### From: Frey, Nathan J. <Nathan_J._Frey@omb.eop.gov> Sent: Sunday, July 26, 2015 11:24 AM To: Culligan, Kevin; Harvey, Reid; Vasu, Amy Cc: Szabo, Aaron; Grossman, Andrea Subject: Summary of Interagency Comments Under EO 12866 and 13563 -- Clean Power Plan RIA

Attached please find a summary of interagency comments under EO 12866 and 13563 on the latest version of the draft final Clean Power Plan rule regulatory impact analysis.
Thanks and please let me know if you have any questions.

Nathan

<< SummaryofInteragencyCommentsUnderEO12866_13563_CPP_ RIA_7 26 2015.docx >>

### Summary	of	Interagency	Working	Co mments	on	Draft	Language	under EO12866/13563	Interagency	Review.		Subject	to	Further	Policy	Re view.

EO12866_CPP 2060 AR33 RIA Final_20150717



# Regulatory Impact Analysis for the Clean Power Plan Final Rule***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii [This page intentionally left blank]***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

iii EPA-452/R-15-003 July 2015



## Regulatory Impact Analysis for th e Clean Power Plan Final Rule

U.S. Environmental Protection Agency Office of Air and Radiation Office of Air Quality Planning and Standards Research Triangle Park, NC 27711***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

iv CONTACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy of the U.S. Environmental Protection Agency. Questions related to this document should be addressed to Alexander Macpherson, U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Research Triangle Park, North Carolina 27711 (email: macpherson.alex@epa.gov).

ACKNOWLEDGEMENTS
Thank you to the many staff who worked on this document from EPA Offices, including the Office of Air Quality Planning and Standards, the Office of Atmospheric Programs, and the Office of Policy. Contributions to this report were also made by ICF International and RTI International.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

v 

### T ABLE OF 

### C ONTENTS

L IST OF T ABLES ............................................................................................................................ x

L IST OF F IGURES ...................................................................................................................... xvii

A CRONYMS

.............................................................................................................................. ... xx

E XECUTIVE S UMMARY ........................................................................................................... ES-1

ES.1 Background and Context ................................................................................ ES-1 ES.2 Summary of Clean Power Plan Final Rule ..................................................... ES-1 ES.3 Illustrative Plan Approaches Examined in RIA .............................................. ES-4 ES.4 Emissions Reductions ..................................................................................... ES-6 ES.5 Costs ............................................................................................................... ES-8 ES.6 Monetized Climate Benefits and Health Co-benefits .................................... ES-10 ES.6.1 Estimating Global Climate Benefits ......................................................... ES-13 ES 6.2 Estimating Air Quality Health Co-Benefits .............................................. ES-15 ES 6.3 Combined Benefits Estimates ................................................................... ES-18 ES.7 Net Benefits .................................................................................................. ES-20 ES.8 Economic Impacts ........................................................................................ ES-24 ES.9 Employment Impacts .................................................................................... ES-24 ES.10 References .................................................................................................... ES-26

C HAPTER 1: I NTRODUCTION AND B ACKGROUND FOR THE C LEAN P OWER P LAN .................... 1-1

1.1 Introduction .............................................................................................................. 1-1 1.2 Legal, Scientific and Economic Basis for this Rulemaking ...................................... 1-1 1.2.1 Statutory Requirement ................................................................................... 1-1 1.2.2 Health and Welfare Impacts from Climate Change ....................................... 1-2 1.2.3 Market Failure ............................................................................................... 1-3 1.3 Summary of Regulatory Analysis ............................................................................. 1-4 1.4 Background for the Final Emission Guidelines ........................................................ 1-4 1.4.1 Base Case and Years of Analysis .................................................................. 1-4 1.4.2 Definition of Affected Sources ...................................................................... 1-5 1.4.3 Regulated Pollutant ....................................................................................... 1-6 1.4.4 Emission Guidelines ...................................................................................... 1-6 1.4.5 State Plans ..................................................................................................... 1-6 1.5 Organization of the Regulatory Impact Analysis ...................................................... 1-8 1.6 References ................................................................................................................ 1-8

C HAPTER 2: E LECTRIC P OWER S ECTOR I NDUSTRY P ROFILE .................................................. 2-1

2.1 Introduction .............................................................................................................. 2-1 2.2 Power Sector Overview ............................................................................................ 2-1***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vi 2.2.1 Generation ..................................................................................................... 2-1 2.2.2 Transmission ................................................................................................. 2-9 2.2.3 Distribution ................................................................................................. 2-10 2.3 Sales, Expenses and Prices ..................................................................................... 2-10 2.3.1 Electricity Prices ......................................................................................... 2-11 2.3.2 Prices of Fossil Fuels Used for Generating Electricity ................................ 2-16 2.3.3 Changes in Electricity Intensity of the U.S. Economy Between 2002 to

2012 17 2.4 Deregulation and Restructuring .............................................................................. 2-19 2.5 Emissions of Greenhouse Gases from Electric Utilities.......................................... 2-24 2.6 Carbon Dioxide Control Technologies ................................................................... 2-27 2.6.1 Carbon Capture and Storage ........................................................................ 2-29 2.6.2 Geologic and Geographic Considerations for Geologic Sequestration ........ 2-34 2.6.3 Availability of Geologic Sequestration in Deep Saline Formations ............. 2-38 2.6.4 Availability of CO 2 Storage via Enhanced Oil Recovery (EOR) ................. 2-38 2.7 State Policies on GHG and Clean Energy Regulation in the Power Sector ............. 2-40 2.8 Revenues and Expenses .......................................................................................... 2-43 2.9 Natural Gas Market ................................................................................................ 2-44 2.10 References .............................................................................................................. 2-48

C HAPTER 3: C OST , E MISSIONS , E CONOMIC , AND E NERGY I MPACTS ....................................... 3-1

3.1 Introduction .............................................................................................................. 3-1 3.2 Overview .................................................................................................................. 3-1 3.3 Power Sector Modelling Framework ........................................................................ 3-1 3.4 Recent Updates to EPA’s Base Case using IPM (v.5.15) ......................................... 3-4 3.5 State Goals in this Final Rule .................................................................................. 3-5 3.6 Illustrative Plan Approaches Analyzed ..................................................................... 3-8 3.7 Demand-Side Energy Efficiency ............................................................................ 3-13 3.7.1 Demand-Side Energy Efficiency Improvements (Electricity Demand

Reductions) ............................................................................................................ 3-13 3.7.2 Demand-Side Energy Efficiency Costs ....................................................... 3-15 3.8 Monitoring, Reporting, and Recordkeeping Costs .................................................. 3-16 3.9 Projected Power Sector Impacts ............................................................................. 3-19 3.9.1 Projected Emissions (in the Contiguous U.S.) ............................................. 3-19 3.9.2 Projected Compliance Costs (in the Contiguous U.S.) ................................ 3-22 3.9.3 Projected Compliance Actions for Emissions Reductions ........................... 3-24 3.9.4 Projected Generation Mix ........................................................................... 3-26 3.9.5 Projected Incremental Retirements .............................................................. 3-31 3.9.6 Projected Capacity Additions ...................................................................... 3-32 3.9.7 Projected Coal Production and Natural Gas Use for the Electric Power

Sector 34 3.9.8 Projected Fuel Price, Market, and Infrastructure Impacts ............................ 3-34 3.9.9 Projected Retail Electricity Prices ............................................................... 3-36***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

vii 3.9.10 Projected Electricity Bill Impacts ................................................................ 3-41 3.10 Projected Primary PM Emissions from Power Plants ............................................. 3-41 3.11 Limitations of Analysis .......................................................................................... 3-42 3.12 Social Costs ............................................................................................................ 3-44 3.13 References .............................................................................................................. 3-47

A PPENDIX 3A: A NALYSIS OF P OTENTIAL U PSTREAM M ETHANE E MISSIONS C HANGES IN N ATURAL G AS S YSTEMS AND C OAL M INING .................................................................. 3A-1

3A.1 General Approach .......................................................................................... 3A-2 3A.1.1 Analytical Scope ........................................................................................ 3A-2 3A.1.2 Coal Mining Source Description ................................................................ 3A-3 3A.1.3 Natural Gas Systems Source Description ................................................... 3A-4 3A.1.4 Illustrative Plan Approaches Examined ...................................................... 3A-6 3A.1.5 Activity Drivers .......................................................................................... 3A-6 3A.2 Results ............................................................................................................ 3A-7 3A.3 Uncertainties and Limitations ......................................................................... 3A-8 3A.4 References ...................................................................................................... 3A-9

C HAPTER 4: E STIMATED C LIMATE B ENEFITS AND H UMAN H EALTH C O - BENEFITS ................ 4-1

4.1 Introduction .............................................................................................................. 4-1 4.2 Estimated Climate Benefits from CO 2 ...................................................................... 4-1 4.2.1 Climate Change Impacts ............................................................................... 4-2 4.2.2 Social Cost of Carbon ................................................................................... 4-3 4.3 Estimated Human Health Co-Benefits .................................................................... 4-10 4.3.1 Health Impact Assessment for PM 2.5 and Ozone ......................................... 4-13 4.3.2 Economic Valuation for Health Co-benefits ................................................ 4-18 4.3.3 Benefit-per-ton Estimates for PM 2.5 ............................................................ 4-20 4.3.4 Benefit-per-ton Estimates for Ozone ........................................................... 4-21 4.3.5 Estimated Health Co-Benefits Results ......................................................... 4-22 4.3.6 Characterization of Uncertainty in the Estimated Health Co-benefits ......... 4-36 4.4 Combined Climate Benefits and Health Co-Benefits Estimates ............................. 4-42 4.5 Unquantified Co-benefits ....................................................................................... 4-46 4.5.1 HAP Impacts ............................................................................................... 4-48 4.5.2 Additional NO 2 Health Co-Benefits ............................................................ 4-52 4.5.3 Additional SO 2 Health Co-Benefits ............................................................. 4-53 4.5.4 Additional NO 2 and SO 2 Welfare Co-Benefits ............................................ 4-54 4.5.5 Ozone Welfare Co-Benefits ........................................................................ 4-55 4.5.6 Carbon Monoxide Co-Benefits .................................................................... 4-55 4.5.7 Visibility Impairment Co-Benefits .............................................................. 4-56 4.6 References .............................................................................................................. 4-56

A PPENDIX 4A: G ENERATING R EGIONAL B ENEFIT - PER -T ON E STIMATES ............................. 4A-1***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

viii 4A.1 Overview of Benefit-per-Ton Estimates ......................................................... 4A-1 4A.2 Air Quality Modeling for the Proposed Clean Power Plan ............................. 4A-2 4A.3 Regional PM 2.5 Benefit-per-Ton Estimates for EGUs Derived from Air

Quality Modeling of the Proposed Clean Power Plan ................................................... 4A-5 4A.4 Regional Ozone Benefit-per-Ton Estimates ................................................. 4A-14 4A.5 References .................................................................................................... 4A-17

C HAPTER 5: E CONOMIC I MPACTS

– M ARKETS O UTSIDE THE U TILITY P OWER S ECTOR ........ 5-1

5.1 Introduction .............................................................................................................. 5-1 5.2 Methods .................................................................................................................... 5- 2 5.3 Summary of Secondary Market Impacts of Energy Price Changes ........................... 5-3 5.3.1 Share of Total Production Costs .................................................................... 5-5 5.3.2 Ability to Substitute between Inputs to the Production Process ..................... 5-5 5.3.3 Availability of Substitute Goods and Services .............................................. 5-5 5.4 Effect of Changes in Input Demand from Electricity Sector ..................................... 5-6 5.5 Conclusions .............................................................................................................. 5-6 5.6 References ................................................................................................................ 5-7

C HAPTER 6: E MPLOYMENT I MPACT A NALYSIS ........................................................................ 6-1

6.1 Introduction .............................................................................................................. 6-1 6.2 Economic Theory and Employment ......................................................................... 6-2 6.3 Current State of Knowledge Based on the Peer-Reviewed Literature ....................... 6-6 6.3.1 Regulated Sector ........................................................................................... 6-7 6.3.2 Economy-Wide ............................................................................................. 6-8 6.3.3 Labor Supply Impacts ................................................................................. 6-10 6.4 Recent Employment Trends ................................................................................... 6-11 6.4.1 Electric Power Generation ........................................................................... 6-11 6.4.2 Fossil Fuel Extraction .................................................................................. 6-12 6.4.3 Clean Energy Employment Trends .............................................................. 6-14 6.5 Projected Sectoral Employment Changes due to the Final Emission Guidelines .... 6-18 6.5.1 Projected Changes in Employment in Electricity Generation and Fossil

Fuel Extraction ....................................................................................................... 6-19 6.5.2 Projected Changes in Employment in Demand-Side Energy Efficiency

Activities ................................................................................................................ 6-2 6 6.6 Conclusion ............................................................................................................. 6-34 6.7 References .............................................................................................................. 6-36

A PPENDIX 6A: E STIMATING S UPPLY S IDE E MPLOYMENT IMPACTS ...................................... 6A-1

6A.1 General Approach .......................................................................................... 6A-1 6A.1.1 Employment Effects Included In the Analysis ........................................... 6A-2 6A.2 Employment Changes due to Heat Rate Improvements .................................. 6A-3***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ix 6A.2.1 Employment Changes Due to Building (or Avoiding) New Generation

Capacity ................................................................................................................ 6A-5 6A.2.2 Employment Changes due to Coal and Oil/Gas Retirements ...................... 6A-8 6A.2.3 Employment Changes due to Coal and Oil/Gas Retirements ...................... 6A-8

C HAPTER 7: S TATUTORY AND E XECUTIVE O RDER A NALYSIS .................................................. 7-1

7.1 Executive Order 12866: Regulatory Planning and Review, and Executive Order

13563: Improving Regulation and Regulatory Review .................................................... 7-1 7.2 Paperwork Reduction Act (PRA) ............................................................................. 7-5 7.3 Regulatory Flexibility Act (R FA) ............................................................................. 7-6 7.4 Unfunded Mandates Reform Act (UMRA) .............................................................. 7-7 7.5 Executive Order 13132: Federalism ......................................................................... 7-8 7.6 Executive Order 13175: Consultation and Coordination with Indian Tribal

Governments ................................................................................................................. 7 -12 7.7 Executive Order 13045: Protection of Children from Environmental Health Risks

and Safety Risks ............................................................................................................ 7 -15 7.8 Executive Order 13211: Actions Concerning Regulations That Significantly

Affect Energy Supply, Distribution, or Use ................................................................... 7-16 7.9 National Technology Transfer and Advancement Act ............................................ 7-16 7.10 Executive Order 12898: Federal Actions to Address Environmental Justice in

Minority Populations and Low-Income Populations ...................................................... 7-16 7.11 Congressional Review Act (CRA) .......................................................................... 7-19

C HAPTER 8: C OMPARISON OF B ENEFITS AND C OSTS ............................................................... 8-1

8.1 Comparison of Benefits and Costs ............................................................................ 8-1 8.2 Uncertainty Analysis ................................................................................................ 8-5 8.2.1 Uncertainty in Costs and Illustrative Plan Approaches .................................. 8-5 8.2.2 Uncertainty Associated with Estimating the Social Cost of Carbon .............. 8-6 8.2.3 Uncertainty Associated with PM 2.5 and Ozone Health Co-Benefits

Assessment ............................................................................................................... 8-8 8.3 References ................................................................................................................ 8-9***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

x 

### L IST OF 

### T ABLES

Table ES-1. Emission Performance Rates (Adjusted Output-Weighted-Average Pounds of CO 2 Per Net MWh from All Affected Fossil Fuel-Fired EGUs) ............................. ES-2

Table ES-2. Climate and Air Pollutant Emission Reductions for the Rate-Based Illustrative Plan Approach ........................................................................................... ES-6

Table ES-3. Climate and Air Pollutant Emission Reductions for the Mass-Based Illustrative Plan Appproach ......................................................................................... ES-7

Table ES-4. Projected CO 2 Emission Reductions, Relative to 2005 ................................... ES-7

Table ES-5. Compliance Costs for the Illustrative Rate-Based and Mass-Based Plan Approaches ................................................................................................................. ES -9

Table ES-6. Quantified and Unquantified Benefits .......................................................... ES-11

Table ES-7. Combined Estimates of Climate Benefits and Health Co-Benefits for RateBased Approach (billions of 2011$) .......................................................................... ES-19

Table ES-8. Combined Estimates of Climate Benefits and Health Co-benefits for MassBased Approach (billions of 2011$) .......................................................................... ES-20

Table ES-9. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Illustrative Plan Approach (billions of 2011$)................................................. ES-22

Table ES-10. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Illustrative Plan Approach (billions of 2011$)................................................. ES-23

Table ES-11. Summary Table of Important Energy Market Impacts (Percent Change from Base Case) ................................................................................................................. ES -24 Table 2-1. Existing Electricity Generating Capacity by Energy Source, 2002 and 2012 .... 2-3
Table 2-2. Net Generation in 2002 and 2012 (Trillion kWh = TWh) ................................. 2-6
Table 2-3. Coal and Natural Gas Generating Units, by Size, Age, Capacity, and Thermal Efficiency (Heat Rate) ..................................................................................... 2-7

Table 2-4. Total U.S. Electric Power Industry Retail Sales in 2012 (billion kWh) ........... 2-11

Table 2-5. Domestic Emissions of Greenhouse Gases, by Economic Sector (million metric tonnes of CO 2 equivalent) ................................................................................. 2-25***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xi Table 2-6. Greenhouse Gas Emissions from the Electricity Sector (Generation, Transmission and Distribution), 2002 and 2012 (million metric tonnes of CO 2 equivalent) ................................................................................................................... . 2-26

Table 2-7. Fossil Fuel Emission Factors in EP A Base Case 5.14 IPM Power Sector Modeling Application .................................................................................................. 2-27

Table 2-8. Total CO 2 Storage Resource (DOE-NETL) ..................................................... 2-36

Table 2-9. Revenue and Expense Statistics for Major U.S. Investor-Owned Electric Utilities for 2010 (nominal $millions) .......................................................................... 2-44

Table 3-1. Statewide CO 2 Emission Performance Goals, Rate-based and Mass-based ....... 3-7

Table 3-2. Demand-Side Energy Efficiency Plan Scenario: Net Cumulative Demand Reductions [Contiguous U.S.] (GWh and as Percent of BAU Sales) ........................... 3-14

Table 3-3. Annualized Cost of Demand-Side Energy Efficiency Plan Scenario [Contiguous U.S.] (at discount rates of 3 percent and 7 percent, billions 2011$) ......... 3-16
Table 3-4. Years 2020, 2025 and 2030: Summary of State and Industry Annual Respondent Burden and Cost of Reporting and Recordkeeping Requirements (2011$) .................. 3-19

Table 3-5. Projected CO 2 Emission Impacts, Relative to Base Case ................................ 3-20

Table 3-6. Projected CO 2 Emission Impacts, Relative to 2005 ......................................... 3-20

Table 3-7. Projected Non-CO 2 Emission Impacts, 2020-2030 .......................................... 3-21

Table 3-8. Annualized Compliance Costs Including Monitoring, Reporting and Recordkeeping Costs Requirements (billions of 2011$) ............................................... 3-23

Table 3-9. Total Power Sector Generating Costs (IPM) (billions 2011$) ......................... 3-23

Table 3-10. Projected Capacity Factor of Existing Coal Steam and Natural Gas Combined Cycle Capacity ............................................................................................ 3-26

Table 3-11. Generation Mix (thousand GWh) .................................................................... 3-28

Table 3-12. Total Generation Capacity by 2020-2030 (GW) .............................................. 3-32

Table 3-13. Projected Capacity Additions, Gas (GW) ........................................................ 3-33

Table 3-14. Projected Capacity Additions, Renewable (GW) ............................................. 3-33

Table 3-15. Coal Production for the Electric Power Sector, 2025 ...................................... 3-34***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xii Table 3-16. Power Sector Gas Use ..................................................................................... 3-34

Table 3-17. Projected Average Minemouth and Delivered Coal Prices (2011$/MMBtu) ... 3-36

Table 3-18. Projected Average Henry Hub (spot) and Delivered Natural Gas Prices (2011$/MMBtu) ........................................................................................................... 3-36

Table 3-19. 2020 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) .................................................................................................................. 3-38

Table 3-20. 2025 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) .................................................................................................................. 3-39

Table 3-21. 2030 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) .................................................................................................................. 3-40

Table 3-22. Projected Changes in Average Electricity Bills ............................................... 3-41

Table 3A-1. Base Year Upstream Methane-Related Emissions in the U.S. GHG Inventory ....................................................................................................................... 3A-6

Table 3A-2. Projected Coal Production Impacts ................................................................ 3A-7

Table 3A-3. Projected Natural Gas Production Impacts ..................................................... 3A-7

Table 3A-4. Potential Upstream Emissions Changes .......................................................... 3A-8

Table 4-1. Climate Effects .................................................................................................. 4-2

Table 4-2. Social Cost of CO 2 , 2015-2050 (in 2011$) ........................................................ 4-8

Table 4-3. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2020 (billions of 2011$) ........................................................... 4-8

Table 4-4. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2025 (billions of 2011$) ........................................................... 4-9

Table 4-5. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2030 (billions of 2011$) ........................................................... 4-9

Table 4-6. Human Health Effects of Ambient PM 2.5 and Ozone....................................... 4-14

Table 4-7. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 (2011$) .......................... 4-23***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xiii Table 4-8. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 (2011$) .......................... 4-23

Table 4-9. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 (2011$) .......................... 4-24

Table 4-10. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020 (thousands of short tons) ..................... 4-24

Table 4-11. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2025 (thousands of short tons) ..................... 4-24

Table 4-12. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2030 (thousands of short tons) ..................... 4-25

Table 4-13. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020 (thousands of short tons) .................... 4-25

Table 4-14. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025 (thousands of short tons) .................... 4-25

Table 4-15. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2030 (thousands of short tons) .................... 4-25

Table 4-16. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020 (billions of 2011$) ...................................................................................................................... .. 4-26

Table 4-17. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2025 (billions of 2011$) ...................................................................................................................... .. 4-26

Table 4-18. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2030 (billions of 2011$) ...................................................................................................................... .. 4-27

Table 4-19. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020 (billions of 2011$) ...................................................................................................................... .. 4-27

Table 4-20. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025 (billions o 2011$) * ...................................................................................................................... . 4-28***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xiv Table 4-21. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2030 (billions of 2011$) ...................................................................................................................... .. 4-28

Table 4-22. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020 ........................................................................................................ 4-29

Table 4-23. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for Final Emission Guidelines Rate-based Illustrative Plan Approach in 2025 ........................................................................................................ 4-30

Table 4-24. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-Benefits for Final Emission Guidelines Rate-based Illustrative Plan Approach in 2030 ........................................................................................................ 4-31

Table 4-25. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020 ........................................................................................................ 4-32

Table 4-26. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025 ........................................................................................................ 4-33

Table 4-27. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-Benefits for Final Emission Guidelines Mass-based Illustrative Plan Approach in 2030 ........................................................................................................ 4-34

Table 4-28. Population Exposure in the Clean Power Plan Proposal Option 1 State Scenario Modeling (used to generate the benefit-per-ton estimates) Above and Below Various Concentrations Benchmarks in the Underlying Epidemiology Studies .................................................................................................................... ... 4-40

Table 4-29. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2020 (billions of 2011$) ......................................................................... 4-44

Table 4-30. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2025 (billions of 2011$)* ....................................................................... 4-44

Table 4-31. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2030 (billions of 2011$)* ....................................................................... 4-45

Table 4-32. Unquantified Health and Welfare Co-benefits Categories ............................... 4-47***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xv Table 4A-1. State Total Annual EGU Emissions for NO X for the 2011 Base Year, 2025 Base Case, and 2025 Clean Power Plan Proposal (Option 1 State) (in thousands of tons) ...................................................................................................................... 4A-2

Table 4A-2. State Total Annual EGU Emissions for SO 2 for the 2011 Base Year, 2025 Base Case, and 2025 Clean Power Plan Proposal (Option 1 State) (in thousands of tons) ....................................................................................................................... 4A-4

Table 4A-3. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 (2011$) ......................... 4A-9

Table 4A-4. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 (2011$) ......................... 4A-9

Table 4A-5. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 (2011$) ....................... 4A-10

Table 4A-6. Summary of Regional PM 2.5 Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 .................................... 4A-11

Table 4A-7. Summary of Regional PM 2.5 Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 .................................... 4A-12

Table 4A-8. Summary of Regional PM 2.5 Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 .................................... 4A-13

Table 4A-9. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 (2011$) ....................... 4A-15

Table 4A-10. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 (2011$) ....................... 4A-15

Table 4A-11. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 (2011$) ....................... 4A-15

Table 4A-12. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 .................................... 4A-16

Table 4A-13. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 .................................... 4A-16

Table 4A-14. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 .................................... 4A-16***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xvi Table 5-1. Estimated Percentage Changes in Average Energy Prices by Energy Type for the Final Emission Guidelines, Rate-based and Mass-based Illustrative Plan Approaches .................................................................................................................... 5-4

Table 6-1. U. S. Green Goods and Services (GGS) Employment (annual average) .......... 6-16

Table 6-2. Renewable Electricity Generation-Related Employment ................................. 6-17

Table 6-3. Energy and Resources Efficiency-Related Employment ................................. 6-18

Table 6-4. Engineering-Based a Changes in Labor Utilization, Rate-based Scenario (Number of Job-Years b of Employment in a Single Year)............................................ 6-25

Table 6-5. Engineering-Based a Changes in Labor Utilization, Mass-Based Illustrative Plan Approach (Number of Job-Years of Employment in a Single Year) .................... 6-26
Table 6-6. Estimated Demand-Side Energy Efficiency Employment Impacts: Target 1 percent Growth in Energy Efficiency ........................................................................... 6-31

Table 6A-1. Labor Productivity Growth Rate due to Heat Rate Improvement ................... 6A-4

Table 6A-2. Capital Charge Rate and Duration Assumptions ............................................ 6A-6

Table 6A-3. Expenditure Breakdown due to New Generating Capacity ............................. 6A-6

Table 6A-4. Labor Productivity due to New Generating Capacity ..................................... 6A-7

Table 6A-5. Average FOM Cost Assumptions ................................................................... 6A-8

Table 6A-6. Labor Productivity due to New Generating Capacity ..................................... 6A-9

Table 7-1. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Illustrative Plan Approach (billions of 2011$)...................................................... 7-3

Table 7-2. Monetized Benefits, Compliance Costs, and Net Benefits under the Massbased Illustrative Plan Approach (billions of 2011$)...................................................... 7-4***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xvii 

### L IST OF 

### F IGURES

Figure 2-1. New Build and Retired Capacity (MW) by Fuel Type, 2002-2012 ................... 2-4
Figure 2-2. Cumulative Distribution in 2010 of Coal and Natural Gas Electricity Capacity and Generation, by Age ................................................................................... 2-8
Figure 2-3. Fossil Fuel-Fired Electricity Generating Facilities, by Size ............................... 2-9
Figure 2-4. Average Retail Electricity Price by State (cents/kWh), 2011 .......................... 2-12
Figure 2-5. Nominal National Average Electricity Prices for Three Major End-Use Categories .................................................................................................................... 2-13 Figure 2-6. Relative Increases in Nominal National Average Electricity Prices for Major End-Use Categories, With Inflation Indices ................................................................. 2-14
Figure 2-7. Real National Average Electricity Prices (2011$) for Three Major End-Use Categories .................................................................................................................... 2-15
Figure 2-8. Relative Change in Real National Average Electricity Prices (2011$) for Three Major End-Use Categories ................................................................................. 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 ........................................... 2-17
Figure 2-10. Relative Growth of Electricity Generation, Population and Real GDP Since 2002 .................................................................................................................... 2-18
Figure 2-11. Relative Change of Real GDP, Population and Electricity Generation Intensity Since 2002 ..................................................................................................... 2-19
Figure 2-12. Status of State Electricity Industry Restructuring Activities ............................ 2-20
Figures 2-13 and 2-14. Capacity and Generation Mix by Ownership Type, 2002 & 2012 .... 2-23
Figures 2-15 and 2-16. Generation Capacity Built and Retired between 2002 and 2012 by Ownership Type .......................................................................................................... 2-24
Figure 2-17. Domestic Emissions of Greenhouse Gases from Major Sectors, 2002 and 2012 (million metric tonnes of CO 2 equivalent) ........................................................... 2-25
Figure 2-18. Marketable products from Syngas Generation ................................................ 2-29***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xviii Figure 2-19. Post-Combustion CO 2 Capture for a Pulverized Coal Power Plant ................. 2-31
Figure 2-20. Pre-Combustion CO 2 Capture for an IGCC Power Plant ................................. 2-32
Figure 2-19. Geologic Sequestration in the Continental United States ................................ 2-35
Figure 2-20. Relative Change Nominal and Real (2011$) Prices of Natural Gas Delivered to the Power Sector ($/MMBtu) ................................................................................... 2-45
Figure 2-21. Relative Change in Real (2011$) Prices of Fossil Fuels Delivered to the Power Sector ($/mmBtu) .............................................................................................. 2-46
Figure 3-1. Illustrative Regions for Demand-Side Energy Efficiency/Renewable Energy Procurement Used in this Analysis ............................................................................... 3-10
Figure 3-2 Generation Mix with the Base Case and 111(d) Options, 2020-2030 (thousand GWh) ........................................................................................................... 3-29
Figure 3-3. Nationwide Generation: Historical (1990-2014) and Rate-Based Illustrative Plan Approach Projections (2020, 2025, 2030) ............................................................ 3-30
Figure 3-4. Nationwide Generation: Historical (1990-2014) and Mass-Based Illustrative Plan Approach Projections (2020, 2025, 2030) ............................................................ 3-30
Figure 3-5. Electricity Market Module Regions ................................................................. 3-41
Figure 4-1. Monetized Health Co-benefits of Rate-based and Mass-based Illustrative Plan Approaches for the Final Emission Guidelines in 2025 ........................................ 4-35
Figure 4-2. Breakdown of Monetized Health Co-benefits by Precursor Pollutant at a 3% Discount Rate for Rate-based and Mass-based Illustrative Plan Approaches for the Final Emission Guidelines in 2025 ............................................................................... 4-36
Figure 4-3. Percentage of Adult Population (age 30+) by Annual Mean PM 2.5 Exposure in the Option 1 State Scenario Clean Power Plan Proposal Modeling (used to generate the benefit-per-ton estimates) ......................................................................... 4-41
Figure 4-4. Cumulative Distribution of Adult Population (age 30+) by Annual Mean PM 2.5 Exposure in the Option 1 State Scenario Clean Power Plan Proposal Modeling (used to generate the benefit-per-ton estimates) ........................................................... 4-42
Figure 4-5. Breakdown of Combined Monetized Climate and Health Co-benefits of Final Emission Guidelines in 2025 for Rate-based and Mass-based Illustrative Plan Approaches and Pollutants (3% discount rate) ............................................................. 4-46
Figure 4A-1. Regional Breakdown ...................................................................................... 4A-6***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xix Figure 6.1. Electric Power Industry Employment .............................................................. 6-12
Figure 6.2. Coal Production Employment ......................................................................... 6-13
Figure 6.3. Oil and Gas Production Employment .............................................................. 6-14
Figure 6.4. Demand-Side Energy Efficiency Employment: Jobs per One Million Dollars (2011$) ...................................................................................................................... .. 6-33***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xx 

### A CRONYMS

ACS American Cancer Society AEO Annual Energy Outlook AQ Air quality ASM Annual Survey of Manufactures ATSDR Agency for Toxic Substances and Disease Registry BACT Best Available Control Technology BenMAP Benefits Mapping and Analysis Program BPT Benefit-per-Ton BSER Best System of Emissions Reduction Btu British Thermal Units C Celsius CAA Clean Air Act CAIR Clean Air Interstate Rule CCR Coal Combustion Residuals CCS Carbon Capture and Sequestration or Carbon Capture and Storage CCSP Climate Change Science Program CFR Code of Federal Regulations CH 4 Methane CO Carbon Monoxide CO 2 Carbon Dioxide CRF Capital Recovery Factor CSAPR Cross State Air Pollution Rule CT Combustion Turbines CUA Climate Uncertainty Adder DICE Dynamic Integrated Climate and Economy Model DOE U.S. Department of Energy EAB Environmental Appeals Board EC Elemental carbon ECS Energy Cost Share EG Emissions guidelines 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 Florida Reliability Coordinating Council***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xxi FUND Framework for Uncertainty, Ne gotiation, and Distribution Model v GDP Gross Domestic Product GHG Greenhouse Gas GS Geologic Sequestration Gt Gigaton H 2 S Hydrogen Sulfide HAP Hazardous air pollutant HCl Hydrogen chloride HFC Hydrofluorocarbons HIA Health impact assessment IARC International Agency for Research on Cancer IAM Integrated Assessment Model ICR Information Collection Request IGCC Integrated Gasifi cation Combined Cycle IOU Investor Owned Utility IPCC Intergovernmental Panel on Climate Change IPM Integrated Planning Model IRIS Integrated Risk Information System IRP Integrated Resource Plan ISA Integrated Science Assessment kWh Kilowatt-hour lbs Pounds LCOE Levelized Cost of Electricity LML Lowest measured level LNB Low NO X Burners MATS Mercury and Air Toxics Standards MEA Monoethanolamine MECSA Manufacturing Energy Consumption Survey MeHg Methylmercury 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 NAAQS National Ambient Air Quality Standards NAICS North American Industry Classification System NaOH Sodium Hydroxide NATCARB National Carbon Sequestration Database and Geographic Information System NEEDS National Electric Energy Data System NEMS National Energy Modeling System NERC North American Electric Reliability Corporation NETL National Energy Technology Laboratory NGCC Natural Gas Combined Cycle NMMAPS National Mo rbidity, Mortality Air Pollution Study NOAK Next of a Kind or Nth of a Kind NO X Nitrogen Oxide***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

xxii NRC National Research Council NSPS New Source Performance Standard NSR New Source Review NTTAA National Technology Transfer and Advancement Act OC Organic carbon 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 RADS Relative Airways Dysfunction Syndrome RES Renewable Electricity Standards RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative RIA Regulatory Impact Analysis RPS Renewable Portfolio Standards SAB-CASAC Science Advisory Board Clean Air Scientific Advisory Committee SAB-HES Science Advisory Board Health Effects Subcommittee of the Advisory Council on Clean Air Compliance SAB-EEAC Science Advisory Board Environmental Economics Advisory Committee SBA Small Business Administration SBREFA Small Business Regulatory Enforcement Fairness Act SCC 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 USGCRP U.S. Global Change Research Program USGS U.S. Geological Survey USG SCC U.S. Government’s Social Cost of Carbon U.S. NRC U.S. Nuclear Regulatory Commission VCS Voluntary Consensus Standards VOC Volatile Organic Compounds VOM Variable Operating and Maintenance***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ii VSL Value of a statistical life WTP Willingness to pay***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-1 

### E XECUTIVE 

### S UMMARY

This Regulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (herein referred to as “final emission guidelines” or the “Clean Power Plan Final Rule”).

ES.1 Background and Context The emission of greenhouse gases (GHGs) threatens Americans' health and welfare by leading to long-lasting changes in our climate. Carbon dioxide (CO 2 ) is the primary greenhouse gas pollutant, accounting for roughly three-quarters of global greenhouse gas emissions in 2010 and 82 percent of U.S. greenhouse gas emissions in 2013. Fossil fuel-fired electric generating units (EGUs) are by far the largest emitters of GHGs, primarily in the form of CO 2 , among stationary sources in the U.S.
In this action, the Environmental Protection Agency (EPA) is establishing final emission guidelines for states and tribes to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired EGUs. Specifically, the EPA is establishing: 1) CO 2 emission performance rates for two source categories of exis ting fossil fuel-fired EGUs, fossil fuel-fired electric utility steam generating units and stationary combustion turbines, and 2) guidelines for the development, submittal and implementation of state plans that implement the CO 2 emission performance rates. This final rule will continue progress already underway in the U.S. to reduce
CO 2 emissions from the utility power sector.
ES.2 Summary of Clean Power Plan Final Rule
Under CAA section 111(d), states must establis h, in their state plans, emission standards that reflect the degree of emission limitation achievable through the application of the best system of emission reduction (BSER) that, taking into account the cost of achieving such reduction and any non-air quality health and environmental impacts and energy requirements, the Administrator determines has been adequately demonstrated. 1 To determine the BSER for

1 Under CAA section 111(a)(1) and (d), the EPA is authorized to determine the BSER and to calculate the amount of emission reduction achievable through applying the BSER. The state is authorized to identify the standard or***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-2 reducing CO 2 emissions at affected EGUs, the EPA considered numerous measures that are already being implemented and can be implemented more broadly to improve emission rates and
to reduce overall CO 2 emissions from fossil fuel-fired EGUs. Overall, the BSER is based on a range of measures that fall into three main categories (or “building blocks”) that have been amply demonstrated via their current widespread use by utilities and states:

1. Reducing the carbon intensity of generation at individual affected coal-fired steam EGUs through heat rate improvements.

2. Substituting increased generation from lower-emitting existing natural gas combined cycle units for reduced generation from higher-emitting affected steam generating
units.

3. Substituting increased generation from zero-emitting generating units for reduced generation from affected fossi l fuel-fired generating units.
Specifically, the EPA is establishing CO 2 emission performance rates for two source categories of existing fossil fuel-fired EGUs, fossil fuel-fired electric utility steam generating units and stationary combustion turbines. The rates are intended to represent CO 2 emission rates achievable by 2030 after a 2022-2029 interim period on an output-weighted-average basis collectively by all affected EGUs. The interim and final emission performance rates are presented in the following table:
Table ES-1. Emission Performance Rates (A djusted Output-Weighted-Average Pounds of CO 2 Per Net MWh from All Affected Fossil Fuel-Fired EGUs) Subcategory Interim Rate Final Rate Fossil Fuel-Fired Electric Steam Generating Units 1,548 1,305 Stationary Combustion Turbines 850 771

Also, states, and tribes with one or more affected EGUs will be required to develop and implement plans to ensure that their affected EGUs, individually, in aggregate, or in combination with other measures undertaken by the state, achieve the equivalent of the final CO 2 emission

standards of performance that reflects that amount of emission reduction. In addition, the state is required to include in its state plan the standards of performance and measures to implement and enforce those standards. The state must submit the plan to the EPA, and the EPA must approve the plan if the standards of performance and implementing and enforcing measures are satisfactory.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-3 performance rates by 2030. The EPA derived statewide rate-based CO 2 emissions performance goals as a weighted average of the uniform rate goals with weights based on baseline generation for the two types of units (fossil steam and stationary combustion turbine) in the state. This blended rate reflects the aggregate emission rate a state may expect to achieve when its fleet is meeting its technology-specific emission performance rates. The Clean Power Plan Final Rule also establishes an 8-year interim compliance period that begins in 2022 with a glide path for meeting interim CO 2 emission performance rates separated into three steps: 2022-2024, 2025- 2027, and 2028-2029. This results in interim and final statewide goal values unique to each state’s historical blend of fossil steam and stationary combustion turbine generation. Chapter 3 presents finalized equivalent state rate-based CO 2 emissions performance goals.
The EPA is providing equivalent mass-based statewide CO 2 emission performance goals for each state, which are also presented in Chapter 3. The mass-based statewide CO 2 emission performance goals are based on the tonnage totals from the numerator of the statewide rate-based
CO 2 emission performance goals. These mass levels are then adjusted to account for the ability of affected EGUs to increase utilization under rate-based compliance by engaging in emission reduction strategies that are in excess of what is necessary to demonstrate compliance if affected EGUs choose to replace their own generation. For more detail on the translation methodology, please refer to the U.S. EPA’s CO 2 Emission Performance Rate and Goal Computation Technical Support Document for Final Rule, which is available in the docket. 2

The final guidelines are structured so that states and affected EGUs are not required to use each and every one of the measures that the EPA determines constitute the BSER or to apply any one of those measures to the same extent that the EPA determines is achievable at a reasonable cost on a national basis. Instead, in developing its plan, each state will have the flexibility to select the measure or combination of measures it prefers in order to achieve the CO 2emission performance rates for its affected EGUs or meet the equivalent statewide rate- or massbased CO 2 goal. Thus, a state could choose to achieve more reductions from one measure encompassed by the BSER and less from another, or it could choose to include measures such as demand-side energy efficiency programs that are not part of the EPA’s BSER determination.

2 U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. CO 2 Emission Performance Rate and Goal Computation.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-4 Expressing the states’ obligation in terms of a state-level goal that can be met in aggregate, including through the adoption of CO 2 emission reduction measures that are not identical to the components of the BSER or are not included in the BSER, rather than exclusively through source-specific emission performance rates, is entirely permissible. This is precisely because the approach mirrors the foundation of the BSER approach itself, namely the interconnected nature of the electricity system in which affected EGUs operate. We expect that affected EGUs in each
state will be able to meet the CO 2 emission performance rates because the emission performance rates represent the application of the BSER specific to the two categories of affected EGUs.
Given the flexibilities afforded states in complying with the emission guidelines, the benefits, cost and economic impacts reported in this RIA are not definitive estimates. Rather, the impact estimates are instead illustrative of approaches that states may take.
ES.3 Illustrative Plan Approaches Examined in RIA In the final emission guidelines, the EPA has translated the source category-specific CO 2 emission performance rates into equivalent state-level rate-based and mass-based CO 2 goals in order to maximize the range of choices that states will have in developing their plans. Because of the range of choices available to states and the lack of a priori knowledge about the specific choices states will make in response to the final goals, this RIA presents two scenarios designedto achieve these goals, which we term the “rate-based” illustrative plan approach and the “massbased” illustrative plan approach.
In this final rule, states may use trading or other multi-unit compliance approaches and technologies or strategies that are not explicitly mentioned in any of the three building blocks as part of their overall plans, as long as they achi eve the required emission reductions from affected fossil fuel-fired EGUs. In addition, the final rule provides additional options to allow individual EGUs to use creditable out-of-state reductions to achieve required CO 2 reductions, without the need for up-front interstate agreements.
The modelled implementation plan approaches reflect states and affected EGUs pursuing building block strategies such as heat rate improvements, shifting generation to less CO 2 – intensive generation, and increased deployment of renewable energy, which are more completely described in Chapter 3. However, the modelled strategies are not limited to the technologies and measures included in the BSER. For example, investment in demand-side energy efficiency is an***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-5 important strategy modelled in the rate-based and mass-based illustrative plan approached. In therate-based approach, energy efficiency activities are modeled as being used by EGUs as a lowcost method of demonstrating compliance with their rate-based emissions standards. In the massbased approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the mass limitations.
Alternative compliance approaches other than those modelled are also possible, which may have different levels and distributions of emissions and electricity generation as well ascosts. While IPM finds a least cost way to achieve the state goals implemented through the ratebased or mass-based emissions constraints imposed in the illustrative plan approaches, individual states or multi-state regional groups may develop alternate approaches to achieve their state goals.
It is very important to note that the differences between the analytical results for the ratebased and mass-based illustrative plan approaches presented in this RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the final guidelines. Rather, the two sets of analyses are intended to illustrate two contrasting, stylized implementation approaches to accomplish the emission performance rates finalized in the Clean Power Plan Final Rule. In other words, if one approach performs better than the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.
To present a complete picture of costs and benefits of the final emission guidelines, this RIA presents results for the analysis years 2020, 2025, and 2030. While 2020 is before the first year of the interim compliance period (2022), the EPA expects states and affected EGUs to perform voluntary activities that will facilitate compliance with interim and final goals. These pre-compliance period activities might include investments in renewable energy or demand-side energy efficiency projects, for example, that produce emissions reductions in the compliance period. Activities might also include preparatory investments in transmission capacity or monitoring, reporting, and recordkeeping systems. As a result, there are likely to be benefits and costs in 2020, so these are reported in the illustrative analysis of this RIA. Meanwhile, cost and benefits are estimated in this RIA for 2025, which is intended to represent a central period of the interim compliance time-frame as states and tribes are on glide paths toward fully meeting the Commented [A1]: Suggest a discussion of the early action mechanism, including how it he lps to explain expenditures and emission reductions below BAU in 2020 as well as how it will reduce costs and potentially also yield higher emissions in 2025/2030.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-6 final CO 2 emission performance goals. Lastly, the RIA presents costs and benefits for 2030, when the emission performance goals are fully achieved.

ES.4 Emissions Reductions

Table ES-2 shows the emission reductions associated with the modelled rate-based illustrative plan approach.

Table ES-2. Climate and Air Pollutant Em ission Reductions for the Rate-Based Illustrative Plan Approach 1,2
CO 2 (million metric tons) SO 2 (thousand short tons) Annual NO X (thousand of short tons) PM 2.5 (thousands short tons) 2020 Rate-Based Approach Base Case 1,955 1,311 1,333 [X] Final Guidelines 1,892 1,297 1,282 [X] Emissions Change -63 -14 -50 [X] 2025 Rate-Based Approach Base Case 1,964 1,275 1,302 [X] Final Guidelines 1,754 1,097 1,138 [X] Emissions Change -211 -178 -165 [X] 2030 Rate-Based Approach Base Case 2,021 1,314 1,293 [X] Final Guidelines 1,644 996 1,011 [X] Emission Change -376 -318 -282 [X] Source: Integrated Planning Model, 2015.
1 CO 2 emission reductions are used to estimate the climate benefits of the guidelines. SO 2 , NO X , and directly emitted PM 2.5 emission reductions are relevant for estimating air quality health co-benefits of the final guidelines.
2 Emissions rounded to three significant digits. Emissions may not sum due to rounding.
In 2020, the EPA estimates that CO 2 emissions will be reduced by 63 million metric tons under the rate-based scenario compared to base case levels. In 2025, the EPA estimates that CO 2 emissions will be reduced by 211 million metric tons under the rate-based approach compared to
base case levels. CO 2 emission reductions increase to 376 million metric tons annually in 2030 when compared to the base case emissions. Table ES-2 also shows emission reductions for criteria air pollutants (in short tons). 3

3 Emissions estimates of PM2.5 require additional processing of IPM results. Estimates for PM2.5 reductions for 2025 and 2030 will be provided in the RIA released at the signature of the final rule. However, the SO2 and NOX reductions account for the large majority of the anticipated health co-benefits, so the temporary omission of PM2.5 reductions does not lead to a significant under-estimate of monetized health co-benefits.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-7 Table ES-3 shows the emission reductions associated with the modeled mass-based illustrative plan approach.

Table ES-3. Climate and Air Pollutant Emission Reductions for the Mass-Based Illustrative Plan Appproach 1,2
CO 2 (million metric tons) SO 2 (thousand short tons) Annual NO X (thousand of short tons) PM 2.5 (thousands short tons) 2020 Mass-Based Approach Base Case 1,955 1,311 1,333 [X] Final Guidelines 1,881 1,257 1,272 [X] Emissions Change -74 -54 -60 [X] 2025 Mass-Based Approach Base Case 1,964 1,275 1,302 [X] Final Guidelines 1,724 1,090 1,100 [X] Emissions Change -240 -185 -203 [X] 2030 Mass-Based Approach Base Case 2,021 1,314 1,293 [X] Final Guidelines 1,646 1,034 1,015 [X] Emission Change -375 -280 -278 [X] Source: Integrated Planning Model, 2015.
1 CO 2 emission reductions are used to estimate the climate benefits of the guidelines. SO 2 , NOx, and directly emitted PM 2.5 emission reductions are relevant for estimating air quality health co-benefits of the final guidelines.
2 Emissions rounded to three significant digits. Emissions may not sum due to rounding.
In 2020, the EPA estimates that CO 2 emissions will be reduced by 74 million metric tons under the mass-based approach compared to base case levels. In 2025, the EPA estimates that CO 2 emissions will be reduced by 240 million metric tons under the mass-based approach compared
to base case levels. CO 2 emission reductions increase to 375 million metric tons annually in 2030 when compared to the base case emissions. Table ES-3 also shows emission reductions for criteria air pollutants (in short tons).
Table ES-4 presents CO 2 emission reductions relative to 2005.
Table ES-4. Projected CO 2 Emission Reductions, Relative to 2005

CO 2 Emissions (million metric tons) CO 2 Emissions: Change from 2005 (million metric tons) CO 2 Emissions Reductions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base Case 2,434 -479 -470 -413 -20% -19% -17% Rate-based - -542 -680 -790 -22% -28% -32% Mass-based - -553 -710 -788 -23% -29% -32% Source: Integrated Planning Model, 2015. Commented [A2]: Consider including a discussion of the change in the base case relative to the proposal stage***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-8 In 2020, the EPA estimates that CO 2 emissions will be reduced by 542 million metric tons (22 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that
CO 2 emissions will be reduced by 680 million metric tons (28 percent) under the rate-based approach compared to 2005 levels. Under the rate-based approach, CO 2 emission reductions increase to 790 million metric tons (32 percent) in 2030 when compared to 2005 levels.
Under the mass-based approach in 2020, the EPA estimates that CO 2 emissions will be reduced by 553 million metric tons (23 percent) under the rate-based approach compared to 2005 levels. In 2025, the EPA estimates that CO 2 emissions will be reduced by 710 million metric tons (29 percent) under the mass-based approach compared to 2005 levels. Under the mass-based approach, CO 2 emission reductions increase to 788 million metric tons (32 percent) in 2030 when compared to 2005 levels.
Comparing the rate-based and mass-based illustrative plan approaches indicates...

ES.5 Costs The compliance cost estimated for this final action are represented in this analysis as the change in electric power generation costs between the base case and illustrative plan approach policy cases, including the cost of demand-side en ergy efficiency measures and costs associated with monitoring, reporting, and recordkeeping requirements (MR&R). In the rate-based approach, energy efficiency activities are modeled as being used by EGUs as a low-cost method of demonstrating compliance with their rate-based emissions standards. In the mass-based approach, energy efficiency activities are assumed to be adopted by states to lower demand, which in turn reduces the cost of achieving the mass limitations. The level of energy efficiency measures is determined outside of IPM and is assumed to be the same in the two illustrative plan approaches. The compliance assumptions, and therefore the projected “compliance costs” set forth in this analysis, are illustrative in nature and do not represent the full suite of compliance flexibilities states may ultimately pursue.
The annual incremental cost is the projected additional cost of complying with the final rule in the year analyzed and includes the net change in the annualized cost of capital investment in new generating sources and heat rate improvements at coal-fired steam generating units, the change in the ongoing costs of operating pollution controls, shifts between or amongst various fuels, demand-side energy efficiency measures, and other actions associated with compliance. Commented [A3]: incomplete***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-9 The total compliance cost estimates presented here include the costs associated with monitoring, reporting, and recordkeeping. 4 The costs for both illustrative plan approaches are reflected in Table ES-5 below and discussed more extensively in Chapter 3 of this RIA. All dollar estimates
are in 2011 dollars.
The EPA estimates the annual incremental compliance cost for the rate-based approach for final emission guidelines to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030, including the costs associated with monitoring, reporting, and recordkeeping. 5 The EPA estimates the annual incremental compliance cost for the mass-based approach for final emission guidelines to be $1.4 billion in 2020, $3.0 billion in 2025 and $5.1 billion in 2030, including the costs associated with monitoring, reporting, and recordkeeping.
Table ES-5. Compliance Costs for the Illustrative Rate-Based and Mass-Based Plan Approaches Incremental Cost from Base Case (billions of 2011$) Rate-based Approach Mass-based Approach 2020 $2.5 $1.4 2025 $1.0 $3.0 2030 $8.4 $5.1 Source: Integrated Planning Model, 2015, with post-processing to account for exogenous demand-side management energy efficiency costs and monitoring, reporting, and recordkeeping costs. See Chapter 3 of this RIA for a more complete explanation.

The costs reported in Table ES-5 represent the estimated incremental electric utility generating costs changes from the base case plus the estimates of demand-side energy efficiency program costs (which are paid by electric utilities), demand-side energy efficiency participant costs (which are paid by electric utility cons umers), and MR&R costs. For example, in 2030, under the rate-based approach, the incremental electric utility generating costs decline by about $18.0 billion from the base case. MR&R requirements in 2030 are estimated at $16.0 million, and demand-side energy efficiency costs in 2030 are estimated to be $26.3 billion, split equally

4 These costs are estimated outside of the IPM modelling framework as IPM only models the contiguous U.S. and does not incorporate monitoring, reporting, and recordkeeping requirements specific to the Clean Power Plan Final Rules.

5 The MR&R costs estimates are $67 million in 2020, $16 million in 2025 and $16 million in 2030 and are assumed to be the same for both rate-based and mass-based illustrative plan approaches. Note the MR&R costs in 2020 are related to facilities setting up net energy output monitoring and upgrading data acquisition systems. Commented [A4]: Is there any explanation why 2025 incremental cost is lower here (lower than 2020)?***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-10 between program and participants using a 3 percent discount rate (see Chapter 3 of this RIA for more details on these estimates). These cost estimates sum to the $8.4 shown in Table ES-3 and represent the total costs of the rate-based illustrative plan approach in 2030. The same approach applies in each year of analysis for the rate-based and the mass-based illustrative plan approaches.
Comparing the rate-based and mass-based illustrative plan approaches indicates...
The compliance costs reported in Table ES-5 are not social costs. These costs represent the estimated expenditures incurred by EGUs and states to comply with the BSER goals for the Clean Power Plan Final Rule. These compliance cost estimates are compared to estimates of social benefits to derive net benefits of the final emission guidelines, which are presented later in this Executive Summary. For a more extensive discussion of social costs and benefits, see Chapter 3 and Chapter 4, respectively, of this RIA.

ES.6 Monetized Climate Benefits and Health Co-benefits Implementing the final emission guidelines is expected to reduce emissions of CO 2 and have ancillary emission reductions (i.e., co-benefits) of SO 2 , NO 2 , and directly emitted PM 2.5 , which would lead to lower ambient concentrations of PM 2.5 and ozone. The climate benefits estimates have been calculated using the estimated values of marginal climate impacts presented
in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866 (May 2013, Revised July 2015) , henceforth denoted as the current SC-CO 2 TSD. 6 Also, the range of combined benefits reflects different concentration-response functions for the air quality health co-benefits, but it does not capture the full range of uncertainty inherent in the health co-benefits estimates. Furthermore, wewere unable to quantify or monetize all of the climate benefits and health and environmental cobenefits associated with the final emission guidelines, including reducing exposure to SO 2 , NO X , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility

6 Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with 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 (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf> Accessed 7/11/2015. Commented [A5]: incomplete***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-11 improvement. The omission of these endpoints from the monetized results should not imply that the impacts are small or unimportant. Table ES-6 provides the list of the quantified and unquantified health and environmental benefits in this analysis.
Table ES-6. Quantified and Unquantified Benefits

Benefits Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information

Improved Environment

Reduced climate effects Global climate impacts from CO 2 — 1  SC-CO 2 TSD Climate impacts from ozone and black carbon (directly emitted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2 Improved Human Health (co-benefits) Reduced incidence of premature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates and expert elicitation estimates (age >25 or age >30)   PM ISA
Infant mortality (age <1)   PM ISA

Reduced incidence of morbidity from exposure to PM 2.5 Non-fatal heart attacks (age > 18)   PM ISA Hospital admissions—respiratory (all ages)   PM ISA Hospital admissions—cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8-12)   PM ISA Lower respiratory symptoms (age 7-14)   PM ISA Upper respiratory symptoms (asthmatics age 9-11)   PM ISA Asthma exacerbation (asthmatics age 6-18)   PM ISA Lost work days (age 18-65)   PM ISA Minor restricted-activity days (age 18-65)   PM ISA Chronic Bronchitis (age >26) — — PM ISA 2 Emergency room visits for cardiovascular effects (all ages)

— — PM ISA 2 Strokes and cerebrovascular disease (age 50-79) — — PM ISA 2 Other cardiovascular effects (e.g., other ages) — — PM ISA 3Other respiratory effects (e.g., pulmonary function, nonasthma ER visits, non-bronchitis chronic diseases, other ages and populations) — — PM ISA 3
Reproductive and developmental effects (e.g., low birth weight, pre-term births, etc) — — PM ISA 3,4 Cancer, mutagenicity, and genotoxicity effects — — PM ISA 3,4
Reduced incidence of mortality from exposure to ozone Premature mortality based on short-term study estimates (all ages)   Ozone ISA Premature mortality based on long-term study estimates (age 30–99) — — Ozone ISA 2

Reduced incidence of morbidity from exposure to ozone Hospital admissions—respiratory causes (age > 65)   Ozone ISA Hospital admissions—respiratory causes (age <2)   Ozone ISA Emergency department visits for asthma (all ages)   Ozone ISA Minor restricted-activity days (age 18–65)   Ozone ISA School absence days (age 5–17)   Ozone ISA Decreased outdoor worker productivity (age 18–65) — — Ozone ISA 2 Other respiratory effects (e.g., premature aging of lungs) — — Ozone ISA 3 Cardiovascular and nervous system effects — — Ozone ISA 3 Reproductive and developmental effects — — Ozone ISA 3,4***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-12 Table ES-6. Continued

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages) — — NO 2 ISA 2 Chronic lung disease hospital admissions (age > 65) — — NO 2 ISA 2 Respiratory emergency department visits (all ages) — — NO 2 ISA 2 Asthma exacerbation (asthmatics age 4–18) — — NO 2 ISA 2 Acute respiratory symptoms (age 7–14) — — NO 2 ISA 2 Premature mortality — — NO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — NO 2 ISA 3,4

Reduced incidence of

morbidity from exposure to SO 2 Respiratory hospital admissions (age > 65) — — SO 2 ISA 2 Asthma emergency department visits (all ages) — — SO 2 ISA 2 Asthma exacerbation (asthmatics age 4–12)

— — SO 2 ISA 2 Acute respiratory symptoms (age 7–14) — — SO 2 ISA 2 Premature mortality — — SO 2 ISA 2,3,4 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — SO 2 ISA 2,3

Reduced incidence of morbidity from exposure to methylmercury Neurologic effects—IQ loss — — IRIS; NRC, 2000 2 Other neurologic effects (e.g., developmental delays, memory, behavior) — — IRIS; NRC, 2000 3 Cardiovascular effects — — IRIS; NRC, 2000 3,4 Genotoxic, immunologic, and other toxic effects — — IRIS; NRC, 2000 3,4 Improved Environment (co-benefits) Reduced visibility impairment Visibility in Class 1 areas — — PM ISA 2 Visibility in residential areas — — PM ISA 2 Reduced effects on materials Household soiling

— — PM ISA 2,3 Materials damage (e.g., corrosion, increased wear) — — PM ISA 3 Reduced PM deposition (metals and organics) Effects on Individual organisms and ecosystems — — PM ISA 3

Reduced vegetation and ecosystem effects from exposure to

ozone Visible foliar injury on vegetation — — Ozone ISA 2 Reduced vegetation growth and reproduction — — Ozone ISA 2 Yield and quality of commercial forest products and crops — — Ozone ISA 2 Damage to urban ornamental plants — — Ozone ISA 3 Carbon sequestration in terrestrial ecosystems — — Ozone ISA 2 Recreational demand associated with forest aesthetics — — Ozone ISA 3 Other non-use effects Ozone ISA 3 Ecosystem functions (e.g., wa ter cycling, biogeochemical cycles, net primary productivity, leaf-gas exchange, community composition) — — Ozone ISA 3

Reduced effects from acid deposition Recreational fishing — — NO x SO x ISA 2 Tree mortality and decline — — NO x SO x ISA 3 Commercial fishing and forestry effects — — NO x SO x ISA 3 Recreational demand in terrestrial and aquatic ecosystems — — NO x SO x ISA 3 Other non-use effects NO x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles) — — NO x SO x ISA 3***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-13 Table ES-6. Continued

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and estuarine ecosystems — — NO x SO x ISA 3 Coastal eutrophication — — NO x SO x ISA 3 Recreational demand in terrestrial and estuarine ecosystems — — NO x SO x ISA 3 Other non-use effects NO x SO x ISA 3 Ecosystem functions (e.g., biogeochemical cycles, fire regulation) — — NO x SO x ISA 3 Reduced vegetation effects from exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure — — NO x SO x ISA 3 Injury to vegetation from NO x exposure — — NO x SO x ISA 3

Reduced ecosystem effects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive effects) — — Mercury Study RTC 3 Commercial, subsistence and recreational fishing — — Mercury Study RTC 2

1 The global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each

integrated assessment model as part of the calculation of the SC-CO 2 . The resulting monetized damages, which are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.
2 We assess these co-benefits qualitatively due to data and resource limitations for this analysis.

3 We assess these co-benefits qualitatively because we do not have sufficient confidence in available data or methods.

4 We assess these co-benefits qualitatively because current evidence is only suggestive of causality or there are other significant concerns over the strength of the association.

ES.6.1 Estimating Global Climate Benefits
We estimate the global social benefits of CO 2 emission reductions expected from this rulemaking using the SC-CO 2 estimates presented in the current SC-CO 2 TSD. We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates” for the
remainder of this document. The SC-CO 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 health, 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., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 emissions).

The SC-CO 2 estimates used in this analysis have been developed over many years, using the best science available, and with input from the public. The EPA and other federal agencies have considered the extensive public comments on ways to improve SC-CO 2 estimation received***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-14 via the notice and comment period that was part of numerous rulemakings. In addition, OMB’s Office of Information and Regulatory Affairs recently issued a response to the public comments it sought through a separate comment period on the approach used to develop the SC-CO 2 estimates. 7
An interagency working group (IWG) that included the EPA and other executive branch entities used three integrated assessment models (IAMs) to develop SC-CO 2 estimates and recommended four global values for use in regulatory analyses. The SC-CO 2 estimates represent global measures because of the distinctive nature of the climate change problem. Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected. Therefore, the SC-CO 2 estimates incorporate the worldwide damages caused by carbon dioxide emissions in order to reflect the global nature of the problem, and we expect other governments to consider the global consequences of their greenhouse gas emissions when setting their own domestic policies. See RIA Chapter 4 for more discussion.
The IWG first released the estimates in February 2010 and updated them in 2013 using
new versions of each IAM. The SC-CO 2 values was estimated using three integrated assessment models (DICE, FUND, and PAGE) 8 , which the IWG harmonized across three key inputs: the probability distribution for equilibrium climate sensitivity; five scenarios for economic, population, and emissions growth; and three constant discount rates. The 2010 SC-CO 2 Technical Support Document (2010 SC-CO 2 TSD) provides a complete discussion of the methodology and the current SC-CO 2 TSD 9 presents and discusses the updated estimates. The
four SC-CO 2 estimates are as follows: $13, $45, $66, and $130 per metric ton of CO 2 emissions in the year 2020 (2011$), and each estimate increases over time. These SC-CO 2 estimates are associated with different discount rates. The first three estimates are the model average at 5 percent discount rate, 3 percent, and 2.5 percent, respectively, and the fourth estimate is the 95 th percentile at 3 percent.

