DRAFT — May 14, 2015 **Working Paper Series**

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**Low -**  **Carbon Electricity Pathways for the U.S. and**  **South:**

**An A** **ssessment of Costs and Options** ***** Marilyn A. Brown, Gyungwon Kim, and Alexander Smith

**Georgia Institute of Technology** 

**May 2015**  **ABSTRACT** Since the release of the Clean Power Plan, stakeholders across the U.S. have vigorously debated the pros and cons of different options for reducing CO 2 emissions from existing power plants. States have an array of options to meet these goals, such as shifting the mix of fuels used to generate electricity and decreasing electricity consumption through energy - efficiency programs and policies. Administrativ ely, states need to choose between adhering to an emissions intensity goal or an equivalent CO 2 emissions goal and to prepare either an individual state or a multistate implementation plan. By providing energy modeling relevant to these decisions, the auth ors seek to help policymakers and other stakeholders make informed choices. Using GT - NEMS to evaluate alternative low - carbon electricity pathways , we conclude that none of the following individual policies is sufficient to comply with the Clean Power Plan : a $10 or $20 fee per metric ton of CO 2 , a strong integrated set of energy - efficiency policies, or installed solar costs of $1.75 - 2.50 per watt. In combination , however, these policies could achieve compliance with EPA’s carbon reduction goals. In addition to transitioning to a low - carbon power system, this compliance pathway would produce substantial collateral benefits including lower electricity bills across all customer classes, greater GDP growth and industrial shipments, and significant reduct ions in SO 2 , NOx, and mercury emissions. The variation in compliance costs across the nation and within the South suggests that regional approaches to compliance would be most cost - effective. In addition, our modeling indicates that the carbon fee needed t o achieve mass - and rate - based goals across the U.S. are comparable, but in the South, mass based goals generally require higher carbon fees.

***Corresponding author: Georgia Institute of Technology**  **Dr. Marily n A. Brown**  **D. M. Smith Building Professor, School of Public Policy**  **Room 107 Email:**  **Marily n.Brown@pu**  **bpolicy .gatech.edu**  **685 Cherry Street**  **Phone: 404 -** **385 -**  **0303 Atlanta, GA 30332**  **- 0345** DRAFT — May 14, 2015 9.	SUMMARY	AND	CONCL USIONS

Since	the	release	of	the	Clean	Power	Plan,	stakeholders across	the	U.S.	have vigorously	debated	the	pros	and	cons	of	different	options	for	reducing	CO 2 emissions	from	existing	power	plants.	States	have	an	array	of	options	to	meet	their carbon - reduction	goals,	including both demand - and	supply - side	resource investments.	Administratively,	states	need	to	choose	between	adhering	to	an emissions	intensity	goal	or	an	equivalent	CO 2 mass - based	goal;	politically,	they	can also	prepare	an	individual	state	or	a	multistate	implementation	plan.	Using	GT NEMS,	we	offer	the following	policy - relevant	findings	about	the	effectiveness,	costs and	benefits	of	these	various	compliance	alternatives. Our	modeling	suggests	that	none	of	the	following	individual	policies	is	sufficient	to comply	with	the	goals	set	by	the	Clean	Power	Plan :  a	$10	or	$20	fee	per	ton	of	CO 2 ,  a	strong	integrated	set	of	energy - efficiency	policies,	or  installed	solar	costs	ranging	from	$1.75 - 2.50	per	watt. In	combination,	these	policies	could	achieve	compliance	with	EPA’s	carbon reduction	goals	while signific antly curbing	the	increase	in	per	capita	electricity	bills forecast	by	EIA	to	occur over	the	next	15	years .	In	addition	to	transitioning	to	a	low carbon	power	system,	the	compliance	pathways	that	combine	these	three	policies would	produce	substantial	colla teral	benefits	including	greater	GDP	growth	and increased	industrial	shipments,	as	well	as	significant	reductions	in	SO 2 ,	NOx,	and mercury	emissions. Nationwide,	the	low - carbon	pathways would	reduce	the	use	of	coal in	the	electric power	sector,	as expected, and	would	accelerate the	use	of energy	efficiency, natural gas, and renewable	energy.	The	details	of	this fuel	mix transformation	are	quite interesting :  Without	the	introduction	of	additional	low - carbon	policies,	coal	generation does	not	decrease	between	2012	and	2030  The	$20Fee+EE+solar	pathway	causes	little	uptake	of	additional	nuclear power	beyond	the	Reference	case  Energy	efficiency	plays	a	prominent role	across	the	low - carbon	pathways  Low - carbon	pathways	would	cause	wind,	biomass,	and	solar	PV	to	grow more	rapidly	than	in	the	Reference	case (but	not	geothermal	or	hydro)  Wind	power	exceeds	each	of	the	non - hydro	renewable	resources	in	all	of	the scenari os	except	the	pathway	that	is	limited	to	updating	solar	costs,	where solar	PV	is	larger  There	appears	to	be	a	tipping	point	between	a	$10	and	$20	fee	per	metric	ton of	CO 2 ;	the	higher	value	significantly	accelerates	the	uptake	of	solar	power  The	growth	in solar	PV	mostly	displaces	windDRAFT — May 14, 2015

