Rate $ 4.8 $0. 8 2 2.5% Discount Rate $ 7.1 $1. 2

3 T he range of estimated benefits for each discount rate is due to the EPA’s use of two alternative primary estim ates of PM 2. 5 - related mortality impacts: a lower primary estimate based on Krewski et al. (2009) and a higher primary estimate based on Lepeule et al. (2012) . 4 Different discount rates are applied to SC - CO 2 than to the other benefit estimates because CO 2 emissions ar e long - lived and subsequent damages occur over many years. Moreover, several rates are applied to SC - CO 2 because the literature shows that it is sensitive to assumptions about discount rate and because no consensus exists on the appropriate rate to use in an intergenerational context. The SC - CO 2 interagency group centered its attention on the 3 percent disco unt rate but emphasized the importance of considering all four SC - CO 2 estimates. See the 2010 SC - CO 2 TSD for details. Docket ID EPA- HQ- OAR - 2009 - 0472 - 114577 or http://www.whitehouse.gov/sites/default/files/omb/inforeg/for - agencies/Social - Cost - of- Carbon -for- RIA.pdf .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 11 3% Discount Rate (95th percentile) $ 14 $2. 5 **Total PM2.5**  **- Related Benefits from SO**  **2 and NO**  **X Changes**  3% discount rate Krewski et al. (2009) - - Lepeule et al. (2012) - - 7% discount rate Krewski et al. (2009) - - Lepeule et al. (2012) - - **Combined CO 2** **- Related and PM**  **2.5 -**  **Related Benefits** Discount Rate Applied to PM 2.5 - Related Benefits (range based on adult mortality function) SC - C O 2 Discount Rate 3% 7% 3% 7% 5% Discount Rate $1.5 $1.5 $0.25 $0.25 3% Discount Rate $4.8 $4.8 $0.82 $0.82 2.5% Discount Rate $7.1 $7.1 $1.2 $1.2 3% Discount Rate (95th percentile) $14 $14 $2.5 $2.5 Notes: Benefits are estimated for a 2022 analysis year. The range of benefits within each SC - C O 2 value and discount rate for PM 2.5 - related benefits pairing reflects the use of two core estimates of PM 2.5 - related premature mortality. 5 The EPA has evaluated the range of potential impacts per MWh by combining all SC - C O 2 values with health benefits values at the 3 percent and 7 percent discount rates. Combining the 3 percent SC - C O 2 values with the 3 percent health benefit values assumes that there is no difference in discount rates between intragenerational and intergenerational impacts. PM 2.5 - relat ed co - benefits are estimated using 2020 m onetized h ealth b enefits - p er-t on of PM 2.5 p recursor r eductions (Table 3 - 2), which are representative of 2022. **5. 4**  **Illustrative Analysis –**  **Benefits and Costs of New Source Standards**  **across a Range of Gas Prices**  As t he analysis in Chapter 4 demonstrated, under a wide range of likely electricity market conditions – including the EPA base case and EIA reference case scenarios as well as multiple alternative scenarios – it is expected that the industry will choose to con struct new units that already meet the standards of this rulemaking in the baseline . Section 4.5.4 further explored how much higher natural gas prices would need to be to favor new non - compliant coal generation over new NGCC generation . In this section, we continue that analysis by considering the potential impacts of the regulation on benefits if key assumptions regarding natural gas prices were to change during the analysis period. The analysis in this section indicates that in this scenario, the standards for new sources would result in increased private

5 T he range of estimated benefits for each discount rate is due to the EPA’s use of two alternative primary estim ates of PM 2. 5 - related mortality impacts: a lower primary estimate based on Krewski et al. (2009) and a higher primary estimate based on Lepeule et al. (2012) .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 12 costs , but would also lead to climate and human health benefits, and is highly likely to provide net benefits to society as a whole. 6 Furthermo re, this section , as in section 4.5.4, demonstrates that local fuel prices must be significantly different than regional differences already captured in IPM and EIA’s modeling of private investment costs to favor the construction of a new non - compliant coal -fired unit over a new NGCC unit to serv e a particular load. S ection 4. 5. 4 describe s how regional conditions and other factors may influence the LCOE comparison, and how these regional differences are already captured in the electricity sector modeling in support of this rule. The 64 different regions in IPM reflect the administrative structure of regional transmission organizations (RTOs) and independent system operators (ISOs). 7 However, there may be local conditions within those regions which differ meaningfully from the broader regional conditions. The analysis in this section evaluates how substantially divergent those local conditions must be from representative conditions for non - compliant coal generation to be the fossil fuel - fired technology of choice to serve demand. The starting point for this analysis is the illustrative comparison (presented in Section 4.5 ) of the relative LCOE of representative new coal -fired SCPC and IGCC EGUs and representative NGCC units . 8 That comparison demonstrated a significant difference in the LCOE between the coal -fired and natural gas -fired generating technologies. T he estimated LCOE for a representative NGCC unit is roughly $ 30 and $ 39 per MWh less than for a representative new coal - fired SCPC or IGCC unit, respectively (see Figure 4 - 3 ). 9 This is consistent with the EPA’s expectation that the new source standards for steam units are not projected to impose any appreciable costs or quantified benefits under current and likely future market conditions, as

6 EO 13563 states that each agency must “propose or adopt a regulation only upon a reasoned determination tha t its benefits justify its costs (recognizing that some benefits are hard to quantify).” While the presence of net social benefits for a given regulatory option is not the only condition necessary for optimal regulatory design, it does signify that the reg ulatory option is welfare improving for society. 7 Further disaggregation of the NERC assessment regions and RTOs allows a more accurate characterization of the operation of the US power markets by providing the ability to represent transmission bottlenecks across RTOs and ISOs, as well as key transmission limits within them. 8 By fixing generation in this comparison, we are assuming that both technologies generate the same benefits in the form of electricity generating services. We assume in the discussion that the benefit of electricity production to consumers outweighs the private and social investment cost. However, a caveat of our comparison is that at particularly high fuel prices this might not be the case (that is, at high costs for both te chnologies, it may not be worthwhile to construct either technology ). For a discussion of when comparing the levelized costs of different generating technologies provides informative results and when it does not see, for example, Joskow 2010 and 201 1. 9 T he reported decrease in the LCOE from adopting NGCC are relative to the SCPC with 3% carbon uncertainty adder ( CUA ) and IGCC without 3% CUA. The CUA is described in Chapter 4.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 13 discussed in Chapter 4 . The emissions associated with these technologies, and the benefits in terms of reduced damages of operating the new NGC C unit in lieu of the new non - compliant coal unit, are reported in the previous section. To supplement this determination, this section identifies three relevant ranges within the distribution of future natural gas price s that can be classified as likely gas prices, unexpectedly high natural gas prices, and unprecedented natural gas prices. Because the cost of natural gas is a significant share of the LCOE for NGCC units, we evaluate how changes in natural gas prices affe ct differences in the relative private costs of new technologies. We identify the natural gas price when the private costs, which are inclusive of the CUA for the SCPC, suggest that a new non - compliant coal unit may be adopted by an investor in lieu of a new NGCC unit. We then compare the social costs of these technologies , which is inclusive of both the private costs of these technologies and the damages from these technologies but exclusive of the CUA, at this natural gas price. 10 We then identi fy the natural gas price when the social cost of investing in the new non - compliant coal unit is plausibly less than the social cost of the new NGCC unit . In general, this analysis shows that there would likely be a net social benefit, even under scenarios with higher than expected gas prices, if new compliant NGCC units were built in place of new non - compliant coal -fired units as a result of this rule. 11 Und er some conditions, higher natural gas prices may result in a net social cost of constructing and operating new natural gas in lieu of non - compliant coal , holding all other parameters constant and disregarding social benefits that we are unable to monetize . 12 However, ev en under these unlikely conditions these