7 See https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf

8 The full models names are as follows: Dynamic Integrated Climate and Economy (DICE); Climate Framework for Uncertainty, Negotiation, and Distribution (FUND); and Policy Analysis of the Greenhouse Gas Effect (PAGE).

9 The IWG published the updated TSD in 2013, then issued two minor corrections to it in July 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-15 The 2010 SC-CO 2 TSD noted a number of limitations to the SC-CO 2 analysis, including the incomplete way in which the IAMs capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently integrated assessment models do not assign value to all of the important physical, ecological, and economic impacts of climate change recognized in the c limate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. In particular, the IPCC Fourth Assessment Report concluded that “It is very likely that [SC-CO 2 estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts.” Nonetheless, these estimates and the discussion of their limitations represent the best available information about
the social benefits of CO 2 emission reductions to inform the benefit-cost analysis.
In addition, after careful evaluation of the full range of comments submitted to OMB’s Office of Information and Regulatory Affairs, the IWG continues to recommend the use of these
SC-CO 2 estimates in regulatory impact analysis. With the release of the response to comments, the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine (Academies) to ensure that the SC-CO 2 estimates continue to reflect the best available scientific and economic information on climate change. 10 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.

ES 6.2 Estimating Air Quality Health Co-Benefits
The final emission guidelines would reduce emissions of precursor pollutants (e.g., SO 2 , NO X , and directly emitted particles), which in turn would lower ambient concentrations of PM 2.5 and ozone. This co-benefits analysis quantifies the monetized benefits associated with the reduced exposure to these two pollutants. 11 Unlike the global SC-CO 2 estimates, the air quality health co-benefits are only estimated for the contiguous U.S. The estimates of monetized PM 2.5

10 See <https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions>.

11 We did not estimate the co-benefits associated with reducing direct exposure to SO 2 and NO X .***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-16 co-benefits include avoided premature deaths (derived from effect coefficients in two cohort studies [Krewski et al. 2009 and Lepeule et al. 2012] for adults and one for infants [Woodruff et al. 1997]), as well as avoided morbidity effects for ten non-fatal endpoints ranging in severity from lower respiratory symptoms to heart attack s (U.S. EPA, 2012). The estimates of monetized ozone co-benefits include avoided premature deaths (derived from the range of effect coefficients represented by two short-term epidemiology studies [Bell et al. (2004) and Levy et al. (2005)]), as well as avoided morbidity effects for five non-fatal endpoints ranging in severity from school absence days to hospital admissions (U.S. EPA, 2008, 2011).
We use a “benefit-per-ton” approach to estimate the PM 2.5 and ozone co-benefits in this RIA. Benefit-per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is available. The benefit-per-ton approach we use in this RIA relies onestimates of human health responses to exposure to PM and ozone obtained from the peerreviewed scientific literature. These estimates are used in conjunction with population data, baseline health information, air quality data and economic valuation information to conduct health impact and economic benefits assessments.
Specifically, in this analysis, we multiplied the benefit-per-ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan. Similar to the co-benefits analysis conducted for the RIA for this rule at proposal, we generated regional benefit-per-ton estimates by aggregating the impacts in
BenMAP 12 to the region (i.e., East, West, and California) rather than aggregating to the nation. To calculate the co-benefits for the final emission guidelines, we then multiplied the regional benefit-per-ton estimates for the EGU sector by the corresponding emission reductions. All benefit-per-ton estimates reflect the geographic distribution of the modeled emissions, which may not exactly match the emission reductions in this rulemaking, and thus they may not reflect the local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location.

12 BenMAP is a computer program developed by the EPA that calculates the number and economic value of airpollution-related deaths and illnesses. The software incorporates a database that includes many of the concentrationresponse relationships, population files, and health and economic data needed to quantify these impacts.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-17 Our estimate of the monetized co-benefits is based on the EPA’s interpretation of the best available scientific literature (U.S. EPA, 2009) and methods and supported by the EPA’s Science Advisory Board and the NAS (NRC, 2002). Below are key assumptions underlying the estimates
for PM 2.5 -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 health co-benefits:

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption,
because PM 2.5 varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log-linear without a threshold in this analysis. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 , including both areas that do not meet the National Ambient Air Quality Standard for fine particles and those areas that are in attainment, down to the lowest modeled concentrations.

3. We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 exposures occur in a distributed fashion over the 20 years following exposure based on the advice of theSAB-HES (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates.
Every benefits analysis examining the potential effects of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. In addition, given the flexibilities afforded states in complying with the emission guidelines, the co-benefits estimated presented in this RIA are not definitive estimates, but are instead illustrative of approaches that states may take. Despite these***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-18uncertainties, we believe this analysis provides a reasonable indication of the expected health cobenefits of the air quality emission reductions for the final emission guidelines under a set of reasonable assumptions. This analysis does not include the type of detailed uncertainty
assessment found in the 2012 PM 2.5 National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we lack the necessary air qu ality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit-per-ton approach adds another important source of uncertainty to the benefits estimates.

ES 6.3 Combined Benefits Estimates
The EPA has evaluated the range of potential impacts by combining all four SC-CO 2 values with health co-benefits values at the 3 percent and 7 percent discount rates. Different discount rates are applied to SC-CO 2 than to the health co-benefit estimates; because CO 2 emissions are long-lived and subsequent damages occur over many years. Moreover, several discount rates are applied to SC-CO 2 because the literature shows that the estimate of SC-CO 2 is sensitive to assumptions about discount rate and because no consensus exists on the appropriate rate to use in an intergenerational context. The U.S. government centered its attention on the average SC-CO 2 at a 3 percent discount rate but emphasized the importance of considering all
four SC-CO 2 estimates. Table ES-7 (rate-based illustrative plan approach) and Table ES-8(mass-based illustrative plan approach) provide the combined climate benefits and health cobenefits for the Clean Power Plan Final Rule estimated for 2020, 2025, and 2030 for each
discount rate combination. All dollar estimates are in 2011 dollars.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-19 Table ES-7. Combined Estimates of Climate Benefits and Health Co-Benefits for RateBased Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits

Only Climate Benefits plus Health Co-benefits (Discount Rate Applied to Health Co-benefits) 3% 7% In 2020 63 million metric tons CO 2 5% $0.80 $1.5 to $2.6 $1.4 to $2.5 3% $2.8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $10 $8.9 to $9.9 In 2025 211 million metric tons CO 2

5% $3.1 $11 to $21 $9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 In 2030 376 million metric tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 *Benefit estimates are for affected sources in contiguous states and have been rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co-benefits are based on regional benefit-per-tonestimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health cobenefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from direct exposure to NOx, SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, it is the model average.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-20 Table ES-8. Combined Estimates of Climate Benefits and Health Co-benefits for MassBased Approach (billions of 2011$)*

SC-CO 2 Discount Rate and Statistic** Climate Benefits

Only Climate Benefits plus Health Co-benefits (Discount Rate Applied to Health Co-benefits) 3% 7% In 2020 74 million metric tons CO 2 5% $0.94 $2.9 to $5.7 $2.8 to $5.3 3% $3.3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to $9.7 $6.7 to $9.3 3% (95 th percentile) $9.7 $12 to $14 $11 to $14 In 2025 240 million metric tons CO 2

5% $3.6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $35 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 In 2030 375 million metric tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All benefit estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co-benefits are based on regional benefit-per-ton estimates. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health co-benefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from direct exposure to NO X , SO 2 , and HAP; ecosystem effects; or visibility impairment. See Chapter 4 for more information about these estimates and for more information regarding the uncertainty in these estimates. **Unless otherwise specified, it is the model average.
Comparing the rate-based and mass-based illustrative plan approaches indicates...

ES.7 Net Benefits Table ES-9 and ES-10 provide the estimates of the climate benefits, health co-benefits, compliance costs and net benefits of the final emission guidelines for rate-based and mass-based approaches, respectively. Comparing the rate-based and mass-based illustrative plan approaches
indicates...
There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing
emissions of non-CO 2 greenhouse gases and co-benefits from reducing exposure to SO 2 , NO X , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility Commented [A6]: needs to be completed***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-21 impairment. Upon considering these limitations and uncertainties, it remains clear that the benefits of this final rule are substantial and far outweigh the costs.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-22 Table ES-9. Monetized Benefits, Compliance Costs, and Net Benefits Under the Ratebased Illustrative Plan Approach (billions of 2011$) a
Rate-Based A pp roach 2020 2025 2030 Climate Benefits b

5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8.2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.7 to $1.8 $0.6 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1.0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates. Commented [A7]: check rounding on some of the net benefits. For example, it would appear that the lower bound 2025 3% net benefits should be 10+7.4-1.0=16.4, i.e. 16 not 17.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-23 Table ES-10. Monetized Benefits, Complianc e Costs, and Net Benefits under the Massbased Illustrative Plan Approach (billions of 2011$) a Mass-Based Approach 2020 2025 2030 Climate Benefits b

5% discount rate $0.9 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9.6 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $2.0 to $4.8 $1.8 to $4.4 $7 to $17 $7 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3.0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-24 ES.8 Economic Impacts The final emission guidelines have important energy market implications. Table ES-11presents a variety of important energy market impacts for 2020, 2025, and 2030 for both the ratebased and mass-based illustrative plan approaches.
Table ES-11. Summary Table of Important Energy Market Impacts (Percent Change from Base Case)
Rate-Based Mass-Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Price of coal at minemouth -1% -5% -4% -1% -5% -3% Coal production for power sector use -5% -14% -25% -7% -17% -24% Price of natural gas delivered to power sector 5% -8% 2% 4% -3% -2% Natural gas use for electricity generation 3% -1% -1% 5% 0% -4% Non-hydro renewable energy capacity 1% -1% 13% -2% -3% 11%

Energy market impacts from the guidelines are discussed more extensively in Chapter 3 of this
RIA.
Additionally, changes in supply or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the production process or that supply those sectors. Changes in cost of production may result in changes in price and/or quantity produced by these sectors and these market changes may affect the profitability of firms and the economic welfare of their consumers. The EPA recognizes that these final emission guidelines provide flexibility, and states implementing the guidelines may choose to mitigate impacts to some markets outside the EGU sector. Similarly, demand for new generation or energy efficiency, for example, can result in changes in production and profitability for firms that supply those goods and services.
ES.9 Employment Impacts Executive Order 13563 directs federal agencies to consider the effect of regulations on job creation and employment. According to the Executive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-cost analyses have not typically Commented [A8]: Clarify how the price impacts for 2030 are lower for MB than for RB.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-25 included a separate analysis of regulation-induced employment impacts, we typically conduct employment analyses. During the current economic recovery, employment impacts are of particular concern and questions may arise about their existence and magnitude.
Given the wide range of approaches that may be used to meet the requirements of the Clean Power Plan Final Rule, quantifying the associated employment impacts is difficult. The EPA’s illustrative employment analysis includes an estimate of projected employment impacts associated with these guidelines for the utility power sector, coal and natural gas production, and demand-side energy efficiency activities. These projections are derived, in part, from the detailed model of the utility power sector used for this regulatory analysis, and U.S government data on employment and labor productivity.
In the electricity, coal, and natural gas sectors, the EPA estimates that these guidelines could result in a net decrease of approximately 25,200 job-years in 2025 for the final guidelines under the rate-based illustrative plan approach and approximately 26,000 job-years in 2025 under the mass-based approach. For 2030 the estimates of the net decrease in job-years is 31,300 under the rate-based plan, and 33,700 under the mass-based plan. The Agency is also offering an illustrative calculation of potential employment effects due to demand-side energy efficiency programs. Employment impacts from demand-side energy efficiency programs in 2030 could range from an increase in job-years of approximately 52,000 to 83,000 under the final guidelines. More detail about these analyses can be found in Chapter 6 of this RIA. Deleted: jobs***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-26 ES.10 References Bell, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association. 292(19):2372-8.Docket ID EPA-HQ-OAR-2009-0472-114577, Technical Support Document: Social Cost of Ca rbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, 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 and Technology Policy, and Department of Treasury (February 2010). Available at:<http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-ofCarbon-for-RIA.pdf>. Docket ID EPA-HQ-OAR-2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with 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 Agen cy, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Also available at: < https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. Accessed July 15, 2015. Fann, N., K.R. Baker, and C.M. Fulcher. 2012. “Characterizing the PM 2.5 -Related Health Benefits of Emission Reductions for 17 Industrial, Area and Mobile Emission Sectors Across the U.S.” Environment International. 49:41–151. Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-27 Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-commentsfinal-july-2015.pdf.> Accessed July 15, 2015. Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at: <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. Lepeule, J., F. Laden, D. Dockery, and J. Schw artz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspectives. 120(7):965-70. Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregression Analysis.” Epidemiology. 16(4):458-68. National Research Council (NRC). 2000. Toxicological Effects of Methylmercury: Committee on the Toxicological Effects of Methylmercury .” Board on Environmental Studies and Toxicology. National Academies Press. Washington, DC. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis . EPA-452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6- ozoneriachapter6.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

ES-28 U.S. EPA. 2008c. Integrated Science Assessment for Oxides of Nitrogen: Health Criteria (Final Report). Research Triangle Park, NC: National Center for Environmental Assessment. July. Available at < http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. U.S. Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2009b. Integrated Science Assessment for Particulate Matter (Final Report) . EPA-600-R-08-139F. National Center for Environmental Assessment – RTP Division, Research Tr iangle Park, NC. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods . Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3 -supplemental_analysis-updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. CO 2 Emission Performance Rate and Goal Computation. Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The relationship between selected causes of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspectives. 105(6): 608-612.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-1 

### C HAPTER 

### 1: I NTRODUCTION AND 

### B ACKGROUND FOR THE 

### C LEAN 

### P OWER 

### P LAN

1.1 Introduction This document presents estimates of potential benefits, costs, and economic impacts of illustrative approaches states may implement to comply with the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (herein referred to as “final emission guidelines” or the “Clean Power Plan Final Rule”). This chapter contains background information on these rules and an outline of the chapters in the report.
1.2 Legal, Scientific and Economic Basis for this Rulemaking
1.2.1 Statutory Requirement Clean Air Act section 111, which Congress enacted as part of the 1970 Clean Air Act Amendments, establishes mechanisms for controlling emissions of air pollutants from stationary sources. This provision requires the EPA to promulgate a list of categories of stationary sources that the Administrator, in his or her judgment, finds “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” 13 The EPA has listed more than 60 stationary source categories under this provision. 14 Once the EPA lists a source category, the EPA must, under CAA section 111(b)(1)(B), establish “standards of performance” for emissions of air pollutants from new sources in the source categories. 15 These standards are known as new source performan ce standards (NSPS), and they are national requirements that apply directly to the sources subject to them.

When the EPA establishes NSPS for new sources in a particular source category, the EPA is also required, under CAA section 111(d)(1), to prescribe regulations for states to submit plans regulating existing sources in that source category for any air pollutant that, in general, is not regulated under the CAA section 109 requirements for the NAAQS or regulated under the CAA section 112 requirements for hazardous ai r pollutants (HAP). CAA section 111(d)’s mechanism for regulating existing sources differs from the one that CAA section 111(b) provides

13 CAA §111(b)(1)(A).

14 See 40 CFR 60 subparts Cb – OOOO.

15 CAA §111(b)(1)(B), 111(a)(1).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-2 for new sources because CAA section 111(d) contemplates states submitting plans that establish “standards of performance” for the affected sources and that contain other measures to implement and enforce those standards.
“Standards of performance” are defined under CAA section 111(a)(1) as standards for emissions that reflect the emission limitation achievable from the “best system of emission reduction,” considering costs and other factors, that “the Administrator determines has been adequately demonstrated.” CAA section 111(d)(1) grants states the authority, in applying a standard of performance to a particular source, to take into account the source’s remaining useful
life or other factors.
Under CAA section 111(d), a state must submit its plan to the EPA for approval, and the EPA must approve the state plan if it is “satisfactory.” 16 If a state does not submit a plan, or if the EPA does not approve a state’s plan, then the EPA must establish a plan for that state. 17 Once a state receives the EPA’s approval of its plan, the provisions in the plan become federally enforceable against the entity responsible for noncompliance, in the same manner as the provisions of an approved State Implementation Plan (SIP) under the Act.
1.2.2 Health and Welfare Impacts from Climate Change
According to the National Research Council, “Emissions of CO 2 from the burning of fossil fuels have ushered in a new epoch where human activities will largely determine the
evolution of Earth’s climate. Because CO 2 in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe. Therefore, emission reduction choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.” 18
In 2009, based on a large body of robust and compelling scientific evidence, the EPA Administrator issued the Endangerment Finding under CAA section 202(a)(1). 19 In the Endangerment Finding, the Administrator found that the current, elevated concentrations of

16 CAA section 111(d)(2)(A).

17 CAA section 111(d)(2)(A).

18 National Research Council, Climate Stabilization Targets, p.3.
19 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-3 GHGs in the atmosphere—already at levels unprecedented in human history—may reasonably be anticipated to endanger public health and welfare of current and future generations in the
United States.
Since the administrative record concerning the Endangerment Finding closed following the EPA’s 2010 Reconsideration Denial, the climate has continued to change, with new records being set for a number of climate indicators such as global average surface temperatures, Arctic sea ice retreat, CO 2 concentrations, and sea level rise. Additionally, a number of major scientific assessments have been released that improve understanding of the climate system and strengthen the case that GHGs endanger public health and welfare both for current and future generations. These assessments are from the Intergovernment al Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP), and the National Research Council (NRC). These and other assessments are discussed in more detail in the preamble and in Chapter 4 of this Regulatory Impact Assessment (RIA).

1.2.3 Market Failure
Many regulations are promulgated to correct market failures, which lead to a suboptimal allocation of resources within the free market. Air quality and pollution control regulations address “negative externalities” whereby the market does not internalize the full opportunity cost of production borne by society as public goods such as air quality are unpriced.
GHG emissions impose costs on society, such as negative health and welfare impacts, that are not reflected in the market price of the goods produced through the polluting process. For this regulatory action the good produced is electricity. These social costs associated with the health and welfare impacts are referred to as negative externalities. If a fossil fuel-fired electricity producer pollutes the atmosphere when it generates electricity, this cost will be borne not by the polluting firm but by society as a whole. The equilibrium market price of electricity may fail to incorporate the full opportunity cost to society of generating electricity. All else equal, given this externality, the composition of EGUs used to generate electricity in a free market will not be socially optimal, and the quantity of electricity generated may not be at the socially optimal level. More electricity may be produced from fossil fuel-fired EGUs than would occur if they had to account for the full opportunity cost of production including the negative externality. Consequently, absent a regulation on emissions, the composition of the fleet of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-4 EGUs used to generate electricity may not be socially optimal, and the marginal social cost of the last unit of electricity produced will exceed its marginal social benefit. This regulation will address this market failure by beginning to internalize the negative externality by reducing CO 2 emissions from existing EGUs which increases social welfare.
1.3 Summary of Regulatory Analysis
In accordance with Executive Order 12866, Executive Order 13563, OMB Circular A-4, and the EPA’s “Guidelines for Preparing Economic Analyses,” the EPA prepared this RIA for this “significant regulatory action.” This action is an economically significant regulatory action because it is expected to have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments
or communities.
This RIA addresses the potential costs, emission reductions, and benefits of the final emission guidelines that are the focus of this action. Additionally, this RIA includes information about potential impacts on electricity markets, employment, and markets outside the electricity

sector. In evaluating the impacts of the final guidelines, we analyzed a number of uncertainties. For example, the analysis includes an evaluation of two illustrative plan approaches that states and affected EGUs may take to accomplish state emission performance goals, a rate-based and a mass-based approach. The RIA also examines key uncertainties in the estimated benefits of reducing carbon dioxide and other air pollutants. For a further discussion of key evaluations of uncertainty in the regulatory analyses for this rulemaking, see Chapter 8 of this RIA.
1.4 Background for the Final Emission Guidelines
1.4.1 Base Case and Years of Analysis
The rule analyzed in this RIA finalizes emission guidelines for states to limit CO 2 emissions from certain existing EGUs. The base case 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. The IPM Base Case v.5.15 includes the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Rule***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-5 (MATS), the proposed Carbon Pollution Standards for New Power Plants, the Cooling Water Intakes (316(b)) Rule, the Combustion Residuals from Electric Utilities (CCR), and other state and Federal regulations to the extent that they contain measures, permits, or other air-related limitations or requirements. Additional legally binding and enforceable commitments for GHG
reductions considered in the base case are discussed in the documentation for IPM. 20
Costs and benefits are presented for illustrative plan approaches for the analysis years of 2020, 2025, and 2030. These years were selected be cause they represent initial build up, interim, and full implementation years for the two illustrative approaches analyzed. Analyses of energy, economic, and employment impacts are presented for illustrative plan approaches in 2020, 2025, and 2030. All dollar estimates are presented in 2011 dollars.
1.4.2 Definition of Affected Sources
For the emission guidelines, an affected EGU is any fossil fuel-fired electric utility steam generating unit or stationary combustion turbine that was in operation or had commenced construction as of January 8, 2014, 21 and that meets the following criteria, which differ depending on the type of unit. To be an affected source, such a unit, if it is a steam generating unit or integrated gasification combined cycle (IGCC), must serve a generator capable of selling greater than 25 MW to a utility power distribution system and have a base load rating greater than 260 GJ/h (250 MMBtu/h) heat input of fossil fuel (either alone or in combination with any other fuel). If such a unit is a stationary combustion turbine, the unit must meet the definition of a combined cycle or combined heat and power combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, and have a base load rating of greater than 260 GJ/h (250 MMBtu/h). Certain EGUs are exempt from inclusion in a state plan. For specifics on these criteria see section IV of the preamble.
When considering and understanding applicability, the following definitions may be helpful. Simple cycle combustion turbine means any stationary combustion turbine which does not recover heat from the combustion turbine engine exhaust gases for purposes other than

20 Detailed documentation for IPM v.5.15 is available at: http://www.epa.gov/powersectormodeling

21 Under Section 111(a) of the CAA, determination of affected sources is based on the date that the EPA proposesaction on such sources. January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuelfired EGUs were published in the Federal Register (79 FR 1430).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-6 enhancing the performance of the stationary combustion turbine itself. Combined cycle combustion turbine means any stationary combustion turbine which recovers heat from the combustion turbine engine exhaust gases to generate steam that is used to create additional electric power output in a steam turbine. Combined heat and power (CHP) combustion turbine means any stationary combustion turbine which recovers heat from the combustion turbine engine exhaust gases to heat water or another medium, generate steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the exhaust gases for a useful purpose.
1.4.3 Regulated Pollutant
The purpose of this CAA section 111(d) rule is to address CO 2 emissions from fossil fuel-fired power plants in the U.S. because they are the largest domestic stationary source of emissions of carbon dioxide (CO 2 ), the most prevalent of the greenhouse gases (GHG), which are air pollutants that the EPA has determined endangers public health and welfare through their contribution to climate change. This rule establishes for the first time federal emission guidelines for existing power plants that will lead to significant reductions in CO 2 emissions.

1.4.4 Emission Guidelines
In this action, the Environmental Protection Agency (EPA) is establishing final emission guidelines for states and tribes to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired electric generating units (EGUs). Specifically, the EPA is establishing: 1) carbon dioxide (CO 2 ) emission performance rates based on the best system of emission reduction (BSER) for two subcategories of existing fossil fuel-fired EGUs, fossil fuelfired electric utility steam generating units and stationary combustion turbines, and 2) guidelines for the development, submittal and implementation of state plans that implement the CO 2 emission performance rates. This final rule will continue progress already underway in the U.S.
to reduce CO 2 emissions from the utility power sector.

1.4.5 State Plans***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-7 After the EPA establishes the emission guidelines, each state 22 shall then develop, adopt and submit a state plan under CAA section 111(d) . Each state’s obligation under section 111(d) and under these guidelines is to establish a standard of performance for the affected EGUs in its jurisdiction in order to implement the BSER. The EPA has developed a BSER and a mechanism (e.g. standard of performance (e.g. subcategory specific emission performance rates)) that allows affected EGUs in all states to access all the components of the BSER (as well as other alternative but acceptable emission reduction opportunities). That standard of performance may expressly incorporate the CO 2 emission performance rates the EPA has set forth in these guidelines to express the BSER. The EPA has also received numerous comments from a wide range of stakeholders desiring freedom to consider a wide range of standards of performance to implement BSER. Thus, as an alternative to incorporating the CO 2 emission performance rates, the state may establish standards of performance at different levels for different EGUs. As a second alternative, the state may adopt measures apart from, or in addition to, standards of performance for its affected EGUs.
These guidelines include subcategory specific CO 2 emission performance rates, as well as state-specific rate-based and mass-based CO 2 emission goals for affected EGUs that represent the equivalent in aggregate of the CO 2 emission performance rates applied to the affected EGUs in each state. As already stated, the EPA is establishing rate-based CO 2 emission goals for each state, as well as mass-based CO 2 goals that represent the equivalent of each state’s rate based
CO 2 goal, in order to ensure that both states and affected EGUs enjoy the maximum flexibility and latitude in meeting the requirements of the emission guidelines and that the BSER is fully implemented by each state.
For its plan, a state will be able to choose to either impose federally enforceable emission standards that fully meet the emission guidelines directly on affected EGUs (the “emission standards” approach) or use a “state measures" approach, which would be composed, at least in part, of measures implemented by the state that are not included as federally enforceable components of the plan. A state measures type plan must include a backstop of federally

22 In this section, the term “state” encompasses the 50 states and the District of Columbia, U.S. territories, and any Indian tribe that has been approved by the EPA pursuant to 40 CFR 49.9 as eligible to develop and implement a CAA section 111(d) plan. Commented [A9]: Consider amending to cover only lower 48 states***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-8 enforceable standards on affected EGUs that fully meet the emission guidelines and that would be triggered if the state measures fail to result in the affected EGUs achieving on schedule the required emission reductions.
1.5 Organization of the Regulatory Impact Analysis This report presents the EPA’s analysis of the potential benefits, costs, and other economic effects of the final emission guidelines to fulfill the requirements of an RIA. This RIA includes the following chapters:

 Chapter 2, Electric Power Sector Industry Profile

 Chapter 3, Cost, Emissions, Economic, and Energy Impacts

 Chapter 4, Estimated Climate Benefits and Health Co-benefits

 Chapter 5, Economic Impacts – Markets Outside the Electricity Sector

 Chapter 6, Employment Impact Analysis

 Chapter 7, Statutory and Executive Order Analyses

 Chapter 8, Comparison of Benefits and Costs

1.6 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. 75 FR 49556. August 13, 2010. “EPA’s Denial of the Petitions to Reconsider the Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” Melillo, J.M., T.C. Richmond, and G.W. Yohe, Eds., 2014: Climate Change Impacts in the United States: The Third National Climate Assessment. U.S. Global Change Research Program. Available at <http://nca2014.globalchange.gov>. Accessed June 4, 2015.

National Research Council. Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia . Washington, DC: The National Academies Press, 2011.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

1-9 U.S. Environmental Protection Agency. EPA’s Power Sector Modeling Platform v.5.14. March 25, 2015 . Available online at <http://www.epa.gov/powersectormodeling/psmodel514.html>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-1 

### C HAPTER 

### 2: E LECTRIC 

### P OWER 

### S ECTOR 

### I NDUSTRY 

### P ROFILE

2.1 Introduction
This chapter discusses important aspects of the power sector that relate to the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, including the types of power-sector sources affected by the regulation, 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 the 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-2 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). Net generation is the amount of electricity that is available to the grid from the EGU (i.e., excluding the amount of electricity generated but used within the generating station for operations). In addition to producing electricity for sale to the grid, generators perform other services important to reliable electricity supply, such as providing 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 voltage of supplied generation.

Individual EGUs are not used to generate electricity 100 percent of the time. Individual EGUs are periodically not needed to meet the regular daily and seasonal fluctuations of electricity demand. Furthermore, EGUs relying on renewable 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. Units are also unavailable during routine and unanticipated 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 generates 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 generate steam, 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 including direct photovoltaic generation also make up a small, but growing, share of the overall electricity supply. 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.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-3 In 2012 the power sector consisted of over 19,000 generating units with a total capacity 23 of 1,168 GW, an increase of 188 GW (or 19 percent) from the capacity in 2002 (980 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 Ge nerating Capacity by Energy Source, 2002 and 2012 2002 2012 Change Between '02 and '12

Energy Source Generator Nameplate Capacity

(MW) % Total Capacit y Generator Nameplate Capacity

(MW) % Total Capacit y % Increas
e 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% Nuclea r 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 natural gas-fired capacity), Gas Turbine (30 percent), Combined Cycle Steam (19 percent), Steam Turbine (17 percent), and miscellaneous (< 1 percent).

23 As with all data presented 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 dispatched 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 equipment 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 – Draft – Do Not Cite, Quote or Release During Review***

2-4 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 operating equipment, changes in emission controls, 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 reduced 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 capacity was the second largest type of new builds (55,583 MW), augmented by 2,807 MW of solar. 24 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

24 Partially offset by 87 MW retired older 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 – Draft – Do Not Cite, Quote or Release During Review***

2-5 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 tr illion 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 share 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 percent and petroleum generation by 72 percent, while natural gas generation increased by 60 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 during 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.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-6 Table 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 present, and typically operate throughout all hours of the year. The 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 facilities (see Table 2-3). For example, coal-fired units less than 100 megawatts (MW) in size compose 37 percent of the total number 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 meet the variable portion of the electricity load and has historically supplied “peak” and “intermediate” power, when there is increased demand for electricity (for example, when businesses operate throughout the day or when people return home from work and run appliances and heating/air-conditioning), versus late at night or very early in the morning, 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-7gas fleet is between 50 and 500 MW per unit. Many of the largest gas units are gas-fired steamgenerating EGUs.

Table 2-3. Coal and Natural Gas Generating Units, by Size, Age, Capacity, and Thermal Efficiency (Heat Rate)

Unit Size 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.5.14 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-8 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.

Figure 2-2. Cumulative Distribution in 2010 of Coal and 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 v5.13 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 – Draft – Do Not Cite, Quote or Release During Review***

2-9 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 on-line at the end of 2015. This includes planned new builds already under construction and planned retirements. In areas with a d ense concentration of facilities, some facilities may be obscured.

2.2.2 Transmission
Transmission is the term used to describe the bulk transfer of 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 lines, 25 each operating synchronously. Within each of these transmission networks, there are multiple areas where the operation of power plants is monitored and

25 These three network interconnections are the Western Interconnection, comprising the western parts of both the US and Canada (approximately 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 Re liability Council of Texas (ERCOT) Interconnection, co mprising 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 – Draft – Do Not Cite, Quote or Release During Review***

2-10 controlled to ensure that electricity generation and load are kept in balance. In some areas, the operation of the transmission system is under the control of a single regional operator; in others, individual utilities coordinate the operations of their generation, transmission, and distribution systems to balance their common generation and load needs.

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 transmission 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 businesses.

Over the last few 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, electric cooperatives, an d 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 electricity for commercial, industrial and residential ultimate customers. Each of the three major ultimate categories consume roughly a***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-11 quarter to a third of the total electricity produced 26 (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 distribution between the end use categories changed very little between 2002 and 2012.

Table 2-4. Total U.S. Electric Power Indus try Retail Sales in 2012 (billion kWh)

Sales/Direct Use

(Billion kWh) Share of Total End

Use Sales/Direct Use (Billion

kWh) Share of Total End Use
Residential 1,265 35% 1,375 35.9% Commercial 1,104 30% 1,327 34.6% Industrial 990 27% 986 25.7% Transportation NA 7 0.2% Other 106 3% NA Total 3,465 95% 3,695 96%
166 5% 138 4% 3,632 100% 3,832 100% Sales

Direct Use Total End Use 2002 2012

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 i ndustrial facility use of onsite net electr icity generation; 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 establishments. The high prices 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 increasingly located relatively far from population centers (which increases transmission costs). Industrial customers generally pay the lowest average prices,

26 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 – Draft – Do Not Cite, Quote or Release During Review***

2-12 reflecting both their proximity to generating stations and the fact that industrial customers receive electricity 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 considerably. In 2011 the national average retail electricity price (all sectors) was 9.90 cents/KWh, with a range from 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), 2011***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-13 Average 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 average 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.

Figure 2-5. Nominal National Average Electricity Prices for Three 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 price index (CPI-U, which increased by 27.7 percent) 27 . 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.

27 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 2004 2006 2008 2010 2012ElectricityPrice(Cents/kWh,nominal$)

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

2-14 Figure 2-6. Relative Increases in Nominal National Average Electricity Prices for Major End-Use 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 28 (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 volatile. While the industrial real price of electricity in 2012 was relatively unchanged from 1960, residential and commercial real prices are 23 percent and 28 percent lower respectively than in 1960.

28 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 – Draft – Do Not Cite, Quote or Release During Review***

2-15 Figure 2-7. Real National Average Electricity Prices (2011$) for Three Major End-Use Categories

Source: EIA Monthly Energy Review, April 2015, 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 – Draft – Do Not Cite, Quote or Release During Review***

2-16 Figure 2-8. Relative Change in Real National Average Electricity Prices (2011$) for Three Major End-Use Categories
Source: EIA Monthly Energy Review, April 2015, Table 9.8 2.3.2 Prices of Fossil Fuels Used for Generating Electricity
Another important factor in the changes in electricity prices are the changes in fuel prices for the three major fossil fuels used in electricity generation; coal, natural gas and oil. Relative to real prices in 2002, the national average real price (in 2011$) 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 in 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 – Draft – Do Not Cite, Quote or Release During Review***

2-17 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 the 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 for generation has been low, and in fact was lower than both the population 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 – Draft – Do Not Cite, Quote or Release During Review***

2-18 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/person 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 – Draft – Do Not Cite, Quote or Release During Review***

2-19 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 structure 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 provided, 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 transportation (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 1990s. 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 technology 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-20 in the power sector involved the divestiture of generation from utilities, the formation of organized wholesale spot energy markets with economic mechanisms for the rationing of scarce transmission resources during periods of peak demand, the introduction of retail choice 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 bankruptcy 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). Eighteen 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 actions aimed at wider restructuring, and no additional states have begun retail deregulation activity since that time.

Figure 2-12. Status of State Electric ity Industry Restructuring Activities
Source: EIA 2010. “Status of Electricity Restructuring by State.” Available online at:

<http://www.eia.gov/cneaf/electricity/page/restructuring/restructure_elect.html>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-21 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 integrated 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 traditional 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 deregulation 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 29 , 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 percent 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 generation 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

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

2-22 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.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-23 Figures 2-13 and 2-14. Capacity and Generation Mix by Ownership Type, 2002 & 2012

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 data 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 and
combustion turbines. 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000

12345Capacity(MW) 

### Capacity Mix, 2002 & 2012

Series1 Series2 Series3

Series4 Series5 Series6 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

12345Generation(GW) 

### Generation Mix, 2002 & 2012

Series1 Series2 Series3

Series4 Series5 Series6

Commented [A10]: Labels need to be completed***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-24 Figures 2-15 and 2-16. Generation Capacity Built and Retired between 2002 and 2012 by Ownership Type

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 SF6), the power sector accounted for 31 percent of total nationwide greenhouse gas emissions, measured in CO 2 equivalent. Table 2-5 and Figure 2-17
show the GHG emissions 30 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.

30 CO 2 equivalent data in this section are calculated with the IPCC SAR (Second Assessment Report) GWP potential factors. 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000

1 2NewCapacity(MW) 

### Capacity Built 2002

‐ 2012 by Ownership Type

Series1 Series2 Series3 Series4 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

1 2RetiredCapacity(MW) 

### Capacity Retirements 2002

‐ 2012 by Ownership Type

Series1 Series2 Series3 Series4

Commented [A11]: labels***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-25 Table 2-5. Domestic 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% Industr y 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% 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 2-17. Domestic Emissi ons 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.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-26 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 burned as natural gas (EPA 2013).

Table 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 Gas/Fuel Type or Source 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-27 * 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 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 lifecycle 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 of new fossil fuel combustion sources to meet a 1,400 lb CO 2 /MWh emission rateinclude the use of: (1) highly efficiency coal-fired designs (e.g., modern supercritical or ultrasupercritical 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 percent natural gas, (3) natural gas combined cycle (NGCC) combustion turbine/steam-turbine units, and/or (4) conventional coal-fired generation with carbon capture and storage (CCS). While CCS is not***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-28 included in the BSER framework, it is an emerging technology with both new build and retrofit commercial-scale EGUs coming into operation in 2014 and 2015 in the United States and Canada. All of these units with CCS have received substantial subsidies to further develop and demonstrate the feasibility of CCS at a commercial scale, and the costs of these new units with CCS are not indicative of anticipated future costs of new or retrofit CCS units. CCS is briefly discussed in this section as existing (but still emerging) technology that may become economically viable in the future.

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 peak 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 el ectricity 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.

Base load electricity demand can be met with NGCC generation, coal and other fossil-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 conventional boiler-steam generators. Additionally, with gasification, some of the syngas can be converted into other marketable products such as
fertilizers and chemical feedstocks for Fish er-Tropsch processes to manufacture liquid hydrocarbons (e.g., fuels and lubricants), and CO 2 can be captured for use in EOR. Figure 2-18 Deleted:***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-29 shows the array of products (including electricity) and by-products that can be produced in a syngas process (NETL).

Figure 2-18. Marketable products from Syngas Generation
Source: National Energy Technology Lab. Gasifipedia. Available at http://www.netl.doe.gov/research/coal/energysystems/gasification/gasifipedia/co-generation
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 percent). 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 CO 2 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 illustrated for a pulverized coal power***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-30 plant in Figure 2-19. 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 – Draft – Do Not Cite, Quote or Release During Review***

2-31 Figure 2-19. 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 contained in the syngas is captured before combustion. 31 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 does post-combustion CCS. For more detail on CCS technology, see the “Report of the Interagency Task Force on Carbon Capture and Storage” (2010). 32

31 Note that pre-combustion CCS is not considered the best system of emission reduction for this standard. This information is provided for background purposes.

32 For more information on the cost and performance of CCS, see http://www.netl.doe.gov/energyanalyses/baseline_studies.html.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-32 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 2014 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 postcombustion process designed to capture 90 percent of the CO 2 emitted by Unit #3. Retrofitting the carbon capture system reduced the capacity of the unit 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-33 being stored in a nearby research and monitoring geological storage facility, where the captured
CO 2 will be injected 3.4 kilometers underground into a sandstone formation located below the major coal field supplying lignite to Unit # 3. The remaining captured CO2 will be injected into deep saline formations.

In the United States, there are two commercial-scale CCS facilities nearing 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, Texas.
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 County project. The control system is designed to capture 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 about 800 pounds per MWh produced. The current total cost estimate is $5.6 billion, a substantial increase from the original $2.4 billion estimate. 33 The 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. 34

The only other commercial-scale electricity power sector CCS project currently under construction in the United States is the W.A. Parish Petra 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

33 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 at: http://www.psc.state.ms.us/InsiteConnect/InSiteView.aspx?model=INSITE_CONNECT&queue=CTS_ARCHIVEQ &docid=328417

34 Carbon Capture and Sequestration Technologies Program at MIT. Accessed 1/23/2015. https://sequestration.mit.edu/tools/projects/kemper.html***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-34 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 the CCS unit. The 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 awarded 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. 35

2.6.2 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. 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 geologic storage. The geographic availability of deep saline formations, EOR, and un-mineable coal seams is shown in Figure 2-14. Estimates 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 2012a Carbon Utilization and Storage Atlas (discussed below) are provided in Table 2-8.

35 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 – Draft – Do Not Cite, Quote or Release During Review***

2-35 Figure 2-19. Geologic Sequestration in the Continental United States
Sources: EPA Greenhouse Gas Reporting Program; Department of Energy, NATCARB; Department of Transportation, National Pipeline Management System.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-36 Table 2-8. Total CO 2 Storage Resource (DOE-NETL) 36
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

36 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 – Draft – Do Not Cite, Quote or Release During Review***

2-37 Table 2-8. Total CO 2 Storage Resource, continued

Million Metric Tons*

State Low Estimate High Estimate Michigan 19,050 47,210
Minnesota not assessed not assessed Mississippi 145,010 1,185,030
Missouri 10 170
Montana 84,580 912,720
Nebraska 23,770 113,240
Nevada not assessed not assessed New Hampshire not assessed not assessed 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 not assessed
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 not assessed Virginia 440 2,910 Washington 36,620 496,730 West Virginia 16,650 16,650
Wisconsin 0 0 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 the RCSPs have been identified.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-38 2.6.3 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) using volumetric models and published in a Carbon Utilization and Storage Atlas. 37 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. According to DOE and 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 evalua tion of the technically accessible GS resources
for CO 2 in U.S. onshore areas and state waters using probabilistic assessment. 38 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 in Figure 2-14, there are 39 states for which onshore and offshore deep saline formation storage capacity has been identified. 39

2.6.4 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 United 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. 40 More than half of the projects evaluated in the study have been in operation for

37 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).

38 U.S. Geological 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/.

39 Alaska is not shown in the figure; it has deep saline formation storage capacity, geology amenable to EOR operations, and potential GS capacity in unmineable coal.

40 Koottungal, Leena, 2014, 2014 Worldwide EOR Survey, Oil & Gas Journal, Volume 112, Issue 4, April 7, 2014 (corrected tables appear in Volume 112, Issue 5, May 5, 2014).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-39 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 across geographically diverse areas.

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 100 kilometers (62 miles) of current EOR operations (see Figure 2-14). 41 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 magnitude 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 operations at a single oil field may last for decades, injecting into multiple parts of the field. 42 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 States in
2013. 43 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. 44

41 The distance of 100 kilometers reflects the assumptions in the DOE-NETL cost estimates.

42 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.

43 Greenhouse Gas Reporting Program, data reported as of August 18, 2013.

44 Greenhouse Gas Reporting Program, data reported as of August 18, 2013.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-40 A DOE-sponsored study has analyzed the geographic availability of applying 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. 45 DOEsponsored geologic and engineering analyses show that expanding 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 available.

2.7 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 CO 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 25 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 from
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

45 “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.gov/research/energy-analysis/publications/details?pub=df02ffba-6b4b-4721-a7b4- 04a505a19185.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-41 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.

In September 2006, California Governor Schwarzenegger 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 California 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 Governor 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 included 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 $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 load 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 46 the emission limit to 970 lb CO 2 /MWh-net based on a survey of available NGCC generation units commercially available in the United States.

46 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 – Draft – Do Not Cite, Quote or Release During Review***

2-42 In 1997 Oregon required a new baseload gas fired power plants to meet a CO 2 emission standard that was 17 percent below the most efficient NGCC unit operating in the United States. In 2000 Oregon established that the effective 17 percent 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 prohibitedutilities from entering into long-term purchase agreements for baseload electricity with out-ofstate 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 regulations established 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, and peaking facilities
must meet a CO 2 standard of 1,450 lbs/MWh-net or 160 lbs/MMBtu.

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 EGUs. 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 to facilities that capture and sequester at least half of their CO 2 emissions. Minnesota enacted the Next Generation Energy Act in 2007 requiring increa ses 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 located 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 they 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-43 Guam have enforceable RPS or other mandatory renewable capacity policies, and eight states, Puerto Rico, and Guam have voluntary goals. 47 These programs vary widely in structure, enforcement, and scope.

2.8 Revenues and Expenses
Due to lower retail electricity sales, 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 comparison 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 2012 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 return 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).

47 EIA 2012a***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-44 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 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).

2.9 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 heating 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 has since fallen dramatically to a low of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-45 $3.42/mmBtu in 2012. During that time, the daily price 48 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 average price of natural gas delivered to the power sector peaked at $9.38/mmBtu in 2008 and has fallen dramatically to a low of $3.36 in 2012. The annual natural gas prices in both nominal and real (2011$) terms are in Figure 2-22. A comparison of the trends in the real price of natural gas with the real prices of delivered coal and oil are shown in Figure 2-23. Figure 2-23 shows that while the real price of coal and oil increased from 2002 to 2012 (+54 percent and +203 percent respectively), the 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 increased 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 2-20. Relative Change Nominal and Real (2011$) Prices of Natural Gas Delivered to the Power Sector ($/MMBtu)

Source: http://www.eia.gov/tot alenergy/data/monthly/#prices. Downloaded 2/15/2015.

48 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 gas 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. $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 – Draft – Do Not Cite, Quote or Release During Review***

2-46 Figure 2-21. Relative Change in Real (2011$) Prices of Fossil Fuels Delivered to the Power Sector ($/mmBtu)

Source: http://www.eia.gov/tot alenergy/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 gas. According to AEO 2012 (EIA 2012):

Shale gas refers to natural gas that is trapped within shale formations. Shales are finegrained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal 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 2014 estimates that the United States possessed 2,266 trillion cubic feet (Tcf) of technically recoverable dry natural gas resources as of January 1, 2012. Proven reserves make up 15 percent of the technically

‐ 50%

0% 50% 100% 150% 200% 250%

2002 2004 2006 2008 2010 2012

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

2-47 recoverable total estimate, with the remaining 85 percent from unproven reserves. Natural gas from proven and unproven shale resources accounts for 611 Tcf of this resource estimate.

Many shale formations, especially the Marcellus 49 , 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 geological and production information becomes available. Consequently, there is some uncertainty in the 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. 50

EIA’s projections of natural gas conditions did not change substantially in AEO 2014 from either the AEO 2012 or 2013, and EIA 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 51 for domestic natural gas production. 52

49 The Marcellus formation, underlying most of Pennsylvania and West Virginia, along with portions of New York and Ohio, in 2014 produced 36% of the U.S. total natural gas extracted from shale formations.

50 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

51 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

52 http://www.eia.gov/oiaf/aeo/tablebrowser/#re lease=AEO2014&subject=8-AEO2014&table=72- AEO2014®ion=0-0&cases=ref2014-d102413a***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-48 2.10 References

Advanced Resources International. 2011. Improving Domestic Energy Security and Lowering CO 2 Emissions with “Next Generation” CO 2 -Enhanced Oil Recovery (CO 2 -EOR) . Availableat <http://www.netl.doe.gov/research/energy-analysis/publications/details?pub=df02ffba6b4b-4721-a7b4-04a505a19185>. Accessed June 9, 2015. Clean Energy States Alliance (CESA). The State of State Renewable Portfolio Standards . June 2013. Available Online at Han, Weon S., McPherson, B J., Lichtner, P C., and Wang, F P. 2010. 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: 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&que ue=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 at http://www.epa.gov/climatechange/downloads/CCS-Task-Force-Report-2010.pdf>. Accessed June 9, 2015. Intergovernmental Panel on Climate Change. 2001. Climate Change 2001: The Scientific Basis

. Available at <http://www.grida.no/publications/other/ipcc_tar/?src=/climate/ipcc_tar/wg1/218.htm>. Accessed June 9, 2015. International Energy Agency (IEA). 2013. Tracking Clean Energy Progress 2013. Input to the Clean Energy Ministerial. Available at <http://www.iea.org/etp/tracking/>. Accessed June 9, 2015. Koottungal, Leena. 2014. 2014 Worldwide EOR Survey , Oil & Gas Journal, Volume 112, Issue 4, April 7, 2014 (corrected tables appear in Volume 112, Issue 5, May 5, 2014). National Energy Technology Laboratory (NETL). 2008. Reducing CO 2 Emissions by Improving the Efficiency of Existing Coal-fired Power Plant Fleet . Available at <http://www.netl.doe.gov/energy-analyses/ pubs/CFPP%20Efficiency-FINAL.pdf>. Accessed June 9, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-49 National Energy Technology Laboratory (NETL). 2012. The United States 2012 Carbon Utilization and Storage Atlas, Fourth Edition . Available at <http://www.netl.doe.gov/technologies/carbon_se q/refshelf/atlasIV/>. Accessed June 9, 2015. National Energy Technology Laboratory (NETL). 2013. Energy Analyses: Cost and Performance Baselines for Fossil Energy Plants. Available at <http://www.netl.doe.gov/energy-analyses/baseline_studies.html>. Accessed June 9, 2015. Pacific Northwest National Laboratory (PNNL). 2009. An Assessment of the Commercial Availability of Carbon Dioxide Capture and Storage Technologies as of June 2009. Available at <http://www.pnl.gov/science/pdf/PNNL-18520_Status_of_CCS_062009.pdf>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2000. Carbon Dioxide Emissions from the Generation of Electric Power in the United States. Available at <ftp://ftp.eia.doe.gov/environment/co2emiss00.pdf>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2003. Electric Power Annual 2003. Available at <http://www.eia.gov/electricity/annual/archive/03482003.pdf>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2009. Electric Power Annual 2009

. Available at <http://www.eia.gov/electricity/annual/archive/03482009.pdf>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2013. Electric Power Annual 2013. Available at <http://www.eia.gov/electricity/annual/>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2010a. “Status of Electricity Restructuring by State.” Available at <http://www.eia.gov/cneaf/electricity/page/restructuring/restructure_elect.html>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2010b. AEO 2010 Retrospective Review

. Available at <http://www.eia.gov/forecasts/aeo/retrospective/>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2010c. Annual Energy Outlook 2010

. Available at <http://www.eia.gov/oiaf/archive/aeo10/index.html>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2010d. Annual Energy Review 2010

. Available at <http://www.eia.gov/totalenergy/data/annual/pdf/aer.pdf>. Accessed June 9, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

2-50 U.S. Energy Information Administration (U.S. EIA). 2011. Annual Energy Outlook 2011

. Available at <http://www.eia.gov/forecasts/archive/aeo11/>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2012. Annual Energy Outlook 2012 (Early Release) . Available at <http://www.eia.gov/forecasts/aeo/>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). Today in Energy: Most states have Renewable Portfolio Standards. 2012a. Available at <http://www.eia.gov/todayinenergy/detail.cfm?id=4850>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2013. Annual Energy Outlook 2013

. Available at <http://www.eia.gov/forecasts/aeo/>. Accessed June 9, 2015. U.S. Energy Information Administration (U.S. EIA). 2015. Monthly Energy Review, April 2015

. Available at <http://www.eia.gov/totalenergy/data/monthly/>. Accessed June 9, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2011 . Available at <http://www.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2013- Main-Text.pdf>. Accessed June 9, 2015. U.S. Geological Survey (USGS) Carbon Dioxide Storage Resources Assessment Team. 2013. National assessment of geologic carbon dioxide storage resources – Results: U.S. Geological Survey Circular 1386 . Available at <http://pubs.usgs.gov/circ/1386/>. Accessed June 9, 2015***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-1 

### C HAPTER 

### 3: C OST 

### , E MISSIONS 

### , E CONOMIC 

### , AND 

### E NERGY 

### I MPACTS

3.1 Introduction This chapter reports the compliance cost, emissions, economic, and energy impact analysis performed for the Clean Power Plan Final Rule. EPA used the Integrated Planning Model (IPM), developed by ICF International, to conduct most of the analysis discussed in this Chapter. IPM is a dynamic linear programming model that can be used to examine air pollution control policies for CO 2 , SO 2 , NO X , Hg, HCl, and other air pollutants throughout the contiguous United States for the entire power system. The IPM electricity demand projections are based on projections from the Energy Information Administ ration (EIA), adjusted for demand-side energy efficiency measures that can be reasonably anticipated to occur under the Clean Power Plan.

3.2 Overview This chapter of the RIA presents illustrative analyses of the final rule by making assumptions about the possible approaches that States might pursue as they develop their state plans. Over the last decade, EPA has conducted extensive analyses of regulatory actions affecting the power sector. These efforts support the Agency’s understanding of key variables that influence the effects of a policy and provide the framework for how the Agency estimates
the costs and benefits associated with its actions.
3.3 Power Sector Modelling Framework The Integrated Planning Model (IPM), developed by ICF Consulting, 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 contiguous United States for the entire electric power system. EPA used IPM to project likely future electricity market conditions with and without the Clean Power Plan Final Rule. Additional demand side energy efficiency measures that may be adopted in response to the regulation, and the resulting changes to future demand projections, are also accounted for in the illustrative plan approach analyses. The level of demand side energy efficiency-driven reductions in electricity demand, and their associated costs, are reported in section 3.6.
IPM is a multi-regional, dynamic, deterministic linear programming model of the contiguous U.S. electric power sector. It provides forecasts of least cost capacity expansion,***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-2 electricity dispatch, and emission control strategies while meeting energy demand and environmental, transmission, dispatch, and reliability constraints. EPA has used IPM for over two decades to better understand power sector behavior under future business-as-usual conditions and to evaluate the economic and emission impacts of prospective environmental policies. The model is designed to reflect electricity markets as accurately as possible. EPA uses the best available information from utilities, industry experts, gas and coal market experts, financial institutions, and government statistics as the basis for the detailed power sector modeling in IPM. The model documentation provides additional information on the assumptions discussed here as well as all other model assumptions and inputs. 53
The model incorporates a detailed representation of the fossil-fuel supply system that is used to forecast equilibrium fuel prices. The model includes an endogenous representation of the North American natural gas supply system through a natural gas module that reflects a partial supply/demand equilibrium of the North American gas market accounting for varying levels of potential power sector and non-power sector gas demand and corresponding gas production and price levels. 54 This module consists of 118 supply, demand, and storage nodes and 15 liquefied natural gas re-gasification facility locations that are tied together by a series of linkages (i.e., pipelines) that represent the North American natural gas transmission and distribution network.
IPM also endogenously models the partial equilibrium of coal supply and EGU coal demand levels throughout the contiguous U.S., taking into account assumed non-power sector demand and imports/exports. IPM reflects 36 co al supply regions, 14 coal grades, and the coal transport network, which consists of over four thousand linkages representing rail, barge, and truck and conveyer linkages. The coal supply curves in IPM were developed during a thorough bottom-up, mine-by-mine approach that depicts the coal choices and associated supply costs that power plants would face if selecting that coal over the modeling time horizon. The IPM

53 Detailed information and documentation of EPA’s Base Case using IPM (v5.15), including all the underlying assumptions, data sources, and architecture parameters can be found on EPA’s website at: http://www.epa.gov/powersectormodeling

54 See Chapter 10 of EPA’s Base Case using IPM (v5.154) documentation, available at: http://www.epa.gov/powersectormodeling***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-3 documentation outlines the methods and data used to quantify the economically recoverable coal reserves, characterize their cost, and build the 36 coal regions’ supply curves. 55
The costs presented in this RIA include both the IPM-projected annualized estimates of private compliance costs as well as the estimated costs incurred by utilities and ratepayers to achieve demand-side energy efficiency improvements. The IPM-projected annualized estimates of private compliance costs provided in this analysis are meant to show the increase in production (generating) costs to the power sector in response to the final rule.
To estimate these annualized costs, EPA uses a conventional and widely-accepted approach that applies a capital recovery factor (CRF) multiplier to capital investments and adds that to the annual incremental operating expenses. The CRF is derived from estimates of the cost of capital (private discount rate), the amount of insurance coverage required, local property taxes, and the life of capital. 56 It is important to note that there is no single CRF factor applied in the model; rather, the CRF varies across technologies in the model in order to better simulate power sector decisionmaking.
While the CRF is used to annualize costs within IPM, a discount rate is used to estimate the net present value of the intertemporal flow of the annualized capital and operating costs. The optimization model then identifies power sector investment decisions that minimize the net present value of all costs over the full planning horizon while satisfying a wide range of demand, capacity, reliability, emissions, and other constraints. As explained in Chapter 8 of the IPM documentation, the discount rate is derived as a weighted average cost of capital which is a function of capital structure, post-tax cost of debt, and post-tax cost of equity. While the detailed formulation of this rate is presented in the IPM documentation, the rate estimated and used in the current analysis is 4.77 percent.It is important to note that this discount rate is selected for the purposes of best simulating power sector behavior, and not for the purposes of discounting social
costs or benefits.