 The	growth	of	solar	is	subdued	when	the	low - carbon	policy	is	limited	to integrated	energy	efficiency;	however,	solar	PV	grows	along	with	energy efficiency	when	a	carbon	fee	is	added. Our	analysis	suggests	several	differences between	national	and	southern	fuel	mix responses	to	low - carbon	policies.	Specifically:  Coal	tends	to	decline	more	rapidly	in	the	South  Natural	gas	increases	less	in	the	South  Nuclear	power	increases	more	in	the	South  The	South	shows	proportionately	more growth	in	renewable	energy	and slightly	more	growth	in	energy	efficiency  Biomass	plays	a	greater	role	in	the	South’s	renewable	portfolio ,	rivaling	the role	of	wind Our	analysis	identifies	some	differential	responses	to	the	low - carbon	policies	across the	s even	NERC	regions	that	comprise	the	South:  The	three	NERC	regions	(all	in	the	South)	with	nuclear	units	under construction	require	higher	carbon	fees	to	achieve	compliance,	in combination	with	EE	and	updated	solar	costs,	possibly	because	compliance pathways	must	address	an	already	de - carbonized	baseline.  The	tipping	point	between	the	$10Fee+EE+Solar	and	$20Fee+EE+Solar pathways	is	shown	clearly	in	four	southern	NERC	regions:	FRCC,	SPPS,	TRE and	SRDA.	In	FRCC,	for	instance,	solar	PV’s	share	of	renewables	mu shrooms from	2%	to	83%	when	the	carbon	fee	is	doubled.  In	three	of	the	seven	southern	NERC	regions	(SRCE,	SRVC,	and	SPPS),	coal power	would	decline	significantly.	Energy	efficiency	and	renewables	grow	to fill	the	gap	in	SRVC	and	SPPS,	and	natural	gas	also grows	in	SRCE	relative	to the	Reference	case. The	variation	in	compliance	costs	across	the	nation	and	within	the	South	suggests that	regional	approaches	to	compliance	would	be	most	cost - effective.	In	addition, our	modeling	suggests	that	the	carbon	fee	ne eded	to	achieve	mass - and	rate - based goals	across	the	U.S.	might	be	comparable,	but	in	the	South,	mass - based	goals generally	require	higher	carbon	fees. In	conclusion,	combining	a	$10	to	$20	carbon	fee	with	the	enhanced	deployment	of energy	efficiency	and reduced	solar	costs	could	achieve	EPA’s	carbon	reduction goals	nationwide.	The	impact	of	this	low - carbon	pathway	would	vary	across	regions of	the	country	with	different	resources	investments	being	chosen.		The	overall	result would	produce	a	low - carbon	powe r	system	and	an	array	of	collateral	benefits including	lower	electricity	bills	across	all	customer	classes,	greater	GDP	growth	and industrial	shipments,	and	significant	reductions	in	SO 2 ,	NOx,	and	mercury	emissions.