10 When forecasting the behavior of private actors in choosing between different technologies based on expected future costs, we account for a CUA, but when comparing the difference in costs of illustrative new units after construction, such as in the analysis of the social costs of these technologies (i.e. , the private cost plus the cost associated with their emissions), the CUA is not included. The CUA is described in section 4.5.3. The private cost of these technologies may differ from the social cost of these technologies for reasons other than their ass ociated emissions, as described at the end of Section 5.5. 11 As previously noted, t he benefits estimated in this section are based on a single year (2022) of emissions from different generating technologies. Due to data limitations, we are not able to es timate annualized benefits from the stream of emissions over the lifetime of the generating technologies. This results in a conservative comparison of benefits to costs where LCOE represents annualized lifetime costs of generating technologies. 12 As descr ibed below, an outcome where there are net social costs is unlikely to occur over our analysis period and for a significant period beyond. However, e ven a situation where natural gas prices are significantly higher, such as very high economic growth, woul d increase both natural gas and coal prices at the same time - making it harder to alter the underlying cost advantage of NGCC generation. Furthermore, even in the situation where we report net social costs, it is important to recall that the analysis is l imited in the types of benefits and costs considered, given that it does not account for the emissions associated with the production and delivery of natural gas and coal, the limitations of current SC - CO 2 estimates, and the limited accounting of non - CO 2***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 14 finalized standards may yield social net benefits as there may be other technologies to serve demand that would have a lower social cost than a new non - compliant coal unit. **5. 4.**  **1 Likely Natural Gas Prices**  As shown in Chapter 4, i t is only when natural gas prices exceed $10/MMBtu on a levelized basis (in 2011 dollars) that the representative new non - compliant SCPC unit likely becomes competitive with new NGCC in terms of its cost of electricity produced . As discussed in Chapter 4, n one of the AEO201 4 scenarios approach this natural gas price level on either a forward looking 20 -year levelized price basi s or on an average annual price basis at any point during the analysis period . 13 **5. 4.2**  **Unexpectedly High Natural Gas Prices** At natural gas prices above $10/ MM Btu , the private LCOE for a new SCPC unit may fall below that of a new NGCC unit. 14 Therefore, in the event of such unexpectedly high levelized fuel prices, some new SCPC units might be constructed in the absence of this final rulemaking, provided that coal price do not rise at the same time, there is sufficient demand for electricity, and new non - compliant SCPC units are competitive with other new and existing generating technologies other than NGCC units . In this scenario, we expect some compliance costs if a new NGCC unit ( or a compliant coal -fired unit ) that would have been built in lieu of the non compliant coal unit . However, generation from a new NGCC unit would also have incremental environmental and health benefits as it emits less CO 2 SO 2 , and NO x than generation from a new non - compliant SCPC unit (as may a compliant coal -fired unit ; see Section 5.5) . For levelized natural gas prices of $10/mmBtu and somewhat higher, the resulting emission reduction benefits of building an NGCC unit, rather than a non - compliant SCPC unit, will outweigh the increase in costs of an NGCC unit over a non - compliant SCPC unit . This observation indicat es that the standard for new fossil st eam sources would yield net benefits in the analysis year. For example, at a levelized gas price of $11/MMBtu , the NGCC unit would emissions benefits. As previously discussed, the current SC - CO 2 estimates do not capture all important all of the physical, ecological, and economic impacts of climate change recognized in the climate change literature . Despite our attempts to quantify an d monetize as many of the co - benefits as possible, the health and welfare co - benefits are not fully quantified or monetized in this assessment. For more information about unquantified health and welfare co - benefits please refer to tables 5 - 2 and 6 - 2 of the PM NAAQS RIA (U.S. EPA, 2012), respectively. 13 As reported in Table 4 - 6, The projected delivered electricity sector natural gas price for 202 0 assuming a 5% discount rate in the AEO 2014 reference scenario is $ 6.53/MMBtu ( 2011 $ ). In the “Low oil and gas resource” it is $ 8.45 / MM Btu ( 2011 $ ) . 14 As noted above, t he private LCOE of the non - compliant SCPC unit is inclusive of the CUA.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 15 generate electricity for approximately $ 14/MWh more than the non - complaint SCPC unit on a levelized basis, 15 and result in incremental benefits from emissions reductions of $ 19 to $ 91 /MWh (see analysis of 2022 relative benefits of NGCC: T able 5 - 2 ). The net benefit of this scenario would be $ 5.6 to $ 77/MWh . For context, a natural gas price of $ 10/MMB tu (in 2011 dollars) is higher than any national average annual natural gas price faced by the electric power sector since at least 1996, when the EIA historic data series begins . 16 T he continued development of unconventional natural gas resources in the U.S. suggests that annual gas prices may actually tend to be towards the lower end of the historical range. In addition, the highest projected average levelized natural gas price for 2020 of any of the AEO 201 4 scenarios cited in C hapter 4 is $ 8.45 / MMBtu (201 1 $) , which occurs in the Low Oil and Gas Resource scenario (see Table 4 - 6) . As discussed in Chapter 4, none of the EIA sensitivity cases (which account for future fuel price s for both gas and coal) show scenarios where non - compliant coal -fired units become more economic than NGCC units in the period of analysis . **5. 4.**  **3 Unprecedented Natural Gas Prices**  At extremely high natural gas prices, the LCOE for a non - compliant SCPC unit could be sufficiently lower than the cost of a new NGCC unit, such that the net benefit of the new fossil steam standard in a given year could be negative ( i.e., a net cost ) , at least under some ranges of benefit estimates . For example, at a very high 17 levelized gas price of $14/MMBtu , the NGCC unit would generate electricity for roughly $ 34/MWh more than the illustrative non - compliant SCPC, but result in social benefits from lower emissions of $ 19 to $ 91/MWh relative to the non compliant SCPC unit (see analysis of 2022 relative benefits of NGCC: T able 5 - 2 ). If the NGCC unit were built in lieu of the SCP C unit as a result of the new fossil steam standard, the impact would range from a net social cost of $ 15 /MWh to a net social benefit of $ 56/MWh relative to the SCPC unit . Depending on which discount rates are used to estimate benefits, it is possible that the standard would result in a net cost (i.e., costs exceed benefits ) . However, a s noted in the

15 The LCOE of the representative NGCC unit increase s by $6.80/MWh for every $1/MMBtu increase in natural gas prices. 16 See: http://www.eia.gov/dnav/ng/hist/n3045us3A.htm . EIA reports average annual delivered natural gas prices to the electricity sector for the past 16 years (since 1997). 17 For context, between 2009 and 2014 the national annual average nominal price of natural gas delivered for electricity generation ranged from $3.58/MMBtu to $5.30/MMB tu. The 6 year average was $4.76/MMBtu, roughly 1/3 the illustrative high price of $14/MM Btu.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 16 previous subsection, natural gas prices at these levels would be unprecedented. As a result, the EPA believes that the probability of levelized natural gas pri ces reaching levels at which this standard would generate net social costs is extremely small. We emphasize that differences in generating costs, plant design, local factors, and the relative differences between fue ls costs can all affect the precise circumstances under which the new steam fossil standard would be projected to have no costs, net social benefits or net social costs. However, based on historical and expected gas prices, we project that the new fossil steam standard is most likely to have negligible costs because firms will invest in technology that will comply with the standard in the baseline , and, if it does result in costs, it is also likely to produce posi tive, although modest, net social benefits . Furthermore, these results, complemented by the analysis in Chapter 4 on regional differences in levelized costs of these technologies, indicate that local differences in the cost of these technologies must be si gnificantly different from representative conditions for non - compliant coal generation to be the technology of choice to serve demand . The refore the probability that this finalized standard would result in net social costs is exceedingly low . **5. 5**  **Illustrative Analysis –**  **Benefits and Costs of Non**  **- Compliant**  **Coal and Compliant Coal** As discussed in detail in the previous section and in Chapter 4, it is unlikely that a new non - compliant coal -fired unit would be constructed in the analysis period. The power sector continues to move away from the construction of coal -fired power plants in favor of natural gas - fir ed power plants due, in part, to the significant LCOE differential ex plored in the previous section. Even so, an operator may have reasons to choose to construct a conventional coal - fired power plant. (For example , some comments received on the 2012 and 2014 proposed regulation s suggested that an operator may find it desira ble to construct a new coal -fired E GU for the purpose of diversifying its generation fleet across fuels to hedge against uncertainty in fuel markets .) In these circumstances, EPA believes that any need for CCS could be accommodated and would not, based on the incremental cost of the C CS portion of the new unit, preclude the construction of the new coal -fired facility. One factor in determining that needing CCS would not preclude the construction of the new facility is the availability of Enhanced Oil Recovery (EOR) opportunities for n ew coal -fired facilities. 19