55 See Chapter 9 of EPA’s Base Case using IPM (v5.15) documentation, available at: http://www.epa.gov/powersectormodeling

56 See Chapter 8 of EPA’s Base Case using IPM (v5.15) documentation, available at: http://www.epa.gov/powersectormodeling.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-4 EPA has used IPM extensively over the past two decades to analyze options for reducing power sector emissions. Previously, the model has been used to forecast the costs, emission changes, and power sector impacts for the Clean Air Interstate Rule, Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS), and the proposed Carbon Pollution Standards for New Power Plants. Recently IPM has also been used to estimate the air pollution reductions and 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).
The model and EPA's input assumptions undergo periodic formal peer review. The rulemaking process also provides opportunity for expert review and comment by a variety of stakeholders, including owners and operators of capacity in the electricity sector that is represented by the model, public interest groups, an d other developers of U.S. electricity sector models. The feedback that the Agency receives provides a highly-detailed review of key input assumptions, model representation, and modeling results. IPM has received extensive review by energy and environmental modeling experts in a variety of contexts. For example, in the late 1990s, the Science Advisory Board reviewed IPM as part of the CAA Amendments Section 812 prospective studies that are periodically conducted. The model has also undergone considerable interagency scrutiny when it was used to conduct over a dozen legislative analyses (performed at Congressional request) over the past decade. The Agency has also used the model in a number of comparative modeling exercises sponsored by Stanford University’s Energy Modeling Forum 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.
3.4 Recent Updates to EPA’s Base Case using IPM (v.5.15) The “Base Case” for this analysis is a business-as-usual scenario that would be expected under market and regulatory conditions in the abse nce 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 demand forecasts, as well as, expected costs and availability of new and existing generating resources, fuels, and emissions control technologies.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-5 EPA’s IPM modeling platform used to analyze this final rule (v.5.15) incorporates updates to the version of the model used to analyze the impacts of the proposed rule (v.5.13). These updates are primarily routine calibrations with the Energy Information Agency's (EIA) Annual Energy Outlook (AEO), including updating the electric demand forecast consistent withthe AEO 2015 and an update to natural gas supply. Additional updates, based on the most up-todate information and/or public comments received by EPA, include unit-level specifications (e.g., control configuration), planned new power plant construction and closures, and updated cost and performance for onshore wind and utility-scale solar technologies. This IPM modeling platform incorporates federal and most state laws and regulations whose provisions were either in effect or enacted and clearly delineated in March 2015. This update also includes two non-air federal rules affecting EGUs: Cooling Water Intakes (316(b)) Rule and Combustion Residuals from Electric Utilities (CCR). Additionally, all new capacity projected by the model is compliant with Clean Air Act 111(b) standards. For a detailed account of all updates made to the v.5.15 modeling platform, see the Incremental Documentation for EPA Base Case v.5.15 Using IPM. 57
EPA also updated the National Electric Energy Data System (NEEDS). This database
contains the unit-level data that is used to cons truct the "model" plants that represent existing and committed units in EPA modeling applications of IPM. NEEDS includes detailed information on each individual EGU, including geographic, operating, air emissions, and other data on every generating units in the contiguous U.S. 58

3.5 State Goals in this Final Rule In this final rule, the EPA is establishing CO 2 emission performance rates for two categories of existing fossil fuel-fired EGUs, fossil fuel-fired electric utility steam generating units and stationary combustion turbines. The EPA has translated the source category-specific
CO 2 emission performance rates into equivalent state-level rate-based and mass-based CO 2 goals in order to expand the range of choices that states will have in developing their plans. Due to the range of choices available to states, and the lack of a priori knowledge about the specific choices states will make in response to the final goals, this RIA presents two scenarios designed to

57 Available at: http://www.epa.gov/powersectormodeling/

58 The NEEDS database can be found on the EPA’s website for the Base Case using IPM (v5.15), <http://www.epa.gov/powersectormodeling >. Commented [A12]: Can you please clarify further – does this include official/ announced future retirements?***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-6achieve these goals, which we term the “rate-based” illustrative plan approach and the “massbased” illustrative plan approach. Table 3-1 presents the rate-based and mass-based state goals.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-7 Table 3-1. Statewide CO 2 Emission Performance Goals, Rate-based and Mass-based

Rate-Based(Adjusted Output-WeightedAverage Pounds of CO2 Per Net MWh From All Affected

Fossil Fuel-Fired EGUs) Mass-Based(Adjusted Output-WeightedAverage Metric Tons of CO2 From

All Affected Fossil Fuel-Fired EGUs)

State Interim Goal Final Goal Interim Goal Final Goal Alabama 1,156 1,018 56,432,886 51,599,803 Arkansas 1,304 1,130 30,554,805 27,507,539 Arizona 1,173 1,031 29,991,524 27,369,757 California 906 828 46,289,448 43,915,819 Colorado 1,362 1,174 30,279,604 27,117,614 Connecticut 851 786 6,565,914 6,297,085 Delaware 1,022 916 4,592,743 4,274,388 Florida 1,026 919 102,493,187 95,337,918 Lands of the Fort Mojave Tribe 831 771 554,370 533,882 Georgia 1,197 1,049 46,196,486 42,044,096 Iowa 1,505 1,283 25,632,850 22,698,346 Idaho 831 771 1,322,487 1,273,611 Illinois 1,455 1,245 67,852,887 60,305,548 Indiana 1,451 1,242 77,664,415 69,047,576 Kansas 1,518 1,293 22,550,167 19,949,240 Kentucky 1,509 1,286 64,688,636 57,265,616 Louisiana 1,292 1,121 35,659,254 32,138,047 Massachusetts 901 824 11,564,122 10,980,965 Maryland 1,510 1,287 14,703,722 13,015,622 Maine 841 779 1,957,557 1,881,144 Michigan 1,354 1,169 48,129,127 43,130,166 Minnesota 1,413 1,213 23,071,207 20,572,953 Missouri 1,490 1,272 56,757,481 50,313,819 Mississippi 1,060 945 24,799,644 22,955,132 Montana 1,534 1,305 11,603,144 10,253,749 Lands of the Navajo Nation 1,534 1,305 22,276,621 19,685,947 North Carolina 1,311 1,136 51,693,220 46,506,777 North Dakota 1,534 1,305 21,437,569 18,944,473 Nebraska 1,522 1,296 18,742,279 16,576,333 New Hampshire 946 858 3,849,483 3,626,452 New Jersey 885 812 15,808,468 15,058,657 New Mexico 1,325 1,146 12,532,374 11,260,240 Nevada 941 855 13,012,251 12,268,081 New York 1,024 918 30,475,737 28,355,550***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-8 Ohio 1,383 1,190 74,861,210 66,921,162 Oklahoma 1,222 1,068 40,467,213 36,729,354 Oregon 963 871 7,840,631 7,364,934 Pennsylvania 1,258 1,095 90,105,397 81,483,381 Rhode Island 831 771 3,317,849 3,195,228 South Carolina 1,337 1,156 26,278,911 23,585,275 South Dakota 1,351 1,166 3,571,517 3,201,472 Tennessee 1,410 1,211 28,832,545 25,716,586 Texas 1,187 1,042 188,765,209 171,987,787 Lands of the Uintah and Ouray Reservation 1,534 1,305 2,323,513 2,053,298 Utah 1,368 1,179 24,098,838 21,570,672 Virginia 1,046 934 26,833,268 24,886,275 Washington 1,110 983 10,595,066 9,742,168 Wisconsin 1,364 1,176 28,355,019 25,388,731 West Virginia 1,534 1,305 52,687,755 46,560,398 Wyoming 1,526 1,299 32,456,457 28,697,535

3.6 Illustrative Plan Approaches Analyzed To estimate the costs, benefits, and economic and energy market impacts of implementing the CPP guidelines, the EPA modeled tw o illustrative plan approaches, each at the state level, based on a rate-based approach and a mass-based approach. The rate-based plan approach requires affected sources in each state to achieve a single average emissions rate in each period as represented by the state-wide goals. The mass-based plan approach requires affected sources in each state to limit their aggregate emissions not to exceed the mass goal for
that state.
In each of these scenarios, affected EGUs include:

 Existing fossil steam boilers with nameplate capacity greater than 25 MW

 Existing NGCC units with nameplate capacity greater than 25 MW
In the rate-based scenario, generation (or avoided generation) from these additional sources represented in the model is counted toward meeting state goals:

 All renewable capacity (hydro, solar PV, wind, geothermal) that comes online
after 2012***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-9  Under-construction nuclear 59

 Demand-side energy efficiency in addition to levels implicit in base case electricity demand.
In the rate-based illustrative plan approach analyzed in this RIA, the affected EGUs within each state are required to achieve an average emissions rate that is less than or equal to the state goals for each state. In order meet the goal for each state, the affected sources in this scenario have the ability to do one or both of the following:
1) generate in amounts within that state such that the average emissions rate is achieved,
and/or
2) include in the average emissions rate calculation new renewable generation or demand-side energy efficiency located outs ide of the state but within each of the illustrative Interconnection-based regions shown in Figure 3-1 below. 60

59 Includes three nuclear facilities at which construction has already commenced: Watts Barr (TN), Vogtle (GA), and Summer (SC)

60 In this scenario, energy efficiency/renewable energy procurement is limited to within one of the three illustrative regions, as a conservative modeling approach. Since the interconnects do not always follow state borders, certain states that fall into more than one region were grouped in regions where there was a majority of geographic territory (area) or generation. In practice, sources in states that have adopted rate-based plans may be able to procure energy efficiency/renewable energy from states outside of these illustrative regions.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-10 Figure 3-1. Illustrative Regions for Demand-Side Energy Efficiency/Renewable Energy Procurement Used in this Analysis This rate-based implementation plan approach enables some sources to emit at rates higher than their applicable state goal, as long as there is corresponding generation coming from affected sources in that state that emits at a lower rate, such that each state’s goal (in lbs/MWh) is met across all affected sources located within the state, plus generation (or avoided generation) from energy efficiency/renewable energy which is procured from within the illustrative regions. In this rate-based scenario, specific gene ration (or avoided generation) from energy efficiency/renewable energy procurement may only be used once for compliance toward a state goal; in other words, while emitting sources in all states may avail themselves of qualifying energy efficiency/renewable energy across the illustrative region, no particular energy efficiency/renewable energy MWh can be claimed by more than one emitter as part of reaching a state goal.
While the final rule enables states to achieve their mass goals with the flexibility of interstate trading, this RIA presents analysis of an illustrative plan approach that conservatively assumes that each state achieves its goal independently. Cooperation between the states that allows for trading across states would provide EGUs with additional low cost abatement opportunities and would therefore lower the overall cost of compliance across the affected states. Deleted: is***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-11 Each illustrative plan approach assumes identical levels of demand-side energy efficiency megawatt-hour (MWh) demand reductions and associated costs, which are specified exogenously and consistent with the energy efficiency plan scenario performance levels described in section 3.6. Details of the implementation of the demand reduction are reported in the following section.
The mass-based scenario presented in this chapter includes a 5 percent set-aside of allowances that would be allocated to recognize deployment of new renewable capacity, which is represented by lowering the capital cost of new renewable capacity by the estimated value of the allowances in the set-aside. The value of the set-aside is estimated in each model run year as the total allowances in the set-asides of each state in the contiguous U.S. multiplied by the projected average allowance price over the contiguous U.S. for that year. This total value is then assumed to apply evenly to all new renewable capacity.
The full array of estimates for the benefits, costs, and economic impacts of this action are presented for both the illustrative rate-based and mass-based illustrative plan approaches. These illustrative plan approaches are designed to reflect, to the extent possible, the scope and nature of the CPP guidelines. However, there is considerable uncertainty with regard to the regulatory form and precise measures that states will adopt to meet the requirements, since there are considerable flexibilities afforded to the states in developing state plans. Nonetheless, the analysis of the benefits, costs, and relevant impacts of the rule attempts to encapsulate some of those flexibilities in order to inform states and stakeholders of the potential overall impacts of the CPP. The relevant impacts, costs, and benefits are provided for 2020 (prior to implementation of the rule), 2025, and 2030.
It is also important to note that the analysis does not specify any particular CO 2 reduction measure to occur, with the exception of the level of demand-side energy efficiency assumed to be adopted in response to the CPP. In other word s, aside from investments in energy efficiency, the analysis allows the power system the flexibility to respond to average emissions rate or massconstraints on affected sources in the illustrative scenarios to achieve the goals in the most costeffective manner determined by IPM, as specified below.
While IPM produces a cost-minimizing solution to achieve the state goals imposed in the illustrative scenarios, there may be yet lower-cost approaches that the states may adopt to Commented [A13]: Would be helpful to note that while the mass-based scenario includes the rene wable energy set-aside, it does not include the output-based allocation to existing gas***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-12 achieve their state goals inasmuch as states and sources take advantage of emission reduction opportunities in practice, and flexibilities afforded under the final rule, that are not represented in this analysis and would yield different cost and emissions outcomes.
As previously noted, the power sector modeling and analysis presented in this chapter is intended to be illustrative in nature, and reflects the EPA’s best assessment of likely impacts of the CPP under a range of approaches that states may adopt. The modeling is designed to reflect the rule’s requirements, including the timing, applicability to sources, and flexibilities across the power system as accurately as possible to re present the nature and scope of the CPP. The analysis is a reasonable expectation of the incremental effects of the rule, and is consistent with past EPA analyses of power sector regulatory requirements (and estimates of the costs and benefits).
For the CPP, the analysis and projections for the year 2025 reflect the impacts across the power system of complying with the interim goals, and the analysis and projections for 2030 reflect the impacts of complying with the final goals. In addition to the 2025 and 2030 projections, modeling results and projections are also shown for 2020. There is no regulatory requirement reflected in the 2020 run-year in IPM, consistent with the final rule. These years reflect the basic run-year structure in IPM, as configured by EPA.
Although the analysis of the CPP does not include estimates of the costs and benefits of the CPP across each year of the rule in a year-by-year manner, the EPA has reflected the structure of the rule, including the interim and the final state goals of the CPP, in a manner that is consistent with the regulatory requirements. This is also consistent with past practice, including analysis of the Clean Air Interstate Rule, the Cross State Air Pollution Rule, the NOx SIP Call, National Ambient Air Quality Standards, the Acid Rain Program, and state rules. These past regulatory and legislative efforts included modeling and analysis in a similar manner, where select analytic years reflected projections of policy impacts for rules that include multi-year compliance periods. Commented [A14]: A more complete discussion of what is driving the results for 2020 here or elsewhere in the RIA would be helpful.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-13 3.7 Demand-Side Energy Efficiency
3.7.1 Demand-Side Energy Efficiency Improvements (Electricity Demand Reductions) 61
The final CPP provides states the flexibility to use demand reductions resulting from demand-side energy efficiency measures as a component of their plan strategy, either directly recognized towards compliance with a rate-based goal or as a complementary approach forachieving a mass-based goal. The EPA has included in our illustrative plan scenarios (both rateand mass-based) a level of demand reduction that could be achieved, and the associated costsincurred, through implementation of demand-side energy efficiency measures. This “demandside energy efficiency plan scenario” represents a level of performance that has already been demonstrated or is required by policies (e.g., energy efficiency resource standards) of leading energy efficiency implementing states, and is consistent with a demonstrated or required annual pace of performance improvement over time. The resulting levels of demand reduction are consistent with recent studies of achievable demand reduction potential conducted throughout the U.S. For these reasons the demand-side energy efficiency plan scenario represents a reasonable assumption about the level of demand-side energy efficiency investments that may be encouraged in response to the final CPP.
For the illustrative demand-side energy efficiency plan scenario, electricity demand reductions for each state for each year are developed by ramping up from a historical basis 62 to a target annual incremental demand reduction rate of 1.0 percent of electricity demand over a period of years starting in 2020, and maintaining that rate throughout the modeling horizon. Nineteen leading states have either achieved, or have established requirements that will lead them to achieve, this rate of incremental electricity demand reduction on an annual basis. Based on historic performance and existing state requirements, for each state the pace of improvement from the state’s historical incremental demand reduction rate is set at 0.2 percent per year, beginning in 2020, until the target rate of 1.0 percent is achieved. States already at or above the

61 For a more detailed discussion of the demand-side energy efficiency demand reductions and their associated costs, refer to U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

62 The historical basis of the percentage of reduced electricity consumption differs for each state and is drawn from the data reported in Energy Information Administration (EIA) Form 861, 2013, available at http://www.eia.gov/electricity/data/eia861/.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-14 1.0 percent target rate are assumed to achieve a 1.0 percent rate beginning in 2020 and sustain that rate thereafter. The incremental demand reduction rate for each state, for each year, is used to derive cumulative annual electricity demand reductions based upon information about the average life of energy efficiency measures and the distribution of measure lives across energy efficiency programs. The cumulative annual electricity demand reduction derived using this methodology is used to adjust base case electricity demand levels in the illustrative plan approach modeling.
To reflect the implementation of the illustrative energy efficiency plan scenario in modeling, the IPM base case electricity demand was adjusted exogenously to reflect the estimated future-year demand reductions calculated as described above. State-level demand reductions were scaled up to account for transmission losses and applied to base case generation demand in each model year to derive adjusted demand for each state, reflecting the energy efficiency plan scenario energy reductions. The demand adjustments were applied proportionally across all segments (peak and non-peak) of the load duration curve. 63 To reflect the adjusted state-level demand within IPM model regions that cross state borders, energy reductions from a bisected state were distributed between the applicable IPM model regions using a distribution approach based on reported sales in 2013 as a proxy for the distribution of energy efficiency investment opportunities.
Table 3-2 summarizes the results of the illustrative demand-side energy efficiency plan
scenario at the national level.
Table 3-2. Demand-Side Energy Efficiency Plan Scenario: Net Cumulative Demand Reductions [Contiguous U.S.] (GWh and as Percent of BAU Sales) 2020 2025 2030 Net Cumulative Demand Reduction (GWh) 23,150 194,126 327,092 Net Cumulative Demand Reduction as Percent of BAU Sales 0.59% 4.81% 7.83% Source: U.S. EPA. 2015. Technical Support Document (TSD) for the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

63 Details and reasoning for this assumption are included in U.S. EPA. 2015. Technical Support Document (TSD) for the Final Carbon Pollution Emission Guidelines for Ex isting Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. Commented [A15]: It would be helpful to have a brief discussion here of the EE already present in the AEO2015 baseline.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-15 3.7.2 Demand-Side Energy Efficiency Costs 64
Total costs of achieving the demand-side energy efficiency plan scenario for each year were calculated exogenous to the power sector modeling. The power system cost impacts resulting from the illustrative plan approach analyses were captured within IPM and include the effects of reduced demand levels driven by the energy efficiency scenario discussed above. The integration of the exogenously calculated demand-side energy efficiency scenario costs with the power system cost impacts of the illustrative plan approaches are discussed in section 3.7.2. In addition to the demand reduction results, the demand-side energy efficiency costs were based upon an estimate of the total first-year cost of saved energy (i.e., reduced demand), the average life of the demand-side energy efficiency measures, the distribution of those measure lives, and cost factors as greater levels of demand reductions are achieved. The total first-year cost of saved energy accounts for both the costs of the demand-side energy efficiency programs, known as the program costs, and the additional cost to electricity consumers participating in the program (e.g., purchasing a more energy efficient technology), known as the participant costs.
To calculate total annualized demand-side energy efficiency costs, first-year costs for each year for each state were levelized (at 3 percent and 7 percent discount rates) over the estimated distribution of measure lives and the results summed for each year for each state. Forexample, the 2025 estimate of annualized energy efficiency cost includes levelized value of firstyear costs for energy efficiency investments made in 2020 through 2025. The annualized costs rise in each analysis year as additional first-year costs are incurred. The annualized cost results are summarized below in Table 3-3. The total levelized cost of saved energy was calculated based upon the same inputs and using a 3 percent discount rate resulted in national average values of 9.2 cents per kWh in 2020, 8.6 cents per kWh in 2025, and 8.1 cents per kWh in 2030.

64 For a more detailed discussion of the demand-side energy efficiency cost analysis, refer to the Demand-Side Energy Efficiency TSD. Commented [A16]: Note cross-reference problems here and elsewhere.

Commented [A17]: Clarification of why the levelized cost of EE declines over time would be helpful***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-16 Table 3-3. Annualized Cost of Demand-Side En ergy Efficiency Plan Scenario [Contiguous U.S.] (at discount rates of 3 perc ent and 7 percent, billions 2011$)
Discount Rate 2018 2020 2025 2030 at 3 percent 0.0 2.1 16.7 26.3 at 7 percent 0.0 2.6 20.6 32.5 Source: U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. The funding for demand-side energy efficiency programs (to cover program costs) is typically collected through a standard per kWh surcharge to the ratepayer; the regional retail price impacts analyzed from this RIA’s illustrative plan approaches assumes the recovery of these program costs through the following procedure. 65 For each state, the first-year energy efficiency program costs are calculated for each year. These costs were distributed between the applicable IPM regions using an approach based on reported sales in 2013 as a proxy for the distribution of energy efficiency investment oppo rtunities. These regionalized energy efficiency program costs were then incorporated into the regional retail price calculation as discussed in
section 3.7.9. 66 The U.S. EPA’s Demand-Side Energy Efficiency Technical Support Document (U.S. EPA 2015) provides complete details on the calculations of annualized costs and first-year costs as well as comprehensive results (by state, by year) for the illustrative demand-side energy efficiency plan scenario.
3.8 Monitoring, Reporting, and Recordkeeping Costs EPA projected monitoring, reporting and recordkeeping costs for both state entities and affected EGUs for the compliance years 2020, 2025, and 2030. In calculating the costs for state entities, EPA estimated personnel costs to oversee compliance, and review and report annually to EPA on program progress relative to meeting the state’s reduction goal. To calculate the national costs, EPA estimated that 47 states and 1,052 facilities would be affected.
The EPA estimated that the majority of the cost to EGUs would be in calculating net energy output, which is needed whether the state plan utilizes a rate-based or a mass-based limit. Since the majority of EGUs do have some energy usage meters or other equipment

65 The full retail price analysis method is discussed in section 3.7.9 of this chapter.

66 The effect on equilibrium supply and demand of electricity due to changing retail rates to fund energy efficiency programs is not captured in the IPM modeling.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-17 available to them, EPA believes a new system for calculating net energy output is not needed. Under the final guidelines, states are required to use monitoring and reporting requirements for their affected EGUs to ensure that the sources are meeting the appropriate CO 2 emission performance rates or emission goals.
The EPA has made it a priority to streamline reporting and monitoring requirements. In this rule, the EPA is making implementation as efficient as possible for both the states and the affected EGUs by allowing state plans to utilize the current monitoring and recordkeeping requirements and pathways that have already been well established in other EPA rulemakings. For example, under the Acid Rain Program’s continuous emissions monitoring, 40 CFR Part 75, the EPA has established requirements for the majority of the EGUs that would be affected by a 111(d) state plan to monitor CO 2 emissions and report that data using the Emissions Collection and Monitoring Plan System (ECMPS). Additionally since the CO 2 hourly data is already reported to the EPA’s ECMPS there is no additional burden associated with the reporting of that data. Since the ECMPS pathway is already in place, the EPA will allow for states to utilize the ECMPS system to facilitate the data reporting of the additional net energy output data required under the emission guidelines. However, because the Acid Rain Program does not require net energy output to be reported, there is some additional burden (Shown in Table 3-4) in updating an affected EGUs monitoring system to be able to report the associated net energy output of an
affected EGU.
The EPA estimates that it would take three working months for a technician to retrofit any existing energy meters to meet the requirements set in the state plan. Additionally EPA believes that 50 hours will be needed for each EGU operator to read the rule and understand how the facility will comply with the rule, based on an average reading rate of 100 words per minute and a projected rule word count of 300,000 words. 67 Also, after all modifications are made at a facility to measure net energy output, each EGU’s Data Acquisition System (DAS) would need to be upgraded to supply the rate-based emissions value to either the state or EPA’s Emissions

67 According to one source, the average person can proofread at about 200 words per minute on paper and 180 words per minute on a monitor. (Reference: Ziefle, M. (December 1988). “Effects of Display Resolution on Visual Performance.” Human Factors 40 (4): 554-68). Due to the highly technical nature of the rule requirements in subpart UUUU, a more conservative estimate of 100 words per minute was used to determine the burden estimate for reading and understanding rule requirements.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-18 Collection and Monitoring Plan System (ECMPS). Note the costs to develop net energy output monitoring and to upgrade each facility’s DAS system are one-time costs incurred in 2020. Recordkeeping and reporting costs substantially decrease for the period 2021-2030. The projected costs for 2020, 2025, and 2030 are summarized below.
In calculating the cost for states to comply, EPA estimates that each state will rely on the equivalent of two full time staff to oversee program implementation, assess progress, develop possible contingency measures, perform state plan revisions and host the subsequent public meetings if revisions are indeed needed, download data from the ECMPS for their annual reporting and develop their annual EPA report. The burden estimate was based on an analysis of similar tasks performed under the Regional Haze Program, whereby states were required to develop their list of eligible sources, draft implementation plans, revise initial drafts, identify baseline controls, identify data gaps, identify initial strategies, conduct various reviews, and manage their programs. A total estimate of 78,000 hours of labor performed by seven states over a three year period resulted in 3,714 hours per year, per entity. Due to the nature of this final rule whereby we believe the air office and the energy office will both be involved in performing the above-mentioned tasks, we rounded up to the equivalent of two full time staff, which totaled 4,160 hours per year. 68
In addition, in the absence of specific information, EPA assumed that 27 states with strong, state-driven energy efficiency programs as documented in the U.S. EPA’s Energy and
Environment Guide to Action 69 would submit a plan under the state measures approach, which adds to the state respondent burden. Table 3-4 shows estimates of the annual state and industry respondent burden and costs of reporting and recordkeeping for 2020, 2025 and 2030.

68 Renewal of the ICR for the Regional Haze Rule, Section 6(a) Tables 1 through 4 based on 7 states’ burden. EPAHQ-OAR-2003-0162-0001.

69 U.S. Environmental Protection Agency. Energy and Environment Guide to Action: State Policies and Best Practices for Advancing Energy Efficiency, Renewable Energy, and Combined Heat and Power, 2015 Edition. Available online at: http://epa.gov/statelocalclimate/resources/action-guide.html.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-19 Table 3-4. Years 2020, 2025 and 2030: Summary of State and Industry Annual Respondent Burden and Cost of Reporting and Recordkeeping Requirements (2011$)

Nationwide

Totals Total Annual Labor Burden (Hours) Total Annual Labor Costs Total Annualized Capital Costs Total Annual O&M Costs Total Annualized

Costs Total Annual Respondent Costs State Year 2020 203,840 14,427,298 0 36,015 36,015 14,463,313 Year 2025 225,920 15,990,066 0 24,500 24,500 16,014,566 Year 2030 225,920 15,990,066 0 24,500 24,500 16,014,566 Industry Year 2020 595,432 51,125,815 0 1,556,500 1,556,500 52,682,315 Year 2025 0 0 0 0 0 0 Year 2030 0 0 0 0 0 0

Total Year 2020 799,272 65,553,113 0 1,592,515 1,592,515 67,145,628 Year 2025 225,920 15,990,066 0 24,500 24,500 16,014,566 Year 2030 225,920 15,990,066 0 24,500 24,500 16,014,566

3.9 Projected Power Sector Impacts The following sections present projected impacts from the two illustrative scenarios described above. The tables present impacts from 2020 (prior to the initial compliance year), 2025 (representative of the interim compliance period), and 2030 (representative of the final compliance period). The narrative focuses on results during the initial and final compliance periods.
3.9.1 Projected Emissions (in the Contiguous U.S.) Under the rate-based approach, EPA projects annual CO 2 reductions of 3 percent below the base case in 2020, 11 percent below the base case in 2025, and 19 percent below base case projections in 2030 (reaching 28 percent to 32 percent below 2005 emissions 70 in 2025 and 2030, respectively). For the mass-based approach, EPA projects annual CO 2 reductions of 4 percent below the base case in 2020, 12 percent below the base case in 2025 and 19 percent below base

70 For purposes of these calculations, EPA has used historical CO 2 emissions from eGRID for 2005, which reports EGU emissions as 2,434 million metric tonnes in the contiguous US. Commented [A18]: Consider explaining the potential role of the early action mechanism and/or foresight in achieving these 2020 reductions***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-20 case projections in 2030 (reaching 29 per cent to 32 percent below 2005 emissions 71 in 2025 and 2030, respectively).
Table 3-5. Projected CO 2 Emission Impacts, Relative to Base Case

CO 2 Emissions (MM Tonnes) CO 2 Emissions: Change from Base Case (MM Tonnes) CO 2 Emissions: Percent Change from Base Case
2020 2025 2030 2020 2025 2030 2020 2025 2030 Base Case 1,955 1,964 2,021

Rate-based 1,892 1,754 1,644 -63 -211 -376 -3% -11% -19% Mass-based 1,881 1,724 1,646 -74 -240 -375 -4% -12% -19% Source: Integrated Planning Model run by EPA, 2015

Table 3-6. Projected CO 2 Emission Impacts, Relative to 2005

CO 2 Emissions (MM Tonnes) CO 2 Emissions: Change from 2005 (MM Tonnes) CO 2 Emissions: Percent Change from 2005

2005 2020 2025 2030 2020 2025 2030 Base Case 2,434 -479 -470 -413 -20% -19% -17%

Rate-based - -542 -680 -790 -22% -28% -32% Mass-based - -553 -710 -788 -23% -29% -32% Source: Integrated Planning Model run by EPA, 2015

Under the rate-based illustrative plan approach, EPA projects a 14 percent reduction of
SO 2 , 13 percent reduction of NO X , and a 11 percent reduction of mercury in 2025, and a 24 percent reduction of SO 2 , 22 percent reduction of NO X , and a 17 percent reduction of mercury in 2030. Under the mass-based illustrative plan approach, EPA projects a 15 percent reduction of
SO 2 , 16 percent reduction of NO X , and a 12 percent reduction of mercury in 2025, and a 24 percent reduction of SO 2 , 22 percent reduction of NO X , and a 16 percent reduction of mercury in 2030. The projected non-CO 2 reductions are summarized below in Table 3-7.

71 For purposes of these calculations, EPA has used historical CO 2 emissions from eGRID for 2005, which reports EGU emissions as 2,434 million metric tonnes in the contiguous US.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-21 Table 3-7. Projected Non-CO 2 Emission Impacts, 2020-2030
Base Case Rate-based Mass-based Rate-based Mass-based 2020 SO 2 (thousand tons) 1,311 1,297 1,257 -1.0% -4.1% NO X (thousand tons) 1,333 1,282 1,272 -3.8% -4.5% Hg (tons) 6.6 6.4 6.4 -2.8% -3.3% PM 2.5 (thousand tons) [X] [X] [X] [X] [X] 2025 SO 2 (thousand tons) 1,275 1,097 1,090 -14.0% -14.5% NO X (thousand tons) 1,302 1,138 1,100 -12.6% -15.6% Hg (tons) 6.6 5.9 5.8 -10.8% -12.2% PM 2.5 (thousand tons) [X] [X] [X] [X] [X] 2030 SO 2 (thousand tons) 1,314 996 1,034 -24.2% -21.3% NO X (thousand tons) 1,293 1,011 1,015 -21.8% -21.5% Hg (tons) 6.8 5.6 5.8 -17.2% -15.6% PM 2.5 (thousand tons) [X] [X] [X] [X] [X] Source: Integrated Planning Model run by EPA, 2015.

While the EPA has not quantified the climate impacts of non-CO 2 emissions changes or
CO 2 emissions changes outside the electricity sector for the final emissions guidelines, the Agency has analyzed the potential changes in upstream methane emissions from the natural gas and coal production sectors that may result from the illustrative approaches examined in this RIA. The EPA assessed whether the net change in upstream methane emissions from natural gas and coal production is likely to be positive or negative and also assessed the potential magnitude of changes relative to CO 2 emissions reductions anticipated at power plants. This assessment
included CO 2 emissions from the flaring of methane, but did not evaluate potential changes in
other combustion-related CO 2 emissions, such as emissions as sociated with drilling, mining, processing, and transportation in the natural gas and coal production sectors. This analysis found that the net upstream methane emissions from natural gas systems and coal mines and CO 2 emissions from flaring of methane will likely decrease under the final emissions guidelines. Furthermore, the changes in upstream methane emissions are small relative to the changes in
direct CO 2 emissions from power plants. The projections include voluntary and regulatory activities to reduce emissions from coal mining and natural gas and oil systems, including the 2012 Oil and Natural Gas NSPS. In addition, the EP A plans to issue a proposed rule later this
summer that would build on its 2012 Oil and Gas NSPS. When these standards are finalized and Commented [A19]: Consider including 2005 and/or current emissions for reference. A table showing percent reductions below 2005 and/or current levels would also be helpful.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-22 implemented, they would further reduce projected emissions from natural gas and oil systems. The technical details supporting this analysis can be found in the Appendix to this chapter.
3.9.2 Projected Compliance Costs (in the Contiguous U.S.)
The power industry’s “compliance costs” are represented in this analysis as the change in electric power generation costs between the base case and illustrative CPP scenarios, including the cost of demand-side energy efficiency programs and measures and monitoring, reporting, and recordkeeping (MR&R) costs. The system costs reflect the least cost power system outcome in which the sector employs all the flexibilities assumed in the modeling, as discussed above, and pursues the most cost-effective emission reduction opportunities in order to meet the rate- and mass-based goals, as represented in the illustrative plan scenarios. In simple terms, these costs are an estimate of the increased power industry expenditures required to meet demand projections while complying with state goals, in cluding the total demand-side energy efficiency

costs. 72 The compliance costs for the final emissions guidelines for EGUs in the contiguous U.S. states is forecast using IPM. The cost of demand-side energy efficiency programs assumed in the IPM analysis are reported in section 3.6.2.
EPA projects that the annual compliance cost of the rate-based illustrative plan scenario are $2.4 billion in 2020, $1.1 billion in 2025, and $8.5 billion in 2030 (Table 3-8). The annual compliance cost of the mass-based illustrative plan approach are estimated to be $1.4 billion in 2020, $3.0 billion in 2025, and $5.1 billion in 2030. The annual compliance cost is the projected additional cost of complying with the rule in the year analyzed and includes the net change in the annualized cost of capital investment in new generating sources and heat rate improvements at coal steam facilities, 73 the change in the ongoing costs of operating pollution controls, the change in expenditures on various fuels (inclusive of changes in the price of these fuels), demand-side energy efficiency measures, and other actions associated with compliance.

72 The compliance costs also capture the effect of changes in equilibrium fuel prices on the expenditures of the electricity sector to serve demand.

73 See Chapter 2 of the GHG Mitigation Measures TSD and EPA’s Base Case using IPM (v5.15) documentation, available at: http://www.epa.gov/powersectormodeling***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-23 Table 3-8. Annualized Compliance Cost s Including Monitoring, Reporting and Recordkeeping Costs Requirements (billions of 2011$)
2020 2025 2030 Rate $2.5 $1.0 $8.4 Mass $1.4 $3.0 $5.1 Source: Integrated Planning Model run by EPA, 2015, with post-processing to account for exogenous demand-side energy efficiency costs and monitoring, reporting, and recordkeeping costs.

In order to contextualize EPA’s projection of the additional costs in 2030 across the two illustrative plan approaches evaluated in this RIA, it is useful to compare these incremental cost estimates to total projected power sector expenditures. The power sector is expected in the basecase to expend over $201 billion in 2030 to generate, transmit, and distribute electricity to enduse consumers. In 2014, according to EIA, the power sector generated $389 billion in revenue from retail sales of electricity. For context, the projected costs of compliance with the final rule amount to a 4 percent increase in the cost of meeting electricity demand, while securing public health and welfare benefits that are several times greater (as described in Chapters 4 and 8).
The following example uses projected results for the year 2030 to illustrate how different components of estimated expenditures are combined to form the full compliance costs presented in Table 3-8. In Table 3-9 we present the IPM modeling results for the two illustrative plan scenarios in 2030. The results show that annualized expenditures required to supply enough electricity to meet demand decline by $18 billion (rate) and $21 billion (mass) from the base case
in 2030. This incremental decline is a net outcome of two simultaneous effects that move in opposite directions. First, imposing the CO 2 constraints represented by each illustrative plan scenario on electric generators would, other things equal, result in an incremental increase in expenditures to supply any given level of electricity. However, once electricity demand is reduced to reflect demand-side energy efficiency improvements, there is a substantial reduction in the expenditures needed to supply a correspondingly lower amount of electricity demand. Table 3-9. Total Power Sector Generating Costs (IPM) (billions 2011$)
2020 2025 2030 Base Case $166.5 $178.3 $201.3 Rate-based $166.8 $162.6 $183.3 Mass-based $165.7 $164.6 $180.1 Source: Integrated Planning Model run by EPA, 2015***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-24 In order to reflect the full compliance cost attributable to the CPP scenarios, it is necessary to include the annualized expenditures needed to secure the demand-side energy efficiency improvements. As described in section 3.6.2, EPA has estimated these energy efficiency-related expenditures to be $26.3 billion in 2030 (using a 3 percent discount rate). The energy efficiency-related expenditures include costs incurred by parties administering energy efficiency programs and costs incurred by participants in those programs. As a result, this analysis finds the cost of the rate-based and mass-based illustrative plan approaches in 2030 to be $8.4 billion and $ 5.1 billion, respectively.
3.9.3 Projected Compliance Actions for Emissions Reductions
Heat Rate Improvements (HRI): EPA analysis assumes that the existing coal steam electric generating fleet has, on average, the ability to improve operating efficiency (i.e., reduce the average net heat rate, or the Btu of fuel energy needed to produce one kWh of net electricity output). All else held constant, an HRI allows the EGU to generate the same amount of electricity using less fuel. The decrease in required fossil fuel results in a lower output-based
CO 2 emissions rate (lbs/MWh), as well as a lower variable cost of electricity generation. In the modeling conducted for these illustrative plan approaches, coal boilers have the choice to improve heat rates by 4.3 percent in the eastern illustrative compliance region, 2.1 percent in the western illustrative compliance region, and 2.3 percent in Texas, all at a capital cost of $100 per
kW. 74 The option for heat rate improvement is only made available in the illustrative plan approaches, in response to the final rule.
The vast majority of existing coal boilers are projected to adopt the aforementioned heat rate improvements. Of the 183 GW of coal projected to operate in 2030, EPA projects that 99 GW of existing coal steam capacity (greater than 25 MW) will improve operating efficiency (i.e., reduce the average net heat rate) under the rate-based approach by 2030. Under the mass-based approach, EPA projects that 88 GW of the 174 GW of coal projected to operate in 2030 will improve operating efficiency by 2030.

74 The option for heat rate improvement is only made available in the illustrative plan scenarios, and is not available in the base case. For an explanation of the regional differences in average ability to improve heat rates, see GHG Mitigation Measures TSD. Deleted: [X
Deleted: ]***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-25 Generation Shifting: Another approach for reducing the average emission rate from existing units is to shift some generation from more CO 2 -intensive generation to less CO 2 -intensive generation. Compared to the base case, existing coal steam capacity is, on average, projected to operate at a lower capacity factor for both illustrative plan approaches. Under the illustrative rate-based plan approach, the average 2030 capacity factor is 69 percent, and under the mass-based approach, the average capacity factor for existing coal steam is 75 percent. Existing natural gas combined cycle units, which are less carbon-intensive than coal steam capacity on an output basis, operate at noticeably higher capacity factor under both illustrative plan approaches, on average. The utilization of existing natural gas combined cycle capacity is lower than the BSER level of 75 percent 75 on an annual average basis in these illustrative plan approaches, reflecting the fact that, in practice, the most cost-effective CO 2 reduction strategies to meet each state’s goal may not require that each building block be achieved in entirety. For example, building block two (generation shifting) is not deployed to the maximum extent in the illustrative plan approaches.
See Table 3-10.

75 See preamble section V.D.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-26 Table 3-10. Projected Capacity Factor of Existing Coal Steam and Natural Gas Combined Cycle Capacity Existing Coal Steam Existing Natural Gas Combined Cycle 2020 2025 2030 2020 2025 2030 Base Case 77% 76% 79% 54% 56% 51% Rate-based 78% 75% 69% 56% 60% 61% Mass-based 78% 75% 75% 56% 58% 54% Source: Integrated Planning Model run by EPA, 2015 Demand-Side Energy Efficiency: Another approach for reducing emissions from affected EGUs is to consider reductions in demand attributable to demand-side energy efficiency measures as discussed in section 3.6. In the illustrative plan approaches presented in this RIA, each state is credited for total demand-side energy efficiency implemented in, or procured by, that state, consistent in aggregate with the state-by-state demand reductions that are represented by the demand-side energy efficiency scenario discussed in section 3.6.1.
Deployment of Cleaner Generating Technologies: Another key opportunity to reduce emissions from existing sources is to build more lower- or zero-emitting generating resources, in particular renewable energy. These sources of electricity, including wind and solar, can displace higher emitting existing sources and while they might be directly credited toward the state goals in the rate-based illustrative scenario, they are also utilized as a compliance option in the mass-based illustrative scenario. Increased deployment results in CO 2 reductions in both rate-based and mass-based approaches. See sections below discussing projected impacts on generation mix and capacity.
3.9.4 Projected Generation Mix
Table 3-11 and Figure 3-2 show the generation mix in the base case and under the two illustrative plan approaches. In both scenarios, total generation declines relative to the base case as a result of the reduction in total demand attributable to the demand-side energy efficiency applied in the illustrative scenarios, by 5 percent in 2025 and 8 percent in 2030.
Under the rate-based scenario, coal-fired generation is projected to decline 12 percent in 2025, and natural-gas-fired generation from existing combined cycle capacity is projected to increase 5 percent relative to the base case. The coal-fired fleet in 2030 generates 23 percent less than in the base case, while natural-gas-fired generation from existing combined cycles increases 18 percent relative to the base case. Gas-fired generation from new combined cycle capacity***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-27 decreases in 2025 and 2030, consistent with the decrease in new capacity (see section 3.7.6). Relative to the base case, generation from non-hydro renewables decreases 1 percent in 2025 and increases 9 percent in 2030.
Similarly, under the mass-based scenario, coal-fired generation is projected to decline 15 percent in 2025, and natural-gas-fired generation from existing combined cycle capacity is projected to increase 2 percent relative to the ba se case. The coal-fired fleet in 2030 generates 22 percent less than in the base case, while natural-gas-fired generation from existing combined cycles increases 5 percent relative to the base case. Gas-fired generation from new combined cycle capacity decreases 8 percent and 36 percent relative to the base case in 2025 and 2030, respectively. Relative to the base case, generation from non-hydro renewables decreases 3 percent in 2025 and increases 8 percent in 2030.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-28 Table 3-11. Generation Mix (thousand GWh)
Base Case Rate-based Mass-based Rate-based Mass-based 2020 Coal 1,462 1,391 1,374 -5% -6% NG Combined Cycle (existing) 1,111 1,126 1,132 1% 2% NG Combined Cycle (new) 33 53 69 61% 111% Combustion Turbine 15 20 17 39% 14% Oil/Gas Steam 51 51 50 0% -1% Non-Hydro Renewables 393 399 385 2% -2% Hydro 310 311 310 0% 0% Nuclear 798 792 804 -1% 1% Other 18 18 18 0% 0% Total 4,190 4,160 4,159 -1% -1% 2025 Coal 1,428 1,256 1,217 -12% -15% NG Combined Cycle (existing) 1,152 1,206 1,179 5% 2% NG Combined Cycle (new) 113 53 104 -53% -8% Combustion Turbine 23 30 34 31% 46% Oil/Gas Steam 39 21 19 -46% -52% Non-Hydro Renewables 417 414 404 -1% -3% Hydro 340 340 340 0% 0% Nuclear 799 791 804 -1% 1% Other 17 17 18 0% 0% Total 4,328 4,128 4,118 -5% -5% 2030 Coal 1,466 1,131 1,144 -23% -22% NG Combined Cycle (existing) 1,042 1,230 1,090 18% 5% NG Combined Cycle (new) 324 100 207 -69% -36% Combustion Turbine 22 27 32 21% 46% Oil/Gas Steam 22 11 11 -52% -53% Non-Hydro Renewables 450 488 485 9% 8% Hydro 340 341 340 0% 0% Nuclear 783 777 785 -1% 0% Other 17 17 17 0% 0% Total 4,467 4,122 4,110 -8% -8% Note: “Other” mostly includes generation from MSW and fuel cells. Source: Integrated Planning Model run by EPA, 2015***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-29 Figure 3-2 Generation Mix with the Base Case and 111(d) Options, 2020-2030 (thousand GWh)
Source: Integrated Planning Model run by EPA, 2015 Under both the rate-based and mass-based approaches, the projected rate of change in coal-fired generation is consistent with recent historical declines in coal-fired generation. Additionally, under both of these approaches, the trends for all other types will remain consistent with what their trends would be in the absence of this rule. Specifically, natural-gas fired generation and renewables would be expected to increase without this rule, and both are expected to increase under this rule, with renewa bles increasing at a somewhat greater rate than in the absence of this rule; and nuclear, oil-fired, and other types of generation are expected to be little impacted by this rule generation mix is consistent with recent declines in coal-fired generation and increases in gas-fired generation. See Figures 3-3 and 3-4. Commented [A20]: fragment***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-30 Figure 3-3. Nationwide Generation: Historical (1990-2014) and Rate-Based Illustrative Plan Approach Projections (2020, 2025, 2030)
Sources: Historic data (i.e., 1990-2014): U.S. Energy Information Administration, June 2015 Monthly Energy Review, Table 7.2a Electricity Net Generation: Total (All Sectors), Available at <http://www.eia.gov/totalenergy/data/monthly/>. Projected data (i.e., 2020, 2025, 2030): Integrated Planning Model, 2015. Notes: Historic and projected data include generation from the power, industrial, and commercial sectors. Historic data from U.S. EIA reflects all cogeneration, while projections from the Integrated Planning Model reflect net cogeneration.

Figure 3-4. Nationwide Generation: Historical (1990-2014) and Mass-Based Illustrative Plan Approach Projections (2020, 2025, 2030)***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-31 Sources: Historic data (i.e., 1990-2014): U.S. Energy Information Administration, June 2015 Monthly Energy Review, Table 7.2a Electricity Net Generation: Total (All Sectors), Available at <http://www.eia.gov/totalenergy/data/monthly/>. Projected data (i.e., 2020, 2025, 2030): Integrated Planning Model, 2015. Notes: Historic and projected data include generation from the power, industrial, and commercial sectors. Historic data from U.S. EIA reflects all cogeneration, while projections from the Integrated Planning Model reflect net cogeneration.

3.9.5 Projected Incremental Retirements
Relative to the base case, about 23 GW of additional coal-fired capacity is projected to be uneconomic to maintain (about 11 percent of all coal-fired capacity projected to be in service in the base case) by 2025 under the rate-based illustrative scenario. Under the mass-based scenario, about 29 GW of additional coal-fired capacity is projected to be uneconomic to maintain (about 14 percent of all coal-fired capacity projected to be in service in the base case) by 2025. Capacity changes from the base case are shown in Table 3-12.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-32 Table 3-12. Total Generation Capacity by 2020-2030 (GW)
Base Case Rate-based Mass-based Rate-based Mass-based 2020 Coal 208 195 193 -6% -7% NG Combined Cycle (existing) 233 231 232 -1% 0% NG Combined Cycle (new) 4 7 9 62% 113% Combustion Turbine 141 137 137 -3% -3% Oil/Gas Steam 88 81 80 -8% -9% Non-Hydro Renewables 130 132 128 1% -2% Hydro 106 106 106 0% 0% Nuclear 100 100 101 -1% 1% Other 5 5 5 0% 0% Total 1,016 994 992 -2% -2% 2025 Coal 208 187 181 -10% -13% NG Combined Cycle (existing) 233 231 232 -1% 0% NG Combined Cycle (new) 15 7 14 -52% -9% Combustion Turbine 143 138 137 -4% -4% Oil/Gas Steam 82 71 69 -14% -16% Non-Hydro Renewables 139 137 134 -1% -3% Hydro 112 112 112 0% 0% Nuclear 100 99 101 -1% 1% Other 5 5 5 0% 0% Total 1,037 988 985 -5% -5% 2030 Coal 207 183 174 -11% -16% NG Combined Cycle (existing) 233 231 232 -1% 0% NG Combined Cycle (new) 44 14 27 -68% -38% Combustion Turbine 147 138 136 -6% -7% Oil/Gas Steam 82 70 67 -15% -18% Non-Hydro Renewables 154 174 171 13% 11% Hydro 112 112 112 0% 0% Nuclear 99 98 99 -1% 0% Other 5 5 5 0% 0% Total 1,082 1,025 1,024 -5% -5% Source: Integrated Planning Model run by EPA, 2015 3.9.6 Projected Capacity Additions
Due largely to the electricity demand reduction attributable to the demand-side energy efficiency improvements applied in the illustrative scenarios, the EPA projects less new natural gas combined cycle capacity built under the rate-based scenario than is built in the base case over***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-33 the period covered by the rule. While this new NGCC capacity cannot be directly counted towards the average emissions rate used for compliance in the rate-based approach, it can displace some generation from covered sources and thus indirectly lower the average emissions rate from covered sources. Conversely, the EPA projects an overall increase in new renewable capacity. New non-hydro renewables are able to contribute their generation to the average emissions rate in each state or region.
Under the rate-based illustrative scenario, new natural gas combined cycle capacity is projected to decrease by 8 GW in 2025 and 30 GW in 2030 (52 percent and 68 percent decrease relative to the base case). New renewable capacity is projected to decrease by about 2 GW (3 percent decrease) below the base case in 2025, an d increase by 20 GW (27 percent increase) by
2030.
Under the mass-based illustrative scenario, new natural gas combined cycle capacity is projected to decrease by 1 GW in 2025 and decrease by 17 GW in 2030 (a 9 percent and 38 percent decrease relative to the base case). New renewable capacity is projected to decrease 4 GW (7 percent) relative to the base case in 2025, and increase 18 GW (24 percent increase) by
2030.
Table 3-13. Projected Capacity Additions, Gas (GW) Cumulative Capacity Additions: Gas Combined Cycle Incremental Cumulative Capacity Additions: Gas Combined Cycle
2020 2025 2030 2020 2025 2030 Base Case 4.4 14.9 44.0 Rate-based 7.1 7.1 13.9 2.7 -7.8 -30.1 Mass-based 9.3 13.6 27.2 4.9 -1.3 -16.8 Source: Integrated Planning Model run by EPA, 2015 Table 3-14. Projected Capacity Additions, Renewable (GW) Cumulative Capacity Additions: Renewables Incremental Cumulative Capacity Additions: Renewables 2020 2025 2030 2020 2025 2030 Base Case 39.1 59.1 74.1 Rate-based 40.5 57.4 94.4 1.4 -1.8 20.2 Mass-based 36.7 54.9 91.9 -2.4 -4.2 17.8 Source: Integrated Planning Model run by EPA, 2015***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-34 3.9.7 Projected Coal Production and Natural Gas Use for the Electric Power Sector
Coal production is projected to decrease in 2025 and beyond in the illustrative scenarios due to (1) improved heat rates (generating efficiency) at existing coal units, (2) electricity demand reduction attributable to demand-side energy efficiency improvements, and (3) a shift in generation from coal to less-carbon intensive generation. As shown in Table 3-15, the largest decrease in coal production is projected to occur in the western region.
Table 3-15. Coal Production for the Electric Power Sector, 2025 Coal Production (MM Tons) Percent Change from Base Case Base Case Rate-based Mass-based Rate-based Mass-based Appalachia 92 71 69 -23% -25%
Interior 250 242 236 -3% -6%
West 379 306 293 -19% -23% Waste Coal 6 6 6 0% 0% Imports 1 1 1 -37% -14%
Total 729 626 606 -14% -17% Source: Integrated Planning Model run by EPA, 2015 Power sector natural gas use is projected to decrease by about 1 percent in 2025 and
2030 , relative to the base case, under the rate-based illustrative plan scenario. In the mass-based scenario, power sector natural gas use is projected to decrease by 4.5 percent in 2030. These trends are consistent with the change in generation mix described above in Section 3.7.4.
Table 3-16. Power Sector Gas Use Power Sector Gas Use (TCF) Percent Change in Power Sector Gas Use 2020 2025 2030 2020 2025 2030 Base Case 8.62 9.38 9.72 Rate -based 8.91 9.28 9.59 3.4% -1.0% -1.3% Mass -based 9.02 9.39 9.28 4.6% 0.2% -4.5% Source: Integrated Planning Model run by EPA, 2015

3.9.8 Projected Fuel Price, Market, and Infrastructure Impacts
The impacts of the two illustrative plan scenarios on coal and natural gas prices before shipment are shown below in Table 3-17 and Table 3-18 and are attributable to the changes in overall power sector demand for each fuel due to the final guidelines. Coal demand decreases by 2030, resulting in a decrease in the price of coal delivered to the electric power sector. In 2030, gas demand and price decrease below the base case projections, due to the cumulative impact of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-35 demand-side energy efficiency improvements and the consequent reduced overall electricity
demand.
IPM modeling of natural gas prices uses both short- and long-term price signals to balance supply and demand for the fuel across the modeled time horizon. As such, it should be understood that the pattern of IPM natural gas price projections over time is not a forecast of natural gas prices incurred by end-use consumers at any particular point in time. The natural gas market in the United States has historically experienced some degree of price volatility from year to year, between seasons within a year, and during short-lived weather events (such as cold snaps leading to short-run spikes in heating demand). These short-term price signals are fundamental for allowing the market to successfully align immediate supply and demand needs. However, end-use consumers are typically shielded from experiencing these rapid fluctuations in natural gas prices by retail rate regulation and by hedging through longer-term fuel supply contracts by the power sector. IPM assumes these longer-term price arrangements take place “outside of the model” and on top of the “real-time” shorter-term price variation necessary to align supply and demand. Therefore, the model’s natural gas price projections should not be mistaken for traditionally experienced consumer price impacts related to natural gas, but a reflection of expected average price changes over the period of time represented by the modeling horizon.
There are very small changes to natural gas pipeline infrastructure needs over time, in response to the illustrative plan scenarios. These changes, compared to historical deployment of new infrastructure, are very modest. In both the rate-based and mass-based scenarios, pipeline capacity construction through 2020 is projected to increase by less than two percent beyond base case projections. By 2030, however, the total cumulative pipeline capacity construction built is projected to decrease compared to the base case, consistent with the projected decrease in total demand and natural gas use. The projected increase in pipeline capacity in the near term is largely the result of building pipeline capacity a few years earlier than projected in the base case.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-36 Table 3-17. Projected Average Minemouth and Delivered Coal Prices (2011$/MMBtu)
Minemouth Delivered - Electric Power Sector 2020 2025 2030 2020 2025 2030 Base Case 1.55 1.67 1.79 2.38 2.50 2.68 Rate-based 1.54 1.58 1.73 2.34 2.35 2.46 Mass-based 1.54 1.59 1.73 2.35 2.40 2.55 Rate-based -0.8% -5.0% -3.8% -1.7% -6.2% -8.0% Mass-based -0.7% -4.7% -3.2% -1.6% -4.3% -4.6% Source: Integrated Planning Model run by EPA, 2015 Table 3-18. Projected Average Henry Hub (spot) and Delivered Natural Gas Prices (2011$/MMBtu)
Henry Hub Delivered - Electric Power Sector
2020 2025 2020 202 0 202 5 2025 Base Case 5.20 5.12 6.01 5.25 5.17 5.98 Rate-based 5.48 4.73 6.21 5.53 4.77 6.13 Mass-based 5.40 4.97 5.92 5.45 5.00 5.86 Rate-based 5.4% -7.5% 3.3% 5.3% -7.7% 2.5% Mass-based 3.9% -3.0% -1.4% 3.8% -3.2% -2.1% Source: Integrated Planning Model run by EPA, 2015 3.9.9 Projected Retail Electricity Prices
EPA’s analysis of the illustrative rate-based plan scenario shows an increase in the national average (contiguous U.S.) retail electricity price of less than one percent in both 2025 and 2030, compared to the modeled base case price estimate in those years. Under the illustrative mass-based plan scenario, EPA projects an increase in the national average (contiguous U.S.) retail electricity price of 2 percent in 2025 and 0.01 percent in 2030.
Retail electricity prices embody generation, transmission, distribution, taxes, and demand-side energy efficiency costs. IPM modeling projects changes in regional wholesale power prices and capacity payments related to imposition of the represented CPP scenarios that are combined with EIA regional transmission and distribution costs to calculate changes to regional retail prices using the Retail Price Model (RPM). 76 As described in Section 3.6.2, the funding for demand-side energy efficiency (to cover program costs) is typically collected through a standard per kWh surcharge to the ratepayer and the regional retail price impacts

76 See documentation available at: http://www.epa.gov/powersectormodeling/ Deleted: 5
Deleted: 0***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-37 presented here assume that these costs are recovered by utilities in retail rates. This is an approximation, since not every utility will pass through the entirety of demand-side energy efficiency costs (e.g., distribution only utilities that generate ERCs for demand-side energy efficiency, sell them to affected EGUs, and account for this revenue in rate determination). Furthermore, this analysis assumes that rate-payers in the state producing zero-emitting generation (or avoided generation) bear the costs of such production. However, in practice, if such generation is claimed through an ERC in another state, part of its costs may ultimately be borne by rate-payers in the ERC-consuming state ra ther than the state in which that zero-emitting generation was located. There are many factors influencing the estimated retail electricity price impacts, namely projected changes in generation mix, fuel prices, and development of new generating capacity. These projected changes vary regionally under each illustrative plan scenario in response to the goals under the two scenarios, and they also vary depending upon retail electricity market structure (e.g., cost-of-service vs. competitive). In the mass-based approach, treatment of allowance allocations will also have an impact on retail electricity prices. In competitive regions, this RIA assumes that allowances are freely allocated to generators who then keep 100 percent of the freely allocated allowance value without passing this value through to ratepayers through lower retail electricity prices. To the extent that implementing authorities choose to require this allowance value to be passed through to ratepayers (such as by allocating allowances to load-serving entities who could be subject to such a requirement), retail prices
would be lower than those shown here. Commented [A21]: consider indicating the rate implications of this EE cost recovery in a table to clarify that these costs are fully accounted for and to distinguish between rate impacts from EE cost recovery vs. cost recovery for other system expenditures***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-38 Table 3-19. 2020 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) 2020 Projected Retail Price (cents/kWh) Percent Change from Base Case Base Case Rate-based Mass-based Rate-based Mass-based ERCT 9.7 9.9 9.9 2.5% 2.1% FRCC 10.5 10.7 10.7 2.0% 1.6% MROE 9.9 10.3 10.3 4.2% 3.8% MROW 8.7 9.0 9.0 2.8% 2.3% NEWE 13.3 14.0 14.0 5.1% 5.5% NYCW 17.4 18.3 18.3 5.0% 5.3% NYLI 14.4 15.1 15.1 4.6% 5.1% NYUP 12.4 13.1 13.1 5.4% 5.3% RFCE 11.1 11.8 11.8 6.1% 6.1% RFCM 10.4 10.9 10.9 4.3% 4.3% RFCW 9.4 9.8 9.8 5.1% 4.8% SRDA 8.6 8.8 8.7 2.1% 1.7% SRGW 8.6 9.0 9.0 4.1% 4.8% SRSE 10.0 10.1 10.1 0.9% 0.5% SRCE 8.0 8.1 8.1 1.1% 0.8% SRVC 9.8 9.9 9.9 1.5% 1.2% SPNO 9.9 9.9 9.9 -0.8% -0.9% SPSO 7.9 8.1 8.1 3.2% 2.4% AZNM 10.9 11.2 11.2 2.1% 2.1% CAMX 14.3 14.8 14.7 3.3% 3.0% NWPP 6.9 7.1 7.1 3.2% 2.9% RMPA 8.7 9.0 8.9 3.1% 2.9% Contiguous U.S. 10.0 10.3 10.3 3.2% 3.0% Note: regions pictured on Figure 3-5.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-39 Table 3-20. 2025 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) 2025 Projected Retail Price (cents/kWh) Percent Change from Base Case Base Case Rate-based Mass-based Rate-based Mass-based ERCT 10.7 11.1 10.9 3.8% 1.5% FRCC 10.2 10.2 10.3 -0.2% 1.0% MROE 9.7 10.0 10.0 2.4% 2.6% MROW 8.7 9.0 9.0 2.5% 3.1% NEWE 12.6 12.4 12.7 -1.3% 0.5% NYCW 17.0 16.9 16.9 -0.5% -0.5% NYLI 14.0 13.7 13.7 -2.2% -1.7% NYUP 11.8 11.7 11.7 -0.8% -1.3% RFCE 10.3 10.2 10.5 -0.2% 2.1% RFCM 10.4 10.4 10.6 0.5% 1.9% RFCW 9.8 9.7 10.1 -1.4% 2.4% SRDA 8.6 8.6 8.7 0.0% 1.4% SRGW 9.1 9.0 9.3 -0.9% 2.5% SRSE 9.6 9.7 9.8 1.4% 2.1% SRCE 7.8 8.0 8.0 2.6% 3.0% SRVC 9.3 9.5 9.6 1.7% 2.4% SPNO 9.8 10.0 10.2 2.9% 4.3% SPSO 8.1 8.3 8.4 2.7% 4.4% AZNM 10.7 10.9 10.9 2.2% 1.8% CAMX 13.2 13.3 13.5 0.8% 2.4% NWPP 6.8 6.9 7.0 2.1% 2.7% RMPA 8.6 8.7 8.9 2.0% 4.3% Contiguous U.S. 9.9 9.9 10.1 0.9% 2.0% Note: regions pictured on Figure 3-5.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-40 Table 3-21. 2030 Projected Contiguous U.S. and Regional Retail Electricity Prices (cents/kWh) 2030 Projected Retail Price (cents/kWh) Percent Change from Base Case Base Case Rate-based Mass-based Rate-based Mass-based ERCT 11.6 11.4 11.3 -1.4% -2.5% FRCC 10.3 10.8 10.5 4.6% 2.3% MROE 9.7 10.3 10.3 5.9% 6.3% MROW 8.9 9.1 9.1 2.7% 2.8% NEWE 14.3 13.6 13.4 -5.4% -6.9% NYCW 19.2 18.2 18.0 -5.2% -6.4% NYLI 16.3 14.8 14.6 -9.0% -10.1% NYUP 13.6 12.7 12.5 -7.0% -8.4% RFCE 11.3 10.7 10.6 -5.6% -6.5% RFCM 10.5 10.8 10.7 3.4% 1.7% RFCW 10.4 10.5 10.5 1.2% 0.7% SRDA 9.0 9.3 9.2 3.5% 1.9% SRGW 9.7 9.6 9.7 -0.6% 0.4% SRSE 9.8 10.2 10.0 3.9% 2.1% SRCE 7.8 8.1 8.0 4.3% 3.3% SRVC 9.3 9.6 9.5 3.2% 2.0% SPNO 9.5 9.8 10.1 2.7% 5.8% SPSO 8.7 9.0 8.9 3.9% 2.0% AZNM 10.9 11.2 11.1 2.3% 2.0% CAMX 13.5 13.6 13.7 1.1% 1.4% NWPP 6.9 7.0 7.1 2.2% 2.6% RMPA 8.9 9.0 9.3 0.7% 3.5% Contiguous U.S. 10.3 10.4 10.3 0.8% 0.01% Note: regions pictured on Figure 3-5.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-41 Figure 3-5. Electricity Market Module Regions
Source: EIA (http://www.eia.gov/forecasts/aeo/pdf/nerc_map.pdf)
3.9.10 Projected Electricity Bill Impacts
The electricity price changes addressed in section 3.9.9 combine with the significant reductions in electricity demand applied in the illustrative approaches to affect average electricity bills. The estimated changes to average bills are summarized in Table 3-22. Under the illustrative rate-based plan scenario, EPA estimates an average monthly bill increase of 2.7 percent in 2020 and an average bill decrease of 3.8 percent in 2025 and 7 percent in 2030. Under the mass-based scenario, EPA estimates an average bill increase of 2.4 percent in 2020 and an average bill decrease of 2.7 percent in 2025 and 7.7 percent in 2030. These reduced electricity bills reflect the combined effects of changes in both average retail rates (driven by compliance approaches taken to achieve the state goals) and lower electricity demand (driven by demand-side energy efficiency).
Table 3-22. Projected Changes in Average Electricity Bills
2020 2025 2030 Rate-based 2.7% -3.8% -7.0% Mass-based 2.4% -2.7% -7.7%

3.10 Projected Primary PM Emissions from Power Plants IPM is not configured to endogenously model primary PM emissions from power plants. These emissions are calculated as a function of IPM outputs, emission factors and control Commented [A22]: Please clarify if this is relative to base case***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-42 configuration. IPM-projected fuel use (heat input) is multiplied by PM emission factors (based in part on the presence of PM-relevant pollution control devices) to determine PM emissions. Primary PM emissions are calculated by adding the filterable PM and condensable PM
emissions.
Filterable PM emissions for each unit are based on historical information regarding existing emissions controls and types of fuel burned and ash content of the fuel burned, as well as the projected emission controls (e.g., scrubbers and fabric filters).
Condensable PM emissions are based on plant type, sulfur content of the fuel, and
SO 2 /HCl and PM control configurations. Although EPA’s analysis is based on the best available emission factors, these emission factors do not ac count for the potential changes in condensable PM emissions due to the installation and operation of SCRs. The formation of additional condensable PM (in the form of SO 3 and H 2 SO 4 ) in units with SCRs depends on a number of factors, including coal sulfur content, combustion conditions and characteristics of the catalyst used in the SCR, and is likely to vary widely from unit to unit. SCRs are generally designed andoperated to minimize increases in condensable PM. This limitation means that IPM postprocessing is potentially underestimating condensable PM emissions for units with SCRs. In contrast, it is possible that IPM post-processin g overestimates condensable PM emissions in a case where the unit is combusting a low-sulfur coal in the presence of a scrubber.
For a more complete description of the methodologies used to post-process PM emissions from IPM, see “IPM ORL File Generation Methodology” (March, 2011), available in the docket.
3.11 Limitations of Analysis EPA’s modeling is based on expert judgment of various input assumptions for variables whose outcomes are in fact uncertain. As a general matter, the Agency reviews the best available information from engineering studies of air pollution controls, the ability to improve operating efficiency, and new capacity construction costs to support a reasonable modeling framework for analyzing the cost, emission changes, and other impacts of regulatory actions.
The costs presented in this RIA include both the IPM-projected annualized estimates of private compliance costs as well as the esti mated costs incurred by utilities and program participants to achieve demand-side energy efficiency improvements. The demand-side energy***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-43 efficiency costs are developed based on a review of energy efficiency data and studies, and expert judgment. The EPA recognizes that significant variation exists in these analyses reflecting data and methodological limitations. The method used for estimating the demand-side energy efficiency costs is discussed in more detail in the Demand-Side Energy Efficiency TechnicalSupport Document (TSD). The evaluation, measurement and verification (EM&V) of demandside energy efficiency is addressed in the section VIII, State Plans, of the preamble for the final
rule.
The base case electricity demand in IPM v.5.15 is calibrated to reference case demand in AEO 2015. AEO 2015 demand may reflect, to some extent, a continuation of the impacts of state demand-side energy efficiency policies but does not explicitly represent the most significant existing state policies in this area (e.g., energy efficiency resource standards). To some degree the implicit representation of state policies in the EPA’s base case alters the impacts assessment, but the direction and magnitude of change is not known with certainty. This issue is discussed in the Demand-Side Energy Efficiency TSD.

Cost estimates for the final emission guidelines are based on rigorous power sector modeling using ICF’s Integrated Planning Model. 77 IPM assumes “perfect foresight” of market conditions over the time horizon modeled; to the extent that utilities and/or energy regulators misjudge future conditions affecting the economics of pollution control, costs may be
understated.
One important element of the final CPP is the flexibility afforded to states as they develop requirements for their existing emitting sources. Each state has discretion on how to best achieve the standards of performance and/or state goals. As such, states can apply requirements to sources that achieve greater reductions than required during the interim period, and use those earlier reductions in the final period (i.e., banking of reductions).
In the analysis and modeling for the RIA, such flexibilities were not explicitly modeled in the compliance scenarios. Doing so would require additional assumptions about the specific

77 Full documentation for IPM can be found at <http:// http://www.epa.gov/powersectormodeling>. Deleted: as well Commented [A23]: If not already elsewhere in the RIA, consider adding some of the factors that might cause the model tooverstate costs. E.g. prohibition ofinterstate trading for MB case, incomplete consideration of endogenous technical change...***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-44 opportunities states may choose to adopt in their plans, including the form of the standard that states apply, the manner in which it is applied, and the economic signal that such a mechanism provides to sources over time, such that sources would have an incentive to make greater reductions earlier. As previously stated, the analysis in the RIA is intended to be illustrative to inform the broad impacts of the rule across the power sector, and not intended to forecast the specific approaches that individual states might choose, and how sources might prefer to achieve the emission reductions to reflect each state plan in response to particular policy signals or requirements. Not representing banking of earlier reductions into the final period is a somewhat conservative analytic approach, given that there is inadequate and incomplete information at this time regarding state plans.

3.12 Social Costs As discussed in the EPA Guidelines for Prep aring Economic Analyses, social costs are the total economic burden of a regulatory action. This burden is the sum of all opportunity costs incurred due to the regulatory action, where 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 reallocating some resources towards pollution mitigation. Estimates of social costs may be compared to the social benefits expected as a result of a regulation to assess its net impact on society. The social costs of a regulatory action will not necessarily be equivalent to the expenditures associated with compliance. Nonetheless, here we use compliance costs as a proxy for social costs. This section provides a qualitative discussion of the relationship between social costs and compliance cost estimates presented in this chapter.
The cost estimates for the illustrative plan scenarios presented in this chapter are the sum of expenditures on demand-side energy efficiency and the change in expenditures required by the electricity sector to comply with the final emission guidelines. These two components are estimated separately. The expenditures required to achieve the assumed demand reductions through demand-side energy efficiency programs are estimated using historical data, analysis, and expert judgment. The change in the expenditures required by the electricity sector to meet demand and maintain compliance are estimated by IPM and reflect both the reduction in electricity production costs due to the reduction in demand caused by the demand-side energy Commented [A24]: Consider explaining more directly that this might cause the model to oversestimate costs by excluding potential cost savings from smoothing of reductions over time.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-45 efficiency measures and the increase in electr icity production costs required to achieve the additional emission reductions necessary to comply with the state goals.
As described in section 3.6.1, the illustrative plan approaches assume that, in achieving their goals, demand-side energy efficiency measures are adopted which lead to demand reductions in each year represented by the illustrative energy efficiency plan scenario. The estimated expenditures required to achieve those demand reductions through demand-side energy efficiency are presented in this chapter and detailed in Chapter 5 of the Demand-Side Energy Efficiency TSD. The social cost of achieving these energy savings comes in the form of increased expenditures on technologies and/or services that are required to lower electricityconsumption beyond the business as usual. Under the assumption of complete and wellfunctioning markets the expenditures required to reduce electricity consumption on the margin will represent society’s opportunity cost of the resources required to produce the energy savings.
Due to the flexibility held by states in implementing their compliance with the final standards these energy efficiency expenditures may be borne by end-users through direct participant expenditures or electricity rate increases, or by producers through reductions in their profits. While the allocation of these expenditures between consumers and producers is important for understanding the distributional impact of potential compliance strategies, it does not necessarily affect the opportunity cost required for the production of the energy savings from a social perspective. However, specific design elements of demand-side energy efficiency measures included to address distributional outcomes may have an effect on the economic efficiency of the programs and therefore the social cost.
Another reason the expenditures associated with demand-side energy efficiency may
differ from social costs is due to differences in the services provided by more energy efficient technologies and services adopted under the program relative to the baseline. For example, if under the program end-users adopted more energy efficient products which were associated with quality or service attributes deemed less desirable, then there would be an additional welfare loss that should be accounted for in social costs but is not necessarily captured in the measure of expenditures. However, there is an analogous possibility that in some cases the quality of services, outside of the energy savings, provided by the more energy efficient products and practices are deemed more desirable by some end-users. For example, weatherization of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-46 buildings to reduced electricity demand associated with cooling will likely have a significant impact on natural gas use associated with heating. In either case these real welfare impacts are not fully captured by end-use energy efficiency expenditure estimates.
The fact that such quality and service differences may exist in reality but may not be reflected in the price difference between more and less energy efficient products is one potential hypothesis for the energy paradox. The energy paradox is the observation that end-users do not always purchase products that are more energy efficient when the additional cost is less than the reduction in the net present value of expected electricity expenditures achieved by those products. 78 Such circumstances are present in the analysis presented in this chapter, whereby in some regions the base case and illustrative approaches suggest that cost of reducing demand through energy efficiency programs is less than the retail electricity price. In addition to heterogeneity in product services and consumer preferences, there are other explanations for the energy paradox, falling both within and outside the neoclassical rational expectations paradigm that is used in benefit/cost analysis. Chapter 5 of the Demand-Side Energy Efficiency TSD discusses the energy paradox and provides additional hypothesis for why consumers may not make energy efficiency investments that ostensibly seem to be in their own interest. The TSD discussion also provides details on how the presence of additional market failures can lead to levels of energy efficiency investment that may be too low from society’s perspective even if that is not the case for the end-user. In such cases there is the potential for properly designed energy efficiency programs to address the source of under-investment, such as principal-agent problems where there is a disconnect between those making the purchase decision regarding energy efficient investments and energy use and those that would receive the benefits associated with reduced energy use through lower electricity bills.
The other component of compliance cost reported in this chapter is the change in resource cost (i.e., expenditures) required by the electricity sector to fulfill the remaining demand while making additional CO 2 emissions reductions necessary to comply with the state goals. Included in the estimate of these compliance costs, developed using IPM, are the cost savings associated with the reduction in required electricity generation due to the demand reductions from demand-

78 An analogous situation is present when some EGUs have assumed to have the ability to make heat rate improvements at a capital cost that is less than the anticipated fuel expenditure savings.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3-47 side energy efficiency measures and improvements in heat rate. By shifting the demand curve for electricity, demand-side energy efficiency reduces the production cost in the sector. The resource cost estimates from IPM therefore account for the increased cost of providing electricity while EGUs comply with their obligations net of the reduction in production costs due to lower demand resulting from demand-side energy efficiency measures.

3.13 References
Just, R.J., D.L. Hueth, and A. Schmitz. 2004. The Welfare Economics of Public Policy: A Practical Guide to Policy and Project Evaluation , Edwin Elgar Press, Cheltenham UK. U.S. EPA. 2010. EPA Guidelines for Preparing Economic Analyses, Chapters 8 and Appendix A. Available at: <http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/guidelines.htm>. Accessed 7/11/2015. U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-1 

### A PPENDIX 

### 3A: A NALYSIS OF 

### P OTENTIAL 

### U PSTREAM 

### M ETHANE 

### E MISSIONS 

### C HANGES IN 

### N ATURAL 

### G AS 

### S YSTEMS AND 

### C OAL 

### M INING

The purpose of this appendix is to describe the methodology for estimating upstream methane emissions related to natural gas systems and coal mining sectors that may result from the illustrative plan approaches examined in the Regulatory Impact Analysis (RIA). The US Environmental Protection Agency (EPA) assessed whether the net change in upstream methane emissions from natural gas and coal production is likely to be positive or negative and also assessed the potential magnitude of these upstream changes relative to CO 2 emissions reductions anticipated at power plants from the illustrative plan approaches examined in the RIA. In addition to estimating changes in upstream methane emissions, this assessment included estimating CO 2 from the flaring of methane, but did not examine other potential changes in other upstream greenhouse gas emissions changes from natural gas systems and coal mining sectors.

The methodologies used to project upstream emissions were previously developed for the purpose of the 2014 U.S. Climate Action Report, and were subject to peer review and public review as part of the publication of that report. In section 3A.1, the overall approach is described in brief. In section 3A.2, results are presented. Section 3A.3 discusses uncertainties and limitations of the analysis. Finally, section 3A.4 contains a bibliography of cited resources. In the RIA for the Clean Power Plan proposal (in then section 3A.3), we presented the detailed methodologies for how methane and flaring-related CO 2 projections were estimated for coal mining and natural gas systems. We rely on the same methods in this RIA, so we refer the interested reader to the proposal RIA 79 for the detailed methodological discussion. The calculations have been updated to reflect input data from the most recent U.S. GHG Inventory, published in April 2015.

79 Clean Power Plan proposal RIA can be found at < http://www2.epa.gov/sites/production/files/2014- 06/documents/20140602ria-clean-power-plan.pdf>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-2 3A.1 General Approach
3A.1.1 Analytical Scope
Upstream methane and flaring-related CO 2 emissions associated with coal mining and natural gas systems were estimated for 2025 through 2030 using methodologies developed for the 2014 U.S. Climate Action Report (U.S. Department of State 2014). The base year for the projections is 2013, as reported in the 2015 U.S. GHG Inventory (EPA 2015a). The projection methodologies use activity driver data outputs such as coal and natural gas production from the base case and policy scenarios generated by the Integrated Planning Model (IPM), which was used in the RIA to model illustrative plan approaches. The projection methodologies use similar activity data and emissions factors as are used in the U.S. Greenhouse Gas (GHG) Inventory.

The projection methodologies estimate reductions associated with both voluntary and regulatory programs affecting upstream methane-related emissions. In the case of the voluntary programs, the rate of reductions is based on the historical average decrease from these programs over recent years. In the case of regulatory reductions, the reductions are based on the reduction rates estimated in the RIAs of relevant regulati ons. The projections include emissions reductions projected to result from the 2012 Oil and Natural Gas New Source Performance Standards. The methodologies to estimate upstream emissions were subject to expert peer review and public review in the context of the 2014 U.S. Climate Action Report. For more information on the review, or for the detailed methodologies used for non-CO 2 source projections in that report, including methane-related emissions from coal production and natural gas systems, see “Methodologies for U.S. Greenhouse Gas Emissions Projections: Non-CO 2 and Non-Energy CO 2 Sources” (EPA, 2013). Uncertainties and limitations are discussed, including a side case which incorporates additional geographic information for estimating methane from coal mining.

The term “upstream emissions” in this document refers to vented, fugitive and flared emissions associated with fuel production, processing, transmission, storage, and distribution of fuels prior to fuel combustion in electricity plants. For this analysis, the EPA focused on upstream methane from the natural gas systems and coal mining sectors. In addition, the analysis
included CO 2 resulting from flaring in natural gas production. This analysis does not assess other upstream GHG emissions changes, such as CO 2 emissions from the combustion of fuel used in***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-3 natural gas and coal production activities or other non-combustion CO 2 emissions from natural gas systems, such as vented CO 2 and CO 2 emitted from acid-gas removal processes.

Also, the EPA assessed potential upstream methane emissions from natural gas systems and coal mining sectors within the domestic U.S., but did not examine emissions from potential changes in upstream emissions generated by changes in natural gas and coal production, processing, and transportation activities outside of the US. 80 Last, the EPA did not assess potential changes in other upstream non-GHG emis sions, such as nitrogen oxides, volatile organic compounds, and particulate matter. Table 3A-1 presents estimates of the upstream emissions discussed in this analyses for 2013, based on the 2015 U.S. GHG Inventory.

EPA defined the boundaries of this assessment in order to provide targeted insights into the potential net change in methane emissions from natural gas systems and coal production activities specifically. CO 2 emissions from flared methane are included because regulatory and voluntary programs influence the rate of methane flaring over time and the CO 2 remaining after flaring is a methane-related GHG. Because of the multiple strategies adopted in the illustrative plan approaches, a more comprehensive assessment of upstream GHG emissions would require examination of the broader power sector and related input markets and their potential changes in response to the rule. This analysis would be complex and likely subject to data limitations and substantial uncertainties. Rather, EPA chose to limit the scope of this upstream analysis to evaluate the potential for changes in GHG emissions that may be of significant scale relative to the impacts of the rule and for which EPA had previously-reviewed projection techniques, which are presented in detail below.

3A.1.2 Coal Mining Source Description
Within coal mining, this analysis covers fugitive methane emissions from coal mining (including pre-mining drainage) and post-mining activities (i.e., coal handling), including both underground and surface mining. Emissions from abandoned mines are not included. Energy-

80 While the analysis does not estimate methane emissions changes outside of the United States, activity factors include imports and exports of natural gas to help estimate domestic methane emissions related to trade of natural gas, such as emissions from LNG terminals in the US or from pipelines transporting imported natural gas within the US (or transporting natural gas within the US while en route for export).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-4 related CO 2 emissions, such as emissions from mining equipment and vehicles transporting coal are not included. Methane, which is contained within coal seams and the surrounding rock strata, is released into the atmosphere when mining operations reduce the pressure above and/or surrounding the coal bed. The quantity of methane emitted from these operations is a function of two primary factors: coal rank and coal depth. Coal rank is a measure of the carbon content of the coal, with higher coal ranks corresponding to higher carbon content and generally higher methane content. Pressure increases with depth and prevents methane from migrating to the surface; as a result, underground mining operati ons typically emit more methane than surface mining. In addition to emissions from underground and surface mines, post-mining processing of coal and abandoned mines also release methane. Post-mining emissions refer to methane retained in the coal that is released during processing, storage, and transport of the coal.

3A.1.3 Natural Gas Systems Source Description
Within natural gas systems, this analysis covers vented and fugitive methane emissions from the production, processing, transmission and storage, and distribution segments of the natural gas system. It also includes CO 2 from flaring of natural gas. Not included are vented and fugitive CO 2 emissions from natural gas systems, such as vented CO 2 emissions removed during natural gas processing, or energy-related CO 2 such as emissions from stationary or mobile combustion. The U.S. natural gas system encompasses hundreds of thousands of wells, hundreds of processing facilities, and over a million miles of transmission and distribution pipelines.
Methane and non-combustion 81 CO 2 emissions from natural gas systems are generally processrelated, with normal operations, routine maintenance, and system upsets being the primary contributors. There are four primary stages of the natural gas system which are briefly described
below.

Production: In this initial stage, wells are used to withdraw raw gas from underground formations. Emissions arise from the wells themselves, gathering pipelines, and well-site gas treatment facilities (e.g., dehydrators, separato rs). Major emissions source categories within the production stage include pneumatic devices, gas wells with liquids unloading, and gas well

81 In this document, consistent with IPCC accounting terminology, the term “combustion emissions” refers to the emissions associated with the combustion of fuel for useful heat and work, while “non-combustion emissions” refers to emissions resulting from other activities, including flaring and CO 2 removed from raw natural gas.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-5 completions and re-completions (i.e., workovers) with hydraulic fracturing (EPA 2013). Flaring emissions account for the majority of the non-combustion CO 2 emissions within the production stage.
Processing: In this stage, natural gas liquids and various other constituents from the raw gas are removed, resulting in “pipeline-quality” gas, which is then injected into the transmission system. Fugitive methane emissions from compressors, including compressor seals, are the primary emissions source from this stage. In the U.S. GHG Inventory, the majority of non-combustion
CO 2 emissions in the processing stage come from acid gas removal units, which are designed to
remove CO 2 from natural gas.
Transmission and Storage: Natural gas transmission involves high-pressure, large-diameter pipelines that transport gas long distances from field production and processing areas to distribution systems or large-volume customers such as power plants or chemical plants. Compressor station facilities, which contain large reciprocating and turbine compressors, are used to move the gas throughout the U.S. transmission system. Fugitive methane emissions from these compressor stations and from metering and regulating stations account for the majority of the emissions from this stage. Pneumatic devices and non-combusted engine exhaust are also sources of methane emissions from transmission facilities. Natural gas is also injected and stored in underground formations, or liquefied and stored in above-ground tanks, during periods of lower demand (e.g., summer), and withdrawn, processed, and distributed during periods of higher demand (e.g., winter). Compressors and dehydrators are the primary contributors to emissions from these storage facilities. Emi ssions from LNG import terminals are included within the transportation and storage stage.

Distribution: Distribution pipelines take the high-pressure gas from the transmission system at “city gate” stations, reduce the pressure, and then distribute the gas through primarily underground mains and service lines to individual end users.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-6 Table 3A-1. Base Year Upstream Methane-Rela ted Emissions in the U.S. GHG Inventory Emissions Source 2013 Emissions (million metric tons CO 2 Eq.) Methane from Coal Mining 64.6

Underground Mining and Post-Mining 52.8 Surface Mining and Post-Mining 11.8 Methane from Natural Gas Systems 157.4

Production 47.0 Processing 22.7 Transmission and Storage 54.4 Distribution 33.3 CO 2 from flaring of natural gas 15.5 Source: 2015 U.S. GHG Inventory (EPA, 2015). A Global Warming Potential of 25 was used to convert methane emissions to CO 2 Eq. In Table 3A-1, CO 2 -equivalent methane emissions are presented using the Fourth Assessment Report Global Warming Potential (GWP) of 25.

3A.1.4 Illustrative Plan Approaches Examined
States will ultimately determine optimal approaches to comply with the goals established in this regulatory action. The RIA depicts illustrative plan approaches for the final emissions guidelines, reflecting a rate-based illustrative plan or mass-based illustrative plan approach.

3A.1.5 Activity Drivers IPM-based activity driver projections from base case and illustrative plan approaches underlie the estimates of upstream methane emissions. These activity drivers include domestic coal and natural gas production, imports and exports, and natural gas consumption. Table 3A-2 and Table 3A-3 summarize the IPM-based coal and natural gas production activity driver results from the baseline and illustrative scenario for the final guidelines. 82

Under the final guidelines, both the rate-based and mass-based illustrative plan approaches result in reduced coal production and little change in natural gas production. We estimate that the illustrative plan approaches will result in reductions in coal production of 5 to 6 percent in 2020, 12 to 15 percent in 2025 and 21 to 22 percent in 2030, relative to base case coal production.

82 Uncertainties related to activity drivers are discussed in the uncertainties and limitations section.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-7 Natural gas production in the illustrative plan approaches change by 1 percent or less in each of the years of analysis relative to production in the base case.

Table 3A-2. Projected Coal Production Impacts

Coal Production (million short tons) Coal Production Change from Base Case (million short tons) Coal Production Percent Change from Base Case

2020 2025 2030 2020 2025 2030 2020 2025 2030
Base Case 832.4 828.7 860.1 Rate-based 791.5 725.7 674.4 -41.0 -103.0 -186.0 -5% -12% -22% Mass-based 779.9 705.6 678.9 -52.0 -123.0 -181.0 -6% -15% -21%
Table 3A-3. Projected Natural Gas Production Impacts

Dry Gas Production (trillion cubic feet) Dry Gas Production Change from Base Case

(trillion cubic feet) Dry Gas Production Percent Change from Base Case
2020 2025 2030 2020 2025 2030 2020 2025 2030
Base Case 28.9 30.8 33.0 Rate-based 29.1 30.7 32.9 +0.2 -0.1 -0.1 +1% 0% 0% Mass-based 29.2 30.8 32.6 +0.3 +0.0 -0.4 +1% 0% -1%

3A.2 Results The analytical results (Table 3A-4) for the final guidelines indicates decreases in methane emissions from coal mining of 6 to 8 million metric tons CO 2 Eq. in 2025, and about 12 million
metric tons CO 2 Eq. in 2030. Methane from natural gas systems decreases relative to the base case by 0 to 1 million metric tons CO 2 Eq. in 2025 and 1 to 2 million metric tons CO 2 Eq. in
2030. CO 2 from flaring in natural gas production does not show significant change relative to the
base case.

Based on the actions modelled in the illustrative plan approaches, upstream methane
emissions and CO 2 emissions are predicted to decline (see Table 3A-4). The final guidelines are predicted to result in a net emissions reduction of about 8 million metric tons CO 2 Eq. in 2025
and a net emissions reduction of 13 to 15 million metric tons CO 2 Eq. in 2030. These net emissions changes represent the sum of changes in methane from coal mining, methane from***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-8 natural gas systems, and CO 2 from flaring in natural gas production. The projections include voluntary and regulatory activities to reduce emissions from coal mining and natural gas and oil systems, including the 2012 Oil and Natural Gas NSPS. In addition, the EPA plans to issue a proposed rule later this summer that would bu ild on its 2012 Oil and Gas NSPS. When these standards are finalized and implemented, they would further reduce projected emissions from natural gas and oil systems.

Table 3A-4. Potential Upstream Emissions Changes Emissions (million metric tons CO 2 Eq.) 2020 2025 2030 Rate-based

Methane from Coal Mining -2.7 -6.8 -12.7 Methane from Natural Gas Systems +1.0 -0.7 -0.6 CO 2 from NG flaring +0.1 -0.0 -0.1 Total Methane + CO 2 -1.6 -7.6 -13.4 Mass-based

Methane from Coal Mining -3.5 -8.2 -12.4 Methane from Natural Gas Systems +1.3 -0.1 -2.0 CO 2 from NG flaring +0.2 +0.0 -0.3 Total Methane + CO 2 -2.0 -8.2 -14.6 Note: A Global Warming Potential of 25 was used to convert methane emissions to CO 2 Eq.

3A.3 Uncertainties and Limitations Projections of upstream methane emissions and CO 2 emitted from flaring of methane are subject to a range of uncertainties and limitations. These uncertainties and limitations include estimating the effect of the plan approach on activity drivers, uncertainty in base year emissions, and uncertainties in changes in emissions factors over relatively long periods of time. For example, EPA’s application of IPM relies on EIA projections for coal imports and exports. Consequently, coal imports and exports are not able to fully respond within the IPM framework to significant fluctuations in power sector coal demand. To the extent international markets may be expected to offset reduced domestic coal demand, changes in U.S. upstream emissions as a result of the policy scenarios would be smaller than what is presented here.

Discussion of uncertainty in historical estimates of emissions from coal mining and natural gas systems can be found in the 2015 U.S. GHG Inventory. Projected changes in activity drivers***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-9 and emissions factors are based on a combination of policy, macroeconomic, energy market, and technology factors which are uncertain in both baseline and illustrative plan approaches. Relatively higher or lower economic growth, or changes in the relative prices or availability of various technologies could result in alternative estimates in the net change in upstream methane
emissions and related CO 2 emissions.

3A.4 References

IPCC. 2006. 2006 IPCC Guidelines for National Greenhouse Gas Inventories. Available at <http://www.ipcc-nggip.iges.or.jp/public/2006gl/>. Accessed June 4, 2015. U. S. Department of State. 2014. 2014 U.S. Climate Action Report to the UNFCCC. Available at <http://www.state.gov/e/oes/rls/rpts/car6/index.htm>. Accessed June 4, 2015. U. S. Environmental Protection Agency (U.S. EPA). 1993. Anthropogenic Methane Emissions in the United States, Estimates for 1990: Report to Congress. EPA-430-R-93-003. U. S. Environmental Protection Agency (U.S. EPA). 2011. Oil and Natural Gas Sector: Standards of Performance for Crude Oil and Natural Gas Production, Transmission, and Distribution: Background Technical Support Document for the Proposed Standards

. Available at <http://epa.gov/airquality/oilandgas/pdfs/20110728tsd.pdf>. Accessed June 4, 2015. U. S. Environmental Protection Agency (U.S. EPA). 2012a. Oil and Natural Gas Sector: New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants Reviews . 40 CFR Parts 60 and 63 [EPA-HQ-OAR-2010-0505; FRL-9665-1], RIN 2060-AP76. Available at <http://www.gpo.gov/fdsys/pkg/FR-2012-08-16/pdf/2012- 16806.pdf>. Accessed June 4, 2015. U. S. Environmental Protection Agency (U.S. EPA). 2012b. Oil and Natural Gas Sector: Standards of Performance for Crude Oil and Natural Gas Production, Transmission, and Distribution: Background Supplemental Technical Support Document for the Final New Source Performance Standards . Available at <http://epa.gov/airquality/oilandgas/pdfs/20120418tsd.pdf>. Accessed June 4, 2015. U. S. Environmental Protection Agency (U.S. EPA). 2015. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2013 . EPA-430-R-15-004. Available at <http://www.epa.gov/climatechange/ghgemissions/u sinventoryreport.html>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

3A-10 U. S. Environmental Protection Agency (U.S. EPA). 2013. Methodologies for U.S. Greenhouse Gas Emissions Projections: Non-CO 2 and Non-Energy CO 2 Sources. Available at <http://www.state.gov/documents/organization/219472.pdf> Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-1 

### C HAPTER 

### 4: E STIMATED 

### C LIMATE 

### B ENEFITS AND 

### H UMAN 

### H EALTH 

### C O 

### - BENEFITS

4.1 Introduction Implementing the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (hereafter referred to as the “final emission guidelines” or “Clean Power Plan Final Rule”) is expected to reduce emissions of carbon dioxide (CO 2 ) and have ancillary human health benefits (i.e., co-benefits) associated with lower ambient concentrations of criteria air pollutants. This chapter describes the methods used to estimate the monetized climate benefits and the monetized air quality health co-benefits associated with reducing exposure to ambient fine particulate matter (PM 2.5 ) and ozone by reducing emissions of precursor pollutants (i.e., sulfur dioxide (SO 2 ), nitrogen dioxide (NO 2 ), and directly emitted
PM 2.5 ). Data, resource, and methodological limitations prevent the EPA from monetizing the benefits from several important co-benefit categories, including reducing direct exposure to SO 2 , NO 2 , and hazardous air pollutants (HAP), as well as ecosystem effects and visibility impairment. We qualitatively discuss these unquantified benefits in this chapter.

This chapter provides estimates of the monetized climate benefits and air quality health cobenefits associated with emission reductions for the illustrative rate-based and mass-based illustrative plan approaches across several analysis years and discount rates. The estimated benefits associated with these emission reductions are beyond those achieved by previous EPA rulemakings, including the Mercury and Air Toxics Standards (MATS).

4.2 Estimated Climate Benefits from CO 2 The primary goal of the final emission guidelines is to reduce emissions of CO 2 . In this section, we provide a brief overview of the 2009 Endangerment Finding and climate science assessments released since then. We also provide information regarding the economic valuation
of CO 2 using the Social Cost of Carbon (SC-CO 2 ), a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 emissions in a given year. Table 4-1 summarizes the quantified and unquantified climate benefits in this analysis.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-2 Table 4-1. Climate Effects Benefits Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information Improved Environment Reduced climate effects Global climate impacts from CO 2 — 1  SCC TSD Climate impacts from ozone and black carbon (directly emitted PM) — — Ozone ISA, PM ISA 2 Other climate impacts (e.g., other GHGs such as methane, aerosols, other impacts) — — IPCC 2

1 The global climate and related impacts of CO 2 emissions changes, such as sea level rise, are estimated within each

integrated assessment model as part of the calculation of the SC-CO 2 . The resulting monetized damages, which are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes in CO 2 emissions.

2 We assess these co-benefits qualitatively because we do not have sufficient confidence in available data or methods. 4.2.1 Climate Change Impacts
Through the implementation of CAA regulations, the EPA addresses the negative externalities caused by air pollution. In 2009, the EPA Administrator found that elevated concentrations of greenhouse gases in the atmosphere may reasonably be anticipated both to endanger public health and to endanger public welfare. It is these adverse impacts that make it necessary for the EPA to regulate GHGs from EGU sources. The preamble 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 intense 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 to 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 rele ased since the 2009 Endangerment Finding have improved scientific understanding of the climate, 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***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-3 weather events, wildfire, decreased air quality, threats to mental health, and illnesses transmitted by food, water, and disease-carriers such as mosquitoes and ticks.” These assessments also detail the risks to vulnerable groups such as children, the elderly and low income households. Furthermore, the assessments present an improv ed understanding of the impacts of climate change on public welfare, higher projections of future sea level rise than had been previously estimated, a better understanding of how the warmth in the next century may reach levels that would be unprecedented relative to the preceding millions of years of history, and new assessments of the 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.

4.2.2 Social Cost of Carbon
We estimate the global social benefits of CO 2 emission reductions expected from the final emission guidelines using the SC-CO 2 estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive
Order 12866 (May 2013, Revised July 2015) (“current TSD”). 83 We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates.” The SC-CO 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 health, 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., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 emissions).

83 Docket ID EPA-HQ-OAR-2013-0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, 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 and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf> Accessed 7/11/2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-4 The SC-CO 2 estimates used in this analysis were developed over many years, using the best science available, and with input from the public. 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 values for use in regulatory analyses. 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.

The SC-CO 2 estimates were developed using an ensemble of the three most widely cited integrated assessment models in the economics 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 literature. 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 climate’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 from the three models were estimated using a consistent range of discount rates, 2.5, 3.0, and 5.0 percent. See the 2010 TSD for a complete discussion of the methods used to develop the estimates and the key uncertainties, and the current TSD for the
latest estimates. 84

The SC-CO 2 estimates represent global measures because of the distinctive nature of the climate change, which is highly unusual in at leas t three respects. First, emissions of most GHGs contribute to damages around the 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

84 See https://www.whitehouse.gov/omb/oira/social-cost-of-carbon for both TSDs.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-5 interconnected context , 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 else 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 cooperate 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 that these “are compelling reasons to focus on a global SCC” in a recent article on the SCC (Pizer et al., 2014). In addition, as noted in OMB’s Response to Comments on the SCC, there is no bright line between domestic and global damages. Adverse impacts 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. 85

The 2010 TSD noted a number of limitations to the SC-CO 2 analysis, including theincomplete way in which the integrated assessment models capture catastrophic and noncatastrophic impacts, their incomplete treatm ent of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently 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 information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. 86 The limited amount of research linking climate impacts to economic damages makes the modeling
exercise even more difficult. 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

85 See Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 Fed. Reg. 66,496, 66,535 (Dec. 15, 2009) and National Research Council 2013a.

86 Climate change impacts and SCC modeling is an area of active research. For example, see: (1) Howard, Peter, “Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_the_Social_Cost_of_Carbon.pdf; and (2) Electric Power Research Institute, “Understanding the Social Cost of carbon: A Technical Assessment,” October 2014, www.epri.com. Deleted: economy Commented [A25]: Consistent with the last sentence in this paragraph, suggest broadening to potentially include economic impacts resulting from humanitarian and/or military expenditures related to international climate impacts

Commented [A26]: If helpful, consider referencing action by other major economies in the context of UNFCCC negotiations, e.g. US-China joint announcement.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-6 SC-CO 2 estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (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 damagecosts because they cannot include many non-quantifiable impacts.” Since then, the peerreviewed literature has continued to support this conclusion. For example, the IPCC Fifth Assessment report observed that SC-CO 2 estimates continue to omit various impacts that would likely increase damages. The 95th percentile estimate 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 comments 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 this 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 the process by which
the SC-CO 2 estimates were derived. Many but not al l commenters were supportive of the SCCO 2 and its application to this rulemaking. Commenters also provided constructive recommendations for potential opportunities to improve the SC-CO 2 estimates in future updates. 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 were similar to those that OMB’s Office of Information and Regulatory Affairs received in response to a separate request for public comment on the approach used to develop the estimates. After careful evaluation of the full range of comments submitted to OMB’s Office of Information and Regulatory Affairs, the IWG
continues to recommend the use of these SC-CO 2 estimates in regulatory impact analysis. With the release of the response to comments 87 , the IWG announced plans to obtain expert independent advice from the National Academies of Sciences, Engineering, and Medicine

87 See https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-7 (Academies) to ensure that the SC-CO 2 estimates continue to reflect the best available scientific and economic information on climate change. 88 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.

Concurrent with OMB’s publication of the response to comments on SC-CO 2 and announcement of the Academies process, OMB posted a revised TSD that includes 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 model. On average the revised 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 percent discount rate is slightly larger, as those estimates are heavily influenced by the results from the model that was affected by the indexing error.

The four SC-CO 2 estimates are as follows: $13, $45, $66, and $130 per metric ton of CO 2 emissions in the year 2020 (2011$). 89 The first three values are based on 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 rate, 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 95 th 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 4-2 presents the global SC-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

88 See https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions.

89 The current version of the TSD is available at: https://www.whitehouse.gov/sites/default/files/omb/inforeg/scctsd-final-july-2015.pdf. The 2010 and 2013 TSDs present SCC in 2007$. The estimates were adjusted to 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI-2013-02/pdf/ECONI-2013-02-Pg3.pdf.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-8 would be applied to changes in CO 2 emissions for that year, and then discounted back to the analysis year using the same discount rate used to estimate the SC-CO 2
. 90 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 change. 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 other modeling assumptions. Tables 4-3 through 4-5 report the incremental climate benefits estimated in three analysis years (2020, 2025, and 2030) for the rate-based and mass-based illustrative plan approaches.

Table 4-2. Social Cost of CO 2 , 2015-2050 (in 2011$)*

Year Discount Rate and Statistic 5% Average 3% Average 2.5% Average 3% (95th percentile) 2015 $12 $38 $59 $110 2020 $13 $45 $66 $130 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 * The SC-CO 2 values vary depending on the year of CO 2 emissions and are defined in real terms, i.e., adjusted for

inflation using the GDP implicit price deflator. These SC-CO 2 values are stated in $/metric ton and rounded to two significant figures.

Table 4-3. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2020 (billions of 2011$)*
Discount rate and statistic Rate-Based Mass-Based Million metric tonnes of CO 2 reduced 63 74 5% (average) $0.80 $0.94 3% (average) $2.8 $3.3 2.5% (average) $4.1 $4.9 3% (95 th percentile) $8.2 $9.7 * The SC-CO 2 values are dollar-year and emissions-year specific. SC-CO 2 values represent only a partial accounting of climate impacts.

90 This analysis considered the climate impacts of only CO 2 emission change. As discussed below, the climate impacts of other pollutants were not calculated for the proposed guidelines. While CO 2 is the dominant GHG emitted by the sector, we recognize the representative facilities within these comparisons may also have different emission rates for other climate forcers that will serve a minor role in determining the overall social cost of generation.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-9 Table 4-4. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2025 (billions of 2011$)*
Discount rate and statistic Rate-Based Mass-Based Million metric tonnes of CO 2 reduce d 211 240 5% (average) $3.1 $3.6 3% (average) $10 $12 2.5% (average) $15 $17 3% (95 th percentile) $31 $35 * The SC-CO 2 values are dollar-year and emissions-year specific. SC-CO 2 values represent only a partial accounting of climate impacts.

Table 4-5. Estimated Global Climate Benefits of CO 2 Reductions for the Final Emission Guidelines in 2030 (billions of 2011$)*
Discount rate and statistic Rate-Based Mass-Based Million metric tonnes of CO 2 reduced 376 375 5% (average) $6.4 $6.4 3% (average) $20 $20 2.5% (average) $29 $29 3% (95 th percentile) $61 $60 * The SC-CO 2 values are dollar-year and emissions-year specific. SC-CO 2 values represent only a partial accounting of climate impacts. It is important to note that the climate benefits presented above are associated with changes
in CO 2 emissions only. Implementing these final emission guidelines, however, will have an impact on the emissions of other pollutants that would affect the climate. Both predicting reductions in emissions and estimating the climate impacts of these other pollutants, however, is complex. The climate impacts of these other pollutants have not been calculated for the final emission guidelines. 91

The other emissions potentially reduced as a result of the final emission guidelines include other greenhouse gases (such as methane), aerosols and aerosol precursors such as black carbon, organic carbon, sulfur dioxide and nitrogen oxides , and ozone precursors such as nitrogen oxides and volatile organic carbon compounds. Changes in emissions of these pollutants (both increases and decreases) could directly result from changes in electricity generation, upstream fossil fuel extraction and transport, and/or downstream s econdary market impacts. Reductions in black carbon or ozone precursors are projected to lead to further cooling, but reductions in the other aerosol species and precursors are projected to lead to warming. Therefore, changes in non-CO 2

91 The SC-CO 2 estimates used in this analysis are designed to assess the climate benefits associated with changes in CO 2 emissions only.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-10 pollutants could potentially augment or offset the climate benefits calculated here. These pollutants can act in different ways and on different timescales than carbon dioxide. For example, aerosols reflect (and in the case of black carbon, absorb) incoming radiation, whereas greenhouse gases absorb outgoing infrared radiation. In addition, these aerosols are thought to affect climate indirectly by altering properties of clouds. Black carbon can also deposit on snow and ice, darkening these surfaces and accelerating melting. In terms of lifetime, while carbon dioxide emissions can increase concentrations in the atmosphere for hundreds or thousands of years, many of these other pollutants are short lived and remain in the atmosphere for short periods of time ranging from days to weeks and can therefore exhibit large spatial and temporal variability.

While the EPA has not quantified the climate impacts of these other pollutants for the final emission guidelines, the Agency has analyzed the potential changes in upstream methane emissions from the natural gas and coal production sectors that may result from the illustrative plan approaches examined in this RIA in the appendix to Chapter 3. The EPA assessed whether the net change in upstream methane emissions from natural gas and coal production is likely to be positive or negative and also assessed the potential magnitude of changes relative to CO 2 emissions reductions anticipated at power plants. This assessment included CO 2 emissions from the flaring of methane, but did not evaluate potential changes in other combustion-related CO 2 emissions, such as emissions associated with drilling, mining, processing, and transportation in the natural gas and coal production sectors. This analysis found that the net upstream CH 4 emissions from natural gas systems and coal mines and CO 2 emissions from flaring of methane will likely decrease under the final emission guidelines. Furthermore, the analysis suggests that the changes in upstream methane emissions are small relative to the changes in direct emissions from power plants.

4.3 Estimated Human Health Co-Benefits In addition to reducing emissions of CO 2 , implementing these final emission guidelines is expected to reduce emissions of SO 2 and NO X , which are precursors to formation of ambient***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-11 PM 2.5 , as well as directly emitted fine particles. 92 Therefore, reducing these emissions would also reduce human exposure to ambient PM 2.5 and the incidence of PM 2.5 -related health effects. In addition, in the presence of sunlight, NO X and VOCs can undergo a chemical reaction in the atmosphere to form ozone. Depending on localized concentrations of volatile organic compounds (VOCs), reducing NO X emissions would also reduce human exposure to ozone and the incidence of ozone-related health effects. Although we do not have sufficient data to quantify these impacts in this analysis, reducing emissions of SO 2 and NOx would also reduce ambient exposure to SO 2 and NO 2 and their associated health effects, respectively. In this section, we provide an overview
of the monetized PM 2.5 and ozone-related co-benefits estimated for the final emission guidelines. A full description of the underlying data, studies, and assumptions is provided in the PM NAAQS RIA (U.S. EPA, 2012a) and Ozone NAAQS RIA (U.S. EPA, 2008b, 2010d). The estimated co-benefits associated with these emission reductions are beyond those achieved by previous EPA rulemakings, including MATS.

There are several important considerations in assessing the air quality-related health cobenefits for a climate-focused rulemaking. First, these estimated health co-benefits do not account for any climate-related air quality changes (e.g., increased ambient ozone associated with higher temperatures) but rather changes in precursor emissions affected by this rulemaking.Excluding climate-related air quality changes may underestimate ozone-related health cobenefits. It is unclear how PM 2.5 -related health co-benefits would be impacted by excluding climate-related air quality changes since the science is unclear as to how climate change may
affect PM 2.5 exposure. Second, the estimated health co-benefits also do not consider temperature
modification of PM 2.5 and ozone risks (Roberts 2004; Ren 2006a, 2006b, 2008a, 2008b). Third, the estimated climate benefits reported in this RIA reflect global benefits, while the estimated
health co-benefits are calculated for the co ntiguous U.S. only. Excluding temperature modification of air pollution risks and international air quality-related health benefits likely leads to underestimation of quantified health co-benefits (Anenberg et al, 2009, Jhun et al, 2014).

92 We estimate the health co-benefits associated with emission reductions of two categories of directly emitted particles: elemental carbon plus organic carbon (EC+OC) and crustal. Crustal emissions are composed of compounds associated with minerals and metals from the earth’s surface, including carbonates, silicates, iron, phosphates, copper, and zinc. Often, crustal material represents particles not classified as one of the other species (e.g., organic carbon, elemental carbon, nitrate, sulfate, chloride, etc.).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-12 Fourth, as noted earlier, we do not estimate the climate benefits associated with reductions in PM
and O 3 precursors.
Implementing the final emission guidelines may lead to reductions in ambient PM 2.5 concentrations below the National Ambient Air Quality Standards (NAAQS) for PM and ozone in some areas and assist other areas with attaining these NAAQS. Because the NAAQS RIAs (U.S. EPA, 2012a, 2008b, 2010d) also calculated PM and ozone benefits, there are important differences worth noting in the design and analytical objectives of each RIA. The NAAQS RIAs illustrate the potential costs and benefits of attaining a revised air quality standard nationwide based on an array of emission reduction strategies for different sources reflecting the application of known and unknown controls, incremental to implementation of existing regulations and controls needed to attain the current standards. In short, NAAQS RIAs hypothesize, but do not predict, the reduction strategies that States may choose to enact when implementing a revised NAAQS. The setting of a NAAQS does not directly result in costs or benefits, and as such, the EPA’s NAAQS RIAs are merely illustrative and the estimated costs and benefits are not intended to be added to the costs and benefits of other regulations that result in specific costs of control
and emission reductions. Some of the emissions reductions estimated to result from implementation of the final emission guidelines may achieve some of the air quality improvements that resulted from the hypothesized attainment strategies presented in the illustrative NAAQS RIAs. The emissions reductio ns from implementing the final emission guidelines will decrease the remaining amount of emissions reductions needed in non-attainment areas and reduce the costs and benefits attributable to meeting the NAAQS.

Similar to NAAQS RIAs, the emission reduction scenarios estimated for the final emission guidelines are also illustrative. In contrast to N AAQS RIAs, all of the emission reductions for the illustrative plan approaches would occur in one well-characterized sector (i.e., the EGU sector). In general, the EPA is more confident in the magnitude and location of the emission reductions for rules which require specific emission reductions in a specific sector, for example, the recent Mercury and Air Toxics Standards. As such, emission reductions achieved under these types of promulgated rules will ultimately be reflected in the baseline of future NAAQS analyses, which would reduce the incremental costs and benefits associated with attaining revised future NAAQS. The EPA does not re-issue illustrative RIAs outside of the rulemaking process that***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-13 retroactively update the baseline to account for implementation rules promulgated after an RIA was completed. For more information on the relationship between illustrative analyses, such as for the NAAQS and this final emission guidelines, and implementation rules, please see section 1.3 of the PM NAAQS RIA (U.S. EPA, 2012a).

4.3.1 Health Impact Assessment for PM 2.5 and Ozone

The Integrated Science Assessment for Particulate Matter (PM ISA) (U.S. EPA, 2009b)
identified the human health effects associated with ambient PM 2.5 exposure, which include premature mortality and a variety of morbidity effects associated with acute and chronic exposures. Similarly, the Integrated Science Assessment for Ozone and Related Photochemical
Oxidants (Ozone ISA) (U.S. EPA, 2013b) identified the human health effects associated with ambient ozone exposure, which include premature mortality and a variety of morbidity effects associated with acute and chronic exposures. Table 4-6 identifies the quantified and unquantified co-benefit categories captured in the EPA’s health co-benefits estimates for reduced exposure to
ambient PM 2.5 and ozone. Although the table below does not list unquantified health effects such as those associated with exposure to SO 2 , NO 2 , and mercury nor welfare effects such as acidification and nutrient enrichment, these effects are described in detail in Chapters 5 and 6 of the PM NAAQS RIA (U.S. EPA, 2012a) and summarized later in this chapter. It is important to emphasize that the list of unquantified benefit categories is not exhaustive, nor is quantification of each effect complete.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-14 Table 4-6. Human Health Effects of Ambient PM 2.5 and Ozone

Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information Improved Human Health Reduced incidence of premature mortality from exposure to PM 2.5 Adult premature mortality based on cohort study estimates and expert elicitation estimates (age >25 or age >30)   PM ISA

Infant mortality (age <1)   PM ISA

Reduced incidence of morbidity from exposure to PM 2.5 Non-fatal heart attacks (age > 18)   PM ISA Hospital admissions—respiratory (all ages)   PM ISA Hospital admissions—cardiovascular (age >20)   PM ISA Emergency room visits for asthma (all ages)   PM ISA Acute bronchitis (age 8-12)   PM ISA Lower respiratory symptoms (age 7-14)   PM ISA Upper respiratory symptoms (asthmatics age 9-11)   PM ISA Asthma exacerbation (asthmatics age 6-18)   PM ISA Lost work days (age 18-65)   PM ISA Minor restricted-activity days (age 18-65)   PM ISA Chronic Bronchitis (age >26) — — PM ISA 1 Emergency room visits for cardiovascular effects (all ages) — — PM ISA 1 Strokes and cerebrovascular disease (age 50-79) — — PM ISA 1 Other cardiovascular effects (e.g., other ages) — — PM ISA 2 Other respiratory effects (e.g., pulmonary function, non-asthma ER visits, non-bronchitis chronic diseases, other ages and populations) — — PM ISA 2
Reproductive and developmental effects (e.g., low birth weight, pre-term births, etc.) — — PM ISA 2,3 Cancer, mutagenicity, and genotoxicity effects — — PM ISA 2,3
Reduced incidence of mortality from exposure to ozone Premature mortality based on short-term study estimates (all ages)   Ozone ISA Premature mortality based on long-term study estimates (age 30–99) — — Ozone ISA 1

Reduced incidence of

morbidity from exposure to ozone Hospital admissions—respiratory causes (age > 65)   Ozone ISA Hospital admissions—respiratory causes (age <2)   Ozone ISA Emergency department vis its for asthma (all ages)   Ozone ISA Minor restricted-activity days (age 18–65)   Ozone ISA School absence days (age 5–17)   Ozone ISA Decreased outdoor worker productivity (age 18–65) — — Ozone ISA 1 Other respiratory effects (e.g., premature aging of lungs) — — Ozone ISA 2 Cardiovascular and nervous system effects — — Ozone ISA 2 Reproductive and developmental effects — — Ozone ISA 2,3

1 We assess these co-benefits qualitatively due to data and resour ce limitations for this analysis, but we have quantified them in

sensitivity analyses for other analyses.

2 We assess these co-benefits qualitatively because we do not have sufficient confidence in available data or methods.

3 We assess these co-benefits qualitatively because current evidence is only suggestive of causality or there are other significa nt

concerns over the strength of the association.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-15 We follow a “damage-function” approach in calculating benefits, which estimates changes in individual health endpoints (specific effects that can be associated with changes in air quality) and assigns values to those changes assuming independence of the values for those individual endpoints. Because the EPA rarely has the time or resources to perform new research to measure directly, either health outcomes or their values for regulatory analyses, our estimates are based
on the best available methods of benefits tran sfer, which is the science and art of adapting primary research from similar contexts to estimate benefits for the environmental quality change under analysis. In addition to transferring informa tion from other contexts to the context of this regulation, we also use a “benefit-per-ton” approach to estimate the PM 2.5 and ozone co-benefits in this RIA. Benefit-per-ton approaches apply an average benefit per ton derived from modeling of benefits of specific air quality scenarios to estimates of emissions reductions for scenarios where no air quality modeling is available. Thus, to develop estimates of benefits for this RIA, we are transferring both the underlying health and economic information from previous studies and information on air quality responses to emissions reductions from previous air quality modeling. This section describes the underlying basis for the health and economic valuation estimates that inform the benefit-per-ton estimates, and the subsequent section provides an overview of the benefit-per-ton estimates, 93 which are described in detail in the appendix to this chapter.

The benefit-per-ton approach we use in this RIA relies on estimates of human health responses to exposure to PM and ozone obtained from the peer-reviewed scientific literature. These estimates are used in conjunction with population data, baseline health information, air quality data and economic valuation information to conduct health impact and economic benefits assessments. These assessments form the key inputs to calculating benefit-per-ton estimates. The next sections provide an overview of the health impact assessment (HIA) methodology and additional details on several key elements.

93 We have updated the benefit-per-ton estimates since the proposal RIA. In this RIA, we apply benefit-per-ton estimates that were derived from air quality modeling of the proposed Clean Powe r Plan (Option 1 State).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-16 The HIA quantifies the changes in the incidence of adverse health impacts resulting from changes in human exposure to PM 2.5 and ozone. We use the environmental Benefits Mapping and Analysis Program – Community Edition (BenMAP-CE) (version 1.1) to systematize health impact analyses by applying a database of key input parameters, including population projections, health impact functions, and valuation functions (Abt Associates, 2012). For this assessment, the HIA is limited to those health effects that are directly linked to ambient PM 2.5 and ozone concentrations. There may be other indirect health impacts associated with reducing emissions, such as occupational health exposures. Epidemiological studies generally provide estimates of the relative risks of a particular health effect for a given increment of air pollution (often per 10 μg/m 3 for PM 2.5 or ppb for ozone). These relative risks can be used to develop risk
coefficients that relate a unit reduction in PM 2.5 to changes in the incidence of a health effect. We refer the reader to the PM NAAQS RIA (U.S. EPA, 2012a) and Ozone NAAQS RIA (U.S. EPA, 2008b, 2010d) for more information regarding the epidemiology studies and risk coefficients applied in this analysis, and we briefly elaborate on adult premature mortality below. The size of the mortality effect estimates from epidemiological studies, the serious nature of the effect itself, and the high monetary value ascribed to reducing risks of premature death make mortality risk reduction the most significant health endpoint quantified in this analysis.

4.3.1.1 Mortality Concentra tion-Response Functions for PM 2.5 Considering a substantial body of published scientific literature and reflecting thousands of epidemiology, toxicology, and clinical studies, the PM ISA documents the association
between elevated PM 2.5 concentrations and adverse health effects, including increased premature mortality (U.S. EPA, 2009b). The PM ISA, which was twice reviewed by the Clean Air Scientific Advisory Committee of the EPA’s Science Advisory Board (SAB-CASAC) (U.S. EPA-SAB, 2009b, 2009c), concluded that there is a causal relationship between mortality and both long-term and short-term exposure to PM 2.5 based on the entire body of scientific evidence.The PM ISA also concluded that the scientific literature supports the use of a no-threshold loglinear model to portray the PM-mortality concen tration-response relationship while recognizing potential uncertainty about the exact shape of the concentration-response function. In addition to adult mortality discussed in more detail below, we use effect coefficients from Woodruff et al. (1997) to estimate PM-related infant mortality.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-17 For adult PM-related mortality, we use the effect coefficients from the most recent epidemiology studies examining two large population cohorts: the American Cancer Society cohort (Krewski et al. , 2009) and the Harvard Six Cities cohort (Lepeule et al, 2012). The PM ISA (U.S. EPA, 2009b) concluded that the ACS and Six Cities cohorts produce the strongest evidence of the association between long-term PM2.5 exposure and premature mortality with support from a number of additional cohort studies. The SAB's Health Effects Subcommittee (SAB-HES) also supported using these two cohorts fo r analyses of the benefits of PM reductions (U.S. EPA-SAB, 2010a). As both the ACS and Six Cities cohort studies have inherent strengths and weaknesses, we present PM2.5 co-benefits estimates based on benefits-per-ton derived using
relative risk estimates from both these cohorts.

As a characterization of uncertainty regarding the adult PM 2.5 -mortality relationship, the EPA graphically presents the PM 2.5 co-benefits based on benefits-per-ton estimated using C-R functions derived from EPA’s expert elicitation study (Roman et al. , 2008; IEc, 2006). The primary goal of the 2006 study was to elicit from a sample of health experts probabilistic distributions describing uncertainty in estimates of the reduction in mortality among the adult U.S. population resulting from reductions in ambient annual average PM 2.5 concentrations. In that study, twelve experts provided independent opinions regarding the PM 2.5 -mortality concentration-response function. Because the experts relied upon the ACS and Six Cities cohort studies to inform their concentration-response functions, the benefits estimates based on the expert responses generally fall between benefits estimates based on these studies (see Figure 4- 1). We do not combine the expert results in order to preserve the breadth and diversity of opinion on the expert panel. This presentation of the expert-derived results is generally consistent with SAB advice (U.S. EPA-SAB, 2008), which re commended that the EPA emphasize that “scientific differences existed only with respect to the magnitude of the effect of PM 2.5 on mortality, not whether such an effect existed” and that the expert elicitation “supports the
conclusion that the benefits of PM 2.5 control are very likely to be substantial”. Although it is possible that newer scientific literature could revise the experts’ quantitative responses if elicited again, we believe that these general conclusions are unlikely to change.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-18 4.3.1.2 Mortality Concentrati on-Response Functions for Ozone
In 2008, the National Academies of Science (NRC, 2008) issued a series ofrecommendations to the EPA regarding the quantification and valuation of ozone-related shortterm mortality. Chief among these was that “...short-term exposure to ambient ozone is likely to contribute to premature deaths” and the committee recommended that “ozone-related mortality be included in future estimates of the health benefits of reducing ozone exposures...” The NAS also recommended that “...the greatest emphasis be placed on the multicity and NMMAPS [ National Morbidity, Mortality, and Air Pollution Study] studies without exclusion of the metaanalyses” (NRC, 2008). In view of the findings of the National Academies panel, we estimate the co-benefits of avoiding short-term ozone mortality using the Bell et al. (2004) NMMAPS analysis, the Schwartz (2005) multi-city study, the Huang et al. (2005) multi-city study as well as effect estimates from the three meta-analyses (Bell et al. (2005), Levy et al. (2005), and Ito et al. (2005)). These studies are consistent with th e studies used in the Ozone NAAQS RIA (U.S. EPA, 2008b, 2010d). 94 For simplicity, we report the ozone mortality estimates in this RIA as a range reflecting application of dollar-per-ton estimates based on Bell et al. (2004) and Levy et al. (2005) to represent the lowest and the highest co-benefits estimates based on these six ozone mortality studies. In addition, we graphically present in Figure 4-1 the estimated co-benefits based on dollar-per-ton estimates derived from all six studies mentioned above as a characterization of uncertainty regarding the ozone -mortality relationship.

4.3.2 Economic Valuation for Health Co-benefits
After quantifying the change in adverse health impacts, we estimate the economic value of these avoided impacts. Reductions in ambient concentrations of air pollution generally lower the risk of future adverse health effects by a small amount for a large population. Therefore, the appropriate economic measure is willingness to pay (WTP) for changes in risk of a health effect. For some health effects, such as hospital admissions, WTP estimates are generally not available, so we use the cost of treating or mitigating the effect. These cost-of-illness (COI) estimates

94 Since the EPA received NAS advice, the Agency published the Ozone ISA (U.S. EPA, 2013b) and the second draft Ozone Health Risk and Exposure Assessment (U.S. EPA, 2014a). Therefore, the ozone mortality studies applied in this analysis, while current at the time of the previous Ozone NAAQS RIAs, do not reflect the most updated literature available. The selection of ozone mortality studies used to estimate benefits in RIAs will be revisited in the forthcoming RIA accompanying the on-going review of the Ozone NAAQS.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-19 generally (although not necessarily in every case) understate the true value of reductions in risk of a health effect. They tend to reflect the direct expenditures related to treatment but not the value of avoided pain and suffering from the health effect. The unit values applied in this analysis are provided in Table 5-9 of the PM NAAQS RIA for each health endpoint (U.S. EPA, 2012a).

Avoided premature deaths account for 98 percent of monetized PM-related co-benefits and over 90 percent of monetized ozone-related co-benefits. The economics literature concerning the appropriate method for valuing reductions in premature mortality risk is still developing. The adoption of a value for the projected reduction in the risk of premature mortality is the subject of continuing discussion within the economics and public policy analysis community. Following the advice of the SAB’s Environmental Economics Advisory Committee (SAB-EEAC), the EPA currently uses the value of statistical life (VSL) approach in calculating estimates of mortality benefits, because we believe this calculation provides the most reasonable single estimate of an individual’s willingness to trade off money for reductions in mortality risk (U.S. EPA-SAB, 2000). The VSL approach is a summary measure for the value of small changes in mortality risk experienced by a large number of people.

The EPA continues work to update its guidance on valuing mortality risk reductions, and the Agency consulted several times with the SA B-EEAC on this issue. Until updated guidance is available, the Agency determined that a single, peer-reviewed estimate applied consistently, best reflects the SAB-EEAC advice it has received. Therefore, the EPA has decided to apply the VSL that was vetted and endorsed by the SAB in the Guidelines for Preparing Economic Analyses (U.S. EPA, 2014) 95 while the Agency continues its efforts to update its guidance on this issue. This approach calculates a mean value across VSL estimates derived from 26 labor market and contingent valuation studies published between 1974 and 1991. The mean VSL across these studies is $6.3 million (2000$). 96 We then adjust this VSL to account for the currency year and to

95 In the updated Guidelines for Preparing Economic Analyses (U.S. EPA, 2010e), the EPA retained the VSL endorsed by the SAB with the understanding that further updates to the mortality risk valuation guidance would be forthcoming.

96 In 1990$, this base VSL is $4.8 million.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-20 account for income growth from 1990 to the analysis year. Specifically, the VSLs applied in this analysis in 2011$ after adjusting for income growth are $9.9 million for 2020 and $10.1 million
for 2025 and 2030. 97

The Agency is committed to using scientifically sound, appropriately reviewed evidence invaluing mortality risk reductions and has made significant progress in responding to the SABEEAC’s specific recommendations. In the process, the Agency has identified a number of important issues to be considered in updating its mortality risk valuation estimates. These are detailed in a white paper, “Valuing Mortality Risk Reductions in Environmental Policy” (U.S. EPA, 2010c), which recently underwent review by the SAB-EEAC. A meeting with the SAB on this paper was held on March 14, 2011 and formal recommendations were transmitted on July 29, 2011 (U.S. EPA-SAB, 2011). The EPA is taking SAB’s recommendations under
advisement.

In valuing PM 2.5 -related premature mortality, we discount the value of premature mortality occurring in future years using rates of 3 percent and 7 percent (OMB, 2003). We assume that there is a “cessation” lag between changes in PM exposures and the total realization of changes in health effects. Although the structure of the lag is uncertain, the EPA follows the advice of the SAB-HES to assume a segmented lag structure characterized by 30 percent of mortality reductions in the first year, 50 percent over years 2 to 5, and 20 percent over the years 6 to 20
after the reduction in PM 2.5 (U.S. EPA-SAB, 2004c). Changes in the cessation lag assumptions do not change the total number of estimated deaths but rather the timing of those deaths. Because short-term ozone-related premature mortality occurs within the analysis year, the estimated
ozone-related co-benefits are identical for all discount rates.

4.3.3 Benefit-per-ton Estimates for PM 2.5 We used a “benefit-per-ton” approach to estimate the PM 2.5 co-benefits in this RIA. The EPA has applied this approach in several previous RIAs (e.g., U.S. EPA, 2011b, 2011c, 2012b, 2014a). These benefit-per-ton estimates provide the total monetized human health co-benefits (the sum of premature mortality and premature morbidity), of reducing one ton of PM 2.5 (or

97 Income growth projections are only currently available in BenMAP through 2024, so both the 2025 and 2030 estimates use income growth only through 2024 and are therefore likely underestimates.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-21 PM 2.5 precursor such as NO X or SO 2 ) from a specified source. Specifically, in this analysis, we multiplied the benefit-per-ton estimates by the corresponding emission reductions that were generated from air quality modeling of the proposed Clean Power Plan.

The method used to calculate the regional benefit-per-ton estimates is similar to the average EGU sector estimates used for the proposal (U.S. EPA, 2013a), but relies on air quality modeling of the proposed Clean Power Plan. Similar to the proposal, we generated regional benefit-per-ton estimates by aggregating the impact s in BenMAP to the region (i.e., East, West, and California) rather than aggregating to the nation. The appendix to this chapter provides additional detail regarding these calculations.

As noted below in the characterization of uncertainty, all benefit-per-ton estimates have inherent limitations. Specifically, all benefit-per-ton estimates reflect the geographic distribution of the modeled proposal, which may not match the emission reductions anticipated by the final emission guidelines, and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location. The regional benefit-per-ton estimates, although less subject to these types of uncertainties than national estimates, still should be interpreted with caution. Even though we assume that all fine particles have equivalent health effects, the benefit-per-ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure.

4.3.4 Benefit-per-ton Estimates for Ozone

Similar to PM 2.5 , we used a “benefit-per-ton” approach in this RIA to estimate the ozone co-benefits, which represent the total monetized human health co-benefits (the sum of premature mortality and premature morbidity) of reducing one ton of NOx (an ozone precursor). Also
consistent with the PM 2.5 estimates, we generated regional benefit-per-ton estimates for ozone based on air quality modeling for the proposed Clean Power Plan. In contrast to the PM 2.5 estimates, the ozone estimates are not based on changes to annual emissions. Instead, the regional estimates (i.e., East, West, and California) correspond to NO X emissions from U.S. EGUs during the ozone-season (May to September). Because we estimate ozone health impacts from May to September only, this approach underestimates ozone co-benefits in areas with a***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-22longer ozone season such as southern California and Texas. These estimates assume that EGUattributable ozone formation at the regional-level is due to NOx alone. Because EGUs emit little
VOC relative to NO X emissions, it is unlikely that VOCs emitted by EGUs would contribute substantially to regional ozone formation. As noted above, all benefit-per-ton estimates have inherent limitations and should be interpreted with caution. We provide more detailed information regarding the generation of these estimates in the appendix to this chapter.

4.3.5 Estimated Health Co-Benefits Results
Tables 4-7 through 4-9 provide the regional benefit-per-ton estimates for three analysis years: 2020, 2025, and 2030. Tables 4-10 through 4-12 and 4-13 through 4-15 provide the emission reductions estimated to occur in each analysis year for the rate-based and mass-based illustrative plan approaches, respectively, by region (i.e., East, West, and California). 98 Tables 4- 16 through 4-18 and 4-19 through 4-21 summarize the national monetized PM and ozone-related health co-benefits estimated to occur in each analysis year for the illustrative rate-based and mass-based plan approaches, respectively, by precursor pollutant using discount rates of 3 percent and 7 percent. Tables 4-22 through 4-24 and 4-25 through 4-27 provide national
summaries of the reductions in estimated health incidences associated with the illustrative ratebased and mass-based plan approaches, respectively, in each analysis year. 99 Figure 4-1 provides a visual representation of the range of estimated PM 2.5 and ozone-related co-benefits using benefit-per-ton estimates based on concentration-response functions from different studies and expert opinion for the illustrative rate-based and mass-based plan approaches evaluated in 2025as an illustrative analysis year. Figure 4-2 provides a breakdown of the monetized health cobenefits for the rate-based and mass-based plan approaches evaluated in 2025 as an illustrative analysis year by precursor pollutant.