19 The potential availability of EOR was not used in EPA’s evaluating the reaso nableness of cost in determining the best system of emissions reduction (BSER) .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 17 This section evaluates the impacts that might occur if an investor, wh ich otherwise wanted to construct a new non - compliant coal unit, chose to instead construct a new compliant coal - fired unit in response to the new fossil ste am standard . In this scenario , this decision would result in some costs in order to build a unit with partial CCS or co -fire with natural gas. 20 However, there would also be climate and other benefits resulting from changes in CO 2 and SO 2 . For each coal -fired generation type, SCPC and IGCC, the EPA analyzed the cost of constructing these units and emission impacts of meeting the new source standards in 2022 . While partial CCS is considered the best system of emission reductions (BSER) for these units, it would also be possible to meet the standard without CCS through co -firing natural gas, which is also analyzed . The cost of CCS used to support this rule assumes that the geologic sequestration of CO 2 will be in deep saline formations and accounts for the cost of doing so , but the EPA also recognizes the potential for sequestering CO 2 for EOR . For non - EOR applications, TSM costs of $5 - $15 dollars per ton of CO 2 are applied based on the level of capture . This range is consistent with estimates provided by NETL and the Global CCS Institute. 21 EOR refers to the injection of gases and/or fluids into a reservoir to increase oil production efficiency. CO 2 - EOR has been successfully used at many production fields throughout the United States. The oil and natural gas industry in the United States has over 40 years of experience in injection an d monitoring of CO 2 . This experience provides a strong foundation for the te chnologies used in the deployment of CCS on coal -fired electric generating units. Although deep saline formations provide the most CO 2 storage opportunity ( at least

20 In this section we do not include a CUA for the illustrative new non - compliant SCPC and IGCC units as we are assuming that the investor will install construct and operate a new coal fired plant regardless. Furthermore, a s in the previous section, when comparing the difference in costs of illustrative new units after construction, such as in the analysis of the social costs of these technologies (i.e., the private cost plus th e cost associated with their emissions), the CUA is not included. 21 http://www.netl.doe.gov/energy - analyses/pubs/QGESS_CO2T%26S_Rev2_20130408.pdf http://www.globalccsinstitute.com/publications/economic - assessment - carbon - capture - and - storage technologies - 2011 - update ) . Note that NETL assumes 50 miles of pipeline, but points out that, of the 500 largest existing CO 2 point sources, 95 percent are locat ed within 50 miles of a potential geologic storage reservoir. Therefore it is reasonable to assume that a new source can be similarly located.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 18 2,035 billion metric tons), oil and gas reservoirs are estimated to have 207 billion metric tons of CO 2 storage resource. 23 The use of CO 2 for EOR can significantly lower the cost of implementing CCS. The opportunity to sell the captured CO 2 rather than paying directly for its long -term storage, greatly improves the economics of the new generating unit. According to the International Energy Agency, of the CCS projects in operation (e.g., Boundary Dam Energy Project, Saskatchewan, Canada) or u nder construction or at an advanced stage of planning, 70% intend to use captured CO 2 to improve recovery of oil in mature fields, including Mississippi Power’s Kemper County Energy Facility, NRG Energy’s W.A. Parish Petra Nova CCS Project, Summit Power’s Texas Clean Energy Project, and the Hydrogen Energy California Project. T he Texas Clean Energy project is planning to capture 90% of the CO 2 and sell it for EOR. 24 Therefore, i n the near term, new coal - fired EGUs with CCS may be located in areas amenable to using the captured CO 2 in EOR operations because these formations have been previously well characterized for hydrocarbon recovery, likely already have suitable infrastructure (e.g., wells, pipelines, etc.), and have an associated economic benefit of incr easing oil well productivity . Furthermore, EPA believes the opportunity to engage in EOR opportunities is not significantly limited by the location of those opportunities or the current CO 2 pipeline infrastructure (12 states currently have active EOR operations ). Provision of electric power does not require coal -fired facilities to be co - located with the demand it is intended to serve. Please refer to Chapter 2 for a more detailed discussion of EOR, including its geographic availability, expected future growth, and overall impact on the economics of CCS. There are two EOR opportunities evaluated in this section – ‘High’ and ‘Low.’ The high EOR opportunity assumes a CO 2 sale price of $40 per metric ton; the low EOR opportunity assumes a CO 2 sale price of $20 per metric ton based on assumptions used by NETL in evaluating potential EOR opportunities. 25 For either opportunity, it is assumed that the facility is only responsible for the costs of transmitting the c aptured CO 2 to the fence line, as is currently

23 U.S. Department of Energy National Energy Technology Laboratory (2012). United States Carbon Utilization and Storage Atlas, Fourth Edition . 24 http://www.texascleanenergyproject.com/ 25 The High and Low CO 2 sale prices utilized by EPA are consistent with NETL’s Base Case and Low Case sale prices, respectively (http://www.netl.doe.gov/energy - an alyses/pubs/storing%20co2%20w%20eor_final.pdf). In addition, this range is broadly consistent with the CO2 sale price data collected by the Department of Interior for projects located on federal lands ( http://statistics.onrr.gov/ReportTool.aspx ). Prices are expressed in 2011$ and the price is expected to be static over time.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 19 the practice. 26 Costs for the transportation, storage, and monitoring (TS& M) of CO 2 , however, are real costs that must be borne by someone. Whether the facility, the pipeline owner or the eventual user (i.e., oil field producer) of the CO 2 bear the TSM cost could be negotiated, with the outcome varying in different situations. For consistency, the TSM costs are included in this analysis Figure 5 - 1 compares the LCOE for a non - compliant coal to a compliant coal unit with partial CCS both with and without EOR. With the exception o f the LCOE costs accounting for EOR, these costs were provided in Table 4 - 5 . We see in Figure 5 - 1 that if a limited number of non - compliant coal -fi red power plants would have be en constructed in the analysis period , that the adoption of CCS could be accommodated and would not, based on the incremental cost of the CCS portion of the new unit, preclude the construction of the new coal - fired facility. Furthermore, Figure 5 - 1 shows the LCOE analysis estimate that a noncompliant coal unit could achieve a 1,400 lbs/MWh emission rate by cofiring with 14 percent natural gas (at a levelized cost of $ 3.02 /MMBtu) at an SCPC unit, or with 6 percent natural gas at an IGCC unit.

26 For EOR applications the point of sale is typically the facility fence line, in which case the coal facility operator will avoid the TSM cost. Consequently, the economic benefit of EOR to the investor in the coal plant may be greater than simply the price paid for CO 2 .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 20 **Figure 5**  **- 1**  **. Levelized Cost of Electricity, Uncontrolled Coal and Coal with**  **Partial CCS (1,4**  **00 lb /MWh gross)**  **. 2011$** Notes : (1) Cost data from NETL 2015, adjusted for EOR revenue and co-firing where applicable. (2) An noncompliant 550 MW (net capacity) unit SCPC requires NG co -firing to provide 43% of total heat input to achieve a 1,400 lbs/ MWh CO 2 emission rate. A noncompliant 620 M W (net) IGCC unit requires 6% NG cofiring. LCOE costs for co -firing were estimated assuming a levelized $6.07/MMBtu price of delivered gas. (3) The partial control alternatives that achieve 1,400 lb/MWh using CCS without EOR include the cost of TS&M . Tables 5 - 5 and 5 - 6 show the costs and 2022 net - benefits (social benefits minus private compliance costs) per MWh of adopting compliant coal in lieu of non - compliant coal . The EPA estimate s of the benefits or disbenefits associated with changes in CO 2 , SO 2 , and NO X emissions using the methods described in Table 5 - 3. The cost estimates used are reported in Figure 5 - 1 . As before, it i s important to note that these comparisons omit additional benefits that may be associated with the abatement of greenhouse gas emissions and other benefits associated with reducing criteria pollutant emissions . **Table 5 -**  **5 .**  **Illustrative 2022**  **Costs and Benefits for Compliant**  **SCPC with Partial Capture or** 