98 See Chapter 3 of this RIA for more information regarding the expected emission reductions used to calculate the health co-benefits in this chapter. Chapter 3 also provides more information regarding the illustrative plan approach.

99 Incidence estimates were generated using the same “per ton” approach as used to generate the dollar benefit per ton values. See Appendix 4-A for details.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-23 Table 4-7. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 (2011$)*

Pollutant Discount Rate Regional East West California

SO 2 3% $33,000 to $75,000 $6,200 to $14,000 $95,000 to $210,000 7% $30,000 to $68,000 $5,600 to $13,000 $85,000 to $190,000 Directly emitted PM 2.5 (EC+OC) 3% $140,000 to $320,000 $27,000 to $60,000 $370,000 to $830,000 7% $130,000 to $290,000 $24,000 to $54,000 $330,000 to $740,000 Directly emitted PM 2.5 (crustal) 3% $23,000 to $52,000 $11,000 to $25,000 $73,000 to $160,000 7% $21,000 to $47,000 $9,900 to $22,000 $66,000 to $150,000

NO X (as PM 2.5 ) 3% $3,100 to $7,000 $0,670 to $1,500 $22,000 to $49,000 7% $2,800 to $6,300 $0,610 to $1,400 $19,000 to $44,000 NO X (as Ozone) N/A $6,500 to $28,000 $2,000 to $8,900 $14,000 to $59,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM 2.5 and

ozone. All estimates are rounded to two significant figures. The monetized co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 concentrations, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Benefit-per-ton estimates for ozone are based on ozone season NO X emissions. Ozone co-benefits occur in analysis year, so theyare the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefitper-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).
Table 4-8. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 (2011$)*

Pollutant Discount Rate Regional East West California

SO 2 3% $37,000 to $83,000 $7,100 to $16,000 $110,000 to $240,000 7% $33,000 to $75,000 $6,400 to $14,000 $97,000 to $220,000 Directly emitted PM 2.5 (EC+OC) 3% $160,000 to $360,000 $30,000 to $68,000 $410,000 to $930,000 7% $140,000 to $320,000 $27,000 to $61,000 $370,000 to $830,000 Directly emitted PM 2.5 (crustal) 3% $25,000 to $58,000 $12,000 to $28,000 $82,000 to $180,000 7% $23,000 to $52,000 $11,000 to $25,000 $74,000 to $170,000

NO X (as PM 2.5 ) 3% $3,300 to $7,500 $0,750 to $1,700 $24,000 to $54,000 7% $3,000 to $6,800 $0,670 to $1,500 $22,000 to $49,000 NO X (as Ozone) N/A $7,100 to $30,000 $2,300 to $10,000 $15,000 to $66,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM 2.5 and

ozone. All estimates are rounded to two significant figures. The monetized co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 concentrations, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Benefit-per-ton estimates for ozone are based on ozone season NO X emissions. Ozone co-benefits occur in analysis year, so theyare the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefitper-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-24 Table 4-9. Summary of Regional PM 2.5 Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 (2011$)*

Pollutant Discount Rate Regional East West California

SO 2 3% $40,000 to $89,000 $7,800 to $18,000 $120,000 to $270,000 7% $36,000 to $81,000 $7,100 to $16,000 $110,000 to $240,000 Directly emitted PM 2.5 (EC+OC) 3% $170,000 to $380,000 $33,000 to $75,000 $450,000 to $1,000,000 7% $150,000 to $340,000 $30,000 to $68,000 $410,000 to $920,000 Directly emitted PM 2.5 (crustal) 3% $28,000 to $62,000 $14,000 to $31,000 $90,000 to $200,000 7% $25,000 to $56,000 $13,000 to $28,000 $81,000 to $180,000

NO X (as PM 2.5 ) 3% $3,500 to $8,000 $0,820 to $1,900 $26,000 to $60,000 7% $3,200 to $7,200 $0,740 to $1,700 $24,000 to $54,000 NO X (as Ozone) N/A $7,600 to $33,000 $2,600 to $11,000 $17,000 to $73,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM 2.5 and

ozone. All estimates are rounded to two significant figures. The monetized co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 concentrations, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Benefit-per-ton estimates for ozone are based on ozone season NO X emissions. Ozone co-benefits occur in analysis year, so theyare the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefitper-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).

Table 4-10. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 13 50 19 West 1 1 0 California 0 0 0 National Total 14 50 19 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.

Table 4-11. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2025 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 171 155 67 West 7 8 3 California 1 2 0 National Total 178 165 70 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-25 Table 4-12. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2030 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 306 263 109 West 11 15 9 California 1 4 0 National Total 318 282 118 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.

Table 4-13. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 49 57 22 West 4 4 1 California 0 0 0 National Total 54 60 23 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.

Table 4-14. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 156 169 74 West 29 34 14 California 0 0 0 National Total 185 203 88 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.

Table 4-15. Emission Reductions of Criteria Pollutants for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2030 (thousands of short tons)* Region SO 2 All-year NOx Ozone-Season NOx Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) East 243 229 99 West 36 48 21 California 1 1 1 National Total 280 279 121***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-26 *All emissions shown in the table are rounded, so regional emission reductions may appear to
not sum to national total.

Table 4-16. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $0.44 to $0.99 $0.39 to $0.89 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $0.14 to $0.33 $0.13 to $0.30 NOx (as Ozone) $0.12 to $0.52 $0.12 to $0.52 Total $0.70 to $1.8 $0.64 to $1.7 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).

Table 4-17. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2025 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $6.4 to $14 $5.7 to $13 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $0.56 to $1.3 $0.50 to $1.1 NOx (as Ozone) $0.49 to $2.1 $0.49 to $2.1 Total $7.4 to $18 $6.7 to $16 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-27 Table 4-18. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2030 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $12 to $28 $11 to $25 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $1.0 to $2.3 $0.93 to $2.1 NOx (as Ozone) $0.86 to $3.7 $0.86 to $3.7 Total $14 to $34 $13 to $31 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).

Table 4-19. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $1.70 to $3.80 $1.50 to $3.40 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $0.17 to $0.39 $0.16 to $0.36 NOx (as Ozone) $0.14 to $0.61 $0.14 to $0.61 Total $2.00 to $4.8 $1.80 to $4.4 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-28 Table 4-20. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $6.0 to $13 $5.4 to $12 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $0.58 to $1.3 $0.52 to $1.2 NOx (as Ozone) $0.56 to $2.4 $0.56 to $2.4 Total $7.1 to $17 $6.5 to $16 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).

Table 4-21. Summary of Estimated Monetized Health Co-Benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2030 (billions of 2011$) * Pollutant 3% Discount Rate 7% Discount Rate SO 2 $10 to $23 $9.0 to $20 Directly emitted PM 2.5 (EC+OC) Directly emitted PM 2.5 (crustal) NOx (as PM 2.5 ) $0.87 to $2.0 $0.79 to $1.8 NOx (as Ozone) $0.82 to $3.5 $0.82 to $3.5 Total $12 to $28 $11 to $26 * All estimates are rounded to two significant figures so numbers may not sum down columns. The estimated monetized co-benefits do not include climate benefits or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. All fine particles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure. The monetized co-benefits incorporate the conversion from precursor emissions to ambient fine particles and ozone. Co-benefits for PM 2.5 precursors are based on regional benefit-per-ton estimates. Cobenefits for ozone are based on ozone season NOx emissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. Confidence intervals are unavailable for this analysis because of the benefit-per-ton methodology. In general, the 95 th percentile confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-29 Table 4-22. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for the Final Emission Guidelines Rate-based Illustrative Plan Approach in 2020* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 64 Lepeule et al. (2012) (adult) 140 Woodruff et al. (1997) (infant) 0 Avoided Morbidity Emergency department visits for asthma (all ages) 34 Acute bronchitis (age 8–12) 94 Lower respiratory symptoms (age 7–14) 1,200 Upper respiratory symptoms (asthmatics age 9–11) 1,700 Minor restricted-activity days (age 18–65) 47,000 Lost work days (age 18–65) 7,900 Asthma exacerbation (age 6–18) 4,200 Hospital admissions—respiratory (all ages) 19 Hospital admissions—cardiovascular (age > 18) 23 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 73 Pooled estimate of 4 studies 8 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 11 Levy et al. (2005) (all ages) 51 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 66 Hospital admissions—respiratory causes (ages < 2) 33 Emergency room visits for asthma (all ages) 37 Minor restricted-activity days (ages 18-65) 66,000 School absence days 23,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-30 Table 4-23. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for Final Emission Gu idelines Rate-based Illustrative Plan Approach in 2025* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 740 Lepeule et al. (2012) (adult) 1,700 Woodruff et al. (1997) (infant) 2 Avoided Morbidity Emergency department visits for asthma (all ages) 380 Acute bronchitis (age 8–12) 1,100 Lower respiratory symptoms (age 7–14) 14,000 Upper respiratory symptoms (asthmatics age 9–11) 20,000 Minor restricted-activity days (age 18–65) 530,000 Lost work days (age 18–65) 89,000 Asthma exacerbation (age 6–18) 48,000 Hospital admissions—respiratory (all ages) 220 Hospital admissions—cardiovascular (age > 18) 270 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 860 Pooled estimate of 4 studies 93 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 44 Levy et al. (2005) (all ages) 200 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 280 Hospital admissions—respiratory causes (ages < 2) 130 Emergency room visits for asthma (all ages) 140 Minor restricted-activity days (ages 18-65) 250,000 School absence days 87,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-31 Table 4-24. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-Benefits for Final Emission Gu idelines Rate-based Illustrative Plan Approach in 2030* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 1,400 Lepeule et al. (2012) (adult) 3,200 Woodruff et al. (1997) (infant) 3 Avoided Morbidity Emergency department visits for asthma (all ages) 540 Acute bronchitis (age 8–12) 2,000 Lower respiratory symptoms (age 7–14) 26,000 Upper respiratory symptoms (asthmatics age 9–11) 37,000 Minor restricted-activity days (age 18–65) 970,000 Lost work days (age 18–65) 160,000 Asthma exacerbation (age 6–18) 90,000 Hospital admissions—respiratory (all ages) 440 Hospital admissions—cardiovascular (age > 18) 530 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 1,700 Pooled estimate of 4 studies 180 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 73 Levy et al. (2005) (all ages) 330 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 500 Hospital admissions—respiratory causes (ages < 2) 200 Emergency room visits for asthma (all ages) 220 Minor restricted-activity days (ages 18-65) 400,000 School absence days 140,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-32 Table 4-25. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for the Final Emission Guidelines Mass-based Illustrative Plan Approach in 2020* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 200 Lepeule et al. (2012) (adult) 460 Woodruff et al. (1997) (infant) 0 Avoided Morbidity Emergency department visits for asthma (all ages) 110 Acute bronchitis (age 8–12) 300 Lower respiratory symptoms (age 7–14) 3,800 Upper respiratory symptoms (asthmatics age 9–11) 5,500 Minor restricted-activity days (age 18–65) 150,000 Lost work days (age 18–65) 25,000 Asthma exacerbation (age 6–18) 13,000 Hospital admissions—respiratory (all ages) 59 Hospital admissions—cardiovascular (age > 18) 73 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 230 Pooled estimate of 4 studies 25 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 13 Levy et al. (2005) (all ages) 61 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 78 Hospital admissions—respiratory causes (ages < 2) 40 Emergency room visits for asthma (all ages) 43 Minor restricted-activity days (ages 18-65) 78,000 School absence days 27,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-33 Table 4-26. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-benefits for Final Emission Guidelines Mass-based Illustrative Plan Approach in 2025* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 700 Lepeule et al. (2012) (adult) 1,600 Woodruff et al. (1997) (infant) 2 Avoided Morbidity Emergency department visits for asthma (all ages) 350 Acute bronchitis (age 8–12) 1,000 Lower respiratory symptoms (age 7–14) 13,000 Upper respiratory symptoms (asthmatics age 9–11) 19,000 Minor restricted-activity days (age 18–65) 500,000 Lost work days (age 18–65) 84,000 Asthma exacerbation (age 6–18) 46,000 Hospital admissions—respiratory (all ages) 210 Hospital admissions—cardiovascular (age > 18) 260 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 810 Pooled estimate of 4 studies 88 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 51 Levy et al. (2005) (all ages) 230 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 320 Hospital admissions—respiratory causes (ages < 2) 150 Emergency room visits for asthma (all ages) 160 Minor restricted-activity days (ages 18-65) 290,000 School absence days 100,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-34 Table 4-27. Summary of Avoided Health Incidences from PM 2.5 -Related and OzoneRelated Co-Benefits for Final Emission Gu idelines Mass-based Illustrative Plan Approach in 2030* PM 2.5 -related Health Effects Avoided Premature Mortality Krewski et al. (2009) (adult) 1,200 Lepeule et al. (2012) (adult) 2,600 Woodruff et al. (1997) (infant) 2 Avoided Morbidity Emergency department visits for asthma (all ages) 440 Acute bronchitis (age 8–12) 1,600 Lower respiratory symptoms (age 7–14) 21,000 Upper respiratory symptoms (asthmatics age 9–11) 30,000 Minor restricted-activity days (age 18–65) 790,000 Lost work days (age 18–65) 130,000 Asthma exacerbation (age 6–18) 74,000 Hospital admissions—respiratory (all ages) 360 Hospital admissions—cardiovascular (age > 18) 430 Non-Fatal Heart Attacks (age >18) Peters et al. (2001) 1,400 Pooled estimate of 4 studies 150 Ozone-related Health Effects Avoided Premature Mortality Bell et al. (2004) (all ages) 70 Levy et al. (2005) (all ages) 320 Avoided Morbidity Hospital admissions—respiratory causes (ages > 65) 470 Hospital admissions—respiratory causes (ages < 2) 200 Emergency room visits for asthma (all ages) 210 Minor restricted-activity days (ages 18-65) 380,000 School absence days 130,000 * All estimates are rounded to whole numbers with two significant figures. Co-benefits for PM 2.5 precursors are based on regional incidence-per-ton estimates for all precursors. Co-benefits for ozone are based on ozone season NOx emissions. Confidence intervals are unavailable for this analysis because of the incidence-per-ton methodology. In general, the 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule et al. (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-35 Figure 4-1. Monetized Health Co-benefits of Rate-based and Mass-based Illustrative Plan Approaches for the Final Emission Guidelines in 2025 *

*The PM 2.5 graphs show the estimated PM 2.5 co-benefits at discount rates of 3% and 7% using effect coefficients derived from the Krewski et al. (2009) study and the Lepeule et al. (2012) study, as well as 12 effect coefficients derived from EPA’s expert elicitation on PM mortality (Roman et al. , 2008). The results shown are not the direct results from the studies or expert elicitation; rather, the estimates are based in part on the concentration-response functions provided in those studies. The ozone graphs show the estimated ozone co-benefits derived from six ozone mortality studies (i.e., Bell et al. (2004), Schwartz (2005), Huang et al. (2005), Bell et al. (2005), Levy et al. (2005), and Ito et al. (2005). Ozone co-benefits occur in the analysis year, so they are the same for all discount rates. These estimates do not include benefits from reductions in CO2. The monetized co-benefits do not include climate benefits from changes in NO 2 and SO 2 or reduced health effects from direct exposure to NO 2 , SO 2 , ecosystem effects, or visibility impairment. PM 2.5 Ozone***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-36 Low Health Co

‐ benefits High Health Co

‐ benefits

Figure 4-2. Breakdown of Monetized Health Co-benefits by Precursor Pollutant at a 3% Discount Rate for Rate-based and Mass-based Illustrative Plan Approaches for the Final Emission Guidelines in 2025*
* “Low Health Co-benefits” refers to the combined health co-benefits estimated using the Bell et al. (2004) mortality study for ozone with the Krewski et al. (2009) mortality study for PM 2.5 . “High Health Co-benefits” refers to the combined health co-benefits estimated using the Levy et al. (2005) mortality study for ozone with the Lepeule et al. (2012) mortality study for PM 2.5 .

4.3.6 Characterization of Uncertainty in the Estimated Health Co-benefits
In any complex analysis using estimated parameters and inputs from numerous models, there are likely to be many sources of uncertainty. This analysis is no exception. This analysis includes many data sources as inputs, including emission inventories, air quality data from models (with their associated parameters and inputs), population data, population estimates, health effect estimates from epidemiology studie s, economic data for monetizing co-benefits, SO2 86% Directly emitted PM2.5 (EC+OC)

0% Directly emitted PM2.5 (Crustal) 0%

NOx (as PM2.5) 8%

NOx (as Ozone)

6% 

### Rate

‐ based

SO2 81% Directly emitted PM2.5 (EC+OC) 0% Directly emitted PM2.5 (Crustal) 0%

NOx (as PM2.5) 7%

NOx (as Ozone) 12% 

### Rate

‐ based

SO2 84% Directly emitted PM2.5 (EC+OC) 0%

Directly emitted PM2.5 (Crustal) 0%

NOx (as PM2.5) 8%

NOx (as Ozone)

8% 

### Mass

‐ based

SO2 78% Directly emitted PM2.5 (EC+OC) 0% Directly emitted PM2.5 (Crustal) 0%

NOx (as PM2.5) 8%

NOx (as Ozone) 14% 

### Mass

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

4-37 and assumptions regarding the future state of the world (i.e., regulations, technology, and human behavior). Each of these inputs may be uncertain and would affect the estimate of co-benefits. When the uncertainties from each stage of the analysis are compounded, even small uncertainties can have large effects on the total quantified benefits. In addition, the use of the benefit-per-ton approach adds additional uncertainties beyond those for analyses based directly on air quality modeling. Therefore, the estimates of co-benefits in each analysis year should be viewed as representative of the general magnitude of co-benefits of the illustrative plan approach, rather than the actual co-benefits anticipated from implementing the final emission guidelines.

This RIA does not include the type of detailed uncertainty assessment found in the PM NAAQS RIA (U.S. EPA, 2012a) or the Ozone NAAQS RIA (U.S. EPA, 2008b) because we lack the necessary air quality modeling input and/or monitoring data to run the benefits model. However, the results of the quantitative and qualitative uncertainty analyses presented in the PM NAAQS RIA and Ozone NAAQS RIA can provide some information regarding the uncertainty inherent in the estimated co-benefits results presented in this analysis. For example, sensitivity analyses conducted for the PM NAAQS RIA indicate that alternate cessation lag assumptions could change the estimated PM 2.5 -related mortality co-benefits discounted at 3 percent by between 10 percent and –27 percent and that al ternative income growth adjustments could change the PM 2.5 -related mortality co-benefits by between 33 percent and

− 14 percent. Although we generally do not calculate confidence intervals for benefit-per-ton estimates and they can provide an incomplete picture about the overall uncertainty in the benefits estimates, the PM NAAQS RIA provides an indication of the random sampling error in the health impact and economic valuation functions using Monte Carlo methods. In general, the 95 th percentile
confidence interval for monetized PM 2.5 benefits ranges from approximately -90 percent to +180 percent of the central estimates based on Krewski et al. (2009) and Lepeule et al. (2012). The
95 th percentile confidence interval for the health impact function alone ranges from approximately ±30 percent for mortality incidence based on Krewski et al. (2009) and ±46 percent based on Lepeule
et al. (2012).

Unlike RIAs for which the EPA conducts scenario-specific air quality modeling, we do not have information on the specific location of the air quality changes associated with the final emission guidelines. As such, it is not feasible to estimate the proportion of co-benefits occurring***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-38in different locations, such as designated nonattainment areas. Instead, we applied benefit-perton estimates, which reflect specific geographic patterns of emissions reductions and specific air quality and benefits modeling assumptions. For example, these estimates may not reflect local variability in population density, meteorology, expos ure, baseline health incidence rates, or other local factors that might lead to an over-estimat e or under-estimate of the actual co-benefits of controlling PM and ozone precursors. Use of these benefit-per-ton values to estimate co-benefits may lead to higher or lower benefit estimates than if co-benefits were calculated based on direct air quality modeling. Great care should be taken in applying these estimates to emission reductions occurring in any specific location, as these are all based on a broad emission reductionscenario and therefore represent average benefits-per-ton over the entire region. The benefit-perton for emission reductions in specific locations may be very different than the estimates presented here. To the extent that the geographic distribution of the emissions reductions achieved by implementing the final emission guidelines is different than the emissions in the air quality modeling of the proposal, the co-benefits may be underestimated or overestimated.

Our estimate of the total monetized co-benefits is based on the EPA’s interpretation of the best available scientific literature and methods and supported by the SAB-HES and the National Academies of Science (NRC, 2002). Below are key assumptions underlying the estimates for
PM 2.5 -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 health
co-benefits.

1. We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because PM 2.5 varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009b).

2. We assume that the health impact function for fine particles is log-linear without a threshold. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 , including both areas that do not meet the fine particle standard and those areas that are in attainment, down to the lowest modeled concentrations.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-39 3. We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 exposures occur in a distributed fashionover the 20 years following exposure based on the advice of the SAB-HES (U.S. EPASAB, 2004c), which affects the valuation of mortality co-benefits at different discount rates.
In general, we are more confident in the magnitude of the risks we estimate from simulated
PM 2.5 concentrations that coincide with the bulk of the observed PM concentrations in the epidemiological studies that are used to estimate the benefits. Likewise, we are less confident in
the risk we estimate from simulated PM 2.5 concentrations that fall below the bulk of the observed data in these studies. Concentration benchmark analyses (e.g., lowest measured level [LML], one standard deviation below the mean of the air quality data in the study, etc.) allow readers to determine the portion of population exposed to annual mean PM 2.5 levels at or above different concentrations, which provides some insight into the level of uncertainty in the estimated PM 2.5 mortality benefits. In this analysis, we apply two concentration benchmark approaches (LML and one standard deviation below the mean) that have been incorporated into recent RIAs and the
EPA’s Policy Assessment for Particulate Matter (U.S. EPA, 2011d). There are uncertainties inherent in identifying any particular point at which our confidence in reported associations becomes appreciably less, and the scientific evidence provides no clear dividing line. However,
the EPA does not view these concentration benchmarks as a concentration threshold below which we would not quantify health co-benefits of air quality improvements. 100 Rather, the cobenefits estimates reported in this RIA are the best estimates because they reflect the full range of air quality concentrations associated with the emission reduction strategies. The PM ISA concluded that the scientific evidence collectively is sufficient to conclude that the relationship between long-term PM 2.5 exposures and mortality is causal and that overall the studies support the use of a no-threshold log-linear model to estimate PM-related long-term mortality (U.S. EPA, 2009b).

100 For a summary of the scientific review statements regarding the lack of a threshold in the PM 2.5 -mortality relationship, see the TSD entitled Summary of Expert Opinions on the Existence of a Threshold in the Concentration-Response Function for PM 2.5 -related Mortality (U.S. EPA, 2010b).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-40 For this analysis, policy-specific air quality data is not available, and the plan scenarios are illustrative of what states may choose to do. However, we believe that it is still important to characterize the distribution of exposure to base line concentrations. As a surrogate measure of mortality impacts, we provide the percentage of the population exposed at each PM 2.5 concentration in the baseline of the air quality modeling used to calculate the benefit-per-ton estimates for this final RIA using 12 km grid cells across the contiguous U.S. It is important to note that baseline exposure is only one paramete r in the health impact function, along with baseline incidence rates population and change in air quality. In other words, the percentage of the population exposed to air pollution below the LML is not the same as the percentage of the population experiencing health impacts as a result of a specific emission reduction policy. The most important aspect, which we are unable to quantify without rule-specific air quality modeling, is the shift in exposure anticipated by implementing the final emission guidelines. Therefore, caution is warranted when interpreting the LML assessment in this RIA because these results are not consistent with results from RIAs that had air quality modeling.

Table 4-28 provides the percentage of the population exposed above and below two concentration benchmarks (i.e., LML and one standard deviation below the mean) in the Clean Power Plan proposal modeling. Figure 4-3 shows a bar chart of the percentage of the population exposed to various air quality levels in the proposal modeling, and Figure 4-4 shows a cumulative distribution function of the same data. Both figures identify the LML for each of the major cohort studies.

Table 4-28. Population Exposure in the Clean Power Plan Proposal Option 1 State Scenario Modeling (used to generate the benefit-per-ton estimates) Above and Below Various Concentrations Benchmar ks in the Underlying Epidemiology Studies *

Epidemiology Study Below 1 Standard Deviation. Below AQ Mean At or Above 1 Standard Deviation Below AQ Mean Below LML At or Above LML

Krewski et al. (2009) 3% 97% 12% 88% Lepeule et al. (2012) N/A N/A 54% 46% *One standard deviation below the mean is equivalent to the middle of the range between the 10 th and 25 th percentile. For Krewski, the LML is 5.8 μg/m 3 and one standard deviation below the mean is 11.0 μg/m 3 . For Lepeule et al. , the LML is 8 μg/m 3 and we do not have the data for one standard deviation below the mean. It is important to emphasize that although we have lower levels of confidence in levels below the LML for each study, the scientific evidence does not support the existence of a level below which health effects from exposure to PM 2.5 do not occur.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-41 Figure 4-3. Percentage of Adult Population (age 30+) by Annual Mean PM 2.5 Exposure in the Option 1 State Scenario Clean Power Plan Proposal Modeling (used to generate the benefit-per-ton estimates) Among the populations exposed to PM 2.5 in the baseline: 88% are exposed to PM 2.5 levels at or above the LML of the Krewski et al. (2009) study 46% are exposed to PM 2.5 levels at or above the LML of the Lepeule et al. (2012) study 0% 5% 10% 15% 20% 25% 30%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20PercentageofPopulationExposed

Baseline Annual Mean PM 2.5 Level (μg/m 3 ) LML of Lepeule et al. (2012) study LML of Krewski et al. (2009) study***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-42 Figure 4-4. Cumulative Distribution of A dult Population (age 30+) by Annual Mean PM 2.5 Exposure in the Option 1 State Scenario Clean Power Plan Proposal Modeling (used to generate the benefit-per-ton estimates)

4.4 Combined Climate Benefits and Health Co-Benefits Estimates In this analysis, we were able to monetize the estimated benefits associated with the
decreased emissions of CO 2 and co-benefits of reduced exposure to PM 2.5 and ozone, but we were unable to monetize the co-benefits associated with reducing exposure to mercury, carbon monoxide, SO 2 , and NO 2 , as well as ecosystem effects and visibility impairment. In addition, there are expected to be unquantified health and welfare impacts associated with changes in hydrogen chloride. Specifically, we estimated combinations of climate benefits at discount rates of 5 percent, 3 percent, 2.5 percent, and 3 percent (95 th percentile) (as recommended by the interagency working group), and health co-benefits at discount rates of 3 percent and 7 percent

Among the populations exposed to PM 2.5 in the baseline: 88% are exposed to PM 2.5 levels at or above the LML of the Krewski et al. (2009) study 46% are exposed to PM 2.5 levels at or above the LML of the Lepeule et al. (2012) study 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Cumulativepercentageofpopulationexposed

Baseline Annual Mean PM 2.5 Level (μg/m 3 ) LML of Krewski et al. (2009) study LML of Lepeule et al. (2012) study***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-43 (as recommended by the EPA’s Guidelines for Preparing Economic Analyses [U.S. EPA, 2014]
and OMB’s Circular A-4 [OMB, 2003]).

Different discount rates are applied to SC-CO 2 than to the health co-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 discount rate but emphasized the importance of considering all four SC-CO 2 estimates. 101 The EPA has evaluated the range of potential impacts by combining all SC-CO 2 values with health co-benefits values at the 3 percent and 7 percent discount rates. Combining the 3 percent
SC-CO 2 values with the 3 percent health benefit values assumes that there is no difference in discount rates between intragenerational and intergenerational impacts.

Tables 4-29 through 4-31 provide the combined climate and health benefits for the illustrative plan approaches evaluated for each analysis year: 2020, 2025, and 2030. Figure 4-5 shows the breakdown of the monetized benefits by pollutant for the illustrative plan approaches evaluated in 2025 as an illustrative analysis year using a 3 percent discount rate for both climate
and health benefits.

101 See the 2010 SCC 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 – Draft – Do Not Cite, Quote or Release During Review***

4-44 Table 4-29. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2020 (billions of 2011$)*

SCC Discount Rate Climate Benefits Only Climate and Health Benefits (Discount Rate Applied to Health Co-Benefits) 3% 7% Rate-based 63 million metric tons CO 2 5% $0.80 $1.5 to $2.6 $1.4 to $2.5 3% $2.8 $3.5 to $4.6 $3.5 to $4.5 2.5% $4.1 $4.9 to $6.0 $4.8 to $5.9 3% (95 th percentile) $8.2 $8.9 to $10 $8.9 to $9.9 Mass-based 74 million metric tons CO 2 5% $0.94 $2.9 to $5.7 $2.8 to $5.3 3% $3.3 $5.3 to $8.1 $5.1 to $7.7 2.5% $4.9 $6.9 to 9.7 $6.7 to $9.3 3% (95 th percentile) $9.6 $12 to $14 $11 to $14 *All estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co-benefits are based on regional benefit-per-ton estimates. Co-benefits for ozone are based on ozone season NOxemissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health cobenefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , and HAP; ecosystem effects; or visibility impairment.

Table 4-30. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2025 (billions of 2011$)*

SCC Discount Rate Climate Benefits Only Climate and Health Benefits (Discount Rate Applied to Health Co-Benefits) 3% 7% Rate-based 211 million metric tons CO 2 5% $3.1 $11 to $21 $9.9 to $19 3% $10 $18 to $28 $17 to $26 2.5% $15 $23 to $33 $22 to $31 3% (95 th percentile) $31 $38 to $49 $38 to $47 Mass-based 240 million metric tons CO 2 5% $3.6 $11 to $21 $10 to $19 3% $12 $19 to $29 $18 to $27 2.5% $17 $24 to $34 $24 to $33 3% (95 th percentile) $35 $42 to $52 $42 to $51 *All estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co-benefits are based on regional benefit-per-ton estimates. Co-benefits for ozone are based on ozone season NOxemissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health cobenefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , and HAP; ecosystem effects; or visibility impairment.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-45 Table 4-31. Combined Climate Benefits and Health Co-Benefits for Final Emission Guidelines in 2030 (billions of 2011$)*

SCC Discount Rate Climate Benefits Only Climate and Health Benefits (Discount Rate Applied to Health Co-Benefits) 3% 7% Rate-based 376 million metric tons CO 2 5% $6.4 $21 to $40 $19 to $37 3% $20 $34 to $54 $33 to $51 2.5% $29 $43 to $63 $42 to $60 3% (95 th percentile) $61 $75 to $95 $74 to $92 Mass-based 375 million metric tons CO 2 5% $6.4 $18 to $34 $17 to $32 3% $20 $32 to $48 $31 to $46 2.5% $29 $41 to $57 $40 to $55 3% (95 th percentile) $60 $72 to $89 $71 to $86 *All estimates are rounded to two significant figures. Climate benefits are based on reductions in CO 2 emissions. Co-benefits are based on regional benefit-per-ton estimates. Co-benefits for ozone are based on ozone season NOxemissions. Ozone co-benefits occur in analysis year, so they are the same for all discount rates. The health cobenefits reflect the sum of the PM 2.5 and ozone co-benefits and reflect the range based on adult mortality functions (e.g., from Krewski et al. (2009) with Bell et al. (2004) to Lepeule et al. (2012) with Levy et al. (2005)). The monetized health co-benefits do not include reduced health effects from direct exposure to NO 2 , SO 2 , and HAP; ecosystem effects; or visibility impairment.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-46 Low Health Co

‐ benefits High Health Co

‐ benefits

Figure 4-5. Breakdown of Combined Monetized Climate and Health Co-benefits of Final Emission Guidelines in 2025 for Rate-based and Mass-based Illustrative Plan Approaches and Pollutants (3% discount rate)*
* “Low Health Co-benefits” refers to the combined health co-benefits estimated using the Bell et al. (2004) mortality study for ozone with the Krewski et al. (2009) mortality study for PM 2.5 . “High Health Co-benefits” refers to the combined health co-benefits estimated using the Levy et al. (2005) mortality study for ozone with the Lepeule et al. (2012) mortality study for PM 2.5 . 4.5 Unquantified Co-benefits

The monetized co-benefits estimated in this RIA reflect a subset of co-benefits attributable to the health effect reductions associated with ambient fine particles and ozone. Data, time, andresource limitations prevented the EPA from quantifying the impacts to, or monetizing the cobenefits from several important benefit categories, including co-benefits associated with exposure to several HAP (including mercury), SO 2 and NO 2 , as well as ecosystem effects, and CO2 58% SO2 36% Directly emitted PM2.5 (EC+OC)

0% Directly emitted PM2.5 (Crustal)

0% NOx (as PM2.5)

3% NOx (as Ozone)

3% 

### Rate

‐ based

CO2 37% SO2 51% Directly emitted PM2.5 (EC+OC)

0%

Directly emitted PM2.5 (Crustal)

0% NOx (as PM2.5)

5%
NOx (as Ozone)

7% 

### Rate

‐ based

CO2 62% SO2 32% Directly emitted PM2.5 (EC+OC)

0% Directly emitted PM2.5 (Crustal)

0% NOx (as PM2.5)

3% NOx (as Ozone)

3% 

### Mass

‐ based

CO2 41% SO2 47% Directly emitted PM2.5 (EC+OC)

0%

Directly emitted PM2.5 (Crustal)

0% NOx (as PM2.5)

4%

NOx (as Ozone)

8% 

### Mass

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

4-47 visibility impairment due to the absence of air quality modeling data for these pollutants in this analysis. This does not imply that there are no co-benefits associated with changes in emissions of HAP or reductions in exposures to SO 2 and NO 2 . In this section, we provide a qualitative description of these benefits, which are listed in Table 4-32.

Table 4-32. Unquantified Health an d Welfare Co-benefits Categories

Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information
Improved Human Health

Reduced incidence of morbidity from exposure to NO 2 Asthma hospital admissions (all ages) — — NO 2 ISA 1 Chronic lung disease hospital admissions (age > 65) — — NO 2 ISA 1 Respiratory emergency department visits (all ages) — — NO 2 ISA 1 Asthma exacerbation (asthmatics age 4–18) — — NO 2 ISA 1 Acute respiratory symptoms (age 7–14) — — NO 2 ISA 1 Premature mortality — — NO 2 ISA 1,2,3 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — NO 2 ISA 2,3

Reduced incidence of morbidity from exposure to SO 2 Respiratory hospital admissions (age > 65) — — SO 2 ISA 1 Asthma emergency department visits (all ages) — — SO 2 ISA 1 Asthma exacerbation (asthmatics age 4–12) — — SO 2 ISA 1 Acute respiratory symptoms (age 7–14) — — SO 2 ISA 1 Premature mortality — — SO 2 ISA 1,2,3 Other respiratory effects (e.g., airway hyperresponsiveness and inflammation, lung function, other ages and populations) — — SO 2 ISA 1,2

Reduced incidence of morbidity from exposure to CO Cardiovascular effects — — CO ISA 1,2 Respiratory effects — — CO ISA 1,2,3 Central nervous system effects — — CO ISA 1,2,3 Premature mortality — — CO ISA 1,2,3 Reduced incidence of morbidity from exposure to methylmercury Neurologic effects—IQ loss — — IRIS; NRC, 2000 1 Other neurologic effects (e.g., developmental delays, memory, behavior) — — IRIS; NRC, 2000 2
Cardiovascular effects — — IRIS; NRC, 2000 2,3 Genotoxic, immunologic, and other toxic effects — — IRIS; NRC, 2000 2,3 Improved Environment Reduced visibility impairment Visibility in Class 1 areas — — PM ISA 1 Visibility in residential areas — — PM ISA 1

Reduced effects on materials Household soiling — — PM ISA 1,2 Materials damage (e.g., corrosion, increased wear) — — PM ISA 2
Reduced effects from PM deposition (metals and organics) Effects on Individual organisms and ecosystems — — PM ISA 2***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-48 Category Specific Effect Effect Has Been Quantified Effect Has Been Monetized More Information

Reduced vegetation and ecosystem effects from exposure to ozone Visible foliar injury on vegetation — — Ozone ISA 1 Reduced vegetation growth and reproduction — — Ozone ISA 1 Yield and quality of commercial forest products and crops — — Ozone ISA 1 Damage to urban ornamental plants — — Ozone ISA 2 Carbon sequestration in terrestrial ecosystems — — Ozone ISA 1 Recreational demand associated with forest aesthetics — — Ozone ISA 2

Other non-use effects Ozone ISA 2 Ecosystem functions (e.g., water cycling, biogeochemical cycles, net primary productivity, leaf-gas exchange, community composition) — — Ozone ISA 2

Reduced effects from acid deposition Recreational fishing — — NO x SO x ISA 1 Tree mortality and decline — — NO x SO x ISA 2 Commercial fishing and forestry effects — — NO x SO x ISA 2 Recreational demand in terrestrial and aquatic ecosystems — — NO x SO x ISA 2

Other non-use effects NO x SO x ISA 2 Ecosystem functions (e.g., biogeochemical cycles) — — NO x SO x ISA 2

Reduced effects from nutrient enrichment Species composition and biodiversity in terrestrial and estuarine ecosystems — — NO x SO x ISA 2 Coastal eutrophication — — NO x SO x ISA 2 Recreational demand in terrestrial and estuarine ecosystems — — NO x SO x ISA 2

Other non-use effects NO x SO x ISA 2 Ecosystem functions (e.g., biogeochemical cycles, fire regulation) — — NO x SO x ISA 2 Reduced vegetation effects from ambient exposure to SO 2 and NO x Injury to vegetation from SO 2 exposure — — NO x SO x ISA 2 Injury to vegetation from NO x exposure — — NO x SO x ISA 2
Reduced ecosystem effects from exposure to methylmercury Effects on fish, birds, and mammals (e.g., reproductive effects) — — Mercury Study RTC 2 Commercial, subsistence and recreational fishing — — Mercury Study RTC 1

1 We assess these co-benefits qualitatively due to data and resource limitations for this RIA.
2 We assess these co-benefits qualitatively because we do not have sufficient confidence in available data or methods.
3 We assess these co-benefits qualitatively because current evidence is only suggestive of causality or there are other significa nt concerns over the strength of the association. 4.5.1 HAP Impacts
Due to methodology and resource limitations, we were unable to estimate the impacts associated with changes in emissions of the hazardous air pollutants in this analysis. The EPA’s SAB-HES concluded that “the challenges for assessing progress in health improvement as a
result of reductions in emissions of hazardous ai r pollutants (HAPs) are daunting...due to a lack of exposure-response functions, uncertainties in emissions inventories and background levels, the difficulty of extrapolating risk estimates to low doses and the challenges of tracking health***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-49 progress for diseases, such as cancer, that have long latency periods” (U.S. EPA-SAB, 2008). In 2009, the EPA convened a workshop to address the inherent complexities, limitations, and uncertainties in current methods to quantify the benefits of reducing HAP. Recommendations from this workshop included identifying research priorities, focusing on susceptible and vulnerable populations, and improving dose-response relationships (Gwinn et al. , 2011).

4.5.1.1 Mercury
Mercury in the environment is transformed into a more toxic form, methylmercury (MeHg). Because Hg is a persistent pollutant, MeHg accumulates in the food chain, especially the tissue of fish. When people consume these fish, they consume MeHg. In 2000, the NAS Study was issued which provides a thorough review of the effects of MeHg on human health (NRC, 2000). 102 Many of the peer-reviewed articles cited in this section are publications originally cited in the Mercury Study. 103 In addition, the EPA has conducted literature searches to obtain other related and more recent publications to complement the material summarized by
the NRC in 2000.

In its review of the literature, the NAS found neurodevelopmental effects to be the most sensitive and best documented endpoints and appropriate for establishing a reference dose (RfD) (NRC, 2000); in particular NAS supported the use of results from neurobehavioral or neuropsychological tests. The NAS report noted that studies on animals reported sensory effects as well as effects on brain development and memory functions and supported the conclusions based on epidemiology studies. The NAS noted that their recommended endpoints for a RfD are associated with the ability of children to learn and to succeed in school. They concluded the following: “The population at highest risk is the children of women who consumed large amounts of fish and seafood during pregnancy. The committee concludes that the risk to that population is likely to be sufficient to result in an increase in the number of children who have to struggle to keep up in school.”

102 National Research Council (NRC). 2000 . Toxicological Effects of Methylmercury . Washington, DC: National Academies Press.

103 U.S. Environmental Protection Agency (U.S. EPA). 1997. Mercury Study Report to Congress , EPA–HQ–OAR– 2009–0234–3054. December. Available on the Internet at <http://www.epa.gov/hg/report.htm>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-50 The NAS summarized data on cardiovascular effects available up to 2000. Based on these and other studies, the NRC concluded that “Although the data base is not as extensive for cardiovascular effects as it is for other end points (i.e., neurologic effects), the cardiovascular system appears to be a target for MeHg toxicity in humans and animals.” The NRC also stated that “additional studies are needed to better characterize the effect of methylmercury exposure on blood pressure and cardiovascular function at various stages of life.”

Additional cardiovascular studies have been published since 2000. The EPA did not develop a quantitative dose-response assessment for cardiovascular effects associated with MeHg exposures, as there is no consensus among scientists on the dose-response functions for these effects. In addition, there is inconsistency among available studies as to the association between MeHg exposure and various cardiovascular system effects. The pharmacokinetics of some of the exposure measures (such as toenail Hg levels) are not well understood. The studies have not yet received the review and scrutiny of the more well-established neurotoxicity data
base.

The Mercury Study noted that MeHg is not a potent mutagen but is capable of causing chromosomal damage in a number of experimental systems. The NAS concluded that evidence that human exposure to MeHg caused genetic damage is inconclusive; they note that some earlier studies showing chromosomal damage in lymphocytes may not have controlled sufficiently for potential confounders. One study of adults living in the Tapajós River region in Brazil (Amorim
et al. , 2000) reported a direct relationship between MeHg concentration in hair and DNA damage in lymphocytes, as well as effects on chromosomes. 104 Long-term MeHg exposures in this population were believed to occur through consumption of fish, suggesting that genotoxic effects (largely chromosomal aberrations) may result from dietary and chronic MeHg exposures similar to and above those seen in the Faroes and Seychelles populations.

104 Amorim, M.I.M., D. Mergler, M.O. Bahia, H. Dubeau, D. Miranda, J. Lebel, R.R. Burbano, and M. Lucotte. 2000. Cytogenetic damage related to low levels of methyl mercury contamination in the Brazilian Amazon. An. Acad. Bras. Ciênc. 72(4): 497-507.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-51 Although exposure to some forms of Hg can resu lt in a decrease in immune activity or an autoimmune response (ATSDR, 1999), evidence for immunotoxic effects of MeHg is limited (NRC, 2000). 105

Based on limited human and animal data, MeHg is classified as a “possible” human carcinogen by the International Agency for Research on Cancer (IARC, 1994) 106 and in IRIS (U.S. EPA, 2002). 107 The existing evidence supporting the possibility of carcinogenic effects in humans from low-dose chronic exposures is tenuous. Multiple human epidemiological studies have found no significant association between Hg exposure and overall cancer incidence, although a few studies have shown an association between Hg exposure and specific types of cancer incidence (e.g., acute leukemia and liver cancer) (NRC, 2000).

There is also some evidence of reproductive and renal toxicity in humans from MeHg exposure. However, overall, human data regarding reproductive, renal, and hematological toxicity from MeHg are very limited and are based on either studies of the two high-dose poisoning episodes in Iraq and Japan or animal data, rather than epidemiological studies of chronic exposures at the levels of interest in this analysis.

4.5.1.2 Hydrogen Chloride
Hydrogen chloride (HCl) is a corrosive gas that can cause irritation of the mucous membranes of the nose, throat, and respiratory tract. Brief exposure to 35 ppm causes throat irritation, and levels of 50 to 100 ppm are barely tolerable for 1 hour. 108 Concentrations in typical

105 Agency for Toxic Substances and Disease Registry (ATSDR). 1999. Toxicological Profile for Mercury. U.S. Department of Health and Human Services, Public Health Service, Atlanta, GA.

106 International Agency for Research on Cancer (IARC). 1994. IARC Monographs on the Evaluation of Carcinogenic Risks to Humans and their Supplements: Beryllium, Cadmium, Mercury, and Exposures in the Glass Manufacturing Indus try. Vol. 58. Jalili, H.A., and A.H. Abbasi. 1961. Poisoning by ethyl mercury toluene sulphonanilide. Br. J. Indust. Med. 18(Oct.):303-308 (as cited in NRC, 2000).

107 U.S. Environmental Protection Agency (EPA). 2002. Integrated Risk Information System (IRIS) on Methylmercury. National Center for Environmental Assessment. Office of Research and Development. Available at http://www.epa.gov/iris/subst/0073.htm.

108 Agency for Toxic Substances and Disease Registry (ATSDR). Medical Management Guidelines for Hydrogen Chloride. Atlanta, GA: U.S. Department of Health and Human Services. Available at http://www.atsdr.cdc.gov/mmg/mmg.asp?id=758&tid=147#bookmark02.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-52 human exposure environments are much lower than these levels and rarely exceed the reference
concentration. 109 The greatest impact is on the upper respiratory tract; exposure to high concentrations can rapidly lead to swelling and spasm of the throat and suffocation. Most seriously exposed persons have immediate onset of rapid breathing, blue coloring of the skin, and narrowing of the bronchioles. Exposure to HCl can lead to Reactive Airways Dysfunction Syndrome (RADS), a chemically, or irritant-induced type of asthma. Children may be more vulnerable to corrosive agents than adults because of the relatively smaller diameter of their airways. Children may also be more vulnerable to gas exposure because of increased minute ventilation per kg and failure to evacuate an area promptly when exposed. Hydrogen chloride has not been classified for carcinogenic effects. 110

4.5.2 Additional NO 2 Health Co-Benefits
In addition to being a precursor to PM 2.5 and ozone, NOx emissions are also linked to a variety of adverse health effects associated with direct exposure. We were unable to estimate the
health co-benefits associated with reduced NO 2 exposure in this analysis. Therefore, this analysis only quantified and monetized the PM 2.5 and ozone co-benefits associated with the reductions in
NO 2 emissions.

Following a comprehensive review of health evidence from epidemiologic and laboratory studies, the Integrated Science Assessment for Oxides of Nitrogen —Health Criteria (NOx ISA) (U.S. EPA, 2008c) concluded that there is a likely causal relationship between respiratory health effects and short-term exposure to NO 2 . These epidemiologic and experimental studies encompass a number of endpoints including emergency department visits and hospitalizations, respiratory symptoms, airway hyperresponsiveness, airway inflammation, and lung function. The NOx ISA also concluded that the relationship between short-term NO 2 exposure and premature mortality was “suggestive but not sufficient to infer a causal relationship,” because it is difficult to attribute the mortality risk effects to NO 2 alone. Although the NOx ISA stated that studies

109 Table of Prioritized Chronic Dose-Response Values: http://www2.epa.gov/sites/production/files/2014- 05/documents/table1.pdf

110 U.S. Environmental Protection Agency (U.S. EPA). 1995. “Integrated Risk Information System File of Hydrogen Chloride.” Washington, DC: Research and Development, National Center for Environmental Assessment. This material is availabl e at http://www.epa.gov/ iris/subst/0396.htm.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-53 consistently reported a relationship between NO 2 exposure and mortality, the effect was generally smaller than that for other pollutants such as PM.

4.5.3 Additional SO 2 Health Co-Benefits
In addition to being a precursor to PM 2.5 , SO 2 emissions are also linked to a variety ofadverse health effects associated with direct exposure. We were unable to estimate the health cobenefits associated with reduced SO 2 in this analysis because we do not have air quality modeling data available. Therefore, this analysis only quantifies and monetizes the PM 2.5 cobenefits associated with the reductions in SO 2 emissions.

Following an extensive evaluation of health evidence from epidemiologic and laboratory studies, the Integrated Science Assessment for Oxides of Sulfur —Health Criteria (SO 2 ISA) concluded that there is a causal relationship between respiratory health effects and short-term exposure to SO 2 (U.S. EPA, 2008a). The immediate effect of SO 2 on the respiratory system in
humans is bronchoconstriction. Asthmatics are more sensitive to the effects of SO 2 likelyresulting from preexisting inflammation associated with this disease. A clear concentrationresponse relationship has been demonstrated in laboratory studies following exposures to SO 2 at concentrations between 20 and 100 ppb, both in terms of increasing severity of effect and percentage of asthmatics adversely affected. Based on our review of this information, we identified three short-term morbidity endpoints that the SO 2 ISA identified as a “causal relationship”: asthma exacerbation, respiratory-related emergency department visits, and respiratory-related hospitalizations. The differing evidence and associated strength of the
evidence for these different effects is described in detail in the SO 2 ISA. The SO 2 ISA also concluded that the relationship between short-term SO 2 exposure and premature mortality was “suggestive of a causal relationship” because it is difficult to attribute the mortality risk effects to
SO 2 alone. Although the SO 2 ISA stated that studies are generally consistent in reporting a relationship between SO 2 exposure and mortality, there was a lack of robustness of the observed associations to adjustment for other pollutants. We did not quantify these co-benefits due to data
constraints.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-54 4.5.4 Additional NO 2 and SO 2 Welfare Co-Benefits

As described in the Integrated Science Assessment for Oxides of Nitrogen and Sulfur — Ecological Criteria (NOx/SOx ISA) (U.S. EPA, 2008d), SO 2 and NOx emissions also contribute to a variety of adverse welfare effects, including those associated with acidic deposition, visibility impairment, and nutrient enrichment. Deposition of nitrogen causes acidification, which can cause a loss of biodiversity of fishes, zooplankton, and macro invertebrates in aquatic ecosystems, as well as a decline in sensitive tree species, such as red spruce (Picea rubens) and sugar maple (Acer saccharum) in terrestrial ecosystems. In the northeastern U.S., the surface waters affected by acidification are a source of food for some recreational and subsistence fishermen and for other consumers and support several cultural services, including aesthetic and educational services and recreational fishing. Biological effects of acidification in terrestrial ecosystems are generally linked to aluminum toxicity, which can cause reduced root growth, restricting the ability of the plant to take up water and nutrients. These direct effects can, in turn, increase the sensitivity of these plants to stresses, such as droughts, cold temperatures, insect pests, and disease leading to increased mortality of canopy trees. Terrestrial acidification affects several important ecological services, including declines in habitat for threatened and endangered species (cultural), declines in forest aesthetics (cultural), declines in forest productivity (provisioning), and increases in forest soil erosion and reductions in water retention (cultural and regulating). (U.S. EPA, 2008d)

Deposition of nitrogen is also associated with aquatic and terrestrial nutrient enrichment. In estuarine waters, excess nutrient enrichment can lead to eutrophication. Eutrophication of estuaries can disrupt an important source of food production, particularly fish and shellfish production, and a variety of cultural ecosystem services, including water-based recreational and aesthetic services. Terrestrial nutrient enrichment is associated with changes in the types and number of species and biodiversity in terrestrial systems. Excessive nitrogen deposition upsets the balance between native and nonnative plants, changing the ability of an area to support biodiversity. When the composition of species changes, then fire frequency and intensity can also change, as nonnative grasses fuel more frequent and more intense wildfires. (U.S. EPA, 2008d)***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-55 Reductions in emissions of NO 2 and SO 2 will improve the level of visibility throughout the United States because these gases (and the particles of nitrate and sulfate formed from these gases) impair visibility by scattering and absorbing light (U.S. EPA, 2009). Visibility is also referred to as visual air quality (VAQ), and it di rectly affects people’s enjoyment of a variety of daily activities (U.S. EPA, 2009). Good visibility in creases quality of life where individuals live and work, and where they travel for recreational activities, including sites of unique public value, such as the Great Smoky Mountains National Park (U. S. EPA, 2009).

4.5.5 Ozone Welfare Co-Benefits
Exposure to ozone has been associated with a wide array of vegetation and ecosystem effects in the published literature (U.S. EPA, 2013b). Sensitivity to ozone is highly variable across species, with over 65 plant species identified as “ozone-sensitive”, many of which occur in state and national parks and forests. These effects include those that damage or impair the intended use of the plant or ecosystem. Such effects can include reduced growth and/or biomass production in sensitive plant species, including forest trees, reduced yield and quality of crops, visible foliar injury, species composition shift, and changes in ecosystems and associated ecosystem services.

4.5.6 Carbon Monoxide Co-Benefits
CO in ambient air is formed primarily by th e incomplete combustion of carbon-containing fuels and photochemical reactions in the atmosphere. The amount of CO emitted from these reactions, relative to carbon dioxide (CO 2 ), is sensitive to conditions in the combustion zone, such as fuel oxygen content, burn temperature, or mixing time. Upon inhalation, CO diffuses through the respiratory system to the blood, which can cause hypoxia (reduced oxygen availability). Carbon monoxide can elicit a broad range of effects in multiple tissues and organ systems that depend on concentration and duration of exposure. The Integrated Science Assessment for Carbon Monoxide (U.S. EPA, 2010a) concluded that short-term exposure to CO is “likely to have a causal relationship” with cardiovascular morbidity, particularly in individuals with coronary heart disease. Epidemiologic studies associate short-term CO exposure with increased risk of emergency department visits and hospital admissions. Coronary heart disease includes those who have angina pectoris (cardiac chest pain), as well as those who have***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-56 experienced a heart attack. Other subpopulations potentially at risk include individuals with diseases such as chronic obstructive pulmonary disease (COPD), anemia, or diabetes, and individuals in very early or late life stages, such as older adults or the developing young. The evidence is suggestive of a causal relationship between short-term exposure to CO and respiratory morbidity and mortality. The evidence is also suggestive of a causal relationship for birth outcomes and developmental effects following long-term exposure to CO, and for central nervous system effects linked to short- and long-term exposure to CO.

4.5.7 Visibility Impairment Co-Benefits
Reducing secondary formation of PM 2.5 would improve levels visibility in the U.S. because suspended particles and gases degrade visibility by scattering and absorbing light (U.S. EPA, 2009b). Fine particles with significant light-extinction efficiencies include sulfates, nitrates, organic carbon, elemental carbon, and soil (Sisler, 1996). Visibility has direct significance to people’s enjoyment of daily activities and their overall sense of wellbeing. Good visibility increases the quality of life where individuals live and work, and where they engage in recreational activities. Particulate sulfate is the dominant source of regional haze in the eastern U.S. and particulate nitrate is an important contributor to light extinction in California and the upper Midwestern U.S., particularly during winter (U.S. EPA, 2009b). Previous analyses (U.S. EPA, 2011a) show that visibility co-benefits can be a significant welfare benefit category. Without air quality modeling, we are unable to estimate visibility related benefits, and we are
also unable to determine whether the emission reductions associated with the final emission guidelines would be likely to have a significant impact on visibility in urban areas or Class I

areas.

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

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4-62 Sisler, J.F. 1996. Spatial and Seasonal Patterns and Long-Term Variability of the Composition of the Haze in the United States: An analysis of data from the IMPROVE network. CIRA Report, ISSN 0737-5352-32, Colorado State University. U.S. Environmental Protection Agency (U.S. EPA). 1995. Regulatory Impact Analysis for the Petroleum Refinery NESHAP. Re vised Draft for Promulgation . Office of Air Quality Planning and Standards, Research Triangle Park, N.C. Available on the Internet at < http://yosemite1.epa.gov/ee/epa/ria.nsf/vwTD/9F39F2C26150BB21852564620063317F>. Accessed June 6, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008a. Integrated Science Assessment for Sulfur Oxides—Health Criteria (Final Report) . National Center for Environmental Assessment – RTP Division, Research Triangle Park, NC. September. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008b. Final Ozone NAAQS Regulatory Impact Analysis . EPA-452/R-08-003. Office of Air Quality Planning and Standards Health and Environmental Impacts Division, Air Benefit and Cost Group Research Triangle Park, NC. March. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/6- ozoneriachapter6.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008c. Integrated Science Assessment for Oxides of Nitrogen - Health Criteria (Final Report). National Center for Environmental Assessment, Research Triangle Park, NC. July. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008d. Integrated Science Assessment for Oxides of Nitrogen and Sulfur–Ecological Criteria National (Final Report ). National Centerfor Environmental Assessment – RTP Division, Research Triangle Park, NC. EPA/600/R08/139. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=201485>. Accessed June 4, 2015. 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 Division, Research Tr iangle Park, NC. December. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010a. Integrated Science Assessment for Carbon Monoxide. National Center for Environmental Assessment, Research Triangle Park, NC. EPA/600/R-09/019F. January. Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=218686>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-63 U.S. Environmental Protection Agency (U.S. EPA). 2010b. Technical Support Document: Summary of Expert Opinions on the Existence of a Threshold in the Concentration-Response Function for PM 2.5 -related Mortality. Research Triangle Park, NC. June. Available at: <http://www.epa.gov/ttn/ecas/regdata/Benefits/ thresholdstsd.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010c. Valuing Mortality Risk Reductions

for Environmental Policy: A White Paper: SAB Review Draft . National Center for Environmental Economics December. Available at: <http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0563-1.pdf/$file/EE-0563-1.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010d. Section 3: Re

‐ analysis of the Benefits of Attaining Alternative Ozone Standards to Incorporate Current Methods . Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/s3-s upplemental_analysis-updated_benefits11- 5.09.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011a. The Benefits and Costs of the Clean Air Act from 1990 to 2020 . Office of Air and Radiation, Washington, DC. March. Available at: <http://www.epa.gov/cleanairactbenefits/feb11/fullreport_rev_a.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011b. Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards. EPA-452/R-11-011. December. Available at: <http://www.epa.gov/ttn/ecas/regdata/RIAs/ma tsriafinal.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011c. Regulatory Impact Analysis: National Emission Standards for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters. February. Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/bo ilersriafinal110221_psg.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011d. Policy Assessment for the Review of the Particulate Matter National Ambient Air Quality Standards . EPA-452/D-11-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division. April. Available at: <http://www.epa.gov/ttn/naaqs/standards/pm/data/20110419pmpafinal.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-64 U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012b. Regulatory Impact Analysis: Petroleum Refineries New Source Performance Standards Ja. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division. June. Available at: <http://www.epa.gov/ttnecas1/regdata/RIAs/refineries_nsps_ja_final_ria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013a. Technical Support Document: Estimating the Benefit per Ton of Reducing PM 2.5 Precursors from 17 Sectors . Office of Air Quality Planning and Standards, Research Triangle Park, NC. February. Available at: < http://www2.epa.gov/sites/production/files/2014- 10/documents/sourceapportionmentbpttsd.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2013b. Integrated Science Assessment of Ozone and Related Photochemical Oxidants (Final Report). EPA/600/R-10/076F. National Center for Environmental Assessment – RTP Division, Research Triangle Park. Available at: <http://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247492#Download>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2014. Guidelines for Preparing Economic Analyses. EPA 240-R-10-001. National Center for Environmental Economics, Office of the Administrator. Washington, DC. Available at: <http://yosemite.epa.gov/EE\epa\eed.nsf/webpages/Guidelines.html>. Accessed June 6, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2014a. Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants . EPA-542/R-14-002. Office of Air Quality Planning and Standards, Research Triangle Park, NC. June. Available at <http://www.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-65 U.S. Environmental Protection Agency (U.S. EPA). 2014b. Health Risk and Exposure Assessment for Ozone: Final Report . Office of Air Quality Planning and Standards, Research Triangle Park, NC. EPA-452/R-14-004a. Available at: <http://www.epa.gov/ttn/naaqs/standards/ozone/data/20140829healthrea.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2014c. Welfare Risk and Exposure Assessment for Ozone: Final . EPA-452/R-14-005a. Office of Air Quality Planning and Standards, Research Triangle Pa rk, NC. August. Available at: <http://www.epa.gov/ttn/naaqs/standards/ozone/data/20141021welfarerea.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2014d. Regulatory Impact Analysis of the Proposed Revisions to the National Ambient Air Quality Standards for Ground-Level Ozone. EPA-452/P-14-006. Office of Air Quality Planning and Standards, Research Triangle Park, NC. November. Available at <http://www.epa.gov/ttnecas1/regdata/RIAs/20141125ria.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2002. Workshop on the Benefits of Reductions in Exposure to Hazardous Air Pollutants: Developing Best Estimates of Dose-Response Functions An SAB Workshop Report of an EPA/SAB Workshop (Final Report). EPA-SAB-EC-WKSHP-02-001. January. Available at: <http://yosemite.epa.gov/sab%5CSABPRODUCT.NSF/34355712EC011A358525719A005B F6F6/$File/ecwkshp02001%2Bappa-g.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2008. Characterizing Uncertainty in Particulate Matter Benefits Using Expert Elicitation. EPACOUNCIL-08-002. July. Available at: <http://yosemite.epa.gov/sab/sabproduct.nsf/0/43B91173651AED9E85257487004EA6CB/$F ile/EPA-COUNCIL-08-002-unsigned.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2000. An SAB Report on EPA’s White Paper Valuing the Benefits of Fatal Cancer Risk Reduction. EPA-SAB-EEAC-00-013. July. Available at: <http://yosemite.epa.gov/sab%5CSABPRODUCT.NSF/41334524148BCCD6852571A70051 6498/$File/eeacf013.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4-66 U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2004c. Advisory Council on Clean Air Compliance Analysis Response to Agency Request on Cessation Lag. EPA-COUNCIL-LTR-05-001. December. Available at: <http://yosemite.epa.gov/sab/sabproduct.nsf/0/39F44B098DB49F3C85257170005293E0/$Fil e/council_ltr_05_001.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2008. Benefits of Reducing Benzene Emissions in Houston, 1990–2020 . EPA-COUNCIL-08-001. July. Available at: <http://yosemite.epa.gov/sab/sabproduct.nsf/D4D7EC9DAEDA8A548525748600728A83/$Fi le/EPA-COUNCIL-08-001-unsigned.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2009b. Review of EPA’s Integrated Science Assessment for Particulate Matter (First External Review Draft, December 2008) . EPA-COUNCIL-09-008. May. Available at: <http://yosemite.epa.gov/sab/SABPRODUCT.NSF/81e39f4c09954fcb85256ead006be86e/73 ACCA834AB44A10852575BD0064346B/$File/EPA-CASAC-09-008-unsigned.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2009c. Review of Integrated Science Assessment for Particulate Matter (Second External Review Draft, July 2009) . EPA-CASAC-10-001. November. Available at: <http://yosemite.epa.gov/sab/SABPRODUCT.NSF/81e39f4c09954fcb85256ead006be86e/15 1B1F83B023145585257678006836B9/$File/EPA-CASAC-10-001-unsigned.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2010a. Review of EPA’s DRAFT Health Benefits of th e Second Section 812 Prospective Study of the Clean Air Act . EPA-COUNCIL-10-001. June. Available at: < http://yosemite.epa.gov/sab/sabproduct .nsf/9288428b8eeea4c885257242006935a3/72D4EFA 39E48CDB28525774500738776/$File/EPA-COUNCIL-10-001-unsigned.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2011. Review of Valuing Mortality Risk Reductions for Environmental Policy: A White Paper (December 10, 2010). EPA-SAB-11-011 July

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4-67 Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997. “The Relationship between Selected of postneonatal infant mortality and particulate air pollution in the United States.” Environmental Health Perspectives. 105(6): 608-612.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-1 

### A PPENDIX 

### 4A: G ENERATING 

### R EGIONAL 

### B ENEFIT 

### - PER 

### -T ON 

### E STIMATES

The purpose of this appendix is to provide additional detail regarding the generation of the benefit-per-ton estimates applied in Chapter 4 of this Regulatory Impact Analysis (RIA). Specifically, this appendix describes the methods for generating benefit-per-ton estimates by region for the contiguous U.S. for PM 2.5 and ozone precursors emitted by the electrical generating unit (EGU) sector in the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (hereafter referred to as the “final emission guidelines” or “Clean Power Plan Final Rule”).
4A.1 Overview of Benefit-per-Ton Estimates

As described in the Technical Support Document: Estimating the Benefit per Ton of Reducing PM 2.5 Precursors from 17 Sectors (U.S. EPA, 2013), the general procedure for calculating average benefit-per-ton coefficients generally follows three steps. As an example, in order to calculate regional average benefit-per-ton estimates for the key precursor pollutants emitted from EGU sources, we:

1. Use air quality modeling to predict changes in ambient concentrations of primary PM 2.5 , nitrate, sulfate, and ozone at a 12km 2 grid resolution across the contiguous U.S. that are attributable to the proposed Clean Power Plan.

2. For each grid cell, estimate the health impacts, and the economic value of these impacts, associated with the attributable ambient conc entrations using the environmental Benefits Mapping and Analysis Program – Community Edition (BenMAP-CE v1.1). 111,112 Aggregate those impacts and economic values to the three regions of East, West, and California.

3. Divide the regional health impacts attributable to each precursor, and the regional monetary value of these impacts, by the amount of associated regional precursor emissions. That is, directly emitted PM 2.5 benefits are divided by directly emitted PM 2.5 emissions, sulfate benefits are divided by SO 2 emissions, nitrate benefits are divided by NO X emissions, and ozone benefits are divided by ozone-season NO X emissions.

111 When estimating these impacts we apply effect coefficients that relate changes in total PM 2.5 mass to the risk of adverse health outcomes; we do not apply effect coefficients that are differentiated by PM 2.5 species.
112 Previous RIAs have used earlier versions of the BenMAP software. BenMAP-CE v1.1 provides results consistent with earlier versions of BenMAP and is available for download at http://www.epa.gov/air/benmap/.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-2 4A.2 Air Quality Modeling for the Proposed Clean Power Plan The EPA ran the Comprehensive Model with Extensions (CAMx) photochemical model (ENVIRON, 2014) to predict ozone and PM 2.5 concentrations for the following emissions scenarios: a 2011 base year, a 2025 base case, and the 2025 proposed Clean Power Plan (Option 1 State) scenario. Each of the CAMx model simulations was performed for a nationwide modeling domain 113 using a full year of meteorological conditions for 2011. The modeling for 2011 was used as the anchor point for projecting ozone and annual PM 2.5 concentration values for the 2025 base case and for the 2025 Clean Power Plan proposal scenario using methodologies consistent with the EPA’s air quality modeling guidance (U.S. EPA, 2007). The air quality modeling results for the 2025 base case served as the baseline for gauging the future year impacts on ozone and annual PM 2.5 of the Clean Power Plan proposal scenario. The 2025 base case reflects emissions reductions between 2011 and 2025 that are expected to result from regional and national rules including the Clean Air Interstate Rule (CAIR), the Mercury and Air Toxics Standards (MATS), mobile source rules up through Tier-3, and various state emissions control programs and consent decrees. The methods for estimating the EGU emissions for the proposal are described in Chapter 3 of the RIA for the Clean Power Plan proposal (U.S. EPA, 2014). State total annual EGU emissions for NO X and SO 2 for each of the scenarios modeled are provided in Tables 4A-1 and 4A-2, respectively. The data indicate that, overall nationwide, EGU
SO 2 and NO X emissions with proposed Option 1 (state) would be about 28% lower than the 2025
base case.

Table 4A-1. State Total Annual EGU Emissions for NO X for the 2011 Base Year, 2025 Base Case, and 2025 Clean Power Plan Proposal (Option 1 State) (in thousands of tons)

State 2011 Base Year 2025 Base Case 2025 Clean Power Plan Proposal (Option 1 State) Alabama 63 38 19 Arizona 35 17 4 Arkansas 38 43 9 California 6 33 28 Colorado 51 29 21 Connecticut 1 1 1 Delaware 4 1 1

113 The modeling domain (i.e., region modeled) includes all of the lower 48 states plus adjacent portions of Canada and Mexico) at a spatial resolution of 12 km. Commented [A27]: Shouldn’t this appendix be referencing the final clean power plan, not the proposal?***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-3 State 2011 Base Year 2025 Base Case 2025 Clean Power Plan Proposal (Option 1 State) Florida 61 52 15 Georgia 54 33 18 Idaho - 1 0 Illinois 73 38 32 Indiana 121 97 90 Iowa 40 24 24 Kansas 44 28 27 Kentucky 92 59 74 Louisiana 47 18 14 Maine 2 4 2 Maryland 19 11 11 Massachusetts 5 2 1 Michigan 75 73 51 Minnesota 32 27 13 Mississippi 26 15 3 Missouri 66 61 58 Montana 20 16 15 Nebraska 37 38 35 Nevada 7 5 3 New Hampshire 4 1 0 New Jersey 6 7 2 New Mexico 23 7 6 New York 22 11 7 North Carolina 46 35 23 North Dakota 51 51 48 Ohio 104 63 60 Oklahoma 82 52 26 Oregon 5 3 3 Pennsylvania 149 106 71 Rhode Island 0 0 1 South Carolina 25 13 8 South Dakota 11 13 8 Tennessee 27 16 13 Texas 146 144 64 Tribal Data 65 33 33 Utah 51 49 33 Vermont 0 0 0 Virginia 38 21 12 Washington 7 3 2 West Virginia 58 49 46 Wisconsin 32 19 11 Wyoming 53 50 38 National Total 2,024 1,508 1,084***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-4 Table 4A-2. State Total Annual EGU Emissions for SO 2 for the 2011 Base Year, 2025 Base Case, and 2025 Clean Power Plan Proposal (Option 1 State) (in thousands of tons)

State 2011 Base Year 2025 Base Case 2025 Clean Power Plan Proposal (Option 1 State) Alabama 186 79 45 Arizona 28 18 4 Arkansas 74 30 5 California 1 4 4 Colorado 45 15 10 Connecticut 1 - - Delaware 11 1 1 Florida 95 70 7 Georgia 187 37 12 Idaho - 0 0 Illinois 227 45 48 Indiana 382 126 121 Iowa 100 18 18 Kansas 39 15 15 Kentucky 246 109 119 Louisiana 93 14 11 Maine 1 1 1 Maryland 32 5 9 Massachusetts 23 1 0 Michigan 228 122 95 Minnesota 40 21 12 Mississippi 43 10 3 Missouri 205 80 76 Montana 19 18 17 Nebraska 73 25 24 Nevada 5 1 1 New Hampshire 24 0 0 New Jersey 5 7 1 New Mexico 6 4 4 New York 41 4 2 North Carolina 78 36 33 North Dakota 93 15 14 Ohio 594 105 102 Oklahoma 96 21 6 Oregon 13 1 1 Pennsylvania 338 67 47 Rhode Island 0 - - South Carolina 68 19 12 South Dakota 11 11 7 Tennessee 120 38 31 Texas 426 149 48 Tribal Data 18 19 19 Utah 22 14 10***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-5 State 2011 Base Year 2025 Base Case 2025 Clean Power Plan Proposal (Option 1 State) Vermont 0 0 0 Virginia 75 8 4 Washington 1 1 1 West Virginia 103 78 47 Wisconsin 92 17 11 Wyoming 55 23 17 National Total 4,665 1,504 1,077

As indicated above, the air quality modeling was used to project gridded ozone and
annual PM 2.5 concentrations at the 12km 2 resolution for the 2025 base case and the Clean Power Plan proposal scenario modeled for this analysis. The air quality modeling results were combined with monitored ozone and PM2.5 data to create projected spatial fields of annual PM 2.5 and seasonal mean (May through September) 8-hour daily maximum ozone for the 2025 base case and for the proposal scenario. These spatial fields were then used as inputs to estimate the health co-benefits of the proposed Clean Power Plan as described below.

4A.3 Regional PM 2.5 Benefit-per-Ton Estimates for EGUs Derived from Air Quality Modeling of the Proposed Clean Power Plan After estimating the 12km 2 resolution PM 2.5 benefits for each of the analysis years applied in this RIA (i.e., 2020, 2025, and 2030), we aggregated the benefits results regionally (i.e., East, West, and California), as shown in Figure 4A-1. 114 While a small percentage of benefits from emissions reductions in a particular region may occur in one of the other regions, we selected each region to minimize this percentage. Thus, the benefits per ton in each region will represent well the match between where the emissions reductions and air quality benefits are occurring. Due to the low emissions of SO 2 , NO X , and directly emitted particles from EGUs in California and the high population density, we separated out California in order not to bias the benefit-per-ton estimates for the rest of the Western U.S. In order to calculate the benefit-per-ton estimates, we divided the regional benefits estimates by the corresponding emissions, as shown in Table 4A-1. Lastly, we adjusted the benefit-per-ton estimates for a currency year of 2011$. 115

114 This aggregation is identified as the shapefile “Report Regions” in BenMAP’s grid definitions. 115 Currently, BenMAP does not have an inflation adjustment to 2011$. We ran BenMAP for a currency year of 2010$ and calculated the benefit-per-ton estimates in 2010$. We then adjusted the resulting benefit-per-ton estimates to 2011$ using the Consumer Price Index.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-6 This method provides estimates of the regional average benefit-per-ton for a subset of the major PM 2.5 precursors emitted from EGU sources. For precursor emissions of NO X , there is generally a non-linear relationship between emissions and formation of PM 2.5 . This means that
each ton of NO X reduced would have a different impact on ambient PM 2.5 depending on the initial level of emissions and potentially on the levels of emissions of other pollutants. In contrast, SO 2 is generally linear in forming PM 2.5 . For precursors like NO X which form PM 2.5 non-linearly, a marginal benefit-per-ton approach would better approximate the specific benefits associated with an emissions reduction scenario for a given set of base case emissions, because it would allow the benefit-per-ton to vary depending on the level of emissions reductions and the baseline emissions levels. However, we do not have sufficient air quality modeling data to calculate marginal benefit-per-ton estimates for the EGU sector. Therefore, using an average benefit-per-ton estimate for NO X adds uncertainty to the co-benefits estimated in this RIA. Because most of the estimated co-benefits for the proposed guidelines are attributable to
reductions in SO 2 emissions, the added uncertainty is likely to be small.

Figure 4A-1. Regional Breakdown***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-7 In this RIA, we estimate emission reductions from EGUs using IPM. 116 IPM outputs provide endogenously projected unit level emissions of SO 2 , NO X , CO 2 , Hg, hydrogen chloride (HCl) from EGUs, but carbon monoxide, vola tile organic compounds, ammonia and total directly emitted PM 2.5 and PM 10 emissions are post-calculated. 117 In addition, directly emitted particle emissions calculated from IPM outputs do not include speciation, i.e. they are only the total emissions. In order to conduct air quality modeling, directly emitted PM 2.5 from EGUs is speciated into components during the emissions modeling process based on emission profiles for EGUs by source classification code. Even though these speciation profiles are not unit-specific, an emission profile based on the source classification code is highly sophisticated and reflects the fuel and the unit configuration. Model-predicted concentrations of nitrate and sulfate include both the directly emitted nitrate and sulfate from speciated PM 2.5 and secondarily formed nitrate
and sulfate from emissions of NO X and SO 2 , respectively.
In order to estimate the benefits associated with reduced emissions of directly emitted particles without performing air quality modeling, we must determine the fraction of total PM 2.5 emissions comprised of elemental carbon and organic carbon (EC+OC) and crustal emissions. 118 Based on the work by Fann, Baker, and Fulcher (2012), the national average EC+OC fraction of
emitted PM 2.5 is 10% with a range of 5% to 63% in different states due to the different proportion of fuels. The national average is similar to the averages for the east and west regions at 10% and 7%, respectively. Only five states had EC+OC fractions greater than 30%. For crustal emissions, the national average fraction of emitted PM 2.5 from EGUs is 78% with a range of 26% to 83%. The national average is similar to the averages for the east and west regions at 78% and 81%, respectively. Only four states had crustal fractions less than 50%. In calculating the PM 2.5 cobenefits in this RIA, we estimate the emission reductions of EC+OC and crustal emissions by applying the national average fractions (i.e., 78% crustal and 10% EC+OC) to the emission reductions of all directly emitted particles from EGUs. Because the benefit-per-ton estimates for

116 See Chapter 3 of this RIA for additional information regarding the Integrated Planning Model ( IPM).

117 Detailed documentation of this post-processing is available at http://www.epa.gov/powersectormodeling/docs/v513/FlatFile_Methodology.pdf
118 Crustal emissions are composed of compounds associated with minerals and metals from the earth’s surface, including carbonates, silicates, iron, phosphates, copper, and zinc. Often, crustal material represents particles not classified as one of the other species (e.g., organic carbon, elemental carbon, nitrate, sulfate, chloride, etc.).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-8 reducing emissions of EC+OC are larger than the benefit-per-ton estimate for crustal emissions, this assumption underestimates the monetized PM 2.5 co-benefits in certain states with higher EC+OC fractions, such as California and North Dakota.
Although it is possible to calculate 95 th percentile confidence intervals using the approach described in this appendix (e.g., U.S. EPA, 2011b), we generally do not calculate confidence intervals for benefit-per-ton estimates because of the additional unquantified uncertainties that result from the benefit transfer methods, including those related to the transfer of air quality modeling information. Instead, we refer the reader to Chapter 5 of PM NAAQS RIA (U.S. EPA, 2012a) for an indication of the combined random sampling error in the health impact and economic valuation functions using Monte Carlo methods. In general, the 95 th percentile
confidence interval for the total monetized PM 2.5 benefits ranges from approximately -90% to +180% of the central estimates based on concentration-response functions from Krewski et al. (2009) and Lepeule et al. (2012). The 95 th percentile confidence interval for the health impact function alone ranges from approximately ±30% for mortality incidence based on Krewski et al. (2009) and ±46% based on Lepeule et al. (2012). These confidence intervals do not reflect other sources of uncertainty inherent within the estimates, such as baseline incidence rates, populations exposed, and transferability of the effect estimate to diverse locations. As a result, the reported confidence intervals and range of estimates give an incomplete picture about the overall uncertainty in the benefits estimates.
Tables 4A-3 through 4A-5 provide the regional benefit-per-ton estimates for the EGU sector at discount rates of 3% and 7% in 2020, 2025, and 2030 respectively. The benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health information from 2020 and 2030. Estimated benefit-per-ton for these years have additional uncertainty relative to 2025 because of potential differences in atmospheric responses
to reductions in PM 2.5 precursors in those years, however, these uncertainties are likely to be relatively small. Tables 4A-6 through 4A-8 provide the incidence per ton estimates (which follows the same general methodology as for the benefit-per-ton calculations) for the EGU sectorin 2020, 2025, and 2030 respectively, for the set of health endpoints used to calculate the benefitper-ton estimates.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***4A-9Table 4A-3. Summary of Regional PM2.5Benefit-per-Ton Estimates Based on Air QualityModeling from Proposed Clean Power Planin 2020 (2011$)*PollutantDiscountRateNationalRegionEast West CaliforniaSO23% $32,000 to $71,000 $33,000 to $75,000$6,200 to $14,000 $95,000 to $210,0007% $28,000 to $64,000 $30,000 to $68,000$5,600 to $13,000 $85,000 to $190,000Directly emittedPM2.5(EC+OC)3% $140,000 to $310,000 $140,000 to $320,000 $27,000 to $60,000 $370,000 to $830,0007% $120,000 to $270,000 $130,000 to $290,000 $24,000 to $54,000 $330,000 to $740,000Directly emittedPM2.5(Crustal)3% $22,000 to $49,000 $23,000 to $52,000 $11,000 to $25,000 $73,000 to $160,0007% $20,000 to $44,000 $21,000 to $47,000$9,900 to $22,000 $66,000 to $150,000NOX(as PM2.5)3% $3,000 to $6,800 $3,100 to $7,000 $0,670 to $1,500 $22,000 to $49,0007% $2,700 to $5,600 $2,800 to $6,300 $0,610 to $1,400 $19,000 to $44,000* The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM2.5. All estimates are rounded to two significant figures. All fineparticles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM2.5levels,which drive population exposure. The monetized benefits incorporate the conversion from precursor emissions to ambient fine particles. The estimates do not includereduced health effects from direct exposure to ozone, NO2, SO2, ecosystem effects, or visibility impairment.Table 4A-4. Summary of Regional PM2.5Benefit-per-Ton Estimates Based on Air QualityModeling from Proposed Clean Power Planin 2025 (2011$)*PollutantDiscountRateNationalRegionEast West CaliforniaSO23% $35,000 to $78,000 $37,000 to $83,000 $7,100 to $16,000 $110,000 to $240,0007% $31,000 to $70,000 $33,000 to $75,000$6,400 to $14,000 $97,000 to $220,000Directly emittedPM2.5(EC+OC)3% $150,000 to $340,000 $160,000 to $360,000 $30,000 to $68,000 $410,000 to $930,0007% $130,000 to $290,000 $140,000 to $320,000 $27,000 to $61,000 $370,000 to $830,000Directly emittedPM2.5(Crustal)3% $24,000 to $55,000 $25,000 to $58,000 $12,000 to $28,000 $82,000 to $180,0007% $22,000 to $49,000 $23,000 to $52,000 $11,000 to $25,000 $74,000 to $170,000NOX(as PM2.5)3% $3,200 to $7,300 $3,300 to $7,500 $0,750 to $1,700 $24,000 to $54,0007% $2,900 to $6,000 $3,000 to $6,800 $0,670 to $1,500 $22,000 to $49,000* The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM2.5. All estimates are rounded to two significant figures. All fineparticles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM2.5levels,which drive population exposure. The monetized benefits incorporate the conversion from precursor emissions to ambient fine particles. The estimates do not includereduced health effects from direct exposure to ozone, NO2, SO2, ecosystem effects, or visibility impairment.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***4A-10Table 4A-5. Summary of Regional PM2.5Benefit-per-Ton Estimates Based on Air QualityModeling from Proposed Clean Power Planin 2030 (2011$)*PollutantDiscountRateNationalRegionEast West CaliforniaSO23% $37,000 to $85,000 $40,000 to $89,000 $7,800 to $18,000 $120,000 to $270,0007% $34,000 to $76,000 $36,000 to $81,000 $7,100 to $16,000 $110,000 to $240,000Directly emittedPM2.5(EC+OC)3% $160,000 to $360,000 $170,000 to $380,000$33,000 to $75,000 $450,000 to $1,000,0007% $150,000 to $320,000 $150,000 to $340,000 $30,000 to $68,000 $410,000 to $920,000Directly emittedPM2.5(Crustal)3% $26,000 to $59,000 $28,000 to $62,000 $14,000 to $31,000 $90,000 to $200,0007% $24,000 to $53,000 $25,000 to $56,000 $13,000 to $28,000 $81,000 to $180,000NOX(as PM2.5)3% $3,400 to $7,800 $3,500 to $8,000 $0,820 to $1,900 $26,000 to $60,0007% $3,100 to $6,400 $3,200 to $7,200 $0,740 to $1,700 $24,000 to $54,000* The range of estimates reflects the range of epidemiology studies for avoided premature mortality for PM2.5. All estimates are rounded to two significant figures. All fineparticles are assumed to have equivalent health effects, but the benefit-per-ton estimates vary depending on the location and magnitude of their impact on PM2.5levels,which drive population exposure. The monetized benefits incorporate the conversion from precursor emissions to ambient fine particles. The estimates do not includereduced health effects from direct exposure to ozone, NO2, SO2, ecosystem effects, or visibility impairment.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***4A-11Table 4A-6. Summary of Regional PM2.5Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean PowerPlan in 2020*Health EndpointEast West CaliforniaSO2NOXEC+OC Crustal SO2NOXEC+OC Crustal SO2NOXEC+OC CrustalPremature MortalityKrewskiet al.(2009) – adult 0.003700 0.000340 0.016000 0.002500 0.000680 0.000073 0.002900 0.001200 0.010000 0.002400 0.040000 0.008000Lepeuleet al.(2012) – adult 0.008300 0.000770 0.036000 0.005700 0.001500 0.000170 0.006600 0.002700 0.023000 0.005400 0.091000 0.018000Woodruffet al.(1997) – infants 0.000009 0.000001 0.000037 0.000006 0.000002 0.000000 0.000007 0.000003 0.000023 0.000007 0.000097 0.000019MorbidityEmergency department visits for asthma 0.001900 0.000190 0.007800 0.001300 0.000290 0.000031 0.001200 0.000470 0.005300 0.001400 0.022000 0.004200Acute bronchitis 0.005400 0.000510 0.023000 0.003700 0.001300 0.000200 0.005200 0.002100 0.019000 0.005000 0.077000 0.015000Lower respiratory symptoms 0.069000 0.006500 0.300000 0.047000 0.016000 0.002500 0.067000 0.026000 0.240000 0.064000 0.970000 0.190000Upper respiratory symptoms 0.098000 0.009300 0.420000 0.068000 0.023000 0.003600 0.095000 0.038000 0.340000 0.092000 1.400000 0.270000Minor restricted-activity days 2.700000 0.250000 11.000000 1.900000 0.580000 0.078000 2.400000 0.920000 9.400000 2.200000 35.000000 6.800000Lost work days 0.450000 0.043000 1.900000 0.310000 0.098000 0.013000 0.410000 0.160000 1.600000 0.380000 6.000000 1.100000Asthma exacerbation 0.240000 0.023000 1.000000 0.170000 0.056000 0.008800 0.230000 0.091000 0.840000 0.220000 3.400000 0.650000Hospital Admissions, Respiratory 0.001100 0.000100 0.004500 0.000720 0.000150 0.000015 0.000640 0.000260 0.002500 0.000580 0.009400 0.001900Hospital Admissions, Cardiovascular 0.001300 0.000120 0.005600 0.000910 0.000200 0.000019 0.000820 0.000330 0.003000 0.000680 0.011000 0.002200Non-fatal Heart Attacks (age>18)Peters et al (2001) 0.004100 0.000390 0.018000 0.002800 0.000650 0.000064 0.002800 0.001200 0.011000 0.002400 0.041000 0.007900Pooled estimate of 4 studies 0.000450 0.000042 0.001900 0.000310 0.000070 0.000007 0.000300 0.000130 0.001100 0.000260 0.004400 0.000850* All estimates are rounded to two significant figures. All fine particles are assumed to have equivalent health effects, but the incidence-per-ton estimates vary depending onthe location and magnitude of their impact on PM2.5levels, which drive population exposure. The incidence benefit-per-ton estimates incorporate the conversion fromprecursor emissions to ambient fine particles.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***4A-12Table 4A-7. Summary of Regional PM2.5Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean PowerPlan in 2025*Health EndpointEast West CaliforniaSO2NOXEC+OC Crustal SO2NOXEC+OC Crustal SO2NOXEC+OC CrustalPremature MortalityKrewskiet al.(2009) – adult 0.003900 0.000350 0.017000 0.002700 0.000750 0.000079 0.003200 0.001300 0.011000 0.002600 0.044000 0.008700Lepeuleet al.(2012) – adult 0.008900 0.000800 0.038000 0.006200 0.001700 0.000180 0.007300 0.003000 0.026000 0.005800 0.099000 0.020000Woodruffet al.(1997) – infants 0.000008 0.000001 0.000035 0.000006 0.000002 0.000000 0.000007 0.000003 0.000022 0.000007 0.000093 0.000018MorbidityEmergency department visits forasthma0.002000 0.000200 0.006300 0.001300 0.000320 0.000033 0.001000 0.000510 0.005500 0.001500 0.018000 0.004400Acute bronchitis 0.005700 0.000520 0.024000 0.003900 0.001300 0.000210 0.005600 0.002200 0.020000 0.005300 0.080000 0.015000Lower respiratory symptoms 0.072000 0.006700 0.310000 0.050000 0.017000 0.002700 0.071000 0.028000 0.250000 0.067000 1.000000 0.200000Upper respiratory symptoms 0.100000 0.009600 0.440000 0.071000 0.024000 0.003800 0.100000 0.040000 0.360000 0.096000 1.500000 0.280000Minor restricted-activity days 2.800000 0.250000 12.000000 1.900000 0.610000 0.083000 2.500000 0.970000 9.600000 2.300000 36.000000 6.900000Lost work days 0.470000 0.043000 2.000000 0.320000 0.100000 0.014000 0.430000 0.160000 1.600000 0.390000 6.100000 1.200000Asthma exacerbation 0.250000 0.023000 1.100000 0.170000 0.059000 0.009300 0.250000 0.097000 0.880000 0.230000 3.500000 0.680000Hospital Admissions, Respiratory 0.001200 0.000110 0.005100 0.000810 0.000180 0.000017 0.000740 0.000300 0.002800 0.000650 0.011000 0.002100Hospital Admissions, Cardiovascular 0.001400 0.000130 0.006200 0.001000 0.000220 0.000022 0.000930 0.000380 0.003300 0.000750 0.012000 0.002400Non-fatal Heart Attacks (age>18)Peters et al (2001) 0.004600 0.000430 0.020000 0.003100 0.000740 0.000071 0.003200 0.001300 0.012000 0.002700 0.046000 0.008900Pooled estimate of 4 studies 0.000490 0.000046 0.002100 0.000340 0.000080 0.000008 0.000340 0.000140 0.001300 0.000290 0.004900 0.000950* All estimates are rounded to two significant figures. All fine particles are assumed to have equivalent health effects, but the incidence-per-ton estimates vary depending onthe location and magnitude of their impact on PM2.5levels, which drive population exposure. The incidence benefit-per-ton estimates incorporate the conversion fromprecursor emissions to ambient fine particles.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***4A-13Table 4A-8. Summary of Regional PM2.5Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean PowerPlan in 2030*Health EndpointEast West CaliforniaSO2NOXEC+OC Crustal SO2NOXEC+OC Crustal SO2NOXEC+OC CrustalPremature MortalityKrewskiet al.(2009) – adult 0.004200 0.000380 0.018000 0.002900 0.000840 0.000087 0.003600 0.001500 0.013000 0.002800 0.048000 0.009600Lepeuleet al.(2012) – adult 0.009600 0.000850 0.041000 0.006700 0.001900 0.000200 0.008100 0.003400 0.029000 0.006400 0.110000 0.022000Woodruffet al.(1997) – infants 0.000008 0.000001 0.000033 0.000005 0.000002 0.000000 0.000007 0.000003 0.000021 0.000006 0.000088 0.000017MorbidityEmergency department visits forasthma0.001600 0.000160 0.006600 0.001100 0.000260 0.000027 0.001100 0.000420 0.004500 0.001200 0.019000 0.003500Acute bronchitis 0.005900 0.000540 0.025000 0.004100 0.001400 0.000220 0.005900 0.002300 0.021000 0.005400 0.083000 0.016000Lower respiratory symptoms 0.075000 0.006800 0.320000 0.052000 0.018000 0.002800 0.075000 0.030000 0.260000 0.069000 1.100000 0.200000Upper respiratory symptoms 0.110000 0.009800 0.460000 0.074000 0.026000 0.004000 0.110000 0.042000 0.370000 0.099000 1.500000 0.290000Minor restricted-activity days 2.900000 0.260000 12.000000 2.000000 0.650000 0.088000 2.700000 1.000000 9.800000 2.300000 37.000000 7.100000Lost work days 0.480000 0.043000 2.000000 0.330000 0.110000 0.015000 0.450000 0.170000 1.700000 0.400000 6.300000 1.200000Asthma exacerbation 0.260000 0.024000 1.100000 0.180000 0.063000 0.009800 0.260000 0.100000 0.920000 0.240000 3.700000 0.710000Hospital Admissions, Respiratory 0.001300 0.000120 0.005600 0.000900 0.000200 0.000019 0.000830 0.000340 0.003200 0.000740 0.012000 0.002400Hospital Admissions, Cardiovascular 0.001600 0.000150 0.006800 0.001100 0.000250 0.000024 0.001000 0.000420 0.003800 0.000850 0.014000 0.002700Non-fatal Heart Attacks (age>18)Peters et al (2001) 0.005000 0.000460 0.021000 0.003500 0.000830 0.000079 0.003600 0.001500 0.014000 0.003100 0.052000 0.010000Pooled estimate of 4 studies 0.000540 0.000049 0.002300 0.000370 0.000090 0.000009 0.000380 0.000160 0.001500 0.000330 0.005600 0.001100* All estimates are rounded to two significant figures. All fine particles are assumed to have equivalent health effects, but the incidence-per-ton estimates vary depending onthe location and magnitude of their impact on PM2.5levels, which drive population exposure. The incidence benefit-per-ton estimates incorporate the conversion fromprecursor emissions to ambient fine particles.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-14 4A.4 Regional Ozone Benefit-per-Ton Estimates The process for generating the regional ozone benefit-per-ton estimates is consistent with the process for PM 2.5. Ozone is not directly emitted, and is a non-linear function of NO X and VOC emissions. For the purpose of estimating benefit-per-ton for this RIA, we assume that all of the ozone impacts from EGUs are attributable to NO X emissions. VOC emissions, which are also a precursor to ambient ozone formation, are insignificant from the EGU sector relative to both
NO X emissions from EGUs and the total VOC emissions inventory. Therefore, we believe that our assumption that EGU-attributable ozone formation at the regional-level is due to NO X alone
is reasonable.

Similar to PM 2.5 , this method provides estimates of the regional average benefit-per-ton. Due to the non-linear chemistry between NO X emissions and ambient ozone, using an average benefit-per-ton estimate for NO X adds uncertainty to the ozone co-benefits estimated for the proposed guidelines. Because most of the estimated co-benefits for the proposed guidelines are attributable to changes in ambient PM 2.5 , the added uncertainty is likely to be small.
In the ozone co-benefits estimated in this RIA, we apply the benefit-per-ton estimates calculated using NO X emissions derived from modeling the Clean Power Plan proposal during the ozone-season only (May to September). As shown in Table 4A-1, ozone-season NO X emissions from EGUs are slightly less than half of all-year NO X emissions. Because we estimateozone health impacts from May to September only, this approach underestimates ozone cobenefits in areas with longer ozone seasons such as southern California and Texas. When the underestimated benefit-per-ton estimate is multiplied by ozone-season only NO X emission reductions, this results in an underestimate of the monetized ozone co-benefits. For illustrativepurposes, Tables 4A-9 through 4A-11 provide the ozone benefit-per-ton estimates using both allyear NO X emissions and ozone-season only NO X for 2020, 2025, and 2030, respectively. Tables 4A-12 through 4A-14 provide the ozone season incidence-per-ton estimates for 2020, 2025, and 2030, respectively. Similar to PM 2.5 , the ozone benefit-per-ton values for 2020 and 2030 are based on applying the air quality modeling from 2025 to population and health information from 2020 and 2030. Estimated benefit-per-ton for these years have additional uncertainty relative to 2025 because of potential differences in atmospheric responses to reductions in ozone precursors***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-15 in those years. Uncertainties may be somewhat larger in the case of ozone due to high degree of dependence of ozone responses to baseline meteorology and emissions levels.

Table 4A-9. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020 (2011$)* Ozone precursor Pollutant National Regional East West California Ozone season NO X $6,000 to $26,000 $6,500 to $28,000 $2,000 to $8,900 $14,000 to $59,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for ozone. All estimates are rounded to two significant figures. The monetized benefits incorporate the conversion from NO X precursor emissions to ambient ozone.

Table 4A-10. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025 (2011$)* Ozone precursor Pollutant National Regional East West California Ozone season NO X $6,600 to $27,000 $7,100 to $30,000 $2,300 to $10,000 $15,000 to $66,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for ozone. All estimates are rounded to two significant figures. The monetized benefits incorporate the conversion from NO X precursor emissions to ambient ozone.

Table 4A-11. Summary of Regional Ozone Benefit-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030 (2011$)* Ozone precursor Pollutant National Regional East West California Ozone season NO X $7,100 to $29,000 $7,600 to $33,000 $2,600 to $11,000 $17,000 to $73,000 * The range of estimates reflects the range of epidemiology studies for avoided premature mortality for ozone. All estimates are rounded to two significant figures. The monetized benefits incorporate the conversion from NO X precursor emissions to ambient ozone.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-16 Table 4A-12. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2020* Health Endpoint East West California Premature Mortality – adult

Bell et al. (2004) 0.000600 0.000190 0.001300 Levy et al. (2005) 0.002800 0.000880 0.005800 Morbidity

Hospital Admissions, Respiratory (ages > 65) 0.003500 0.000900 0.006600 Hospital Admissions, Respiratory (ages < 2) 0.001800 0.000780 0.003300 Emergency Room Visits, Respiratory 0.002000 0.000500 0.003900 Acute Respiratory Symptoms 3.500000 1.300000 8.800000 School Loss Days 1.200000 0.490000 3.000000 * All estimates are rounded to two significant figures. The incidence benefit-per-ton estimates incorporate the conversion from NO X precursor emissions to ambient ozone. These estimates reflect ozone-season NO X emissions.

Table 4A-13. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2025* Health Endpoint East West California Premature Mortality – adult

Bell et al. (2004) 0.000640 0.000210 0.001400 Levy et al. (2005) 0.002900 0.000970 0.006400 Morbidity

Hospital Admissions, Respiratory (ages > 65) 0.004100 0.001100 0.007800 Hospital Admissions, Respiratory (ages < 2) 0.001800 0.000820 0.003400 Emergency Room Visits, Respiratory 0.002000 0.000540 0.004100 Acute Respiratory Symptoms 3.600000 1.400000 8.900000 School Loss Days 1.300000 0.520000 3.200000 * All estimates are rounded to two significant figures. The incidence benefit-per-ton estimates incorporate the conversion from NO X precursor emissions to ambient ozone. These estimates reflect ozone-season NO X emissions.

Table 4A-14. Summary of Regional Ozone Incidence-per-Ton Estimates Based on Air Quality Modeling from Proposed Clean Power Plan in 2030* Health Endpoint East West California Premature Mortality – adult

Bell et al. (2004) 0.000640 0.000230 0.001800 Levy et al. (2005) 0.002900 0.001100 0.008200 Morbidity

Hospital Admissions, Respiratory (ages > 65) 0.004400 0.001300 0.011000 Hospital Admissions, Respiratory (ages < 2) 0.001800 0.000860 0.004100 Emergency Room Visits, Respiratory 0.002000 0.000580 0.005000 Acute Respiratory Symptoms 3.500000 1.500000 11.000000 School Loss Days 1.200000 0.550000 3.800000 * All estimates are rounded to two significant figures. The incidence benefit-per-ton estimates incorporate the conversion from NO X precursor emissions to ambient ozone. These estimates reflect ozone-season NO X emissions.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-17 4A.5 References
Abt Associates, Inc. 2010. “User’s Guide: Modeled Attainment Test Software.” Available at: <http://www.epa.gov/scram001/modelingapps_ mats.htm>. Accessed June 6, 2015. Abt Associates, Inc. 2012. “BenMAP User’s Manual Appendices,” prepared for U.S. Research Triangle Park, NC: U. S. Environmental Protection Agency, Office of Air Quality Planning and Standards. Available at: <http://www.epa.gov/air/benmap/models/BenMA PAppendicesOct2012. pdf>. Accessed June 6, 2015. Bell, M.L., A. McDermott, S.L. Zeger, J.M. Sarnet, and F. Dominici

. 2004. “Ozone and ShortTerm Mortality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association. 292(19):2372-8. Bell, M.L., F. Dominici, and J.M. Samet. 2005. “A Meta-Analysis of Time-Series Studies of Ozone and Mortality with Comparison to the National Morbidity, Mortality, and Air Pollution Study.” Epidemiology . 16(4):436-45. ENVIRON International Corporation. 2014. User’s Guide: Comprehensive Air Quality Model with Extensions, Version 6.1, Novato, CA. April. Available at <http://www.camx.com>. Accessed June 6, 2015. Fann, N., C.M. Fulcher, and B.J. Hubbell. 2 009. “The Influence of Location, Source, and Emission Type in Estimates of the Human Health Benefits of Reducing a Ton of Air Pollution.” Air Quality and Atmospheric Health. 2:169–176. Fann, N., K.R. Baker, and C.M. Fulcher. 2012. “Characterizing the PM 2.5 -Related Health Benefits of Emission Reductions for 17 Industrial, Area and Mobile Emission Sectors Across the U.S.” Environment International. 49:41–151. Fann, N., K.R. Baker, and C.M. Fulcher. 2013. “The Recent and Future Health Burden of Air Pollution Apportioned Across 23 U.S. Sectors.” Environmental Scientific Technol ogy. 47(8): 3580–3589. Huang Y., F. Dominici, and M. Bell. 2005. “Bayesian Hierarchical Distributed Lag Models for Summer Ozone Exposure and Cardio-Respiratory Mortality.” Environmetrics . 16:547-562. Ito, K., S.F. De Leon, and M. Lippmann. 2005. “Associations between Ozone and Daily Mortality: Analysis and Meta-Analysis.” Epidemiology . 16(4):446-57.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-18 Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the American Cancer Society Study Linking Particulate Air Pollution and Mortality. HEI Research Report, 140, Health Effects Institute, Boston, MA. Lepeule, J., F. Laden, D. Dockery, and J. Schw artz. 2012. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspectives. 120(7):965-70. Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 2005. “Ozone Exposure and Mortality: An Empiric Bayes Metaregression Analysis.” Epidemiology. 16(4):458-68. Roman, H.A., K. D. Walker, T. L. Walsh, L. Conner, H. M. Richmond, B. J. Hubbell, and P. L. Kinney. 2008. “Expert Judgment Assessment of the Mortality Impact of Changes in Ambient Fine Particulate Matter in the U.S.” Environmental Scientific Technology . 42(7):2268-2274. Schwartz, J. 2005. “How Sensitive is the Association between Ozone and Daily Deaths to Control for Temperature?” American Journal of Respiratory and Critical Care Medicine. 171(6): 627-31. U.S. Environmental Protection Agency (U.S. EPA). 2007. Guidance on the Use of Models and Other Analyses for Demonstrating Attainment of Air Quality Goals for Ozone, PM 2.5

, and Regional Haze . Office of Air Quality Planning and Standards, Research Triangle Park, NC. Available at <http://www.epa.gov/ttn/scram/guidance/guide/final-03-pm-rh-guidance.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011b Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards . Research Triangle Park, NC: Office of Air Quality Planning and Standards, Health and Environmental Impacts Division. (EPA document number EPA-452/R-11-011, December). Available at <http://www.epa.gov/ttn/ecas/regdata/RIAs/ma tsriafinal.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2012a. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particulate Matter. EPA452/R-12-003. Office of Air Quality Planning and Standards, Health and Environmental Impacts Division, Research Triangle Park, NC. December. Available at: < http://www.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

4A-19 U.S. Environmental Protection Agency (U.S. EPA). 2013. Technical Support Document: Estimating the Benefit per Ton of Reducing PM 2.5 Precursors from 17 Sectors . Office of Air Quality Planning and Standards, Research Triangle Park, NC. February. Available at: < http://www2.epa.gov/sites/production/files/2014- 10/documents/sourceapportionmentbpttsd.pdf >. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2014. Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plants . EPA-542/R-14-002. Office of Air Quality Planning and Standards, Research Triangle Park, NC. June. Available at <http://www.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-1 

### C HAPTER 

### 5: E CONOMIC 

### I MPACTS



### – M ARKETS 

### O UTSIDE THE 

### U TILITY 

### P OWER 

### S ECTOR

5.1 Introduction The energy sector impacts presented in Chapter 3 of this RIA include potential changes in the prices for electricity, natural gas, and coal potentially resulting from the Clean Power Plan Final Rule. This chapter addresses the impact of these potential changes on other markets and discusses some of the determinants of the magnitude of these impacts. We refer to these changes as secondary market impacts.

Under the final emission guidelines, states are not required to use any of the measures that the EPA determines constitute BSER, or use those measures to the same degree of stringency that the EPA determines is achievable at reasonable cost. Rather, CAA section 111(d) allows each state to determine the appropriate combination of, and the extent of its reliance on, measures for its state plan, by way of meeting its state-specific goal. Given the flexibilities afforded states in complying with the emission guidelines, the benefits, cost and economic impacts reported in this RIA are illustrative of actions that states may take. The implementation approaches adopted by the states, and the strategies adopted by affected EGUs, will ultimately drive the magnitude and timing of secondary impacts from changes in the price of electricity, and the demand for inputs by the electricity sector, on other markets that use and produce these inputs.

The flexibility afforded to states in their state plans allows them to encourage compliance methods by affected EGUs, which include design elements that may mitigate or promote particular impacts based on their priorities. For example, states in the Regional Greenhouse Gas Initiative use the revenues from allowance auctions to support direct bill assistance for retail consumers, fund investments in clean energy and electricity demand reduction for business consumers, and support employment in the development of clean and renewable energy technologies. In its recent regulations to limit greenhouse gas (GHG) emissions, California’s Air Resources Board designated a portion of allowances to be allocated to electric distribution companies in order to mitigate potential electricity rate increases and their associated impacts. Other states may encourage compliance methods by affected EGUs with particularly robust***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-2 deployment of renewables, energy efficiency, or natural gas to promote manufacturing demand or employment in those sectors. For example, energy efficiency investments may be targeted towards reducing both electricity consumption and natural gas or heating oil consumption, such as weatherization projects. The state plan approach and the composition of these programs will influence the effects of compliance with the final rulemaking.

To estimate the costs, benefits, and impacts of implementing the CPP guidelines, the EPA modeled two illustrative plan approaches: a rate-based approach and a mass-based approach. Chapter 3 provides a description of the illustrative plan approaches analyzed. This chapter provides a quantitative assessment of the energy price impacts for these illustrative approaches and a qualitative assessment of the factors that will in part determine the timing and magnitude
of effects in other markets.

5.2 Methods One potential quantitative approach to evaluating the secondary market impacts is to use a computable general equilibrium (CGE) model. CGE models are able to provide aggregated representations of the whole economy in equilibrium in the baseline and potentially with regulation in place. As such, CGE model may be able to capture interactions between economic sectors and provide information on changes outside of the directly regulated sector. In support of previous rulemakings, such as the 2008 Final Ozone NAAQS (U.S. EPA 2008) and the 2010 Transport Rule proposal (U.S. EPA 2010), the EPA used the Economic Model for Policy Analysis (EMPAX) CGE model to estimate the secondary market effects based on the cost impacts projected by the Integrated Planning Model (IPM) for the directly regulated sector.

When considering the secondary market impacts of a regulation both the effects of the costs, the benefits of improved air quality, and their interaction may be relevant. Therefore, in the Second Prospective Analysis under Section 812 of the Clean Air Act Amendments the EPA incorporated a set of health benefits arising from air quality improvement into the EMPAX CGE model when studying the economy-wide impacts of the Clean Air Act (U.S. EPA 2011). While the external Council on Clean Air Compliance Analysis (Council) review of this study stated that inclusion of benefits in an economy-wide model “represent[ed] a significant step forward in benefit-cost analysis” (Hammitt 2010), the EPA recognizes that serious technical challenges***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-3 remain when attempting to evaluate the benefits and costs of potential regulatory actions using economy-wide models.

In light of these challenges, the EPA has established a Science Advisory Board (SAB) panel on economy-wide modeling to consider the technical merits and challenges of using this analytical tool to evaluate costs, benefits, and economic impacts in regulatory development. In addition, EPA is asking the panel to identify potential paths forward for improvements that could address the challenges posed when using economy-wide models to evaluate the effects of regulations. The final panel membership was announced in March 2015 and the first of multiple face-to-face meetings of the SAB panel has been scheduled for October 2015. The EPA will usethe recommendations and advice of this panel as an input into its process for improving benefitcost and economic impact analyses used to inform decision-making at the agency.

The advice from the Science Advisory Board (SAB) panel formed specifically to address the subject of economy-wide modeling was not available in time for this final action. Given the ongoing SAB panel on economy-wide modeling, the uncertain nature of the ultimate energy price impacts due to the state flexibility in choosing a plan and the compliance flexibility for affected EGUs, and the ongoing challenges of accurately representing costs, benefits, energy efficiency improvements in economy-wide modeling, this chapter considers the energy impacts associated with the illustrative plan approaches analyzed and a qualitative assessment of the factors that will, in part, determine the timing and magnitude of effects in other markets.

5.3 Summary of Secondary Market Impacts of Energy Price Changes Electricity, natural gas, and coal are important inputs to the production of other goods and services. Therefore, changes in the price of these commodities will shift the production costs for sectors that use electricity, natural gas, and coal in the production of other goods and services. Such changes in production costs may lead to changes in the quantities and/or prices of the goods or services produced and changes in imports and exports.

The EPA used IPM to estimate electricity, natural gas, and coal price changes based on the illustrative plan approaches modeled for this rule. IPM is a multi-regional, dynamic, deterministic linear programming model of the U. S. electric power sector described in more detail in Chapter 3. The Retail Price Model (RPM) uses forecast changes in wholesale prices and***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-4 the cost of demand-side energy efficiency programs to forecast changes in average retail prices. The prices are average prices over consumer classes and regions weighted by the amount used. Table 5-1 shows these estimated price changes. For other results generated by IPM and the RPM, please refer to Chapter 3.

There are many factors influencing the projected natural gas prices. IPM (and its integrated gas resource and supply module) models natural gas reserves appropriate natural gas supplies based on a multitude of factors. Since the model simulates perfect foresight, it anticipates future demand for natural gas and responds accordingly. In addition, IPM (and the natural gas module) are viewing a very long time horizon (through 2050), such that the impacts in certain years may be responsive to other modeling assumptions or drivers. The modeling framework is simultaneously solving for all of these key market and policy parameters (both electric and natural gas), resulting in the impacts shown.

Table 5-1. Estimated Percentage Changes in Average Energy Prices by Energy Type for the Final Emission Guidelines, Rate-bas ed and Mass-based Illustrative Plan Approaches
Rate-based 2020 2025 2030 Electricity Price Change 3.2% 0.9% 0.8% Delivered Natural Gas Price Change 5.3% -7.7% 2.5% Delivered Coal Price Change -1.7% -6.2% -8.0%

Mass-based 2020 2025 2030 Electricity Price Change 3.0% 2.0% 0.0% Delivered Natural Gas Price Change 3.8% -3.2% -2.1% Delivered Coal Price Change -1.6% -4.3% -4.6%

For years when the price of electricity, natural gas, or coal increased, one would expect decreases in production and increases in market prices in sectors for which these commodities are inputs, ceteris paribus. Conversely, for years when prices of these inputs decreased, one would expect increases in production and decreases in market prices within these sectors. Smaller changes in input price changes would l lead to smaller impacts within secondary markets. However, a number of factors in addition to the magnitude and sign of the energy price changes, influence the magnitude of the impact on production and market prices for sectors using electricity, natural gas, or coal as inputs to production. These factors are discussed below.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-5 5.3.1 Share of Total Production Costs
The impact of energy price changes in a particular sector depends, in part, on the share of total production costs attributable to those commodities. For sectors in which the directly affected inputs are only a small portion of production costs, the impact will be smaller than for sectors in which these inputs make up a greater portion of total production costs. Therefore, more energy-intensive sectors would potentially experience greater cost increases when electricity, natural gas, or coal prices increase, but would also experience greater reduced costs when these input prices decrease. 119

5.3.2 Ability to Substitute between Inputs to the Production Process
The ease with which producers are able to substitute other inputs for electricity, natural gas, or coal, or even amongst those commodities, influences the impact of price changes for these inputs. Those sectors with a greater ability to substitute across energy inputs or to other inputs will be able to, at least partially, offset the increased cost of these inputs resulting in smaller market impacts. Similarly, when prices for electricity, natural gas, or coal decrease, some sectors may choose to use more of these inputs in place of other more costly substitutes.

5.3.3 Availability of Substitute Goods and Services
The ability of producers in sectors experiencing changes in their input prices to pass along the increased costs to their customers in the form of higher prices for their products depends, in part, on the availability of substitutes for the sectors’ products. Substitutes may be either other domestic products or foreign imports. If close substitutes exist, the demand for the product will in general be more elastic and the producers will be less able to pass on the added cost through a price increase.

Such substitution can also take place between foreign and domestic goods within the same sector. Changes in the price of electricity, natural gas, and coal can influence the quantities of goods imported or exported from sectors using these inputs. When the cost of domestic

119 The net direct effect of this rulemaking on the production costs of a sector that is attributable to a change in the electricity price also depends on the expenditures the sector makes to reduce its demand for electricity under any energy efficiency program that was adopted to achieve a state goal. That said, those expenditures may lead to other reduced expenditures for the sector, such as reduced natural gas use from weatherization projects.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-6 production increases due to more expensive inputs, imports may increase as consumers substitute towards relatively less costly foreign-produced g oods. If imports increase because of a regulation and those imports come from countries with higher emissions per unit of production, this can result in foreign emission increases that offset some portion of domestic decreases, an effect commonly referred to as “leakage.” Alternatively, if those imports are less emissions-intensive than the sectors that have contracted, emissions may fall even further. The potential for changes in global pollutants such as carbon dioxide (CO 2 ) and other GHG emissions is noteworthy. Unlike most criteria pollutants and hazardous air pollutants, the impacts of CO 2 emissions are not affected by the location from which those emissions originate.

5.4 Effect of Changes in Input Demand from Electricity Sector Section 5.2 focuses on the effects of changes in energy prices, and possible responses to those price changes, on sectors outside of the electricity sector. A change in demand for inputs in the electricity sector, as well as changes in demand for energy efficiency services and products, will also influence economic activity in other sectors of the economy. For example, there will be changes in the demand for new generation sources such as natural gas combined cycle units and renewables, and therefore sectors producing these technologies may expand. Therefore, while a sector that produces say, wind turbine blades, may face higher natural gas and electricity prices, production in that sector may ultimately increase due to higher demand from the electricity
sector for wind turbines.

5.5 Conclusions Changes in the price of electricity, natural gas, and coal can affect markets for goods and services produced by sectors that use these energy inputs in the production process. The direction and magnitude of these impacts are influenced by a number of factors. Changes in cost of production may lead to changes in price, quantity produced, and profitability of firms within secondary markets. Furthermore, the demand for cert ain inputs in the electricity sector, as well as changes in the demand for energy efficiency services and products, will also affect secondary markets. If regulation results in changes in domestic markets that lead to an increase in imports, increases in production in countries with more energy-intensive production may lead to changes
in CO 2 emissions elsewhere.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

5-7 5.6 References Hammitt, J.K. 2010. Review of the Final Integrated Report for the Second Section 812 Prospective Study of the Benefits and Costs of the Clean Air Act. Available at <http://yosemite.epa.gov/sab/sabproduc t.nsf/9288428b8eeea4c885257242006935a3/1E6218D E3BFF682E852577FB005D46F1/$File/EPA-COUNCIL-11-001-unsigned.pdf.> Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2008. Final Ozone NAAQS Regulatory Impact Analysis. Office of Air Quality Planning and Standards, Research Triangle Park, NC. Available at <http://www.epa.gov/ttn/ecas/r egdata/RIAs/452_R_08_003.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2010. Regulatory Impact Analysis for the Proposed Federal Transport Rule. Office of Air Quality Planning and Standards, Research Triangle Park, NC. Available at <http://www.epa.gov/ttnecas1/regdata/RIAs/proposaltrria_final.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011. The Benefits and Costs of the Clean Air Act from 1990 to 2020, Final Report – Rev A. Office of Air and Radiation, Washington, DC. Available at <http://www.epa.gov/cleanairactbenefits/feb11/fullreport_rev_a.pdf>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-1 

### C HAPTER 

### 6: E MPLOYMENT 

### I MPACT 

### A NALYSIS

6.1 Introduction Executive Order 13563 directs federal agencies to consider regulatory impacts on job creation and employment. According to the Executive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Although standard benefit-cost analyses have not typically included a separate analysis of regulation-induced employment impacts, 120 we typically conduct employment analyses for economically significant rules. During the current economic recovery, employment impacts are of particular concern and questions may arise about their existence and magnitude. This chapter discusses and projects potential employment impacts for the utility power, coal and natural gas production, and demand-side energy efficiency sectors which may result from the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (herein referred to as “final emission guidelines” or the “Clean Power Plan Final Rule”). 121
Section 6.2 describes the theoretical framework used to analyze regulation-induced employment impacts, discussing how economic theory alone cannot predict whether such impacts are positive or negative. Section 6.3 presents an overview of the peer-reviewed literature relevant to evaluating the effect of environmental regulation on employment. Section 6.4 provides background regarding recent employment trends in the electricity generation, coal and natural gas extraction, renewable energy, and demand-side energy efficiency-related sectors. Section 6.5 presents the EPA’s quantitative projections of potential employment impacts in these sectors. These projections are based in part on a detailed model of the electricity production sector used for this regulatory analysis. Additionally, this section discusses projected

120 Labor expenses do, however, contribute toward total costs in the EPA’s standard benefit-cost analyses.

121 The employment analysis in this RIA is part of EPA’s ongoing effort to “conduct continuing evaluations of potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” pursuant to CAA section 321(a). Commented [A28]: Consider omitting given that we are now over 5 years into the economic recovery***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-2 employment impacts due to demand-side energy efficiency activities. Section 6.6 offers several
conclusions.
6.2 Economic Theory and Employment Regulatory employment impacts are difficult to disentangle from other economic changes affecting employment decisions over time and across regions and industries. Labor market responses to regulation are complex. They depend on labor demand and supply elasticities and possible labor market imperfections (e.g., wage stickiness, long-term unemployment, etc.). The unit of measurement (e.g., number of jobs, types of job hours worked, and earnings) may affect observability of that response. Net employment impacts are composed of a mix of potential declines and gains in different areas of the economy (e.g., the directly regulated sector, the environmental protection sector, upstream and downstream sectors, etc.) over time. In light of these difficulties, economic theory provides a constructive framework for analysis.
Microeconomic theory describes how firms adjust their use of inputs in response to changes in economic conditions. 122 Labor is one of many inputs to production, along with capital, energy, and materials. In competitive markets, firms choose inputs and outputs to maximize profit as a function of market prices and technological constraints. 123,124 Berman and Bui (2001) adapt this model to analyze how environmental regulations affect labor demand. 125 They model environmental regulation as effectively requiring certain factors of production, such as pollution abatement capital, at levels that firms would not otherwise choose. Berman and Bui (2001) model two components that drive changes in firm-level labor demand: output effects and
substitution effects. 126 Regulation affects the profit-maximizing quantity of output by changing the marginal cost of production. If a regulation causes marginal cost to increase, it will place

122 See Layard and Walters (1978), a standard microeconomic theory textbook, for a discussion, in Chapter 9.

123 See Hamermesh (1993), Ch. 2, for a derivation of the firm’s labor demand function from cost-minimization.

124 In this framework, labor demand is a function of quantity of output and prices (of both outputs and inputs).

125 Morgenstern, Pizer, and Shih (2002) develop a similar model.

126 The authors also discuss a third component, the impact of regulation on factor prices, but conclude that this effect is unlikely to be important for large competitive factor markets, such as labor and capital. Morgenstern, Pizer and Shih (2002) use a very similar model, but they break the employment effect into three parts: 1) a demand effect; 2) a cost effect; and 3) a factor-shift effect.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-3 upward pressure on output prices, leading to a decrease in demand, and resulting in a decrease in production. The output effect describes how, holding labor intensity constant, a decrease in production causes a decrease in labor demand. As noted by Berman and Bui, although many assume that regulations must increases marginal cost, it need not be the case. A regulation could induce a firm to upgrade to less polluting and more efficient equipment that lowers the marginal cost of production. In such a case, output could increase after firms comply with the regulation. For example, in the context of the current rule, improving the heat rate of utility boiler increases fuel efficiency, lowering marginal production costs, and thereby potentially increasing the utility boiler’s generation. An unregulated profit-maximizing firm may not have chosen to install such an efficiency-improving technology if the return on investment were too low, but once the investment is required it lowers marginal production costs.
The substitution effect describes how, holding output constant, regulation affects the labor-intensity of production. Although increased environmental regulation may increase use of pollution control equipment and energy to operate that equipment, the impact on labor demand is ambiguous. For example, equipment inspection requirements, specialized waste handling, completing required paperwork, or pollution technologies that alter the production process may affect the number of workers necessary to produce a unit of output. Berman and Bui (2001) model the substitution effect as the effect of regulation on pollution control equipment and expenditures required by the regulation and the corresponding change in the labor-intensity of production.
In summary, as output and substitution effects may be positive or negative, economic theory alone cannot predict the direction of the net effect of regulation on labor demand at the level of the regulated firm. Operating within the bounds of standard economic theory, however, empirical estimation of net empl oyment effects on regulated firms is possible when methods and data of sufficient detail and quality are available. The extant literature, however, illustrates difficulties with empirical estimation. For example, there is a paucity of publicly-available data on plant-level employment, thus most studies must rely on confidential plant-level employment data from the U.S. Census Bureau, typically combined with pollution abatement expenditure data, that are too dated to be reliably informative, or other measures of the stringency of regulation. In addition, the most commonly used empirical methods can only estimate the gross***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-4 effects of regulation on employment (i.e. the impact of that more stringent regulation has on employment relative to less stringent or no regulation), not the net effects.
The conceptual framework described thus far focused on regulatory effects on plant-level decisions within a regulated industry. Employment impacts at an individual plant do not necessarily represent impacts for the sector as a whole. The theoretical approach must be modified when applied at the industry level.
At the industry-level, labor demand is more responsive if: (1) the price elasticity of demand for the product is high, (2) other factors of production can be easily substituted for labor, (3) the supply of other factors is highly elastic, or (4) labor costs are a large share of total production costs. 127 For example, if all firms in an industry are faced with the same regulatory compliance costs and product demand is inelastic, then industry output may not change much, and output of individual firms may change slightly. 128 In this case, the output effect may be small, while the substitution effect depends on input substitutability. Suppose, for example, that new equipment for heat rate improvements requires labor to install and operate. In this case, the substitution effect may be positive, and with a small output effect, the total effect may be positive. As with potential effects for an individual firm, theory cannot determine the sign or magnitude of industry-level regulatory effects on labor demand. Determining these signs and magnitudes requires additional sector-specific empirical study. For environmental rules, much of the data needed for these empirical studies is not publicly available, would require significant time and resources in order to access confidential U.S. Census data for research, and also would not be necessary for other components of a typical Regulatory Impact Analysis (RIA).
In addition to changes to labor demand in the regulated industry, net employment impacts encompass changes in other related sectors. For example, the final guidelines may increase demand for heat rate improving equipment and services. This increased demand may increase revenue and employment in the firms supporting this technology. At the same time, the regulated industry is purchasing the equipment, and these costs may impact labor demand at regulated

127 See Ehrenberg & Smith, p. 108.

128 This discussion draws from Berman and Bui (2001), pp. 293.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-5 firms. Therefore, it is important to consider the net effect of compliance actions on employment across multiple sectors or industries.
If the U.S. economy is at full employment, even a large-scale environmental regulation is unlikely to have a noticeable impact on aggregate net employment. 129 Instead, labor in affected sectors would primarily be reallocated from one productive use to another (e.g., from producing electricity or steel to producing high efficiency equipment), and net national employment effects from environmental regulation would be small and transitory (e.g., as workers move from one job to another). 130 Some workers may retrain or relocate in anticipation of new requirements or require time to search for new jobs, while shortages in some sectors or regions could bid up wages to attract workers. These adjustment costs can lead to local labor disruptions. Although the net change in the national workforce is expected to be small, localized reductions in employment may adversely impact individuals and communities just as localized increases may have positive impacts.
If, on the other hand, the economy is operating at less than full employment, economic theory does not clearly indicate the direction or magnitude of the net impact of environmental regulation on employment; it could cause either a short-run net increase or short-run net decrease (Schmalansee and Stavins, 2011). An important research question is how to accommodate unemployment as a structural feature in economic models. This feature may be important in assessing large-scale regulatory impacts on employment (Smith, 2012).
Environmental regulation may also affect labor supply and productivity. In particular, pollution and other environmental risks may impact labor productivity or employees’ ability to
work. 131 While the theoretical framework for analyzing labor supply effects is analogous to that for labor demand, it is more difficult to study empirically. There is a small emerging literature
described in the next section that uses detailed labor and environmental data to assess these impacts.

129 Full employment is a conceptual target for the economy where everyone who wants to work and is available to do so at prevailing wages is actively employed. The unemployment rate at full employment is not zero.

130 Arrow et al. 1996; see discussion on bottom of p. 8. In practice, distributional impacts on individual workers can be important, as discussed in later paragraphs of this section.