**with Co**  **- Firing Natural Gas Relative to**  **Non -**  **Compliant SCPC (per MWh 2011$)** ***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 21 SCPC with Partial CCS SCPC

Co - Fir ing Natural Gas Additional LCOE a $ 1 7 $ 3.4 Revenue from EOR (Low - High EOR) $ 4.2 to $ 7.1 * Additional LCOE, net of EOR $ 9.6 to $ 13 * Value of Monetized Benefits for 202 2 Emissions SC - C O 2 5% with Krewski 3% to SC - C O 2 3% (95th) with Lepeule 3% b $3. 2 to $ 18 $ 1. 5 to $ 14 Net Monetized Benefits Without EOR Revenue - $ 13 to $ 0.84 - $ 1.9 to $ 11 With EOR Revenue - $ 9.3 to $ 7.9 * a For this comparison the LCOE of the representative SCPC without CCS or co - firing natural gas does not include 3% CUA . b B enefits are estimated for a 2022 analysis year. Values shown are calculated using different discount rates. Four estimates of the SC - CO 2 in the year 2022 were used: $14, $ 4 6 , and $ 68 per metric ton (average SC - CO 2 at discount rates of 5, 3, and 2.5 percent, respectively) and $ 1 37 per metric ton (95th percentile SC - CO 2 at 3 percent). The average SC - CO 2 at 5 percent produced the lowest estimate and the 95th percentile estimate at 3 percent produced the highest estimate. See s ection 3.2 for complete discussion of these estimates. PM 2.5 - related co - benefits are estimated using 2020 monetized health benefits - per -ton of PM 2.5 precursor reductions (Table 3 - 2), which are representative of 2022.

**Table 5 -**  **6 .**  **Illustrative 2022**  **Costs and Benefits for Compliant**  **IGCC with**  **Co -**  **Firing Natural**

**Gas Relative to Non**  **- Compliant**  **IGCC (per MWh 2011$)** IGCC Co - Firing Natural Gas Additional LCOE a $1. 9***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 22 Revenue from EOR (Low - High EOR) * Additional LCOE, net of EOR * Value of Monetized Benefits for 202 2 Emissions SC - C O 2 5% with Krewski 3% to SC - C O 2 3% (95th) with Lepeule 3% b $0. 2 5 to $2. 5 Net Monetized Benefits Without EOR Revenue $ - 1. 7 to $ 0 . 5 5 With EOR Revenue * a For this comparison the LCOE of the representative IGCC co -firing natural gas does not include 3% CUA. b B enefits are estimated for a 2022 analysis year. Values shown are calculated using different discount rates. Four estimates of the SC - CO 2 in the year 2022 were used: $14, $ 4 6 , and $ 68 per metric ton (average SC - CO 2 at discount rates of 5, 3, and 2.5 percent, respectively) and $1 37 per metric ton (95th percentile SC - CO 2 at 3 percent). The average SC - CO 2 at 5 percent produced the low est estimate and the 95th percentile estimate at 3 percent produced the highest estimate. See Section 3.2 for complete discussion of these estimates. PM 2.5 - related co - benefits are estimated using 2020 monetized health benefits - per -ton of PM 2.5 precursor reductions (Table 3 - 2), which are representative of 2022. As shown in Chapter 4, current market conditions indicate that a unit compliant with the standards is currently the most economical investment, even in the baseline. The costs reported in Tables 5 - 5 and 5 - 6 represent the compliance costs to a hypothetical investor who, in the baseline, would choose to build a noncompliant fossil - fired steam power plant and, in compliance with the standard, still constructs the plant but now in such a way that reduces the plant’s emissions. In short, the compliance costs ar e the expenditures that the investor would make in order to comply with the standard. The underlying premise of this example is that the profit from the plant exceeds the additional cost of compliance to the investor; otherwise the investor would not be ex pected to make the investment. If the profit were less than the compliance costs then the investor’s lost profits would be the private costs. For this reason, if the investor makes a different compliance decision other than those assumed in Table 5 - 5 and 5 - 6 the private costs will be lower, and therefore, the compliance costs presented in Table 5 - 5 and 5 - 6 would be an upper bound to the private costs borne by the hypothetical investor. As explained in OMB’s Circular A4 and the EPA’s Guidelines for Econom ic Analysis, social costs, and not private costs, are the appropri ate metric for the benefit - cost analysis in this RIA . Social cost s represents the total burden that a regulation or action will impose on the economy. It is defined as the sum of all opportu nity costs incurred as a result of a regulation or action whe re an opportunity cost is the value lost to society of any goods and services that will not be produced and consumed as a result of a regulation. The opportunity cost of a regulation or activity is measured by the prices of the goods and services used in response to the regulation***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 23 or required for that activity. Therefore, when a resource is used in response to a regulation or for an activity, it has a social cost associated with it. **T he costs in Tables 5**  **- 5 and 5**  **- 6 could be taken to approximate the social cost of an**  **individual investor complying with the standard,**  **assuming that investor would chose to construct a compliant fossil**  **- fired steam power plant rather than making an alternative**  **investment. However, detailed behavioral models of the electricity sector**  **(such as IPM)**  **that take into many of the important criteria for investment decisions over time show that this investment decision does not**  **hold across the economy**  **. Therefore, these**  **estimates are unlikely to be representative of the social costs of this rule. The**  **conclusions presented in Chapter 4 –**  **that costs of the rule are likely to be negligible –**  **represent the best approximation of the overall cost to society. 5.6**  **Impact of the New Source Standards**  **Considering the Cost of Lost Option Value**  Consistent with EPA’s practice in evaluating the benefits and costs of significant rules, Chapter 4 use s detailed electricity sector modeling of expected market conditions to demonstrate that n ew EGUs expected to be built in the period of analysis would be in compliance with this final rule, even in the absence of this rule. As a result in the analysis period , as measured in those de terministic settings, the cost are expected to be negligible and there are no quantified benefits . That analysis is extended in this chapter to consider unexpected conditions in which the construction of a new non - compliant coal - fired unit would be desirable from the perspective of an individual investor and evaluates the costs and social benefits of constructing a generating technology that complies with the final rule instead. This section further extends, and draws on, those analyses to discuss, qualitatively, the potential social benefits and costs of the standards from the perspective of an uncertain future. Firms operating in the power sector hav e a set of options available to address increases in electricity demand, such as increasing the utilization of existing generating capacity, implementing energy efficiency programs to mitigate demand growth, or investing in new generating capacity. Within the category of investing in new generating capacity they are able to select amongst a set of generating technologies and energy sources. Uncertainty about future conditions that could impact the profitability of these different investment options means th at retaining flexibility to react to future conditions and choose the most profitable investments has value to firms. The value associated with retaining flexibility and being able to select the most profitable investments in the future is referred to as “ option value.” 29 This rule does not impose a direct cost on firms by requiring them to take a specific action, instead the

29 We refer the interested reader to Dixit and Pindyck (1994) and Trigeorgis (1996) for more information on the concept of option value in the context of firms’ investment choices.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 24 cost of this rule for firms is the lost option value associated with losing the ability to build a new fossil steam or combustion turb ine (CT) EGU with an emissions rate above their respective standards. This option value is determined, in part, by the likelihood that the restricted choices would have been exercised in the future absent the policy and the cost of available substitutes. Since the analysis in Chapter 4 estimates that new CTs forecast in the baseline, which meet the applicability criteria, will already meet the standards this discussion focuses on new fossil steam EGUs. As discussed in Chapte r 4, it is highly unlikely that over the analysis period there will be enough expansion in relative fuel prices (e.g., natural gas prices relative to coal) to make a typical new fossil steam EGU cost competitive with available substitutes (e.g., NGCC, inve sting in energy efficiency program). Even in the unlikely event that this occurs, the incremental cost of constructing a compliant fossil steam EGU with partial CCS or an alternative compliance pathway will represent an upper bound on the costs to the firm due to the availability of substitute generation sources which might be able to provide a similar service at a lower cost. Given both of these reasons, the low likelihood of the restricted options being exercised in the baseline and availability of cost e ffective substitutes, on average the lost option value for firms is likely to be small . Furthermore, as shown in the preceding sections, even when conditions arise where it is known with certainty that an outlying firm would find it most profitable to invest in a new non compliant unit EGU over available alternatives in the baseline, the social benefits of restricting the choice set may outweigh s the costs to the firm. Therefore it will also be the case that expected social benefits from prev enting new EGUs with an emissions rate above their respective standards, will likely outweigh the lost option value. A similar perspective may be applied to assessing the social costs of this rule. There are at least two notable differences when assessing the lost option value from society’s perspective relative to the firm’s perspective . First, from society’s perspective the cost is lower because the available substitution possibilities may be greater for society than for a single firm as they are not bound by the conditions of a single firm but activities that may be pursued by all electricity producers and consumers at large. Second, the benefits of adding a single new EGU for the purpose of diversifying the generation fleet across fuels to hedge against uncertainty in fuel markets, will likely be lower for society at large than for a single firm with a g enerating fleet***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 25 that is relatively less coal - intensive than the entirety of the generating fleet . 30 Both of these differences suggest that the cost of lost option value from a social perspective is lower than what is already likely to a minimal cost of lost option value for a particular firm. It is difficult to precisely estimate the lost option value associated with this final rule given the numerous sources of uncertainty that influence investment decisions in the electricity sector and the existing modeling tools . However, the analysis reported in this chapter and the previous chapter has considered important variables that influence investment decisions in the electricity sector and found that across a wide range of potential outcomes this rule would have negligible costs. Furthermore, considering the additional analysi s in this chapter and the discussion above, the cost of the lost option value of the rule is concluded to be small. Additionally, if conditions arise that would have led to the construction of non - compliant EGUs absent the final rule, the quantifiable monetized social benefits of limiting the construction of those units lik ely exceeds the cost (even though not all social benefits are captured) . However, as discussed throughout this RIA, when considering the most likely outcomes, the new source standards are anticipated to yield no quantified benefits and impose neg ligible costs over the analysis period. **5. 7**  **References** Dixit, Avinash and Pindyck, Robert. Investment Under Uncertainty . 1994. Princeton University Press. Joskow, P.L . 2010. Comparing the Cost of Intermittent and Dispatchable Electricity Generating Technologies. MIT Center for Energy and Environmental Policy Research Working Paper 10 - 013. Joskow, P.L . 2011. Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies. American Economic Review. vol. 101:238 - 41.

30 The option value associated with constructing a new EGU associated with a specific fuel source as part of a portfolio to hedge against uncertainty in future relative fuel prices will be conditional upon the current composition of the firm’s generation portfolio. If the current stock was c onstructed in expectation of relative fuel prices that more strongly favored higher emitting fuels, then the composition of the generating fleet may already be too heavily weighted toward the ability to use those fuels , given the current expected distribut ion of relative fuel prices . Furthermore, the possibility to hedge against changes in fuel prices may be pursued by other means, such as risk contracts, and thus is not limited to the construction of generation sources with particular fuel sources.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

5 - 26 Krewski, D., R.T. Burnett, M.S. Goldbert, K. Hoover, J. Siemiatycki, M. Jerrett, M. Abrahamowicz, and W.H. White. 2009. “Reanalysis of the Harvard Six Cities Study and the American Cancer Society Study of Particulate Air Pollution and Mortality.” Special Report to the Health Effects Institute. Cambridge, MA. July. Lepeule, J., F. Laden, D. Dockery, and J. Schwartz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow - Up of the Harvard Six Cities Study from 1974 to 2009.” Environ Health Perspect. In press. Available at: http://dx.doi.org/10.1289/ehp.1104660 . Muller, N.Z., R. Mendelsohn, and W. Nordhaus. 2011. Environmental Accounting for Pollution in the United States Economy. American Economic Review. 101:1649 - 1675. National Energy Technology Laboratory (NETL). Cost and Performance of PC and IGCC Plants for a Range of Carbon Dioxide Capture . Revised Sept. 16, 2013. Available online at: http://www.netl.doe.gov/energy- analyses/pubs/Gerdes - 08022011.pdf . National Energy Technology Laboratory (NETL). Cost and Performance Baseline for Fossil Energy Plants Supplement: Sensitivity to CO2 Capture Rate in Coal - Fired Power Pla nts . June 22 , 2015. Available online at: http://www.netl.doe.gov/research/energy- analysis/energybaseline - studies. National Research of Council (NRC). 2009. Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. National Academies Pre ss: Washington, D.C. Trigeorgis, Lenos. Real Options: Managerial Flexibility and Strategy in Resource Allocation . 1996. The MIT Press. U.S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2010 . 2010. Available online at: http://www.eia.gov/oiaf/archive/aeo10/index.html . U.S. Energy Information Administration (U.S. EIA). Annual Energy Outlook 2013 . 2013. Available online at: http://www.eia.gov/forecasts/aeo/ . U.S. Environmental Protection Agency (U.S. EPA). 201 2 . Regulatory Impact Analysis (RIA) for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter . Office of Air Quality Plannin g and Standards , Research Triangle Park, NC . December . Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/finalria.pdf .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

6 - 1 **CHAPTER 6 MODIFIED AND RECONST**  **RUCTED SOURCE IMP ACTS**  **6.1 Introduction**  In addition to the standards for new sources analyzed in Chapter 4 and Chapter 5, this action also sets standards under Clean Air Act Section 111(b) for units that modify or reconstruct. For the reasons discussed in this chapter, t he EPA also believes that the standards for modified and reconstructed fossil fuel -fired EGUs will result in minimal compliance costs, because we expect few 111(b) modified or reconstructed EGUs in the period of analysis (through 2022). **6.2 Reconstructed Sou**  **rces** The new source performance standard (NSPS) provisions ( 40 CFR part 60, subpart A) define a “reconstruction” as the replacement of components of an existing facility to an extent that (1) the fixed capital cost of the new components exceeds 50 percent of the fixed capital cost that would be required to construct a comparable entirely new facility, and (2) it is technologically and economically feasible to meet the applicable standards . Historically, we are only aware of one EGU that has notified the EPA that it has reconstructed under the reconstruction provision of section 111(b). As a result, we anticipate that few EGUs will undertake reconstruction in the period of analysis. For this reason, the standards will not result in any significant emission re ductions, costs, or quantified benefits in the period of analysis. Likewise, the Agency does not anticipate any impact s on the price of electricity or energy suppl y . T he rule is not expected to raise any resource adequacy concerns, since reserve margins wi ll not be impacted and the rule does not impose any additional requirements on existing facilities not triggering the reconstruction provision . T here are no notable macro economic or employment impacts expected as a result of these standards . Due to the extremely limited data available on reconstructions, it is not possible to conduct a representative illustrative analysis of what costs and benefits might result from this rule in the unlikely case that a unit were to reconstruct. **6.3 Modified Sources**  Hist orically, few EGUs have notified the EPA that they have modified under the modification provision of section 111(b). The EPA’s current regulations define a n NSPS “modification” as a physical or operational change that increases the source’s maximum***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