131 E.g. Graff Zivin and Neidell (2012).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-6 To summarize, economic theory provides a framework for analyzing the impacts of environmental regulation on employment. The net employment effect incorporates expected employment changes (both positive and negative) in the regulated sector and other related sectors. Labor demand impacts for regulated firms, and also for the regulated industry, can be decomposed into output and substitution effects which may be either negative or positive. Estimation of net employment effects for regulated sectors is possible when data of sufficient detail and quality are available. Finally, economic theory suggests that labor supply effects are also possible. In the next section, we discuss the empirical literature.
6.3 Current State of Knowledge Based on the Peer-Reviewed Literature The labor economics literature contains an extensive body of peer-reviewed empirical work analyzing various aspects of labor demand, relying on the theoretical framework discussed in the preceding section. 132 This work focuses primarily on effects of employment policies such as labor taxes and minimum wages. 133 In contrast, the peer-reviewed empirical literature specifically estimating employment effects of environmental regulations is growing, but is more limited. In this section, we present an overview of the latter. As discussed in the preceding section on theory, determining the direction of employment effects in regulated industries is challenging because of the complexity of the output and substitution effects. Complying with a new or more stringent regulation may require additional inputs, including labor, and may alter the relative proportions of labor and capital used by regulated firms (and firms in other relevant industries) in their production processes.
Empirical studies, such as Berman and Bui (2 001), suggest that net employment impacts due to regulation were not statistically different from zero in the regulated sector. Other research suggests that more highly regulated counties may generate fewer jobs than less regulated ones, but since this study compares more regulated to less regulated counties it cannot address net employment effects at a national level (Greenstone, 2002). Moreover, environmental regulations may affect sectors that support pollution reduction earlier than the regulated industry. Rules are usually announced well in advance of their effective dates and then typically provide a period of

132 Again, see Hamermesh (1993) for a detailed treatment.

133 See Ehrenberg & Smith (2000), Chapter 4: “Employment Effects: Empirical Estimates” for a concise overview. Formatted: Highlight***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-7 time for firms to invest in technologies and process changes to meet the new requirements. When a regulation is promulgated, the initial response of firms is often to order pollution control equipment and services to enable compliance when the regulation becomes effective. Estimates of short-term increases in demand for specialized labor within the environmental protection sector have been prepared for several EPA regulations in the past, including the Mercury and Air Toxics Standards (MATS). 134 Overall, the peer-reviewed literature does not contain evidence that environmental regulation has a large impact on net employment (either negative or positive) in the long run across the whole economy.
6.3.1 Regulated Sector
Several empirical studies, including Berman and Bui (2001) and Ferris, Shadbegian, and Wolverton (2014), suggest that regulation-induced net employment impacts may be zero or slightly positive, but small in the regulated sector. Gray et al (2014) find that pulp mills that had to comply with both the air and water regulations in EPA’s 1998 “Cluster Rule” experienced relatively small, and not always statistically significant, decreases in employment. Other research suggests that more highly regulated counties may generate fewer jobs than less regulated ones (Greenstone 2002, Walker 2011, 2013). However since these latter studies compare more regulated to less regulated counties they overstate the net national impact of regulation to the extent that regulation causes plants to locate in one area of the country rather than another. List et al. (2003) find some evidence that this type of geographic relocation may be occurring. Overall, the peer-reviewed literature does not contain evidence that environmental regulation has a large impact on net employment (either negative or positive) in the long run across the whole

economy. A small literature examines impacts of environmental regulations on manufacturing employment. Greenstone (2002) and Walker (2011, 2013) study the impact of air quality regulations on manufacturing employment, estimati ng the effects in non-attainment areas relative to attainment areas. Kahn and Mansur (2013) study environmental regulatory impacts on geographic distribution of manufacturing employment, controlling for electricity prices and labor regulation (right to work laws). Their methodology identifies employment impacts by focusing

134 U.S. EPA (2011b). Formatted: Highlight

Formatted: Highlight

Commented [A29]: Note repeated text highlighted above

Formatted: Highlight***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-8 on neighboring counties with different air quality regulations. They find limited evidence that environmental regulations may cause employment to be lower within “county-border-pairs.” This result suggests that regulation may cause an effective relocation of labor across a county border, but since one county’s loss is another’s gain, such shifts cannot be transformed into an estimate of a national net effect on employment. Moreover this result is sensitive to model specification choices.
The few studies in peer-reviewed journals evaluating employment impacts of policies
that reduce CO 2 emissions in the electric power generation sector are in the European context. In a sample of 419 German firms, 13 percent of which were in the electricity sector, Anger and Oberndorfer (2008) find that the initial allocation of emission permits did not significantly affect employment growth in the first year of the European Union (EU) Emissions Trading Scheme (ETS). Examining European fi rms from 1996-2007, Commins et al. (2011) find that a 1 percent increase in energy taxes is associated with a 0.01 percent decrease in employees in the electricity and gas sector. Chan et al. (2013) estimate the impact of the EU ETS on a panel of almost 6,000 firms in 10 European countries from 2005-2009. They find that firms in the power sector that participated in the ETS had 2-3 percent fewer employees relative to those that did not participate, but this effect is not statistically significant.
This literature suggests that the employment impacts of controlling CO 2 emissions in the European power sector were small. The degree to which these studies’ results apply to the U.S. context is unclear. European policies analyzed in these studies effectively put a price on emissions either through taxes or tradable permits. A performance standard may not generate similar employment effects. Moreover, European firms face relative fuel prices and market regulatory structures different from their U.S. counterparts, further complicating attempts to transfer quantitative results from the EU experience to evaluate this rule.
6.3.2 Economy-Wide
As noted above it is very difficult to estimate the net national employment impacts of environmental regulation. Given the difficulty with estimating national impacts of regulations, EPA has not generally estimated economy-wide employment impacts of its regulations in its benefit-cost analyses. However, in its continuing effort to advance the evaluation of costs, benefits, and economic impacts associated with environmental regulation, EPA has formed a***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-9 panel of experts as part of EPA’s Science Advisory Board (SAB) to advise EPA on the technical merits and challenges of using economy-wide econ omic models to evaluate the impacts of its regulations, including the impact on net national employment. 135 Once EPA receives guidance from this panel it will carefully consider this input and then decide if and how to proceed on economy-wide modeling of employment impacts of its regulations.
EPA received several comments regarding the potential net national employment impact of the proposed emission guidelines. Many of these comments referred to analyses developed using non-transparent, non-peer reviewed models. 136 Additionally, some of the analyses predated the Clean Power Plan proposal. However, one comment was based on an “economy-wide assessment of the employment impacts associated with the U.S. Environmental Protection Agency’s (EPA’s) proposed Clean Power Plan” using the Long-term Inter-industry Forecasting Tool (LIFT) model. 137 The LIFT model, which is from the Interindustry Forecasting Project (Inforum) at the University of Maryland, has been used in the peer-reviewed academic
literature 138 and has also been used to examine the economic impacts of other national policies [Meade (2009); Werling (2011)]. 139 The commenter noted that “While EPA’s analysis provides a reasonable first approximation of the proposed rule’s employment effects, its focus on direct employment impacts does not capture various indirect employment impacts that may be of interest to policymakers and the public.” [...] “These include the employment impact associated with changes in electricity and other energy prices (both positive and negative, depending on the

135 For further information see: http://yosemite.epa.gov/sab/sabproduct.nsf/0/07E67CF77B54734285257BB0004F87ED?OpenDocument

136 See, for example, comments EPA-HQ-OAR-2013-0602-33150, EPA-HQ-OAR-2013-0602-23140, and EPA-HQOAR-2013-0602-23156, within Docket ID : EPA-HQ-OAR-2013-0602

.

137 See comment EPA-HQ-OAR-2013-0602-22960, within Docket ID : EPA-HQ-OAR-2013-0602

.

138 See, for example, Almon (1991) and Mccarthy (1991).

139 The commenter provides the following description of the LIFT model: “LIFT is a 97-sector dynamic representation of the U.S. national economy. The model combines an interindustry input / output (I-O) formulation with extensive use of regression analysis to employ a ’bottom-up’ approach to macroeconomic modeling. That is, the model works like the actual economy, building macroeconomic totals from details of industry activity, rather than distributing predetermin ed macroeconomic quantitie s among industries. The commenter also describes LIFT also captures interactions between industries across the economy, enabling the model to gauge how changes in prices, investment, or productivity in one industry cascade across the economy. In the context of the Clean Power Plan, this is an important feature for understanding how the rule’s direct impacts for the electric power sector affect other industries.”***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-10 year), the productivity impacts associated with heat rate improvements at power plants,households and businesses re-directing expenditures to other uses because of increased demandside energy efficiency, expenditures crowded out by energy efficiency expenditures, and changes in investments for air pollution control devices.”
As mentioned previously, EPA is currently engaged in an SAB process on economy-wide modeling. EPA will not make any determinations on whether modeling the economy-wide impacts of its regulations – including employment impacts - is feasible and, if so, how and when to do this until it receives guidance from the SAB panel. While the purpose of the SAB process is not to peer review any particular economy-wide model, it is worth noting that the class of models to which LIFT belongs are encompassed in one of the charge questions to the SAB: “Are there other economy-wide modeling approaches that EPA could consider in conjunction with CGE models to evaluate the short run implications of an air regulation (e.g., macro-economic, disequilibrium, input/output models)? What are the advantages or disadvantages of these approaches?” 140
6.3.3 Labor Supply Impacts
The empirical literature on environmental regulatory employment impacts focuses primarily on labor demand. However, there is a nascent literature focusing on regulation-induced effects on labor supply. 141 Although this literature is limited by empirical challenges, researchers have found that air quality improvements lead to reductions in lost work days (e.g., Ostro, 1987). Limited evidence suggests worker productivity may also improve when pollution is reduced. Graff Zivin and Neidell (2012) used detailed worker-level productivity data from 2009 and 2010, paired with local ozone air quality monitoring data for one large California farm growing multiple crops, with a piece-rate payment structure. Their quasi-experimental structure identifies an effect of daily variation in monitored ozone levels on productivity. They find “ozone levels well below federal air quality standards have a significant impact on productivity: a 10 parts per

140 See p. 10, http://yosemite.epa.gov/sab/sabproduct.nsf/0/07E67CF77B54734285257BB0004F87ED/$File/Charge+Questions+2 -26-15.pdf

141 For a recent review see Graff-Zivin and Neidell (2013).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-11 billion (ppb) decreases in ozone concentrations increases worker productivity by 5.5 percent.” (Graff Zivin and Neidell, 2012, p. 3654). 142
This section (section 6.3) has outlined the challenges associated with estimating regulatory effects on both labor demand and supply for specific sectors. These challenges make it difficult to estimate net national employment estimates that would appropriately capture the way in which costs, compliance spending, and environmental benefits propagate through the

macro-economy. 6.4 Recent Employment Trends The U.S. electricity system includes employees that support electric power generation, transmission and distribution; the extraction of fossil fuels; renewable energy generation; and supply-side and demand-side energy efficiency. This section describes recent employment trends in the electricity system.

6.4.1 Electric Power Generation
In 2014, the electric power generation, transmission and distribution sector (NAICS 2211) employed about 390,000 workers in the U.S. 143 Installation, maintenance, and repair occupations accounted for the largest share of workers (25 percent). 144 These categories include inspection, testing, repairing and maintaining of electrical equipment and/or installation and repair of cables used in electrical power and distribution systems. Other major occupation categories include office and administrative support (18 percent), production occupations (16 percent), architecture and engineering (10 percent), business and financial operations (7 percent) and management (7 percent). As shown in Figure 6.1, employment in the Electric Power

142 The EPA is not quantifying productivity impacts of reduced pollution in this rulemaking using this study. In light of this recent research, however, the EPA is considering how best to incorporate possible productivity effects in the future.

143 U.S. Bureau of Labor Statistics. “Current Employment Survey Seasonally Adjusted Employment for Electric Power Generation, Transmission, and Distribution (national employment).” Series ID: CES4422110001. Available at <http://www.bls.gov/data />. Accessed June 9, 2015

.

144 U.S. Bureau of Labor Statistics, Occupational Employment Statistics, May 2014 National Industry-Specific Occupational Employment and Wage Estimates, Electric Power Generation, Transmission, and Distribution (NAICS 2211). Available at: <http://www.bls.gov/oes/current/naics4_221100.htm>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-12 Industry averaged about 420,000 workers 2000 to 2005, declining to an average of about 400,000 workers for the rest of the decade, and then declining to about 390,000 workers in 2014.

Figure 6.1. Electric Power Industry Employment

6.4.2 Fossil Fuel Extraction
6.4.2.1 Coal Mining
The coal mining sector (NAICS 2121) is primarily engaged in coal mining and coal mine site development, excluding metal ore mining and nonmetallic mineral mining and quarrying. In 2014, BLS reported about 74,000 coal mining employees (Figure 6.2). During the 2000 to 2014, period, coal mining employment peaked in 2011 at about 87,000 employees. 0 50 100 150 200 250 300 350 400 450 500 

### Power Generation and Supply Employment (NAICS = 2211, Annual Average, 1000s of Employees)***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-13 Figure 6.2. Coal Production Employment

6.4.2.2 Oil and Gas Extraction
In 2014, there were close to 200,000 employees in the oil and gas extraction sector (NAICS 211). 145 This sector includes production of crude petroleum, oil from oil shale and oil sands, production of natural gas, sulfur recovery from natural gas, and recovery of hydrocarbon liquids. Activities include the development of gas and oil fields, exploration activities for crude petroleum and natural gas, drilling, completing, and equipping wells, and other production
activities. 146 In contrast with coal, and looking at Figure 6.3, there has been a sharp increase in employment in this sector over the past decade.

145 BLS, Current Employment Statistics. Seasonally adjusted employment for oil and gas extraction (national employment), NAICS 211. Series ID: CES1021100001. Avai lable at <http://www.bls.gov/data/>. Accessed June 9, 2015.

146 U.S. Bureau of Labor Statistics. 20014. Available at: <http://www.bls.gov/iag/tgs/iag211.htm Accessed Feb. 19>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-14 Figure 6.3. Oil and Gas Production Employment
6.4.3 Clean Energy Employment Trends
Clean energy resources, such as energy ef ficiency and renewable energy, are used to meet energy demand, reduce peak electricity system loads, and reduce reliance on the most carbon-intensive sources of electricity. However, there is not a single clean energy sector in standard national accounts classifications. Renewable generation is not reported to the BLS separately from other electric power generation. Similarly, manufacturers of energy efficient appliances are not reported separately from conventional appliance manufacturers and green building design is not separate from the construction sector. Instead, clean energy technology and services are supported by industries throughout the economy.
Without a specific industrial classification, it is difficult to quantify the exact number of clean energy-related jobs or document the trends. Employees engaged in clean energy can spanmany job classifications, such as experts required to design and produce a renewable or energyefficient technology, workers that supply inputs and technicians who install service or operate equipment. As such, there are a variety of definitions of clean or green jobs used, some more expansive than others. 0 50 100 150 200 250 

### Oil and Gas Extraction Employment (NAICS = 211, Annual Average, 1000s of Employees)***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-15 6.4.3.1 Defining Clean Energy Jobs
Two U.S. Government sources, the 2010 Department of Commerce (DOC) report, Measuring the Green Economy and the 2010 and 2011 BLS Green Goods and Services surveys have subdivided industrial classifications into “green” categories. In both cases the approach was to determine which product classifications, rather than industries, were green. They multiplied green production by product revenue and defined an industrial sector as green if it met a threshold of green revenue as a proportion of total revenue.
DOC broadly defined green jobs in 2010 as those “created and supported in businesses that produce green products and services.” 147 They further classified green jobs into a broad and a narrow category. The narrow category includes only products deemed to be green without disagreement, while the broad category is more inclusive definition of green goods and services to over 22,000 product codes in the 2007 Economic Census to estimate their contribution to the U.S. economy. The report found that the number of green jobs in 2007 ranged from 1.8 million to 2.4 million jobs, accounting for between 1.5 and 2 percent of total private sector employment. 148
BLS used an expansive definition of clean or green jobs in 2010 and 2011. It goes beyond direct clean energy-related investments and includes “those in businesses that produce goods and provide services that benefit the environment or conserve natural resources. These goods and services, which are sold to customers, include research and development, installation, and maintenance services for renewable energy and energy efficiency and education and training related to green technologies and practices” but also include recycling and natural resource conservation, such as forestry management. 149 Based on surveys across the 325 industries it identified as potential producers of green goods and services, BLS counts approximately 2.3

147 U.S. Department of Commerce Economics and Statistics Administration. 2010. “Measuring the Green Economy ,” April. Available at: <http://www.esa.doc.gov/sites/default/files/reports/documents/greeneconomyreport_0.pdf>.

148 U.S. Department of Commerce Economics and Statistics Administration. 2010. “Measuring the Green Economy, April. Available at: <http://www.esa.doc.gov/sites/defau lt/files/reports/documents /greeneconomyreport_0.pdf>.

149 BLS has identified 325 detailed industries (6-digit NAICS) as potential producers of green goods and services. Available at: <http://www.bls.gov/ggs/ggsoverview.htm>. (Accessed on 1-14-14, last modified date: March 19, 2013.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-16 million jobs in the green economy in 2010, rising 7.4 percent to 2.5 million in 2011, 150 compared to increases of about one percent across all occupations in the entire economy over the same period. 151 The table below, Table 6-1, presents BLS green job estimates nationally and for the utility sector.

Table 6-1. U. S. Green Goods and Serv ices (GGS) Employme nt (annual average) Total GGS Employment Utility GGS Employment Total GGS Growth 2010-11 Utility GGS Growth 2010-11 2010 2,342,562 69,031 NA NA 2011 2,515,200 71,129 7.4% 3.0% Source: Bureau of Labor Statistics 6.4.3.2 Renewable Electricity Generation Employment Trends
The DOC report does not separate renewable energy data and the BLS data include only privately owned electricity generating facilities. As such, neither source isolates renewable electricity generation employment. For historical trends in this sector, we therefore, rely on a Brookings Institution study, Muro et al. (2011). This study built a national database of “clean economy” jobs from the bottom up, verifying each company individually. 152 They include a list of categories similar but not identical to that of BLS, including agricultural and natural resources conservation, education and compliance, energy and resource efficiency, greenhouse gas reduction, environmental management and recycling, and renewable energy. This study found about 138,000 jobs in the renewable energy sector in 2010, with an overall average annual growth rate of 3.1 percent from 2003-2010. Table 6-2 details the national results by energy

source.

150 U.S. Department of Labor, U.S. Bureau of Labor Statistics. (n.d.). 2011. “Green Goods and Services 2010-2011.” (Retrieved on January 14, 2014). Available at :< http://www.bls.gov/ggs/ggsoverview.htm>.

151 U.S. Department of Labor, U.S. Bureau of Labor Statistics. 2010. National Occupational Employment and Wage Estimates, United States. Available at: <http://www.bls.gov/oes/2010/may/oes_nat.htm>, May. National Occupational Employment and Wage Estimates, United States http://www.bls.gov/oes/2010/may/oes_nat.htm.

152 <http://www.brookings.edu/~/media/Series/resources/0713_clean_economy.pdf> p. 15.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-17 Table 6-2. Renewable Electricity Ge neration-Related Employment

Sector Jobs, 2010 2003-2010 Average Annual Growth Rate (%) Biofuels/Biomass 20,680 8.9 Geothermal 2,720 6.7 Hydropower 55,467 -3.6 Renewable Energy Services 1,981 6.3 Solar Photovoltaic 24,152 10.7 Solar Thermal 5,379 18.4 Waste-to-Energy 3,320 3.7 Wave/Ocean Power 371 20.9 Wind 24,294 14.9 Total 138,364 3.1 Source: http://www.brookings.edu/~/ media/Series/resources/0713_clean_economy.pdf, Appendix A.
More recent industry data, from 2014, indicate higher employment numbers and growth in the solar sector. 153
6.4.3.3 Employment Trends in Demand-Side Energy Efficiency Activities
U.S. government data used for calculating the historical trends in the demand-side energy efficiency sector come from the BLS green goods and services surveys. BLS reports an energy efficiency category, finding 1.49 million private sector energy efficiency jobs in 2010 and 1.64
million in 2011.
For a longer term trend the Brookings Institution study (Muro et al. , 2011) built a national database of “clean economy” jobs from the bottom up, verifying each company individually. 154 This study found about 428,000 jobs in the Energy and Resource Efficiency sector in 2010, with an overall average annual gr owth rate of 2.6 percent from 2003-2010. Table 6-3 details the results by energy sector.

153 The Solar Foundation, National Solar Jobs Census 2014. < http://www.thesolarfoundation.org/national-solarjobs-census-2014/>

154 <http://www.brookings.edu/~/media/Series/resources/0713_clean_economy.pdf> p. 15 Commented [A30]: Already referenced above.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-18 Table 6-3. Energy and Resources Efficiency-Related Employment

Sector Jobs, 2010 2003-2010 Average Annual Growth Rate (%) Appliances 36,608 -3.1 Energy-saving Building Materials 161,896 2.5 Energy-saving Consumer Products 19,210 -2.9 Green Architecture and Construction Services 56,190 6.4 HVAC and Building Control Systems 73,600 3.3 Lighting 14,298 -1.8 Professional Energy Services 49,863 6.9 Smart Grid 15,987 8.6 Total 427,652 2.6 Source: http://www.brookings.edu/~/media/Series/resources/0713_clean_economy.pdf, Appendix A

In addition, other research institutes and industry groups have clean economy or clean energy employment databases. While definitions and timeframes vary, all show positive employment trends of 1.9 percent or more growth in clean energy-related jobs annually.
6.5 Projected Sectoral Employment Changes due to the Final Emission Guidelines Affected EGUs may respond to these final CO 2 emission performance rates by placing new orders for efficiency-related or renewable energy equipment and services to reduce GHG emissions. Implementing each of the three building blocks used in determining BSER will involve changes in the amount of labor needed in different parts of the utility power sector. Installing and operating new equipment or improving heat rate efficiency could increase labor demand in the electricity generating sector itself, as well as associated equipment and services sectors. Specifically, the direct employment effects of supply-side initiatives include increases in labor demand during the implementation phase for manufacturing, installing, and operating higher efficiency and renewable energy electricity generating assets, as well as making heat rate improvements at existing fossil units. Additional supply-side direct employment impacts are the reductions in labor demand for labor that would have been used by less efficient or higher emitting generating assets. Once implemented, increases in operating efficiency and shifting generation to existing or new NGCC units and renewable energy generation will impact the utility power sector’s demand for fossil fuels and plans for EGU retirement and new
construction.
In addition, EPA expects state compliance plans to also include demand-side energy efficiency policies and programs that typically change energy consumption patterns of business***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-19 and residential consumers by reducing the quantity of energy required for a given level of production or service. Demand-side initiatives generally aim to increase the use of cost-effective energy efficiency technologies (e.g., including more efficient appliances and air conditioning systems, more efficient lighting devices, more efficient design and construction of new homes and businesses), and advance efficiency improvements in motor systems and other industrial processes. Demand-side initiatives can also directly reduce energy consumption, such as through programs encouraging changing the thermostat during the hours a building is unoccupied or motion-detecting room light switches. Such demand-side energy efficiency initiatives directly affect employment by encouraging firms and consumers to shift to more efficient products and processes than would otherwise be the case. Employment in the sectors that provide these more efficient devices and services would be expected to increase, while employment in the sectors that produce less efficient devices would be expected to contract.
This generation-side employment analysis uses the cost projections from the engineeringbased Integrated Planning Model (IPM) to project labor demand impacts of the final emission guidelines on affected electric utility steam generating units (steam generating units) in the electricity power sector and the fuel production sector (coal and natural gas). These projections include effects attributable to heat rate impr ovements, construction of new EGUs, generation shifts, changes in fuel use, and reductions in electricity generation due to demand-side energy efficiency activities. To project labor requirements for demand-side energy efficiency activities, the analysis uses a different approach that combines data on historic changes in employment and expenditures in the energy efficiency sector with projected changes in expenditures in the sector arising from state implementation of the emission guidelines. We project labor impacts for the rate-based and mass-based illustrative plan approach. Each scenario draws upon the building blocks described above, as well as assumes that demand-side energy efficiency plays an important role in compliance strategies
6.5.1 Projected Changes in Employment in Electricity Generation and Fossil Fuel Extraction
The analytical approach used in this analysis is a bottom-up engineering method combining EPA’s cost analysis of the emission guidelines with data on labor productivity, engineering estimates of the amount and types of labor needed to manufacture, construct, and operate different types of generating units, and prevailing wage rates for skilled and general***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-20 labor categories. This approach is different from the economy-wide types of economic analyses discussed in section 6.2. Lacking robust peer-reviewed methods to estimate economy-wide impacts, the engineering-based analysis focuse s on the supply-side direct impact on labor demand in industries closely involved with electricity generation. The engineering approach projects labor changes measured as the change in each analysis year in job-years 155 employed in the utility power sector and directly related sectors (e.g., equipment manufacturing, fuel supply, EGU construction and generating efficiency services). For example, this approach projects the amounts and types of labor required to implement improvements in generating efficiency. It then uses the EPA’s estimated effect of efficiency improvements on fuel demand to project reductions in the amount of labor required to produce coal and gas. Some of these employment impacts are one-time impacts, such as changes associated with building new NGCC or renewable generating units. Other labor impacts will continue, such as changes associated with operating and maintaining generating units that will be retired, and labor providing the fuel supply to the retired
units.
This analysis relies on projections and the cost analysis from IPM, which uses industryspecific data and assumptions to estimate costs and energy impacts of the final guidelines (see Chapter 3). The EPA uses IPM to predict coal generating capacity that is likely to undertake improvements in heat rate efficiency (HRI). 156 IPM also predicts the guidelines’ impacts on fuel use, retirement of existing units, and construction of new ones.
The methods EPA uses to estimate the labor impacts are based on the analytical methods used in many previous EPA regulatory analyses. The most relevant prior analysis was the Regulatory Impact Analysis for the Mercury and Air Toxics Standards (MATS). While the methods used in this analysis to estimate the recurring labor impacts (e.g., labor associated with operating and maintaining generating units, as well as labor needed to mine coal and natural gas) are the same as we used in MATS (with updated data where available), the methods used to

155 Job-years are not individual jobs, but rather the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year.

156 HRI could include a range of activities in the power plant to lower the heat rate required to generate a net electrical output. Assuming all other things being equal, a lower heat rate is more efficient because more electricity is generated from each ton of coal.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-21 estimate the labor associated with installing new capacity and implementing heat rate improvements were developed for the purpose of the Clean Power Plan RIA.
The bottom-up engineering-based labor analysis in the MATS RIA primarily was concerned with the labor needs of retrofitting po llution control equipment. A central feature of the supply-side labor analysis for this RIA, however, involves the quantity and timing of the labor needs of building new renewable and NGCC units and retiring coal units. The estimated response of the utility power sector involves changes in the amount and timing of retirements of existing coal and oil/gas units, as well as changes in the amount and timing of building new NGCC units and renewable generating capacity. In addition to the changes in retirements and construction of new units, there are also estimated changes in the utilization of existing generating units, and changes in the gas and coal supply sectors.
For example, as presented in Chapter 3, the IPM analysis of the rate-based control scenario finds that in 2025 (part way through the 2022-2029 interim plan performance period) less total generating capacity is needed than in the base case. The estimated reduction in capacity by 2025 with the rate-based scenario is 49.4 GW less than the estimated base case capacity (a 4.8 percent net capacity reduction). This 49.4 GW net reduction includes more retirements of coal units (an additional 22.9 GW of coal-fired capacity retired) and oil/gas steam units (an additional 9.3 GW of oil/gas retirement) compared to the base case, as well as a reduction in the amount of new natural gas units needed to be built by 2025 (a decrease of 10.9 GW in new capacity from the amount forecast in the base case) and non-hydro renewables (1.7 GW less renewable capacity built). Fossil fuel utilization will also be impacted. The rate-based control scenario finds that in 2025 less coal will be used (102.9 million tons less, a 14.1 percent decrease from the base case) and less gas will also be used (0.1 TCF less, a 1.0 percent decrease).
An important aspect of the labor analysis is that building new units, and all the associated construction-related labor, occurs before the new units become operational. While the financial costs of building the new units are amortized and recouped over the book life of the new equipment, the labor involved with manufacturing equipment and constructing the new units occurs, and is actually paid for, in a concentrat ed amount of time before the new capacity begins***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-22 to generate electricity. IPM assumes 157 that new NGCC units take 3 years to build, and both natural gas combustion turbines and wind-powered renewables take 2 years.
Avoiding some of the need for new capacity due to both demand and supply efficiency improvements results in both a significant net cost savings to consumers and the power sector, as
well as reduced emissions of both CO 2 and precursor pollutants from fossil fuel-fired generation. The avoided new capacity, however, also has significant labor impacts. A portion of the labor that would have been used to build the new capacity in the base case will not be employed in the power generation sector with the implementation of the GHG guidelines, though it likely will be employed in construction elsewhere. Similarly, less labor involved with operating and providing fuel for new units will be needed with the GHG guidelines than in the base case.
A critical component of the overall labor impacts of implementing the GHG guidelines is the impact of the labor associated with the demand-side energy efficiency activities. Thedemand-side labor impacts are presented in section 6.5.2. All of the labor impacts of the demandside energy efficiency activities are increases in labor needs, which more than offset the loss ofsupply-side jobs associated with the decreasing demand for electricity arising from the demandside programs. The IPM labor expenditure projections are distributed across different labor categories (e.g., general construction labor, boilermakers and engineering) using data from engineering analyses of labor’s overall share of total expenditures, and apportionment of total labor cost to various labor categories. Hourly labor expenditures (including wages, fringe benefits, and employer-paid costs including taxes, insurance and administrative costs) for each category are used to estimate the labor quantity (measured in full-time job-years) consistent with the compliance scenario projections. Projected labor impacts arising from changes in fuel demand are primarily derived from labor productivity data for coal mining (tons mined per employee hour) and natural gas extraction (MMBtu produced/job-year). Tables 6.4 and 6.5 present projected changes relative to the baseline of four labor categories:

1. manufacturing, engineering and construction for building, designing and implementing heat rate improvements;
2. manufacturing and construction for new generating capacity;

157 Table 4.13, IPM 5.13 Documentation.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-23 3. operating and maintenance for existing generating capacity; and
4. extraction of coal and natural gas fuel.
All of the employment estimates presented in Tables 6-4 and 6-5 are estimates occurring in a single year. For the construction-related (one-time) labor impacts, including the installation of HRI, Tables 6-4 and 6-5 present the average annual impact occurring in each year of three different intervals. The three intervals are from 2018 through 2020 (a three year interval), during which there are modest labor impacts from the early changes in the power utility sectors operations, from 2021 through 2025 (five years), and 2026 through 2029 (5 years). The construction-related labor analysis are based on the IPM estimates of the net change in capital investment that occurs during each multi-year interval to fund building new units completed during that interval. The new build labor analysis uses the net change in capital investment to estimate the amount and type of labor needed during the interval to build the new capacity. The analysis assumes that the new built labor within each interval is evenly distributed throughout the interval. Tables 6-4 and 6-5 reflect this assumption by presenting the average labor utilization per year during each of the three intervals.
The HRI-related labor impacts are estimated based on the assumed capital cost of $100/kw (see section 3.7.3). The labor estimates for operating and maintaining generating units annually are based on IPMs estimates of Fixed Operating and Maintenance (FOM) Costs. IPM estimates FOM for each year individually, so the net changes in O&M-related labor estimates in Tables 6-4 and 6-5 are single year estimates for 2020, 2025 and 2030. These single year O&Mlabor estimates are not merely the average annual averages labor needs throughout each multiyear interval. There are O&M labor changes occurring in the all years throughout the entireperiod 2020-2030, but the labor impacts in each labor category change each year. The fuelrelated labor estimates are also single-year estimates, and not multi-year averages. The labor analysis of the impacts on the fuel extraction industries uses IPM’s estimates of the net changes in the amount of coal and natural gas in 2020, 2025 and 2030, which are inherently estimates of the fuel usage in a single year. As with the O&M labor impacts, the fuels-related labor impacts occur in every year throughout 2020-2030, and the labor impact changes every year.
It should be noted that the supply-side labor impact estimates in Tables 6-4 and 6-5 reflect the supply-side changes that will potentially occur with each illustrative plan scenario.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-24 These labor impacts include not only the impacts of Building Blocks 1 through 3, but also the changes in total generation needed that result from the demand-side energy efficiency activities expected to be an important component of state compliance strategies. The additional labor impact estimates from demand-side energy efficiency activities are presented below in section
6.5.2.
More details on methodology, assumptions, and data sources used to estimate the supplyside labor impacts discussed in this section can be found in Appendix 6A.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-25 Table 6-4. Engineering-Based a Changes in Labor Utilization, Rate-based Scenario (Number of Job-Years b of Employment in a Single Year) Construction-related (One-time) Changes* 2018-2020 2021-2025 2026-2030 Heat Rate Improvement: Total 0 15,400 2,200 Boilermakers and General Construction 0 11,000 1,600 Engineering and Management 0 2,800 400 Equipment-related 0 1,200 200 Material-related 0 400 0 New Capacity Construction: Total 500 -15,600 400 Renewables 700 -5,000 23,300 Natural Gas -200 -10,600 -22,900

Recurring Changes** 2020 2025 2030 Operation and Maintenance: Total -9,100 -17,000 -19,600 Changes in Renewables 600 -100 1,100 Changes in Gas 300 -1,100 -3,700 Retired Coal -8,000 -13,300 -14,700 Retired Oil and Gas -2,000 -2,500 -2,300 Fuel Extraction: Total 100 -7,800 -13,900 Coal -1,300 -7,300 -13,300 Natural Gas 1,400 -500 -600 Supply-Side Employment Impacts - Quantified -8,500 -25,000 -30,900

a Job-year estimates are derived from IPM investment and O&M cost estimates, as well as IPM fuel use estimates (tons coals or MMBtu gas).

b All job-year estimates on this are full-time equivalent (FTE) jobs. Job estimates in the demand-side energy efficiency section (below) include both full-time and part-time jobs. *Construction-related job-year changes are one-time impacts, occurring during each year of the multi-year period during which construction and HRI installation activities occur. Construction-related figures in table are the average annual job-years in each year between the years in the range. Negative construction job-year estimates occur whenadditional generating capacity must be built in the base case, but is avoided in the final rule due to HRI or demandside energy efficiency programs. **Recurring Changes are job-years associated with annual recurring jobs including operating and maintenance activities and fuel extraction jobs. Newly built generating capacity creates a recurring stream of positive job-years, while retiring generating capacity, as well as avoided new built capacity, create a stream of negative job-years.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-26 Table 6-5. Engineering-Based a Changes in Labor Utilization, Mass-Based Illustrative Plan Approach 

## ( Number of Job-Years of Employment in a Single Year) Construction-related (One-time) Changes* 2018-2020 2021-2025 2026-2030 Heat Rate Improvement: Total 0 14,900 800 Boilermakers and General Construction 0 10,700 600 Engineering and Management 0 2,700 100 Equipment-related 0 1,200 100 Material-related 0 300 0 New Capacity Construction: Total -1,700 -11,100 4,700 Renewables -1,400 -3,500 21,300 Natural Gas -300 -7,600 -16,600

Recurring Changes** 2020 2025 2030 Operation and Maintenance: Total -11,700 -21,200 -25,000 Changes in Renewables -900 -1,000 700 Changes in Gas 500 -400 -2,300 Retired Coal -9,100 -17,000 -20,800 Retired Oil and Gas -2,200 -2,800 -2,600 Fuel Extraction: Total 200 -8,600 -14,300 Coal -1,800 -8,700 -12,200 Natural Gas 2,000 100 -2,100 Supply-Side Employment Impacts - Quantified -13,100 -26,000 -33,700

a Job-year estimates are derived from IPM investment and O&M cost estimates, as well as IPM fuel use estimates (tons coals or MMBtu gas).

b All job-year estimates on this are full-time equivalent (FTE) jobs. Job estimates in the demand-side energy efficiency section (below) include both full-time and part-time jobs. *Construction-related job-year changes are one-time impacts, occurring during each year of the multi-year period during which construction and HRI installation activities occur. Construction-related figures in table are the average annual job-years in each year between the years in the range. Negative construction job-year estimates occur whenadditional generating capacity must be built in the base case, but is avoided in the final rule due to HRI or demandside energy efficiency programs. **Recurring Changes are job-years associated with annual recurring jobs including operating and maintenance activities and fuel extraction jobs. Newly built generating capacity creates a recurring stream of positive job-years, while retiring generating capacity, as well as avoided new built capacity, create a stream of negative job-years.

6.5.2 Projected Changes in Employment in Demand-Side Energy Efficiency Activities
While not a component of the best system of emission reduction (BSER), EPA anticipates that this rule may stimulate investment in clean energy technologies and services, resulting in considerable increases in energy efficiency. We expect these increases in energy efficiency, specifically, to support a significant number of jobs in related industries. For more***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-27 information on EPA’s illustrative investment levels in demand-side energy efficiency activities, assumed to be adopted in response to the CPP, please see Section 3.6 “Demand-Side Energy Efficiency” in Chapter 3 of this RIA.
In this section, we project employment impacts in demand-side energy efficiency activities arising from these guidelines using illustrative calculations. The approach uses information from power sector modeling and projected impacts on energy efficiency investments analyzed (see Chapter 3), and U.S. government data on employment and expenditures in energy efficiency. 158 This approach is limited by the fact that we do not know which options states will choose for demand-side energy efficiency activities and by uncertainties associated with methods. These illustrative employment projections are gross; thus they do not include impacts of any shift in resources from other sectors. Nor does this analysis attempt to quantify employment impacts arising from changes in consumer expenditures away from energy towards other sectors. In other words, these projections are not attempts at estimating net national jobcreation. Also, this approach attempts to calculate the number of employees (full-time and parttime) rather than job-years as discussed in section 6.5.1.
Investments in demand-side energy efficiency reduce energy required for a given activity by encouraging more efficient technologies (e.g., ENERGY STAR appliances), implementing energy improvements for existing systems (e.g., weatherization of older homes), or encouraging changes in behavior (e.g., reducing air conditioning during periods of high electricity demand).
Employment impacts of demand-side energy efficiency programs have not been extensively studied in the peer-reviewed, publishe d economics literature. Instead, most research has focused on consumer response to and amount of energy savings achieved by these programs (e.g., Allcott (2011a, 2011b), Arimura et al. (2012)). Results suggest that demand-side energy efficiency programs reduce energy use and generate small increases in consumer welfare. These

158 Investments in demand-side energy efficiency reduce energy required for a given activity by encouraging more efficient technologies (e.g., ENERGY STAR appliances), implementing energy improvements for existing systems (e.g., weatherization of older homes), or encouraging changes in behavior (e.g., reducing air conditioning during periods of high electricity demand).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-28 policy impacts are due to low investment in energy efficiency as described in “energy paradox” literature (Gillingham, Newell, and Palmer (2009), Gillingham and Palmer (2014)). 159
Two recent articles discuss employment effects of demand-side energy efficiency programs. Aldy (2013) describes clean energy investments funded by the American Recovery and Reinvestment Act of 2009, which “included more than $90 billion for strategic clean energy investments intended to promote job creation and the deployment of low-carbon technologies” (p. 137), with nearly $20 billion for energy efficiency investments. The Council of Economic Advisors (CEA) (2011) estimated higher economic activity and employment than would have otherwise occurred without the American Recovery and Reinvestment Act. Using CEA’s methods to quantify job creation for the Recovery Act, Aldy uses the share of stimulus funds for clean energy investments to estimate job-years supported by the Recovery Act. The largest sources of job creation in clean energy are those that received the largest shares of stimulus funds: renewable energy, energy efficiency, and transit. Aldy’s estimates, while informative, are not directly applicable for employment analysis in this rulemaking as there are important differences in expected employment impacts from a historically large fiscal stimulus specifically targeting job creation during a period of exceptionally high unemployment versus environmental regulations taking effect several years from now.
Yi (2013) analyzes clean energy policies and employment for U.S. metropolitan areas in 2006, prior to the Recovery Act, to evaluate impacts on clean energy job growth. Implementing an additional state clean energy policy tool (renewable energy policies, GHG emissions policies, and energy efficiency polices such as energy efficiency resource standards, appliance or equipment energy efficiency standards, tax incentives, and public building energy efficiency standards) is associated with 1 percent more clean energy employment within that MSA. These estimates are not transferable to this rulemaking since states are likely to change intensity as well as number of clean energy programs.
Lacking a peer-reviewed methodology, we use the following approach to illustrate possible effects on labor demand in the energy efficiency sector due to demand-side management strategies. We use U.S. government data and divide energy efficiency employment by

159 For more information on this efficiency paradox see Chapter 3.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-29 expenditures on energy efficiency activities to calculate an estimate of jobs per million dollars. We then multiply this fraction by projected expenditure in energy efficiency activities undertaken in response to these final guidelines.
Data used for calculating employment in energy efficiency sectors comes from the “energy efficiency” industry category of the BLS Green Goods and Services survey. 160 Using BLS Green Goods and Services information on 132 energy efficiency industries, as identified by BLS, 161 we adjusted the list to remove ten industries expected to not be directly affected by the rule, e.g. transportation. 162 Next we used this detailed list of 122 industries to extract 2011 BLS data on green employment. 163 Employment data at the most-detailed industry level (6-digitNAICS) is available only for a portion of these 122 industries. Therefore we use both the mostdetailed industry level (6-digit NAICS) and also a more aggregate level (4-digit NAICS) to estimate a range of energy efficiency employment with the 2011 BLS Green Goods and Services
data. 164
BLS does not collect data on energy efficiency expenditures directly, however. Instead, BLS collects data on the share of revenues associated with green goods and services, at the
establishment level. 165 We multiply data on total revenues by NAICS by the share of green revenues reported by BLS to obtain a measure of green revenues by industry. The only U.S.

160 For more details on this survey, see section 6.5.3.1.

161 See detailed listing available here: http://www.bls.gov/ggs/naics_2012.xlsx. Category 2 is “Energy Efficiency”. More information is available here: http://www.bls.gov/ggs/ggsfaq.htm#3.

162 The ten industries we removed from the list were: NAICS 483114 Coastal and Great Lakes passenger transport, 483212 Inland water passenger transportation, 485111 Mixed mode transit systems, 485112 Commuter rail systems, 485113 Bus and other motor vehicle transit systems, 485119 Other urban transit systems, 485210 Interurban and rural bus transportation, 485410 School and employee bus transportation, 485999 All other ground passenger transportation, and 926120 Transportation program administration.

163 BLS Green Goods and Services data is available here: http://download.bls.gov/pub/time.series/gg/gg.data.1.AllData. A BLS technical note indicates that the scope of the GGS survey changed between 2010 and 2011 (http://www.bls.gov/news.release/ggqcew.tn.htm). Some industries and establishments that were not previously included in the 2010 survey were included in 2011. Rather than using the change from 2010 to 2011, here we use only the 2011 data.

164 At the 6-digit NAICS level, 27 of the 122 energy efficiency industries listed have employment data available. At the 4-digit NAICS level, 46 of the 122 energy efficiency industries listed have employment data available.

165 More information is available here: http://www.bls.gov/ggs/ggsfaq.htm#5.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-30 Government data source containing this revenue information for all NAICS sectors is the U.S. Economic Census. This Census is conducted at 5-year intervals (the latest available year is 2012), however, making it unsuitable for directly pairing with 2011 data from BLS. Instead, we use U.S. Census Bureau data on total value of shipments by industry, for 2011, from the Annual Survey of Manufacturers. 166 The disadvantage of this data source is that the manufacturing sector makes up only 50 percent of the 132 NAICS codes belonging to the energy efficiency sector as defined by the BLS Green Goods and Services surveys, with the remainder in the construction or service sectors. Thus, this analysis implicitly projects that the same number of jobs per dollar are supported in construction and service sectors as in manufacturing. Also, the Annual Survey of Manufacturers contains data for some, but not all, detailed industry codes, e.g. 4-digit and 6-digit NAICS. We pair our BLS GGS data by industry, either by 4-digit or 6-digit NAICS, with data from the Annual Survey of Manufacturers. At the more detailed, 6-digit level, 17 industries have data available for both employment and total value of shipments. 167 At the less detailed, 4-digit level, 15 industries have data available for both employment and total value of shipments. 168 Using this approach we obtain estimates of 2.07 demand-side energy efficiency jobs per million 2011 dollars of expenditure, using the less-detailed industry level (4-digit NAICS), and 3.29demand-side energy efficiency jobs per million 2011 dollars of expenditure, using the moredetailed industry level (6-digit NAICS).
Having calculated estimates of jobs per million dollars of energy efficiency expenditure, we use EPA’s illustrative energy efficiency investment levels of the first-year costs expected for states to attain a target of 1 percent growth in demand-side efficiency improvements (see Chapter 3.6 of this RIA for more information). If some stat es were to target rates of energy efficiency savings greater than one percent, they may see increased energy efficiency employment impacts, relative to the one percent growth assumed in this analysis. The first year cost of saved energy

166 Census data on total value of shipments, by industry, for 2011 is available here: http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ASM_2011_31GS101&prodType =table.

167 The 17 industries are: NAICS 321219, 321991, 321992, 327993, 327999, 332913, 332996, 333414, 333415, 334513, 334514, 334515, 335110, 335222, 335311, 335312, and 335999.

168 The 15 industries are: NAICS 314100, 321100, 324100, 326100, 327100, 327300, 327400, 332100, 333300, 334200, 334300, 334400, 335200, 336300, and 337900.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-31 accounts for both the costs to the utilities that are funding the demand-side energy efficiency programs (known as the program costs), and the additional cost to the end-user purchasing a more energy efficient technology (known as the participant costs). 169 Total costs were divided evenly, 50 percent each, between program costs and participant costs. First-year costs are not annualized; they are the projected expenditures on demand-side energy efficiency activities in that year. As shown in the Demand-Side Energy Efficiency Technical Support Document 170 , first-year costs for a 1 percent growth target in energy efficiency activities are projected to be $18.1 billion (2011 $) in 2020. Multiplying this dollar expenditure by the jobs per dollar estimates results in projected employment impacts for demand-side energy efficiency activities ranging from 37,570 to 59,700 jobs in 2020 depending on the jobs per million dollars estimate used: low or high. Employment impacts for demand-side energy efficiency activities range from 52,590 to 83,590 jobs in 2025, and from 52,440 to 83,360 jobs in 2030. These estimates are shown in Table 6-6 below.

Table 6-6. Estimated Demand-Side Energy Ef ficiency Employment Impacts: Target 1 percent Growth in Energy Efficiency

Source Factor Employment impact (jobs)*

2020 2025 2030 EPA low estimate, using BLS and Census data, and power sector modeling projections 2.07 37,570 52,590 52,440 EPA high estimate, using BLS and Census data, and power sector modeling projections 3.29 59,700 83,590 83,360
*Since these figures represent number of employees (full- or part-time) they should not be added to the full-time equivalent job-years reported in Table 6-4 and Table 6-5. Energy efficiency costs are from 1 percent growth target projections for the continental U.S. (excludes Alaska, Hawaii, and U.S. Territories): $18.1 billion (2011 $) in 2020. First-year energy efficiency costs are the same for rate-based and mass-based scenarios. See chapter 3 of this RIA and Demand-Side Energy Efficiency TSD for more information.

Although this approach has the advantage of using a range of estimates, derived from U.S. government data, on energy efficiency employment per milllion dollars in industry

169 See Section 3.6.2, “Demand-Side Energy Efficiency Total Costs”, in this RIA, for more information.

170 U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency. Commented [A31]: Would be helpful to clarify that this presumably refers to the expendit ures needed to ramp up towards 1%, not what would be required to jump immediately to 1%.
Consider also clarifying how these estimates relate to reference case DSM expenditures (ie are they above and beyond the roughly $6B currently spent on power sector DSM) and the early action mechanism.
Consider also noting here or elsewhere that there is uncertainty about thte mix of solutiosn that states will choose to use in 2020 or during the compiliance period. There will, however, be major job creation one way or another. For example, a rough estimate shows about 600 job-years per TWH of new renewables (24,400 job years/829 TWh of RE generation under rate-based) vs. a max of 255job-years per TWH of EE (83360 job years/327TWH of EE) .***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-32 shipments, this approach is limited by its focus on manufacturing sectors and direction of bias (overestimation or underestimation) cannot be determined at this time.
Our estimates of 2.07 to 3.29 demand-side energy efficiency jobs per million dollars of 2011 expenditure fit with other estimates in the literature, focused on government data sources, and are on the smaller end of the range. 171 Figure 6.4 shows the range of estimates, including EPA low (2.07) and EPA high (3.29). The Department of Commerce report estimates overall employment per million dollar values, ranging from 4.65 to 4.85 (Department of Commerce 2010a). 172 The report also contains some case studies, and for those focused on energy efficiency, the Department of Commerce estimates 6.21 jobs per million dollars in green buildings activities and 7.53 jobs per million dollars for energy efficiency appliances. 173 Lawrence Berkeley National Lab (Goldman et al. 2010) reports a wide range of estimates: from 2.5 jobs per million dollars for energy service companies (ESCOs), to 8.9 jobs per million dollars for low income
weatherization activities. The Pacific No rthwest National Labs report (Anderson et al. 2014), in surveying the literature, estimates 8 jobs per million dollars of consumer electricity bill savings and 11 jobs per million dollars of initial energy efficiency investments.

171 See Section 6.5.3 for more information on sources in the literature.

172 Calculated values using data on employment and shipments reported in Department of Commerce (2010a), Table 2, p. 12.

173 Calculated values using data on employment and shipments reported in Department of Commerce (2010a), Appendix 2, Table 2B, p. 4. http://www.esa.doc.gov/sites/default/files/appendix2_0.pdf***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-33 Figure 6.4. Demand-Side Energy Efficiency Employment: Jobs per One Million Dollars (2011$)
There is more uncertainty involved in this approach than the standard bottom-up engineering analysis used to estimate electricity generation and fuel production employment impacts of this rulemaking. For those, the EPA was able to identify a limited set of activities(e.g., constructing a new NGCC power plant), and study associated labor requirements. Demandside energy efficiency improvements, in contrast, encompass a wide array of activities (subsidies for efficient appliances, “smart meters,” etc.). In addition, there is considerable uncertainty regarding which activities a state will choose. Thus, the validity of the jobs per dollar approach used here relies on the assumption that states will use a mix of activities similar to the 2011 composition of energy efficiency sectors identified by BLS.
In addition, the EPA does not have access to bottom-up information regarding labor requirements for these activities. Use of a constant job per dollar fraction is at best a crude approximation of these labor requirements. The EPA has identified several other limitations of this approach, outlined below. 11 8.9 8 7.53 6.5 6.21 6.2 4.85 4.65 3.29 2.5 2.07

0 5 10 Jobs per Million $ PNNL initial investments LBNL low income weatherization PNNL bill savings DOC EE appliances LBNL state and local gov't EER DOC green buildings LBNL ratepayer funded EE DOC overall high DOC overall low EPA high LBNL ESCOs EPA low

Sources: EPA calculation, LBNL (2010), PNNL (2014), DOC (2010) 

### Demand-Side EE Employment

Commented [A32]: See preceding comment. May be worth briefly illustrating job creation associated with another possible case, e.g. RE.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-34 Job Reclassification. Job numbers in this chapter represent gross changes in the affected sector. As such they may over-estimate impacts to the extent that jobs created displace workers employed elsewhere in the economy. For demand-s ide efficiency activities this potential overstatement is may be higher than in other sectors. If states encourage consumers to purchase ENERGY STAR appliances, for example, currently employed workers in factories and retail outlets may simply be given a different task. This approach, however, would count these workers as jobs created.
Imports. The job per dollar fraction used in the employment projection is calculated based on jobs per dollar of revenue for domestic firms only. To the extent that spending on demand-side energy efficiency activities goes toward the purchase of imported goods this projection will overstate the U.S. employment impact of those expenditures.
Fixed Coefficient. Implicit in this approach is the assumption that employment impacts can be projected decades into the future on the basis of a single calculation from 2011 data. The labor intensity of demand-side energy efficiency will likely change with technological innovation in the sector. In addition, even absent technological change, labor intensity of expenditures will likely change over time as states alter their portfolio of efficiency activities (e.g., by moving to higher cost activities after exhausting opportunities for low cost efficiency gains).
Non-additional Activities. Here we assume that all activities financed by demand-side energy efficiency expenditures are additional to what would have been undertaken in the absence of these programs. If utilities finance some actions customers would have undertaken in the absence of these programs (e.g., if a customer receives a rebate for an energy efficient appliance that would have been purchased without the rebate), these numbers would overestimate employment impacts of the proposed guidelines.

6.6 Conclusion This chapter presents qualitative and quantitative discussions of potential employment impacts of the final guidelines for electricity generation, fuel production, and demand-side energy efficiency sectors. The qualitative discussion identifies challenges associated with estimating net employment effects and discusses anticipated impacts related to the rule. It includes an in-depth discussion of economic theory underlying analysis of employment impacts. The employment impacts for regulated firms can be decomposed into output and substitution***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-35 effects, both of which may be positive or negative. Consequently, economic theory alone cannot predict the direction or magnitude of a regulation’s employment impact. It is possible to combine theory with empirical studies specific to the regulated firms and other relevant sectors if data and methods of sufficient detail and quality are available. Finally, economic theory suggests that environmental regulations may have positive impacts on labor supply and productivity as well.
We examine the peer-reviewed economics literature analyzing various aspects of labor demand, relying on the above theoretical framework. Determining the direction of employment effects in regulated industries is challenging because of the complexity of the output and substitution effects. Complying with a new or more stringent regulation may require additional inputs, including labor, and may alter the relative proportions of labor and capital used by regulated firms (and firms in other relevant industries) in their production processes. The available literature illustrates some of the difficulties for empirical estimation: for example, there is a paucity of publicly data on plant-level employment, thus most studies must rely on confidential plant-level employment data from th e U.S. Census Bureau, typically combined with pollution abatement expenditure data, that are too dated to be reliably informative, or other measures of the stringency of regulation. In addition, the most commonly used empirical methods can only estimate the gross effects of regulation on employment (i.e. the impact of that more stringent regulation has on employment relative to less stringent or no regulation), not the net effects. Empirical analysis at the industr y level requires estimates of product demand elasticity; production factor substitutability; supply elasticity of production factors; and the share of total costs contributed by wages, by industry, and perhaps even by facility Econometric studies of environmental rules converge on the finding that employment effects, whether positive or negative, have been small in regulated sectors.
The illustrative quantitative analysis in this chapter projects a subset of potential employment impacts in the electricity generation, fuel production, and demand-side energy efficiency sectors. States have the responsibility and flexibility to implement policies and practices for compliance with Final EGU GHG Existing Source Guidelines. As such, given the wide range of approaches that may be used, quantifying the associated employment impacts is difficult. EPA’s employment analysis includes projected employment impacts associated withthese guidelines for the electric power industry, coal and natural gas production, and demandside energy efficiency activities. These projections are derived, in part, from a detailed model of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-36 the electricity production sector used for this regulatory analysis, and U.S. government data on employment and labor productivity. In the electricity, coal, and natural gas sectors, the EPA estimates that these guidelines could have an employment impact of roughly -8,500 job-years in 2020, -25,000 job-years in 2025, and -30,900 job-years in 2030 for the rate-based scenario. For the mass-based scenario, the EPA estimates that these guidelines could have an employment impact of roughly -13,100 job-years in 2020, -26,000 job-years in 2025, and -30,900 job-years in 2030 (see Tables 6-4 and 6-5).
Employment impacts from demand-side energy efficiency activities are based on historic data on jobs supported per million dollars of expenditure on energy efficiency. Demand-side energy efficiency employment impacts would approximately range from 37,570 to 59,700 jobs in2020, 52,590 to 83,590 jobs in 2025, and from 52,440 to 83,360 jobs in 2030 for both the ratebased and mass-based approaches and a 1 percent growth target for energy efficiency expenditures (see Table 6-6).
The IPM-generated job-year numbers for the electricity, coal and natural gas sectors should not be added to the demand-side efficiency job impacts, since the former are reported in full-time equivalent job-years, whereas the latter do not distinguish between full- and part-time employment. Finally, note again that this is an illustrative analysis, and CAA section 111(d) allows each state to determine the appropriate combination of, and the extent of its reliance on, measures for its state plan, by way of meeting its state-specific goal. Given the flexibilities afforded states in complying with the emission guidelines, the impacts reported in this chapter are illustrative of actions states may take.

6.7 References Aldy, J.E. 2013. “A Preliminary Assessment of the American Recovery and Reinvestment Act’s Clean Energy Package.” Review of Environmental Economics and Policy . 7(1):136-155. Allcott, H. 2011a. “Social Norms and Energy Conservation.” Journal of Public Economics

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Allcott, H. 2011b. “ Rethinking Real-Time Electricity Pricing,” Resource and Energy Economics

. 33:820–842. Almon, C. 1991. “The Inforum Approach to Interindustry Modeling,” Economic Systems Research 3(1):1-8. Commented [A33]: Should this be -33,700?***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-37 Anderson, D., O. Livingston, D. Belzer, D., and M. Scott. 2014. “Assessing National Employment Impacts of Investment in Residential and Commercial Sector Energy Efficiency: Review and Example Analysis” [Technical Report]. Pacific Northwest National Laboratory .Available at < http://www.pnnl.gov/main/publications/external/technical_reports/PNNL23402.pdf >. Accessed June 4, 2015. Anger, N. and U. Oberndorfer. 2008. “Firm Performance and Employment in the EU Emissions Trading Scheme: An Empirical Assessment for Germany.” Energy Policy . (36):12–22. Arimura, T. H.; S. Li; R. G. Newell, and K. Palmer. 2012 “Cost-Effectiveness of Electricity Energy Efficiency Programs.” Energy Journal . 33(2):63-99. Arrow, K. J.; M. L. Cropper; G. C. Eads; R. W. Hahn; L. B. Lave; R. G. Noll; Paul R. Portney; M. Russell; R. Schmalensee; V. K. Smith and R. N. Stavins. 1996. “Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A Statement of Principles.” American Enterprise Institute, the Annapolis Center, and Resources for the Future; AEI Press. Available at <http://www.hks.harvard.edu/fs/rstavins/Papers/Benefit Cost Analysis in Environmental.AEI.1996.pdf>. Accessed June 5, 2015. Berman, E. and L. T. M. Bui. 2001. “Environm ental Regulation and Labor Demand: Evidence from the South Coast Air Basin.” Journal of Public Economics. 79(2): 265-295. Bezdek, R. H.; R. M. Wendling, and P. Diperna. 2008. “Environmental Protection, the Economy, and Jobs: National and Regional Analyses.” Journal of Environmental Management . 86(1): 63-79. Brown, R.S. and L. R. Christensen. 1981. “Estimating the Elasticities of Substitution in a Model of Partial Static Equilibrium: An Application to U.S. Agriculture 1947 to 1974,” in: Berndt, E.R.; B. C. Field. (Eds.), Modeling and Measuring Natural Resource Substitution. Chan, H. S., S. Li, and F. Zhang. (2013) “Firm Competitiveness and the European Union Emissions Trading Scheme.” Energy Policy . (63):1056-1064. Commins, N., S. Lyons, M. Schiffbauer, and R. S.J. Tol. 2011. “Climate Policy and Corporate Behaviour.” The Energy Journal . (32):51-68.

Council of Economic Advisers. 2011. “The Econo mic Impact of the American Recovery and Reinvestment Act of 2009.” Sixth quarterly report. Ehrenberg, R. G. and R. S. Smith. 2000. Modern Labor Economics: Theory and Public Policy. Addison Wesley Longman, Inc., Chapter 4.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-38 Executive Order 13563 (January 21, 2011). “Improving Regulation and Regulatory Review. Section 1. General Principles of Regulation.” Federal Register 76 (14): 3821-3823. Ferris, A. E., R. J. Shadbegian, A. Wolverton. 2014. “The Effect of Environmental Regulation on Power Sector Employment: Phase I of the Title IV SO 2 Trading Program.” Journal of the Association of Environmental and Resource Economists. 1(4): 521-553. Gillingham, K.; R. Newell and Karen Palmer. 2009. “Energy Efficiency Economics and Policy.”

Annual Review of Resource Economics . 1(1): 597-619. Gillingham, K. and K. Palmer. 2014. “Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence.” Review of Environmental Economics and Policy. 8(1):18-38. Global Insight. 2008. U.S. Metro Economies: Current and Potential Green Jobs in the U.S. Economy. U.S. Conference of Mayors. Available at: <http://www.usmayors.org/pressreleases/uploads/greenjobsreport.pdf>. Goldman, C.; M. C. Fuller; E. Stuart; J. S. Peters; M. McRae and N. Albers, et al. 2010. Energy Efficiency Services Sector: Workforce Size and Expectations for Growth. Lawrence Berkeley National Laboratory, LBNL-3987E

. Graff Zivin J. and M. Neidell. 2012. “The Impact of Pollution on Worker Productivity.”