6 - 2 achieva ble hourly rate of emissions, but specifically exempt from that definition projects that entail the installation of pollution control equipment or systems. The EPA expects that most of the actions EGUs are likely to take in the foreseeable future that c ou ld be classified as NSPS “modifications” would qualify as pollution control projects. In many cases, those projects are likely to involve the installation of add - on control equipment needed to meet Clean Air Act ( CAA ) requirements for criteria and air toxi cs air pollutants. Any associated CO 2 emissions increases would likely be small and would occur as a chemical byproduct of the operation of the control equipment. In other cases, those projects would involve equipment changes to improve fuel efficiency to meet state requirements for implementation of the CAA section 111(d) rulemaking for existing sources and would have the effect of increasing a source’s maximum achievable hourly emission rate (lb CO 2/hr), even while decreasing its actual output based emiss ion rate (lb CO 2/MWh). Because all of these actions would be treated as pollution control projects under the EPA’s current NSPS regulations, they would be specifically exempted from the definition of modification. Given the limited information that we hav e about past modifications, the EPA has concluded that it lacks sufficient information to establish standards of performance for all types of modifications at steam generating units at this time. Instead, the EPA has determined that it is appropriate to e stablish standards of performance at this time for large - scale modifications of steam generating units , such as major facility upgrades involving the reconstruction or replacement of steam turbines and other equipment upgrades that result in substantial in creases in a unit’s potential hourly CO 2 emissions rate. The EPA does not have sufficient information at this time to predict the full array of actions that existing steam generating units may undertake , including those in response to applicable requiremen ts under an approved CAA section 111(d) plan . Additionally, it is not possible to predict wh ich, if any, of these actions may result in increases in potential CO 2 hourly emissions. Nevertheless, EPA expects that, to the extent actions are undertaken by existing steam generating units, the magnitude of the increases in potential hourly CO 2 emissions associated with the vast majority of such changes would generally be small and therefore would generally not be subject to the standards of performance for mo dified steam generating units finalized in this action . Similar to the case of the steam generating units, the EPA also expect s few existing stationary combustion turbines to modify during the period of analysis and become subject to the standards of performance th e EPA is finalizing for such units in this action . Therefore, the EPA expect s the standards associated with modified stationary combustion turbines to result in minimal , if any, compliance costs during the period of analysis .***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

6 - 3 Based on this information, we anticipate that few EGUs will take actions that would be considered NSPS modifications and subject to the standards of performance finalized in this action during the period of analysis. For this reason, th e standards will result in minimal emission reductions, costs, or quantified benefits in the period of analysis. Likewise, the Agency does not anticipate any impact s on the price of electricity or energy supplies. This rule is not expected to raise any res ource adequacy concerns, since reserve margins will not be impacted and the rule does not impose any additional requirements on existing facilities not triggering the NSPS modification provision . T here are no notable macro economic or employment impacts expected as a result of these standards . Due to the limited data available on past modifications and the diversity of existing units that could potentially modify, it is not possible to conduct a representative illustrative ana lysis of what costs and benefits might result from this rule in the unlikely case that a unit were to take an action that would be classified as a modification.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 1 **CHAPTER 7**  **STATUTORY AND EXECUT IVE**  **O RDER**  **REVIEWS 7.1**  **Executive Order 12866, Regulatory Planning and Review, and Executive Order 13563,**  **Improving Regulation and Regulatory Review** This final action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review. It is a significant regulatory action becaus e it raises novel legal or policy issues arising out of legal mandates. Any changes made in response to OMB recommendations have been documented in the established dockets for this action under Docket ID No. EPA- HQ- OAR - 2013 - 0495 (Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units) and Docket ID No. EPA- HQ- OAR - 2013 - 0603 (Carbon Pollution Standards for Modified and Reconstructed Stationary Sources: Electric Utility Generating Units). Th is RIA i ncludes an economic analysis of the potential costs and benefits associated with this action. The EPA does not anticipate that this final action will result in any notable compliance costs. Specifically, we believe that the standards for newly constructed fossil fuel -fired EGUs (electric utility steam generating units and natural gas -fired stationary combustion turbines) will have ne gligible costs associated with it over a range of likely sensitivity conditions because electric power companies will choose to build new EGUs that comply with the regulatory requirements of this action even in the absence of the action, because of existing and expected market conditions. (See Chapter 5 for further discussion of sensitivities). The EPA does not project any new coal -fired steam generating units without CCS to be built in the absence of this action. However, because some companies may choose to construct coal or other fossil fuel fired EGUs, the RIA also analyzes project - level costs of a unit with and without CCS, to quantify the potential cost for a fossil fuel -fired EGU with CCS. The EPA also believes that the standards for modified and reconstructed fossil fuel -fired EGUs will result in minimal compliance costs, because, as previously stated, the EPA expects few EGUs to trigger the NSPS modification or reconstruction provisions in the period of analysis (through 202 2 ). In Chapter 6, we discuss fact ors that limit our ability to quantify the costs and benefits of the standards for modified and reconstructed sources. **7.2 Paperwork Reduction Act (PRA)**  The information collection activities in this final action have been submitted for approval to OMB und er the PRA. The Information Collection Request (ICR) document that the EPA prepared has been assigned EPA ICR number [ XX ] . Separate ICR documents were prepared***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 2 and submitted to OMB for the proposed standards for newly constructed EGUs (EPA ICR number 2465. 02) and the proposed standards for modified and reconstructed EGUs (EPA ICR number 2506.03). Because the CO 2 standards for newly constructed, modified, and reconstructed EGUs will be included in the same new subpart (40 CFR part 60, subpart TTTT) and are b eing finalized in the same action, the ICR document for this action includes estimates of the information collection burden on owners and operators of newly constructed, modified, and reconstructed EGUs. Estimated cost burden is based on 2013 Bureau of Lab or Statistics (BLS) labor cost data. Thus, all burden estimates are in 2013 dollars. Burden is defined at 5 CFR 1320.3(b). You can find a copy of the ICR in the dockets for this action (Docket ID Numbers EPA HQ- OAR - 2013 - 0495 and EPA- HQ- OAR - 2013 - 0603), and it is briefly summarized here. The information collection requirements are not enforceable until OMB approves them. The recordkeeping and reporting requirements in this final action are specifically authorized by CAA section 114 (42 U.S.C. 7414). All infor mation submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to Agency policies set forth in 40 CFR part 2, subpart B. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are listed in 40 CFR part 9. When OMB approves this ICR, the Agency will announce that approval in the Federal Register and publish a technical amendment to 40 CFR part 9 to display the OMB control number for the approved information collection activities contained in this final action. **7.2.1 Newly constructed EGUs**  This final action will impose minimal new information collection burden on owners and operators of affected newly constructed fossil fuel -fired EGUs (steam generating units and natural gas -fired stationary combustion turbines) beyond what those sources would already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information collection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) under the provisions of the Paperwork R eduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060 - 0626 and 2060 - 0629, respectively. Apart from certain reporting costs based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for al l owners/operators subject to CAA section 111 national emission standards, there are no new information collection costs, as the information required by the standards for newly constructed EGUs is already collected and***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 3 reported by other regulatory programs . The EPA believes that electric power companies will choose to build new EGUs that comply with the regulatory requirements of the rule because of existing and expected market conditions. The EPA does not project any newly constructed coal -fired steam gen erating units that commenced construction after proposal (January 8, 2014) to commence operation over the 3 -year period covered by this ICR. We estimate that 17 affected newly constructed natural gas - fired stationary combustion turbines will commence opera tion during that time period. As a result of this final action, owners or operators of those newly constructed units will be required to prepare a summary report, which includes reporting of emissions and downtime, every 3 months. **7.2.2 Modified and Recons**  **tructed EGUs** This final action is not expected to impose an information collection burden under the provisions of the PRA on owners and operators of affected modified and reconstructed fossil fuel -fired EGUs (steam generating units and natural gas -fired st ationary combustion turbines). As previously stated, the EPA expects few EGUs to trigger the NSPS modification or reconstruction provisions in the period of analysis. Specifically, the EPA believes it unlikely that fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines will take actions that would constitute NSPS modifications or reconstructions as defined under the EPA’s NSPS regulations. Accordingly, the standards for modified and reconstructed EGUs are not anticipated to impose any information collection burden over the 3 -year period covered by this ICR. We have estimated, however, the information collection burden that would be imposed on an affected EGU if it was mod ified or reconstructed. Although not anticipated, if an EGU were to modify or reconstruct, this final action would impose minimal information collection burden on those affected sources beyond what they would already be subject to under the authorities of CAA 40 CFR parts 75 and 98. As described above, the OMB has previously approved the information collection requirements contained in the existing part 75 and 98 regulations. Apart from certain reporting costs, which are mandatory for all owners/operators s ubject to CAA section 111 national emission standards, there would be no new information collection costs, as the information required by the final rule is already collected and reported by other regulatory programs. As stated above, although the EPA expects few sources will trigger either the NSPS modification or reconstruction provisions, if an EGU were to modify or reconstruct during the 3 - year period covered by this ICR, the owner or operator of the EGU will be required to prepare a***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 4 summary report, whic h includes reporting of emissions and downtime, every 3 months. The annual reporting burden for such a unit is estimated to be $2,665 and 32 labor hours. There are no annualized capital costs or O&M costs associated with burden for modified or reconstructe d EGUs. **7.2.3 Information Collection Burden**  The annual information collection burden for newly constructed, modified, and reconstructed EGUs consists only of reporting burden as explained above. The annual reporting burden for this collection (averaged ov er the first 3 years after the effective date of the standards) is estimated to be $32,886 and 395 labor hours. There are no annualized capital costs or O&M costs associated with burden for newly constructed EGUs. Average burden hours per response are esti mated to be 8 hours. The total number of respondents over the 3 -year ICR period is estimated to be 37. **7.3 Regulatory Flexibility Act (RFA)**  EPA certifies that this final action will not have a significant economic impact on a substantial number of small entities under the RFA. In making this determination, the impact of concern is any significant adverse economic impact on small entities. An agency may certify that a rule will not have a significant economic impact on a substantial number of small entitie s if the rule relieves regulatory burden, has no net burden or otherwise has a positive economic effect on the small entities subject to the rule. **7.3.1 Newly constructed EGUs**  The EPA believes that electric power companies will choose to build new fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines that comply with the regulatory requirements of the final rule because of existing and expected market conditions. The EPA does not project any new coal -fired steam generating units without CCS to be built. We expect that any newly constructed natural gas -fired stationary combustion turbines will meet the standards. We do not include an analysis of the illustrative impacts on small entities that may result from implementation of the final rule because we anticipate negligible compliance costs over a range of likely sensitivity conditions as a result of the standards for newly constructed EGUs. Thus the cost -to - sales ratios for any affected small entity woul d be zero costs as compared to annual sales revenue for the entity. Accordingly, there are no anticipated economic impacts as a result of the standards for newly constructed EGUs. We have therefore concluded that this final action will have no net regulato ry burden for all directly regulated small entities.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 5 **7.3.2 Modified and Reconstructed EGUs**  The EPA expects few fossil fuel -fired electric utility steam generating units or natural gas - fired stationary combustion turbines to trigger the NSPS modif ication provisions in the period of analysis. An NSPS modification is defined as a physical or operational change that increases the source’s maximum achievable hourly rate of emissions. The EPA does not believe that there are likely to be EGUs that will t ake actions that would constitute modifications as defined under the EPA’s NSPS regulations. In addition, the EPA expects few reconstructed fossil fuel - fired electric utility steam generating units or natural gas -fired stationary combustion turbines in th e period of analysis. Reconstruction occurs when a single project replaces components or equipment in an existing facility and exceeds 50 percent of the fixed capital cost that would be required to construct a comparable entirely new facility. In Chapter 6, we discuss factors that limit our ability to quantify the costs and benefits of the standards for modified and reconstructed sources. However, we do not anticipate that the rule would impose significant costs on those sources, including any that are own ed by small entities. **7.4 Unfunded Mandates Reform Act (UMRA)**  This final action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531 – 1538, and does not significantly or uniquely affect small governments. The EPA believes the final rule will have negligible compliance costs on owners and operators of newly constructed EGUs over a range of likely sensitivity conditions because electric power companies will choose to build new fossil fuel -fired electric utility stea m generating units or natural gas - fired stationary combustion turbines that comply with the regulatory requirements of the rule because of existing and expected market conditions. The EPA does not project any new coal -fired steam generating units without C CS to be built and expects that any newly constructed natural gas -fired stationary combustion tur bines will meet the standards. As previously stated, the EPA expects few fossil fuel - fired electric utility steam generating units or natural gas - fired stationary combustion turbines to trigger the modification or reconstruction provisions in the period of analysis. In Chapter 6, we discuss factors that limit our ability to quantify the costs and benefits of the standards for modified***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 6 a nd reconstructed sources. However, we do not anticipate that the rule would impose significant costs on those sources. We have therefore concluded that the standards for newly constructed, modified, and reconstructed EGUs do not impose enforceable duties o n any state, local or tribal governments, or the private sector, that may result in expenditures by state, local and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. We have also concluded that this a ction does not have regulatory requirements that might significantly or uniquely affect small governments. The threshold amount established for determining whether regulatory requirements could significantly affect small governments is $100 million annuall y and, as stated above, we have concluded that the final action will not result in expenditures of $100 million or more in any one year. Specifically, the EPA does not project any new coal -fired steam generating units without CCS to be built and expects th at any newly constructed natural gas - fired stationary combustion turbines will meet the standards. Further, the EPA expects few fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion t urbines to trigger the NSPS modification or reconstruction provisions in the period of analysis . **7.5 Executive Order 13132, Federalism**  This final action does not have federalism implications. It will not have substantial direct effects on the states, on t he relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. The EPA believes that electric power companies will choose to build new fossil fuel - fired electric utility steam generating units or natural gas -fired stationary combustion turbines that comply with the regulatory requirements of the final rule because of existing and expected market conditions. In addition, as previously stated, the EPA expects few modified or reconstructed fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines to trigger the NSPS modification or reconstruction provisions in the period of analysis. We, therefore, anticipate that the final rule will impose minimal compliance costs. **7.6 Executive Order 13175, Consultation and Coordination with Indian Tribal**  **Governments** This final action does not have tribal implications as specified in Executive Order 13175. The final rule will impose requirements on owners and operators of newly constructed, modified, and reconstructed EGUs. The EPA is aware of three facilities with coal -fired steam generating units, as well as one facility with natural gas -fired stationary combustion turbines, located in Indian Country, but is not aware of any EGUs owned or operated by tribal entities.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 7 We note that because the rule addresses CO 2 emissions from newly constructed, modified, and reconstructed EGUs, it will affect existing EGUs such as those located at the four facilities in Indian Country only if those EGUs were to take actions constituting modifications or reconstructions as defined under the EPA’s NSPS regulations. As previously stated , the EPA expects few EGUs to trigger the NSPS modification or reconstruction provisions in the period of analysis. Thus, the rule will neither impose substantial direct compliance costs on tribal governments nor preempt Tribal law. Accordingly, Executive Order 13175 does not apply to this action. Nevertheless, because the EPA is aware of Tribal interest in carbon pollution standards for the power sector and, consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, the EPA offered consultation with tribal officials d uring development of this rule. Prior to the April 13, 2012 proposal (77 FR 22392), the EPA sent consultation letters to the leaders of all federally recognized tribes. Although only newly constructed, modified, and reconstructed EGUs will be affected by t his action, the EPA’s consultation regarded planned actions for new and existing sources. The letters provided information regarding the EPA’s development of NSPS and emission guidelines for EGUs and offered consultation. A consultation/outreach meeting wa s held on May 23, 2011, with the Forest County Potawatomi Community, the Fond du Lac Band of Lake Superior Chippewa Reservation, and the Leech Lake Band of Ojibwe. A description of that consultation is included in the preamble to the proposed standards for new EGUs (79 FR 1501, January 8, 2014). The EPA also offered consultation to the leaders of all federally recognized tribes after the proposed action for newly constructed EGUs was signed on September, 20, 2013. On November 1, 2013, the EPA sent letters t o tribal leaders that provided information regarding the EPA’s development of carbon pollution standards for new, modified, reconstructed and existing EGUs and offered consultation. No tribes requested consultation regarding the standards for newly constru cted EGUs. In addition to offering consultation, the EPA also conducted outreach to tribes during development of this rule. The EPA held a series of listening sessions prior to proposal of GHG standards for newly constructed EGUs. Tribes participated in a session on February 17, 2011, with the state agencies, as well as in a separate session with tribes on April 20, 2011. The EPA also held a series of listening sessions prior to proposal of GHG standards for modified and reconstructed EGUs and GHG emission guidelines for existing EGUs. Tribes participated in a session on September 9, 2013, together with the state agencies, as well as in a separate tribe only session on September 26, 2013. In addition, an outreach meeting was held on September***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 8 9, 2013, with t ribal representatives from some of the federally recognized tribes. The EPA also met with tribal environmental staff with the National Tribal Air Association, by teleconference, on July 25, 2013, and December 19, 2013. Additional detail regarding this stak eholder outreach is included in the preamble to the proposed emission guidelines for existing EGUs (79 FR 34830, June 18, 2014). **7.7 Executive Order 13045, Protection of Children from Environmental Health Risks and**  **Safety Risks** This action is not subject to Executive Order 13045 because it is not economically significant as defined in Executive Order 12866. While the action is not subject to Executive Order 13045, the EPA believes that the environmental health or safety risk addressed by this action has a disproportionate effect on children . Accordingly, the agency has evaluated the environmental health and welfare effects of climate change on children. CO2 is a potent greenhouse gas that contributes to climate change and is emitted in significant quanti ties by fossil fuel -fired power plants. The EPA believes that the CO2 emission reductions resulting from implementation of these final standards , as well as substantial ozone and PM2.5 emission reductions as a co - benefit, will further improve chi ldren’s health. The assessment literature cited in the EPA’s 2009 Endangerment Finding concluded that certain populations and lifestages, including children, the elderly, and the poor, are most vulnerable to climate - related health effects. The assessment literature since 2009 strengthens these conclusions by providing more detailed findings regarding these groups’ vulnerabilities and the projected impacts they may experience. These assessments describe how children’s unique physiological and developmental factors contribute to making them particularly vulnerable to climate change. Impacts to children are expected from heat waves, air pollution, infectious and waterborne illnesses, and mental health effects resulting from extreme weather events. In addition, children are among those especially susceptible to most allergic diseases, as well as health effects associated with heat waves, storms, and floods. Additional health concerns may arise in low income households, especially those with children, if climate change reduces food availability and increases prices, leading to food insecurity within households. More detailed information on the impacts of climate change to human health and welfare is provided in Section II.A of th e preamble.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 9 **7.8 Executive Order 1**  **3211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use**  This final action is not a “significant energy action” because it is not likely to have a significant adverse effect on the supply, distribution, or use of e nergy. The EPA believes that electric power companies will choose to build new fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines that comply with the regulatory requirements of the final rule beca use of existing and expected market conditions. In addition, as previously stated, the EPA expects few fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines to trigger the NS PS modification or reconstruction provisions in the period of analysis. Thus, this action is not anticipated to have notable impacts on emissions, costs or energy supply decisions for the affected electric utility industry . **7.9 National Technology**  **Transfer and Advancement Act** This final action involves technical standards. The following voluntary consensus standards are used in the final rule: American Society for Testing and Materials (ASTM) Methods D388 - 12 (Standard Classification of Coals by Ran k), D396 - 13c (Standard Specification for Fuel Oils), D975 - 14 (Standard Specification for Diesel Fuel Oils), D3699 - 13b (Standard Specification for Kerosene), D6751 - 12 (Standard Specification for Biodiesel Fuel Blend Stock (B100) for Middle Distillate Fuels) , D7467 - 13 (Standard Specification for Diesel Fuel Oil, Biodiesel Blend (B6 to B20)), and American National Standards Institute (ANSI) Standard C12.20 (American National Standard for Electricity Meters - 0.2 and 0.5 Accuracy Classes). The rule also require s use of Appendices A, B, D, F and G to 40 CFR part 75; these Appendices contain standards that have already been reviewed under the NTTAA. **7 .1**  **0 Executive Order**  **12898: Federal Actions to Address Environmental Justice in Minority Populations and Low** **- Income**  **Populations** Executive Order 12898 (59 FR 7629; February 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental ju stice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies and activities on minority populations and low- income populations in the U.S. T he EPA defines environmental justice as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws,***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 10 regulations, a nd policies. The EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from environmental and health hazards and equal access to the decision - making process to have a he althy environment in which to live, learn, and work. Leading up to this rulemaking the EPA summarized the public health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment Finding, the Administrator considered climate change risks to minority or low - income populations, finding that certain parts of the population may be especially vulnerable based on their circumstances. These include the poor, the elderly, the very young, those already in poor health, the disa bled, those living alone, and/or indigenous populations dependent on one or a few resources. See Sections F and G, above, where EPA discusses Consultation and Coordination with Tribal Governments and Protection of Children. The Administrator placed weight on the fact that certain groups, including children, the elderly, and the poor, are most vulnerable to climate related health effects. Strong scientific evidence that the potential impacts of climate change raise environmental justice issues is found in th e major assessment reports by the U.S. Global Change Research Program (USGCRP), the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council (NRC) of the National Academies, summarized in the record for the Endangerment Finding. Their conclusions include that poor communities can be especially vulnerable to climate change impacts because they tend to have more limited adaptive capacities and are more dependent on climate - sensitive resources such as local water and food supplies. I n addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those on established reservations that are restricted to reservation boundaries and therefore have limited relocation options. Tribal communities whose health, economic well - being, and cultural traditions depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. Southwest native cultures are especially vulnerable t o water quality and availability impacts. Native Alaskan communities are likely to experience disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and well - being. The most recent as sessments continue to strengthen scientific understanding***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 11 of climate change risks to minority and low - income populations in the United States. 1 The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and p rojected impacts they may experience. In addition, the most recent assessment literature provides new information on how some communities of color may be uniquely vulnerable to climate change health impacts in the United States. These studies find that certain climate change related impacts — including heat waves, degraded air quality, and extreme weather events — have disproportionate effects on low - income and some communities of color, raising environmental justice concerns. Existing health disparities and ot her inequities in these communities increase their vulnerability to the health effects of climate change. In addition, the studies also find that climate change poses particular threats to health, wellbeing, and ways of life of indigenous peoples in the Un ited States. As the scientific literature presented above and in the Endangerment Finding illustrates, low income communities and communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes the human health or environmental risk addressed by this final action will not have potential disproportionately high and adverse human health or environmental effects on minority, low - income or indigenous populations. The final rule limits GHG emissions from newly constructed, modified, and reconstructed fossil fuel -fired electric utility steam generating units and natural gas -fired stationary combustion turbines by establishing national emission standards for CO 2 . The EPA has determined that the final rule w ill not result in disproportionately high and adverse human health or environmental effects on minority, low - income or indigenous

1 Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program, 841 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Ch atterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 1132 pp. IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects . Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 688 pp.***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

7 - 12 populations because the rule is not anticipated to notably affect the level of protection provided to human health or the envi ronment. The EPA believes that electric power companies will choose to build new fossil fuel -fired electric utility steam generating units and natural gas fired stationary combustion turbines that comply with the regulatory requirements of the final rule b ecause of existing and expected market conditions. The EPA does not project any new coal - fired steam generating units without CCS to be built and expects that any newly built natural gas -fired stationary combustion turbines will meet the standards. In addi tion, as previously stated, the EPA expects few fossil fuel -fired electric utility steam generating units or natural gas -fired stationary combustion turbines to trigger the NSPS modification or reconstruction provisions in the per iod of analysis. This final rule will ensure that, to whatever extent there are newly constructed, modified, and reconstructed EGUs, they will use the best performing technologies to limit emissions of CO2. **7.11 Congressional Review Act (CRA)**  This final action is subject to the CRA, and the EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).***E.O. 12866 Review – Do Not Cite, Quote, or Release During Review***

United States Environmental Protection Agency Office of Air Quality Planning and Standards Health and Environmental Impacts Division Research Triangle Park, NC Publication No. EPA- 452/R - 1 5 - 00 5 July 2015