American Economic Review . 102(7):3652-73. Graff Zivin, J. and M. Neidell. 2013. “Environment, Health, and Human Capital.” Journal of Economic Literature . 51:(3):689-730. Gray, W., R. J. Shadbegian, C. Wang and M. Meral. 2014 “Do EPA Regulations Affect Labor Demand? Evidence from the Pulp and Paper Industry”, Journal of Environmental Economics and Management. 68: 188-202. Greenstone, M. 2002. “The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures.” Journal of Political Economy. 110(6): 1175-1219. Hamermesh, D. S. 1993. Labor Demand. Princeton, NJ: Princeton University Press. Chapter 2. Kahn, M.E. and E. T. Mansur. 2013. “Do Loca l Energy Prices and Regulation Affect the Geographic Concentration of Employment?” Journal of Public Economics . 101:105–114. Layard, P.R.G. and A. A. Walters. 1978. Microeconomic Theory . McGraw-Hill, Inc. Chapter 9.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-39 List, J. A.; D. L. Millimet; P. G. Fredriksson and W. W. McHone. 2003. “Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator.” The Review of Economics and Statistics. 85 (4): 944-952. Marshall, A. 1920. Principles of Economics . Library of Economics and Liberty. Available at: <http://www.econlib.org/library/Marshall/marP.html> . Mccarthy, M.B. 1991. “Lift: Inforum's Model of the U.S. Economy,” Economic Systems Research 3(1):15-36. Meade, D.S. 2009. “An Analysis of the Economic Impacts of the 2007 Energy Independence and Security Act”, in Energy Policy and International Competitiveness , M. Grassini and R. Bardazzi, eds. Firenze University Press, pgs. 3-28. Muro, M.; J. Rothwell; D. Saha & Partnership, w. B. 2011. Sizing the Clean Economy: A National and Regional Green Jobs Assessment. Brookings Institution, Metropolitan Policy Program. Available at <http://www.brookings.edu/~/media/series/resources/0713_clean_economy.pdf>. Accessed June 4, 2015. Ostro, B.D. 1987. “Air Pollution and Morbidity Revisited: A Specification Test.” Journal of Environmental Economics Management . 14:87-98. Schmalansee, R. and R. Stavins (2011). “A Guide to Economic and Policy Analysis for the Transport Rule.” White Paper. Boston, MA. Exelon Corp. Smith, K. 2012. “Reflections: In Search of Crosswalks between Macroeconomics and Environmental Economics.” Review of Environmental Economics and Policy . 6(2):298-317. Southwest Energy Efficiency Project. 2002. “The New Mother Lode: The Potential for More Efficient Electricity Use in the Southwest.” Available at: <http://www.swenergy.org/publications/nml/>. Accessed June 4, 2015.

The Pew Charitable Trust. 2009. “The Clean Energy Economy: Repowering Jobs, Businesses and Investments Across America

. ” Available at: < http://communitywealth.org/content/clean-energy-economy-repowering-jobs-businesses-and-investmentsacross-america>. Accessed June 4, 2015. The Solar Foundation in partnership with BW Research and GW Institute. 2014. “The NationalSolar Jobs Census.” Available at: <http://www.thesolarfoundation.org/national-solar-jobscensus-2014/>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-40 Sommers, D. 2013. “BLS Geen Jobs Overview,” Monthly Labor Review. U.S. Bureau of Labor Statistics, January, p. 3-16. Available at <http://www.bls.gov/opub/mlr/2013/01/art1full.pdf>. Accessed June 4, 2015. U.S. Department of Commerce, Economics and Statistics Administration. 2010a. “Measuring theGreen Economy.” Available at: <http://www.esa.doc.gov/Reports/measuring-greeneconomy>. Accessed June 4, 2015. U.S. Department of Commerce, International Trade Administration. 2010b. Environmental Industries Fact Sheet, using 2008 data from Environmental Business International, Inc., April. Available at: <http://web.ita.doc.gov/ete/eteinfo.nsf/068f3801d047f26e85256883006ffa54/4878b7e2fc08ac 6d85256883006c452c?OpenDocument>. Accessed June 4, 2015. U.S. Department of Labor, Bureau of Labor Statistics. 2012a. Databases, Tables & Calculators by Subject. Available at <http://data.bls.go v/timeseries/LNS14000000> . Acccessed on April 16, 2012. U.S. Department of Labor, Bureau of Labor Statistics (2012b, April 6). “The Employment Situation—March 2012.” News Release. Available at <http://www.bls.gov/news.release/pdf/em psit.pdf>. Accessed April 16, 2012. U.S. Department of Labor, U.S. Bureau of Labor Statistics, (n.d.). “Employment Projections Program.” and available at: <http://www.bls.gov/emp/ep_table_102.htm>. U.S. Department of Labor, U.S. Bureau of Labor Statistics. (n.d.). “Green Goods and Services, 2010-2011.” Available at: <http://www.bls.gov/ggs/ggsoverview.htm>. Retrieved January 14, 2014, U.S. Energy Information Agency. 2013. “Annual Energy Outlook 2014: Early Release.” Available at: http://www.eia.gov/forecast/aeo/er/early_elecgen.cfm. U.S. Environmental Protection Agency (U.S. EPA). 2011a. The Benefits and Costs of the Clean Air Act from 1990 to 2020, Final Report – Rev A. Office of Air and Radiation, Washington, DC. Available at <http://www.epa.gov/cleanairactbenefits/feb11/fullreport_rev_a.pdf>. Accessed June 4, 2015. U.S. Environmental Protection Agency (U.S. EPA). 2011b. Regulatory Impact Analysis for the Mercury and Air Toxics Standards (MATS). Office of Air Quality Planning and Standards, Research Triangle Park, NC. Available at <http://www.epa.gov/ttn/ecas/regdata/RIAs/matsriafinal.pdf>. Acessed June 4, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6-41 U.S. EPA. 2015. Technical Support Document (TSD) the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. Demand-Side Energy Efficiency.

U.S. International Trade Commission. “Environmental and Related Services.” Publication No. 4389, Investigation No. 332-533, March, 2013. Available at <http://www.usitc.gov/publications/332/pub4389.pdf>. Accessed June 4, 2015. Walker, W. R. 2011.“Environmental Regulation and Labor Reallocation." American Economic Review. 101(2): 442-47. Walker, W. R. 2013.“ The Transitional Costs of Sectoral Reallocation: Evidence From the Clean Air Act and the Workforce." The Quarterly Journal of Economi cs 128 (4): 1787-1835. Wei, M., S. Patadia, and D. M. Kammen. 2010. “Putting Renewables And Energy Efficiency to Work: How Many Jobs Can the Clean Energy Industry Generate in the US?” Energy Policy, 38(2):919-931. Werling, J.F. 2011. “Preliminary Economic Analysis for OSHA’s Proposed Crystalline Silica Rule: Industry and Macroeconomic Impacts”, Final Report for the Occupational Safety and Health Administration, Available at <https://www.osha.gov/silica/Employment_Analysis.pdf>. Accessed June 9, 2015. Yi, H. 2013. “Clean Energy Policies and Green Jobs: An Evaluation of Green Jobs in U.S. Metropolitan Areas.” Energy Policy . 56:644-65.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-1 

### A PPENDIX 

### 6A: E STIMATING 

### S UPPLY 

### S IDE 

### E MPLOYMENT IMPACTS

This appendix presents the methods used to estimate the supply-side employment impacts of the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (herein referred to as “final emission guidelines” or the “Clean Power Plan Final Rule”). The focus of the employment analysis is limited to the direct changes in the amount of labor needed in the power, fuels and generating equipment sectors directly influenced by the illustrative plan approaches analyzed for the final emission guidelines. It does not include the ripple effects of these impacts on the broader economy (i.e., the “multiplier” effect), nor does it include the wider economy-wide effects of the changes to the energy markets, such as changes in electricity prices.

The methods used to estimate the supply-side employments are based on methods previously developed for the Mercury and Air Toxics Standards (MATS) Regulatory Impact Analysis (RIA). The methods used in this analysis to estimate the recurring labor impacts (e.g., labor associated with operating and maintaining generating units, as well as labor needed to mine coal and natural gas) are the same as was used in MATS (with updated data where available).

The labor analysis in the MATS RIA was primarily concerned with the labor needs of retrofitting pollution control equipment. The analysis for the Clean Power Plan Final Rule, however, involves the quantity and timing of the labor needs of building new renewable and natural gas, as well as making heat rate improvements (HRI) at existing coal fired EGUs. These construction-related compliance activities in the Clean Power Plan Final Rule required developing additional appropriate analytical methods that were not needed for the MATS analysis. The newly developed analytical methods for the construction-related activities are similar in structure and overall approach to the methods used in MATS, but required additional data and engineering information not needed in the MATS RIA.

6A.1 General Approach The analytical approach used in this analysis is a bottom-up engineering method combining the EPA’s cost analysis of the final emission guidelines with data on labor productivity, engineering estimates of the amount and types of labor needed to manufacture,***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-2 construct, and operate different types of generating units, and prevailing wage rates for skilled and general labor categories. The approach involved using utility power sector projections and various energy market implications under the fi nal emission guidelines from modeling conducted with the EPA Base Case version 5.15, using the Integrated Planning Model (IPM) 174 , along with data from secondary sources, to estimate the first order employment impacts for 2020, 2025, and
2030.

Throughout the supply-side labor analysis the engineering approach projects labor changes measured as the change in each analysis year in job-years 175 employed in the power generation and directly related sectors (e.g., equipment manufacturing, fuel supply and generating efficiency services). Job-years are not individual jobs, nor are they necessarily permanent nor full time jobs. Job-years the amount of work performed by one full time equivalent (FTE) employee in one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year, or any combination of full- and part-time workers such that total 20 FTEs.

6A.1.1 Employment Effects Included In the Analysis
The estimates of the employment impacts (both positive and negative) are divided into five categories:

 additional employment to make HRI 176 at existing coal fired EGUs;

 additional construction-related employment to manufacture and install additional new generating capacity (renewables, and natural gas combined cycle or combustion turbine units) when needed as part of early compliance actions;

174 Results for this analysis were developed using various outputs from EPA’s Base Case v.5.15 using ICF’s Integrated Planning Model (IPM). This case includes all of the underlying modeling that was developed by EPA with technical support from ICF International, Inc. See http://www.epa.gov/powersectormodeling/ for more information.

175 Job-years are not individual jobs, but rather the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs in that year.

176 Heat rate improvements could include a range of activities in the power plant to lower the heat rate required to generate a net electrical output. Assuming all other things being equal, a lower heat rate is more efficient because less fuel is needed per unit of electric output.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-3  lost construction-related employment opportunities due to reductions in the total amount of new generating capacity needed to be built in the later years because of reduced overall demand for electricity because of demand-side energy efficiency activities;

 lost operating and maintenance employment opportunities due to increased retirements of coal and small oil/gas units;

 changes (both positive and negative) in coal mining and natural gas extraction employment due to the aggregate net changes in fuel demands arising from all the activities occurring due to compliance with the final emission guidelines.
Some of the changes are one-time labor effect s which are associated with the building (or avoiding building) new generating capacity and installing HRI. This type of employment effects involves project-specific labor that is used for 2 to 4 years to complete a specific construction and installation type of project. There are other labor effects, however, which continue year after year. For example, bringing new generating capacity online creates an ongoing need for labor to operate and maintain the new generating capacity throughout the expected service life of the unit. New generating capacity also creates a need for additional employment to provide the fuel annually to run the new capacity. There are also continuing effects from the lost operations and maintenance (O&M) and fuel sector labor opportunities from decisions to retire existing capacity, as well as similar lost labor opportunities from decisions to reduce a portion of the amount of additional capacity needed in the base case.

6A.2 Employment Changes due to Heat Rate Improvements The employment changes due to HRI were estimated based on the incremental MW capacity estimated to implement such improvements by 2020 as indicated by the analysis conducted by EPA. The heat rate improvement job impacts were assumed to have all occurred by 2020 and thus this study assumes there will be no HRI related jobs after 2020 (i.e., no permanent O&M related jobs due to HRI for 2025 or 2030). EPA modeled the heat rate improvements exogenously in IPM using the assumption that all “relevant” units can improve their heat rate by 6 percent at a capital cost of $100/kW. This study assumes that these investments will occur over a four-year period culminating in 2020. Hence, the per-year cost of heat rate was calculated to be $25/kW, and this cost was used in the next step.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-4 This cost was then allocated to four categories based on the estimates provided by Andover Technology Partners (ATP), which were adapted from proxy projects involving installation of combustion control retrofits, such as those installed under the Best Available Retrofit Technology (BART) submissions from coal-fired power plants located in Wyoming and Arizona. For more details, refer to the Staudt (2014) report. 177 These proxies were chosen to ensure that the types of activities involved and their associated costs would be representative of those investments EPA expects power plants to undertake for efficiency upgrades.

Information on cost for these proxies were then extrapolated to approximate the labor requirements for four broad categories of labor – boilermakers and general construction, engineering and management support labor, labor required to produce the equipment in upstream sectors, and labor required to supply the material s (assumed to be primarily steel) in upstream sectors. More details about these estimates are provided in the Staudt (2014) report.

Based on the cost allocated in each categorie s and output per worker figures for respective industries in 2020, the employment gains for heat rate improvement were estimated 178 for 2020 using the assumptions summarized in Table 6A-1 below. Output per workers in future years were adjusted to account for growth in labor productivity, based on historical evidence of productivity growth rates for the relevant sectors.

Table 6A-1. Labor Productivity Growth Rate due to Heat Rate Improvement Share of the Total Capital Cost Output/Worker (2020) Labor Productivity Growth Rate Boilermaker and Gen. Const. 40% $78,500 0% Management/Engineering 20% $141,000 1.3% Equipment 30% $458,000 3.2% Materials 10% $424,000 -1.2%

177 Staudt, James, Andover Technology Partners, Inc. Estimating Labor Effects of Heat Rate Improvements. Report prepared for the Clean Power Plan Proposed Rule, March 6, 2014.

178 Total value of shipments or receipts in 2007 and total employees were taken from 2007 Economic Census, Statistics by Industry for Mining and Manufacturing sectors. The average annual growth rate of labor productivity was taken from the Bureau of Labor Statistics. Average growth rate calculated for years 1992-2007, applied to 2007 productivity to determine 2020 estimates of productivity. For the construction sector, BLS productivity growth rate data was unavailable. Because of this, and lack of reliable data on construction sector productivity growth, the output per worker for the construction sector was not forecasted to 2020, and the most recent available value from 2007 was used.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-5 For these output per worker figures, a power sector construction industry (NAICS 237130) was used for general construction and boilermakers, Engineering Services (NAICS 54133) was used for the engineering and management component, Machinery Manufacturing (NAICS 333) was used for the equipment sector, and steel manufacturing (NAICS 33121) was used for materials. Use of machinery manufacturing for equipment and steel for materials was based on an analysis of the types of materials and equipment needed for these projects, and what EPA determined to be the most appropriate industry sectors for those. For more details, refer to the Staudt (2014) report.

6A.2.1 Employment Changes Due to Building (or Avoiding) New Generation Capacity
Employment changes due to new generation units were based on the incremental changes in capacity (MW), capital costs ($MM), and fixed operations and maintenance (FOM) costs ($MM) between the policy scenario and the base case in a given year.

New capacities were aggregated by generation type into the following categories:

• Combined Cycle,

• Combustion Turbine, and

• Renewables (which includes biomass, geothermal, landfill gas, onshore wind, and solar).
For each category, the analysis estimated the impacts due to both the construction and operating labor requirements for corresponding capacity changes. The construction labor was estimated using information on the capital costs, while the operating labor was estimated using the FOM

costs.
Because IPM outputs provide annualized capital costs ($MM), EPA first converted the annualized capital costs to changes in the total capital investment using the corresponding capital charge rates. 179 These total capital investments were then converted to annual capital investments using assumptions about the estimated duration of the construction phase, in order to estimate the

179 Capital charge rates obtained from EPA’s resource, EPA #450R13002: Documentation for EPA Base Case v.5.13 using the Integrated Programming Model (IPM).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-6 annual impacts on construction phase labor. Duration estimates were based on assumptions for construction lengths used in EPA’s IPM modeling. 180 Specific assumptions used for different generating technologies are shown in Table 6A-2 below.

Table 6A-2. Capital Charge Rate and Duration Assumptions New Investment Technology Capital Charge Rate Duration (Years) Advanced Combined Cycle 10.3% 3 Advanced Combustion Turbine 10.6% 2 Renewables Biomass 9.5% 3 Wind (Onshore) 10.9% 3 Landfill Gas 10.9% 3 Solar 10.9% 3 Geothermal 10.9% 3
Annual capital costs for each generation type were then broken down into four categories: equipment, material (which is assumed to be primarily steel), installation labor, and support labor in engineering and management. The percentage breakdowns shown in Table 6A-3 were estimated using information provided by Staudt (2014), based primarily on published budgets for new unit assembled in a study for the National Energy Technology Laboratory (NETL). For more details, refer to the Staudt (2014) repor t. Annual capital costs for each generation type provided by the IPM output were allocated according to this breakdown.

Table 6A-3. Expenditure Breakdown due to New Generating Capacity Equipment Material Labor Eng. and Const. Mgt Renewables 54% 6% 31% 9% Combined Cycle 65% 10% 18% 7% Combustion Turbine 65% 10% 18% 7%
The short-term construction labor of the new generation units were based on output ($ per worker) figures for the respective sectors. The total direct workers per $1 million of output for the baseline year 2007 were forecasted to the years under analysis using the relevant labor productivity growth rate. Table 6A-4 shows the figures for each of the five productivities: general power plant construction; engineering and management; material use; equipment use;

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

6A-7 and plant operators. The resulting values were multiplied by the capital costs to get the job impact.

Table 6A-4. Labor Productivity du e to New Generating Capacity Labor Productivity Growth Rate Workers per Million $ (2007) General Power Plant Construction 0.0% 5.7 Engineering and Management 1.3% 5.2 Material Use (Steel) -1.2% 2.0 Equipment Use (Machinery) 3.2% 3.3 Plant Operators 2.8% 10.8
General installation labor, assumed to be mostly related to the general power plant construction phase, was matched with the power industry specific construction sector. Engineering/management was matched to the engineering services sector to determine their respective output per worker. For materials, EPA assumed steel to be the proxy and used the steel manufacturing sector for this productivity. Equipment was assumed to primarily come from machinery manufacturing sector (such as turbines, engines and fans).

The net labor impact for construction labor for a given year was adjusted to account for changes in capacity that has already taken place in the prior IPM run year. Because IPM reports cumulative changes for new generating capacity for any given run year, this adjustment ensured that the short-term construction phase job impacts in any given run year does not reflect the cumulative effects of prior construction changes for the given policy scenario. The estimated amount of the change in construction-related labor in a single IPM run year (e.g., 2025) represents the average labor impact that occurs in all years between that IPM run year and the previous run year (i.e., the labor estimates derived from the 2025 IPM run year are the average annual labor impacts in 2021 through 2025). The construction labor results for 2020 represent the average labor impacts in 2017 through 2020.

The plant operating employment estimates used a simpler methodology as the one described above. The operating employment estimates use the IPM estimated change in FOM costs for the IPM run year. Because the FOM costs are inherently estimates for a single year, the operating employment estimates are for a single year only. While there are obviously operating employment effects occurring in every year throughout the entire IPM estimation period (2017- 2030), the labor analysis only estimates the single year labor impacts in the IPM run years: 2020,***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-8 2025 and 2030. The total direct workers for $1 million and labor productivity growth rate provided for plant operators in Table 6A-4 were used to estimate the employment impact.

6A.2.2 Employment Changes due to Coal and Oil/Gas Retirements
Employment changes due to plant retirements were calculated using the IPM projected changes in retirement capacities for coal and oil/gas units for the relevant year and the estimated changes in total FOM costs due to those retiring units. Thus, the basic assumption in this analysis was that increased retirements (over the base case) will lead to reduced FOM expenditures at those plants which were assumed to lead to direct job losses for plant workers.

In order to estimate the total FOM changes due to retirements, EPA first estimated the average FOM costs ($/kW) for existing coal-fired and oil/gas-fired units in the base case, as shown in Table 6A-5 below. It was assumed that the average FOM cost of existing units in the base case can be used as a proxy for the lost economic output due to fossil retirements. Thus, changes in the FOM costs for these retiring units were derived by taking the product of the incremental change in capacity and the average FOM costs. These values were converted to lost employment using data from the Economic Census and BLS on the output/worker estimates for the utility sector. 181

Table 6A-5. Average FOM Cost Assumptions 2020 2025 2030 Coal 65 68 69 Oil and Gas 21 22 22
Note that the retirement related employment losses are assumed to include losses directly affecting the utility sector, and do not include lo sses in upstream sectors that supply other inputs to the EGU sector (except fuel related job losses, which are estimated separately and discussed in the next section).

6A.2.3 Employment Changes due to Coal and Oil/Gas Retirements
Two types of employment impacts due to projected fuel use changes were estimated in this section. First, employment losses due to either reductions or shifts in coal demand were

181 The same specific sources as cited before, however, used workers and total payroll.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-9 estimated using an approach similar to EPA’s coal employment analyses under Title IV of the Clean Air Act Amendments. Using this approach, changes in coal demand (in short tons) for various coal supplying regions were taken fro m EPA’s base and policy case runs for the proposed EGU GHG NSPS. These changes were converted to job-years using U.S. Energy information Administration (EIA) data on regional coal mining productivity (in short tons per employee hour), using 2008 labor productivity estimates. 182,183

Specifically, the incremental changes to coal demand were calculated based on the coal supply regions in IPM -- Appalachia, Interior, and West and Waste Coal (which was estimated using U.S. total productivity). Worker productivity values used for estimating coal related job impacts are shown in Table 6A-6 below.

Table 6A-6. Labor Productivity du e to New Generating Capacity Labor Productivity Coal (Short tons/ employee hour) Appalachia 2.91 Interior 4.81 West 19.91 Waste 5.96 Natural Gas (MMBtu/ employee hour) 126 Pipeline Construction (Workers per $Million) 5.1
For natural gas demand, labor productivity per unit of natural gas was unavailable, unlike coal labor productivities used above. Most secondary data sources (such as Census and EIA) provide estimates for the combined oil and gas extraction sector. This section thus used an adjusted labor productivity estimate for the combined oil and gas sector that accounts for the relative contributions of oil and natural gas in the total sector output (in terms of the value of energy output in MMBtu). This estimate of labor productivity was then used with the incremental natural gas demand for the respective IPM runs to estimate the job-years for the specific year (converting the TCF of gas used projected by IPM into MMBtu using the

182 From EIA Annual Energy Review, Coal Mining Productivity Da ta. Used 2008.

183 Unlike the labor productivity estimates for various equipment resources which were forecasted to 2020 using BLS average growth rates, this study uses the most recent historical productivity estimates for fuel sectors. In general, labor productivity for the fuel sectors (both coal and natural gas) showed a significantly higher degree of variability in recent years than the manufacturing sector s, which would have introduced a high degree of uncertainty in forecasting productivity growth rates for future years.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

6A-10 appropriate conversion factors). In addition, the pipeline construction costs were estimated using endogenously determined gas market model parameters in IPM used by EPA for the MATS rule (using assumptions for EPA’s Base Case v4.10). This analysis assumed that the need for additional pipeline would be proportionate to those projected for the MATS rule and were hence extrapolated from those estimates. 184 The job-years associated with the pipeline construction were included in the natural gas employment estimates.

184 See U.S. EPA. 2011. Technical Support Document for the Mercury and Air Toxics Standards: Employment Estimates of Direct Labor in Response to the Proposed Toxics Rule in 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-1 

### C HAPTER 

### 7: S TATUTORY AND 

### E XECUTIVE 

### O RDER 

### A NALYSIS

7.1 Executive Order 12866: Regulatory Pl anning and Review, and Executive Order 13563: Improving Regulation and Regulatory Review This final action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA prepared an analysis of the potential costs and benefits
associated with this action.
Consistent with Executive Order 12866 and Executive Order 13563, the EPA estimated the costs and benefits for illustrative plan approaches of implementing the guidelines. The final rule establishes: 1) carbon dioxide (CO 2 ) emission performance rates for two source categories of existing fossil fuel-fired EGUs, fossil fuel-fire d electric utility steam generating units and stationary combustion turbines, and 2) guidelines for the development, submittal and implementation of state plans that implement the CO 2 emission performance rates. Actions taken to comply with the guidelines will also reduce the emissions of directly-emitted PM 2.5 , SO 2 and
NO X . The benefits associated with these PM 2.5 , SO 2 and NO X reductions are referred to as cobenefits, as these reductions are not the primary objective of this rule.
The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis
Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates.” The SC-CO 2 is an estimate of the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year. The four SC-CO 2 estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SC-CO 2 value deemed to be central in the current TSD: the model average at 3 percent discount rate.
In the final emission guidelines, the EPA has translated the source category-specific CO 2 emission performance rates into equivalent state-level rate-based and mass-based CO 2 goals in order to maximize the range of choices that states will have in developing their plans. Because of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-2 the range of choices available to states and the lack of a priori knowledge about the specific choices states will make in response to the final goals, the Regulatory Impact Analysis (RIA) for this rule analyzed two implementation scenarios designed to achieve these goals, which we term the “rate-based” illustrative plan approach and the “mass-based” illustrative plan approach.
It is very important to note that the differences between the analytical results for the ratebased and mass-based illustrative plan approaches presented in the RIA may not be indicative of likely differences between the approaches if implemented by states and affected EGUs in response to the final guidelines. Rather, the two sets of analyses are intended to illustrate two contrasting, stylized approaches to accomplish the emission performance rates finalized in the Clean Power Plan Final Rule. In other words, if one approach performs better than the other on a given metric during a given time period, this does not imply this will apply in all instances in all time periods in all places.
Table 7-1 and 7-2 provide the estimates of the climate benefits, health co-benefits, compliance costs and net benefits of the final emission guidelines for rate-based and mass-based illustrative plan approaches, respectively. There are additional important benefits that the EPA could not monetize. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified benefits also include climate benefits from reducing emissions of non-CO 2 greenhouse gases (e.g., nitrous oxide and methane) and co-benefits from reducing direct exposure to SO 2 , NO X and hazardous air pollutants (e.g., mercury and hydrogen chloride), as well as from reducing ecosystem effects and visibility impairment. Based upon the foregoing discussion, it remains clear that the benefits of this final action are substantial, and far exceed the costs. Additional details on benefits, costs, and net benefits estimates are provided in this RIA.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-3 Table 7-1. Monetized Benefits, Compliance Costs, and Net Benefits Under the Rate-based Illustrative Plan Approach (billions of 2011$) a
Rate-Based A pp roach 2020 2025 2030 Climate Benefits b

5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8.2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.7 to $1.8 $0.6 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1.0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-4 Table 7-2. Monetized Benefits, Compliance Co sts, and Net Benefits under the Mass-based Illustrative Plan Approach (billions of 2011$) a
Mass-Based A pp roach 2020 2025 2030 Climate Benefits b

5% discount rate $0.9 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9.6 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $2.0 to $4.8 $1.8 to $4.4 $7 to $17 $7 to $16 $12 to $28 $11 to $26 Compliance Costs d $1.4 $3.0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period. d Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate also includes monitoring, recordkeeping, and reporting costs and demand-side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-5 7.2 Paperwork Reduction Act (PRA)
The information collection requirements in this rule have been submitted for approval to
OMB under the PRA. The Information Collection Request (ICR) document prepared by the EPA has been assigned the EPA ICR number 2503.02. You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until OMB approves them.
This rule does not directly impose specific requirements on EGUs located in states, U.S. territories or areas of Indian country. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country. For areas of Indian country, the rule establishes CO 2 emission performance goals that could be addressed through either tribal or federal plans. A tribe would have the opportunity under the Tribal Authority Rule (TAR), but not the obligation, to apply to the EPA for Treatment as State (TAS) for purposes of a CAA section 111(d) plan and, if approved by the EPA, to establish a CAA section 111(d) plan for its area of Indian country. To date, no tribe has requested or obtained TAS eligibility for purposes of a CAA section 111(d) plan. For areas of Indian country with affected EGUs where a tribe has not applied for TAS and submitted any needed plan, if the EPA determines that a CAA section 111(d) plan is necessary or appropriate, the EPA would have the responsibility to establish the plans. Because tribes are not required to implement section 111(d) plans and because no tribe has yet sought TAS eligibility for this purpose, this action is not anticipated to impose any information collection burden on tribal governments over the 3-year period covered by this ICR.
This rule does impose specific requirements on state and U.S. territory governments with affected EGUs. The information collection requirements are based on the recordkeeping and reporting burden associated with developing, implementing, and enforcing a plan to limit CO 2 emissions from existing sources in the utility power sector. These recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information 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.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-6 The annual burden for this collection of information for the states (averaged over the first 3 years following promulgation) is estimated to be a range of 529,000 to 859,000 hours at a total annual labor cost of $37.4 to $60.8 million. The lower bound estimate reflects the assumption that some states already have energy efficiency and renewable energy programs in place. The higher bound estimate reflects the overly-conservative assumption that no states have energy efficiency and renewable energy programs in place.

The annual burden for this collection of info rmation for the two affe cted U.S. territories, i.e., Puerto Rico and Guam, (averaged over the first 3 years following promulgation of this action) is estimated to be 23,700 to 38,200 hours at a total annual labor cost of $1.68 to $2.71
million.
The total annual burden for the federal government associated with the state collection of information (averaged over the first 3 years following promulgation) is estimated to be 54,900 hours at a total annual labor cost of $3.04 million. The total annual burden for the federal government associated with the territorial collection of information (averaged over the first 3 years following promulgation) is estimated to be 2,600 hours at a total annual labor cost of $145,000. Burden is defined at 5 CFR 1320.3(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 rule.
7.3 Regulatory Flexibility Act (RFA) The EPA certifies that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. Specifically, emission guidelines established under CAA section 111(d) do not impose any requirements on regulated entities and, thus, will not have a significant economic impact upon a substantial number of small entities. After emission guidelines are promulgated, states and U.S. territories establish emission standards on existing sources, and it is those requirements that could potentially impact small entities.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-7 Our analysis here is consistent with the anal ysis of the analogous situation arising when the EPA establishes NAAQS, which do not impose any requirements on regulated entities. As here, any impact of a NAAQS on small entities would only arise when states take subsequent action to maintain and/or achieve the NAAQS through their state implementation plans. See American Trucking Assoc. v. EPA, 175 F.3d 1029, 1043-45 (D.C. Cir. 1999) (NAAQS do not have significant impacts upon small entities be cause NAAQS themselves impose no regulations upon small entities).
Nevertheless, the EPA is aware that there is substantial interest in the rule among small entities and, as detailed in section III.A of the preamble to the proposed carbon pollution emission guidelines for existing EGUs (79 FR 34845-34847; June 18, 2014) and in section II.D of the preamble to the proposed carbon pollution emission guidelines for existing EGUs in Indian Country and U.S. Territories (79 FR 65489; November 4, 2014), has conducted an unprecedented amount of stakeholder outreach. As part of that outreach, agency officials participated in many meetings with individual utilities and electric utility associations, as well as industry leaders and trade association representatives from various industries. While formulating the provisions of the rule, the EPA considered the input provided over the course of the stakeholder outreach as well as the input provided in the many public comments.
7.4 Unfunded Mandates Reform Act (UMRA)
This 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 emission guidelines do not impose any direct compliance requirements on EGUs located in states, U.S. territories or areas of Indian country. As explained in section XII.B above, the rule also does not impose specific requirements on tribal governments that have affected EGUs located in their area of Indian country. The rule does impose specific requirements on state and U.S. territory governments that have affected EGUs. Specifically, states and U.S. territories are required to develop plans to implement the guidelines under CAA section 111(d) for affected EGUs. The burden for states and U.S. territories to develop CAA section 111(d) plans in the 3- year period following promulgation of the rule was estimated and is listed in section XII.B above, but this burden is estimated to be below $100 million in any one year. Thus, this rule is not subject to the requirements of section 202 or section 205 of the UMRA.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-8 This rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. Specifically, the state and U.S. territory governments to which rule requirements apply are not considered small governments.
In light of the interest among governmental entities, the EPA conducted outreach with national organizations representing state and local elected officials and U.S. territory and tribal governmental entities while formulating the provisio ns of this rule. Sections III.A and XI.F of the preamble to the proposed carbon pollution emission guidelines for existing EGUs (79 FR 34845-34847; June 18, 2014) and sections II.D and VI.F of the preamble to the proposed carbon pollution emission guidelines for existing EGUs in areas of Indian Country and U.S. Territories (79 FR 65489; November 4, 2014) describes the extensive stakeholder outreach the EPA has conducted on setting emission guidelines for existing EGUs. The EPA considered the input provided over the course of the stakeholder outreach as well as the input provided in the many public comments when developing the provisions of these emission guidelines.

7.5 Executive Order 13132: Federalism The EPA has concluded that this action may have federalism implications, pursuant to agency policy for implementing the Order, because it imposes substantial direct compliance costs on state or local governments, and the federal government will not provide the funds necessary to pay those costs. As discussed in the Supporting Statement found in the docket for this rulemaking, the development of state plans will entail many hours of staff time to develop and coordinate programs for compliance with the rule, as well as time to work with state legislatures as appropriate, to develop a plan submittal. Consistent with this determination, the EPA provides the following federalism summary impact statement.
The EPA consulted with state and local officials early in the process of developing the proposed action to permit them to have meaningful and timely input into its development. As described in the Federalism discussion in the pr eamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501; January 8, 2014), the EPA consulted with state and local officials in the process of developing the proposed standards for newly constructed EGUs. This outreach addressed planned actions for new, reconstructed, modified and existing sources. The EPA invited the following 10 national organizations representing state and***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-9 local elected officials to a meeting on April 12, 2011, in Washington DC: (1) National Governors Association; (2) National Conference of State Legislatures, (3) Council of State Governments, (4) National League of Cities, (5) U.S. Conference of Mayors, (6) National Association of Counties, (7) International City/County Management Association, (8) National Association of Towns and Townships, (9) County Executives of America, and (10) Environmental Council of States. The National Association of Clean Air Agencies also participated. On February 26, 2014, the EPA re-engaged with those governmental entities to provide a pre-proposal update on the emission guidelines for existing EGUs and emission standards for modified and reconstructed EGUs. In addition, as described in section III.A of the preamble to the proposed carbon pollution emission guidelines for existing EGUs (79 FR 34845-34847; June 18, 2014), extensive stakeholder outreach conducted by the EPA allowed state leaders, including governors, state attorneys general, environmental commissioners, energy officers, public utility commissioners, and air directors, opportunities to engage with EPA officials and provide input regarding reducing carbon pollution from power plants.
In the spirit of Executive Order 13132, and consistent with the EPA’s policy to promote communications between the EPA and state and local governments, the EPA specifically solicited comment on the proposed action from state and local officials. The EPA received comments from over 400 entities representing state and local governments.
Several themes emerged from state and local government comments. Commenters raised concerns with the building blocks that comprise the best system of emission reduction (BSER), including the stringency of the building blocks, and the timing of achieving interim CO 2 levels. They also identified the potential for electric system reliability issues and stranded assets due to the proposed timeframe for plan submittals and CO 2 emission reductions. In addition, states commented on state plan development and implementation topics, including state plan approaches, early actions, trading programs, interstate crediting for RE, and EPA guidance and
outreach.
Commenters identified overarching concerns regarding the stringency of the CO 2 goals and the timeframe for achieving reductions that encompassed the building blocks, the BSER, and associated timing for achievement of interim CO 2 levels. State commenters, in particular, identified changes to the stringency of the building blocks, concerns with the timeframe over***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-10 which reductions must be achieved, and concerns with the approaches and measures used for the BSER. For the final rule, in response to stakeholder comments, the EPA has made refinements to the building blocks, the period of time over which measures are deployed, and the stringency of emission limitations that those measures can achieve in a practical and reasonable cost way. The
final BSER reflects those refinements.
To many commenters, the proposal’s 2020 compliance date, together with the stringency
of the interim CO 2 goal, bore significant reliability implications. In this final rule, the agency is addressing those concerns via adjustments to the compliance timeframe (an 8-year interim period that begins in 2022) and to the approach for meeting interim CO 2 emission performance rates (a glide path separated into three steps, 2022-2024, 2025-2027, and 2028-2029). These adjustments provide more time for planning, consultation and decision making in the formulation of state plans and in EGUs’ choices of compliance strategies. The final rule also retains flexibilities presented in the proposal and offers additional opportunities, including opportunities for trading within and between states, and other multi-state plan approaches that will further support electric system reliability. The EPA is also requiring stat es to consult with relevant ISOs/RTOs and/or planning/reliability authorities during plan development, and to document recommendations in their plans – and is providing the time for states to do so. Even with this foundation of flexibility in place, these final guidelines further provide st ates with the option of proposing amendments to approved plans in the event that unanticipated and significant reliability challenges arise.
Commenters provided compelling information indicating that it will take longer than the agency initially anticipated to adjust investments and achieve interim CO 2 reductions. Recognizing this, as well as the urgent need for actions to reduce GHG emissions, the EPA is requiring states to frame an initial plan by August 31, 2016, and is allowing states two additional years to submit a final plan, if justified (to be submitted by August 31, 2018).
States commented on state plan development and implementation topics that included state plan approaches, early actions being taken into account, trading programs being allowed, interstate crediting for RE being allowed, and guidance and outreach being provided by the EPA. For the state plan approaches, commenters expressed concerns with the proposed “portfolio approach” for state plans, including concerns with enforceability of requirements, and identified a “state commitment approach” with backstop measures as an option for state plans. In this final***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-11 rule, in response to stakeholder comments on the portfolio approach and alternative approaches, the EPA is finalizing a “state measures” approach that includes a requirement for the inclusion of backstop measures.
State commenters also expressed interest in the EPA ensuring that early actions to reduce
CO 2 are rewarded. In this final rule, states with currently existing programs and policies, and states that put in place new programs and policies early, will be better positioned to achieve the
CO 2 goals. Measures that a state takes prior to 2022, or programs already in place by 2022, that
result in CO 2 emission reductions during the 2022-2029 period will contribute toward meeting
both the interim and final CO 2 emission performance rates. Thus, states with currently existing programs and policies, and states that put in place new programs and policies early, will be better positioned to achieve the goals. RE generating capacity and demand-side EE measures that are installed after 2012 will be eligible for use in adjusting a CO 2 emission performance rate.
Many state commenters supported the use of mass-based and rate-based emission trading programs in state plans, including interstate emission trading programs. The EPA also received a number of comments from states and stakeholders about the value of EPA support in developing and/or administering tracking systems to support state administration ofrate-based and massbased emission trading programs. In this final rule, states may use trading or averaging approaches and technologies or strategies that are not explicitly mentioned in any of the three building blocks as part of their overall plans, as long as they achieve the required emission reductions from affected fossil-fuel-fired EUGs. In addition, in response to concerns from states and power companies that the need for up-front in terstate cooperation in developing multi-state plans could inhibit the development of interstate programs that could lower cost, the final rule provides additional options to allow individual EGUs to use creditable out-of-state reductions to achieve required CO 2 reductions, without the need for up-front interstate agreements. The EPA is committed to working with states to provide support for tracking of emissions and allowances or credits, to help implement multi-state trading or averaging approaches.
In their comments, many states identified the need for the EPA to provide guidance, including guidance on RE and EE emission measurement and verification (EM&V), and to maintain regular contact/forums with states throughout the implementation process. To provide state and local governments and other stakeholders with an understanding of the rule***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-12 requirements, and to provide efficiencies where possible and reduce the cost and administrative burden, the EPA will continue outreach throughout the plan development and submittal process. Outreach will include opportunities for states to participate in briefings, teleconferences, and meetings about the final rule. The EPA’s 10 regional offices will continue to be the entry point for states, tribes and territories to ask technical and policy questions. The agency will host (or partner with appropriate groups to co-host) a number of webinars about various components of the final rule during the first two months after the final rule is issued. The EPA will use information from this outreach process to inform the training and other tools that will be of most use to the states, tribes, and territories that are implementing the final rule. The EPA expects to issue guidance on specific topics, including evaluation, measurement and verification (EM&V) for RE and demand-side EE, state-community engagement, and resources and financial assistance for RE and demand-side EE. As guidance documents, tools, templates and other resources become available, the EPA, in consultation with the U.S. Department of Energy and other federal agencies, will continue to make these resources available via a dedicated website.
A list of the state and local government commenters has been provided to OMB and has been placed in the docket for this rulemaking. In addition, the detailed response to comments from these entities is contained in the EPA’s response to comments document on this final rulemaking, which has also been placed in the docket for this rulemaking.
As required by section 8(a) of Executive Order 13132, the EPA included a certification from its Federalism Official stating that the EPA had met the Executive Order’s requirements in a meaningful and timely manner when it sent the draft of this final action to OMB for review pursuant to Executive Order 12866. A copy of the certification is included in the public version
of the official record for this final action.

7.6 Executive Order 13175: Consultation and Coordination with Indian Tribal Governments This action has tribal implications. However, it will neither impose substantial direct costs on federally recognized tribal governments, nor preempt tribal law. Tribes are not required to develop or adopt CAA programs, but they may apply to the EPA for treatment in a manner similar to states (TAS) and, if approved, do so. As a result, tribes are not required to develop plans to implement the guidelines under CAA section 111(d) for affected EGUs in their areas of***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-13 Indian country. To the extent that a tribal government seeks and attains TAS status for that purpose, these emission guidelines would require that planning requirements be met and emission management implementation plans be executed by the tribes. The EPA notes that this rule does not directly impose specific requirements on affected EGUs, including those located in areas of Indian country, but provides guidance to any tribe approved by the EPA to address CO 2 emissions from EGUs subject to section 111(d) of the CAA. The EPA also notes that none of the affected EGUs are owned or operated by tribal governments.
As described in sections III.A and XI.F of the preamble to the proposed carbon pollution emission guidelines for existing EGUs (79 FR 34845-34847; June 18, 2014) and sections II.D and VI.F of the preamble to the proposed carbon pollution emission guidelines for existing EGUs in Indian Country and U.S. Territories (79 FR 65489; November 4, 2014), the rule was developed after extensive and vigorous outreach to tribal governments. These tribes expressed varied points of view. Some tribes raised concer ns about the impacts of the regulations on EGUs located in their areas of Indian country and the subsequent impact on jobs and revenue for their tribes. Other tribes expressed concern about the impact the regulations would have on the cost of water covered under treaty to their communities as a result of increased costs to the EGU that provide energy to transport the water to the tribes. Other tribes raised concerns about the impacts of climate change on their communities, resources, ways of life and hunting and treaty rights. The tribes were also interested in the scope of the guidelines being considered by the agency (e.g., over what time period, relationship to state and multi-state plans) and how tribes will participate in these planning activities.
The EPA consulted with tribal officials under the EPA Policy on Consultation and Coordination with Indian Tribes early in the process of developing this action to permit them to have meaningful and timely input into its development. A summary of that consultation follows.
Prior to issuing the supplemental proposal on November 4, 2014, the EPA consulted with tribes as follows. The EPA held a consultation with the Ute Tribe, the Crow Nation, and the Mandan, Hidatsa, Arikara (MHA) Nation on July 18, 2014. On August 22, 2014, the EPA held a consultation with the Fort Mojave Tribe. On September 15, 2014, the EPA held a consultation with the Navajo Nation. The Navajo Nation sent a letter to the EPA on September 18, 2014, summarizing the information presented at the consultation and the Navajo Nation’s position on***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-14 the supplemental proposal. One issue raised by tribal officials was the potential impacts of the June 18, 2014 proposal and the supplemental proposal on tribes with budgets that are dependent on revenue from coal mines and power plants, as well as employment at the mines and power plants. The tribes noted the high unemployment rates and lack of access to basic services on their lands. Tribal officials also asked whether the rules will have any impact on a tribe’s ability to seek TAS. Tribal officials also expressed interest in agency actions with regard to facilitating power plant compliance with regulatory requirements. The Navajo Nation made the following recommendations in their letter of September 18, 2014: the Navajo Nation supports a mass-based
CO 2 emission standard based on the highest historical CO 2 emissions since 1996; the Navajo Nation requests that the EPA grant the Navajo Nation carbon credits and that the Navajo Nation retains ownership and control of such credits; building block 2 is not appropriate for the Navajo Nation because there are no NGCC plants located on the Navajo Nation; building block 3 is not appropriate for the Navajo Nation because the Navajo people already receive virtually all of their electricity from carbon-free sources (mostly hydroelectric power) and their use of electricity is negligible compared to the generation at the power plants; building block 4 is not appropriate for the Navajo Nation because of the inadequate acce ss to electricity, and the goal should allow for an increase in energy consumption on the Na vajo Nation; the supplemental proposal should consider the useful life of the power plants located on the Navajo Nation; and the supplemental proposal should clarify that RE projects located within the Navajo Nation that provide electricity outside the Navajo Nation should be counted toward meeting the relevant state’s RE goals under
the Clean Power Plan.
After issuing the supplemental proposal, the EPA held additional consultation with tribes. On November 18, 2014, the EPA held consultations with the following tribes: Fort McDowell Yavapai Nation, Fort Mojave Tribe, Hopi Tribe, Navajo Nation, and Ak-Chin Indian Community. A consultation with the Ute Indian Tribe of the Uintah and Ouray Reservation was held on December 16, 2014 and with the Gila River Indian Community on January 15, 2015. The Navajo Nation reiterated the concerns raised during the previous consultation. Several tribes also again indicated that they wanted to ensure they would be included in the development of any tribal or federal plans for areas of Indian country. The Fort Mojave Tribe and the Navajo Nation expressed concern with using data from 2012 as the basis for the goal for their areas of Indian country; in their view, that year was not representative for the affected EGU. On April 28, 2015,***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-15 the EPA held an additional consultation with the Navajo Nation. The issues raised by the Navajo Nation during the consultation included whether the EPA has the authority to set less stringent standards on a case-by-case basis, and a suggested “parity glide path” that would account and adjust for the very low electricity usage by the Navajo Nation and promote Navajo Nation economic growth and demand.
As required by section 7(a), the EPA’s Tribal Consultation Official has certified that the requirements of the executive order have been met in a meaningful and timely manner. A copy
of the certification is included in the docket for this action.

7.7 Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks This action is subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is an economically significant regulatory action as defined by Executive Order 12866, and 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.

CO 2 is a potent greenhouse gas that contributes to climate change and is emitted in significant quantities by fossil fuel-fired power plants. The EPA believes that the CO 2 emission reductions resulting from implementation of these final guidelines, as well as substantial ozone
and PM 2.5 emission reductions as a co-benefit, will further improve children’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,***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-16 especially those with children, if climate change reduces food availability and increases prices, leading to food insecurity within households.
7.8 Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This action, which is a significant regulatory action under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepared a Statement of Energy Effects for this action as follows. We estimate a 1 to 2 percent change in retail electricity prices on average across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal-fired electricity generation as a result of this rule. The EPA projects that utility power sector delivered natural gas prices will increase/decrease by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal. The analysis is presented in more detail in Chapter 3 of this RIA.
7.9 National Technology Transfer and Advancement Act This rulemaking does not involve technical standards.

7.10 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 justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health orenvironmental effects of their programs, policies and activities on minority populations and lowincome populations in the U.S. The 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, regulations, and 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 healthy 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 Findin g. See, section VIII.A of the preamble where***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-17 the EPA summarizes the public health and welfare impacts from GHG emissions that were detailed in the 2009 Endangerment Finding under CAA section 202(a)(1). 185 As part of the Endangerment Finding, the Administrator considered climate change risks to minority populations and low-income populations, finding that certain parts of the population may be especially vulnerable based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate change risks include the poor, the elderly, the very young, those already in poor health, the disabled, those living alone, and/or indigenous populations dependent on one or a few resources. See sections XII.F and XII.G, above, where the
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.
The record for the 2009 Endangerment Finding summarizes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program (USGCRP), the Intergovernmental Panel on Climate Change (IPC C), and the National Research Council (NRC) of the National Academies that the potential impacts of climate change raise environmental justice issues. These reports concluded 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. In addition, Native American tribal communities possess unique vulnerabilities to climate change, particularly those impacted by degradation of natural and cultural resources within established reservation boundaries and threats to traditional subsistence lifestyles. Tribal communities whose health, economic well-being, and cultural traditions that depend upon the natural environment will likely be affected by the degradation of ecosystem goods and services associated with climate change. The 2009 Endangerment Finding record also specifically noted that Southwest native cultures are especially vulnerable to water quality and availability impacts. Native Alaskan communities are already experiencing disruptive impacts, including coastal erosion and shifts in the range or abundance of wild species crucial to their livelihoods and well-being.

185 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 Fed. Reg. 66,496 (Dec. 15, 2009) (“Endangerment Finding”).***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-18 The most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low-income populations in the United States. 186 The new assessment literature provides more detailed findings regarding these populations’ vulnerabilities and projected impacts they may experience. In addition, the most recent assessment reports provide new information on how some communities of color (more specifically, populations defined jointly by ethnic/racial characteristics and geographic location) may be uniquely vulnerable to climate change health impacts in the United States. These reports find that certain climate change related impacts—including heat waves, degraded air quality, and extreme weather events—have disproportionate effects on low-income populations and some communities of color, raising environmental justice concerns. Existing health disparities and other inequities in these communities increase their vulnerability to the health effects of climate change. In addition, assessment reports also find that climate change poses particular threats to health, well-being, and ways of life of indigenous peoples in the United States.
As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income populations and some communities of color are especially vulnerable to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this final rulemaking because this action directly addresses the impacts of climate change by limiting GHG emissions through the establishment of CO 2 emission guidelines for existing affected fossil fuel-fired EGUs.
In addition to reducing CO 2 emissions, the guidelines finalized in this rulemaking would reduce other emissions from affected EGUs that reduce generation due to higher adoption of

186 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. 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, 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. M ach, 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. Ma strandrea, and L.L. White (eds.)]. Cambridge University Press, 688 pp.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

7-19 energy efficiency and renewable energy. These emission reductions will include SO 2 and NOx,
which form ambient PM 2.5 and ozone in the atmosphere, and hazardous air pollutants (HAP), such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 NAAQS, 187 the EPA identified low-income populations as being a vulnerable population for experiencing adverse health effects related to PM exposures. Low-income populations have been generally found to have a higher prevalence of pre-existing diseases, limited access to medical treatment, and increased nutritional deficiencies, which can increase this population’s risk to PM-related
and ozone-related effects. 188 Therefore, in areas where this rulemaking reduces exposure to
PM 2.5 , ozone, and methylmercury, low-income populations will also benefit from such emissions reductions. The RIA for this rulemaking, included in the docket for this rulemaking, provides additional information regarding the health and ecosystem effects associated with these emission
reductions.
Additionally, as outlined in the community considerations section IX of the preamble, the EPA has put a number of conditions in place to help ensure that this action will not havepotential disproportionately high and adverse human health or environmental effects on overburdened communities. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Regulatory Actions, when determining what considerations to put in place. 189 As described in the community considerations section of the preamble, the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking.
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 a “major rule” as defined by 5 U.S.C. 804(2).

187 “National Ambient Air Quality Standards for Particulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).

188 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 Division. December. Available on the Internet at <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>.

189 Guidance on Considering Environmental Justice During the Development of Regulatory Actions. http://epa.gov/environmentaljustice/resources/policy/considering-ej-in-rulemaking-guide-final.pdf. May 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-1 

### C HAPTER 

### 8: C OMPARISON OF 

### B ENEFITS AND 

### C OSTS

8.1 Comparison of Benefits and Costs The benefits, costs, and net benefits of the illustrative plan scenarios are presented in this chapter of the Regulatory Impact Analysis (RIA) for the Final Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units. As discussed in Chapter 1, the EPA is establishing carbon dioxide (CO 2 ) emission performance rates for two source categories of existing fo ssil fuel-fired EGUs, fossil fu el-fired electric utility steam generating units and stationary combustion turbines. Given the flexibilities afforded states in complying with the emission guidelines, the benefits, cost and economic impacts reported in this RIA are not definitive estimates, but are instead illustrative of plan approaches states may take.
The EPA has used the social cost of carbon estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised July 2015) (“current SC-CO 2 TSD”) to analyze CO 2 climate impacts of this rulemaking. 190 We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates.” The SC-CO 2 is an estimate of the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year.
The four SC-CO 2 estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent), and each increases over time. In this comparison of benefits and costs, the EPA provides the estimate of climate
benefits associated with the SC-CO 2 value deemed to be central in the current SC-CO 2 TSD (the model average at 3 percent discount rate). In addition to reducing CO 2 emissions, implementing these final emission guidelines is expected to reduce emissions of SO 2 and NO X , which are precursors to formation of ambient PM 2.5 , as well as directly emitted fine particles. Therefore, reducing these emissions would also reduce human exposure to ambient PM 2.5 and ozone

190 Docket ID EPA-HQ-OAR-2013-0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, 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 and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-2 precursors, and the associated PM 2.5 and ozone related health effects. Tables 8-1 and 8-2 provide a summary of the climate benefits, air quality co-benefits, and costs for the illustrative rate-based and mass-based plan scenarios.
The EPA could not monetize important categories of impacts. Due to current data and modeling limitations, our estimates of the benefits from reducing CO 2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Unquantified impacts also include those associated with changes in emissions of other pollutants that affect the climate, such as methane. In addition, the analysis does not quantify co-benefits from reducing exposure to SO 2 , NO x , and hazardous air pollutants (e.g., mercury), as well as ecosystem effects and visibility impairment.
Based upon the foregoing discussion, it remains clear that this final rule’s combined
climate benefits and human health co-benefits associated with the reduction in other air pollutants substantially outweigh the illustrative plan scenario costs.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-3 Table 8-1. Monetized Benefits, Costs, and Net Benefits Under the Rate-based Illustrative Plan Approach (billions of 2011$) a
Rate-Based Scenario 2020 2025 2030 Climate Benefits b

5% discount rate $0.80 $3.1 $6.4 3% discount rate $2.8 $10 $20 2.5% discount rate $4.1 $15 $29 95th percentile at 3% discount rate $8.2 $31 $61
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air Quality Health Co-benefits c $0.7 to $1.8 $0.6 to $1.7 $7.4 to $18 $6.7 to $16 $14 to $34 $13 to $31 Compliance Costs d $2.5 $1.0 $8.4 Net Benefits e $1.0 to $2.1 $1.0 to $2.0 $17 to $27 $16 to $25 $26 to $45 $25 to $43

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d Total costs are approximated by the illustrative plan scenario costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates. f Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-4 Table 8-2. Monetized Benefits, Costs, and Net Benefits Under the Mass-based Illustrative Plan Approach Scenario (billions of 2011$) a
Mass-Based Scenario 2020 2025 2030 Climate Benefits b

5% discount rate $0.94 $3.6 $6.4 3% discount rate $3.3 $12 $20 2.5% discount rate $4.9 $17 $29 95th percentile at 3% discount rate $9.6 $35 $60
Air Quality Co-benefits Discount Rate
3% 7% 3% 7% 3% 7% Air QualityHealth Cobenefits c $2.0 to $4.8 $1.8 to $4.4 $7 to $17 $7 to $16 $12 to $28 $11 to $26

Costs d $1.4 $3.0 $5.1 Net Benefits e $3.9 to $6.7 $3.7 to $6.3 $16 to $26 $15 to $24 $26 to $43 $25 to $40

Non-Monetized Benefits Non-monetized climate benefits Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so figures may not sum. b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SC-CO 2 estimated for a 3 percent discount rate, however we emphasize the importance and value of considering the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are year-specific and increase over time.

c The air quality health co-benefits reflect reduced exposure to PM 2.5 and ozone associated with emission reductions of directly emitted PM 2.5 , SO 2 and NO X . The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 98 percent of total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. d Total costs are approximated by the illustrative plan scenario costs estimated using the Integrated Planning Model for the final emission guidelines and a discount rate of approximately 5 percent. This estimate includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs.

e The estimates of net benefits in this summary table are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates. f Estimates in the table are presented for three analytical years with air quality co-benefits calculated using two discount rates. The estimates of co-benefits are annual estimates in each of the analytical years, reflecting discounting of mortality benefits over the cessation lag between changes in PM 2.5 concentrations and changes in risks of premature death (see RIA Chapter 4 for more details), and discounting of morbidity benefits due to the multiple years of costs associated with some illnesses. The estimates are not the present value of the benefits of the rule over the full compliance period.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-5 8.2 Uncertainty Analysis The Office of Management and Budget’s circular Regulatory Analysis (Circular A-4) provides guidance on the preparation of regulatory analyses required under E.O. 12866, and requires an uncertainty analysis for rules with annual benefits or costs of $1 billion or more. 191 This final rulemaking surpasses that threshold for both benefits and costs. Throughout the RIA, we considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits and costs. We summarize three key elements of our analysis of uncertainty here:

 Evaluating uncertainty in the illustrative plan approaches that states will implement,
which influences both costs and benefits.

 Assess uncertainty in the methods used to calculate the health co-benefits associated with
the reduction in PM 2.5 and ozone and the use of a benefits-per-ton approach in estimating
these co-benefits.

 Characterizing uncertainty in monetizing climate-related benefits.
Some of these elements are evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain outcomes are unknown and we use scenario analysis to evaluate their potential effect on the benefits and costs of this rulemaking.

8.2.1 Uncertainty in Costs and Illustrative Plan Approaches
The calculation of the state goals is based on an evaluation of methods for reducing the carbon emissions intensity of electricity generation that may be achieved at reasonable cost. Our best estimates of the costs of these methods of intensity reduction are reported within the cost analysis of this rule and are included in the cost modeling in the RIA.
A significant source of uncertainty under this regulation is the ultimate approach states will take to comply with the guidelines, which will affect both the costs and benefits of this rule. For this reason we modeled two potential illustrative plan scenarios for each regulatory option: the rate-based illustrative plan scenario and the mass-based illustrative plan scenario. The cost...

191 Office of Management and Budget (OMB), 2003, Circular A-4 , http://www.whitehouse.gov/omb/circulars_a004_a-4 and OMB, 2011. Regulatory Impact Analysis: A Primer. http://www.whitehouse.gov/sites/default/files/omb/ inforeg /regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-6 The reductions of CO 2 and other pollutants from fossil fuel combustion....
However, from this analysis we see that the net benefits of the two scenarios, given consistent assumptions,

8.2.2 Uncertainty Associated with Estimating the Social Cost of Carbon

The 2010 SC-CO 2 TSD noted a number of limitations to the SC-CO 2 analysis, including the incomplete way in which the integrated assessment models (IAM) capture catastrophic and non-catastrophic impacts, their incomplete trea tment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk
aversion. 192 Currently 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 information on the nature of damages and because the science incorporated into these models understandably lags behind the most recent research. These
individual limitations do not all work in the same direction in terms of their influence on the SCCO 2 estimates, though taken together they suggest that the SC-CO 2 estimates are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that “It is very likely that [SC-CO 2 estimates] underestimate the damage costs because they cannot include many non-quantifiable impacts” and the IPCC Fifth Assessment report observed that SC-CO 2 estimates continue to omit various impacts that would likely increase damages. The 95 th percentile estimate was included in the recommended range for regulatory impact analysis, in part, to address these concerns.
The modeling underlying the development of the SC-CO 2 estimates addressed uncertainty in several ways. An ensemble of three IAMs were used to generate the SC-CO 2 estimates to capture differences in model structures that, in part, reflect uncertainty in the scientific literature about these relationships. Parametric uncertainty was explicitly addressed in

192 Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, with participation by the Council of Economic Advisers, Council on Environmental Quality, 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 and Technology Policy, and Department of Treasury (February 2010). Available at: <http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf>.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-7 each IAM, though to differing degrees, through Monte Carlo simulations in which explicit probability distributions for key parameters were specified, including the equilibrium climate sensitivity, which represents the long-run responsiveness of the climate to increasing GHG concentrations. Furthermore, the analysis considered five different socioeconomic and emissions forecasts to capture the sensitivity of the SC-CO 2 estimates to key exogenous projections used in the modeling. Finally, the results were calculated for three discount rates, which were selected, in part, to reflect uncertainty about how interest rates may change over time and the possibility that climate damages are positively correlated with uncertain future economic activity. This analysis produced 45 different distributions of the SC-CO 2 estimates for each emissions year. To produce a range of plausible estimates that are manageable in regulatory analysis but still reflects the uncertainty in the results four point estimates were recommended. The use of this range of point estimates in this rulemaking helps to reflect the uncertainty in the SC-CO 2 estimates. Chapter 4 of this RIA provides a comprehensive discussion about the methodology and application of the
SC-CO 2 ; see both the 2010 TSD and current SC-CO 2 TSD for a full description.
In addition, OMB’s Office of Information and Regulatory Affairs received comments regarding uncertainty and the SC-CO 2 estimates in response to a separate request for public comment on the approach used to develop the estimates. Commenters discussed the analyses and presentation of uncertainty in the TSD as well as the implications of uncertainty for use of the
SC-CO 2 estimates in regulatory impact analysis. In their response, the interagency working group (IWG) acknowledged uncertainty in the SC-CO 2 estimates but disagreed with commenters that suggested the uncertainty undermines use of the SC-CO 2 estimates in regulatory impact analysis. The IWG went on to note that the uncertainty in the SC-CO 2 estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature, and that while all regulatory impact analysis involves uncertainty, these analyses can provide useful information to decision makers and the public. See the IWG Response to Comments for the complete response. 193

193 See https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-8 8.2.3 Uncertainty Associated with PM 2.5 and Ozone Health Co-Benefits Assessment
Our estimate of the total monetized co-benefits is based on EPA’s interpretation of the best available scientific literature and methods and supported by the SAB-HES and the National Academies of Science (NRC, 2002). Below are key assumptions underlying the estimates for
PM 2.5 -related premature mortality, which accounts for 98 percent of the monetized PM 2.5 health
co-benefits:

 We assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption,
because PM 2.5 varies considerably in composition across sources, but the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type. The PM ISA concluded that “many constituents of PM 2.5 can be linked with multiple health effects, and the evidence is not yet sufficient to allow differentiation of those constituents or sources that are more closely related to specific outcomes” (U.S. EPA, 2009).

 We assume that the health impact function for fine particles is log-linear without a threshold in this analysis. Thus, the estimates include health co-benefits from reducing fine particles in areas with varied concentrations of PM 2.5 , including both areas that do not meet the fine particle standard and those areas that are in attainment, down to the lowest modeled concentrations.

 We assume that there is a “cessation” lag between the change in PM exposures and the total realization of changes in mortality effects. Specifically, we assume that some of the incidences of premature mortality related to PM 2.5 exposures occur in a distributed fashion over the 20 years following exposure based on the advice of the SAB-HES (U.S. EPA-SAB, 2004), which a ffects the valuation of mortality cobenefits at different discount rates. EPA quantitatively assessed uncertainty in the air quality health co-benefits, including probabilistic approaches.
In addition, EPA provides the 95 th percentile confidence interval for avoided PM-related premature deaths and the associated economic valuation using two key epidemiology studies. EPA provides the PM-related results using alternate concentration-response relationship provided by an expert elicitation and alternate ozone-related results using concentration-response***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-9 relationships provided by alternate epidemiology studies. In addition, we include an assessment of the distribution of population exposure in the modeling underlying the benefit-per-ton estimates. For further discussion and characterization of those uncertainties influencing the benefit assessment, see Chapter 4 of this RIA.
As noted and described in Chapter 4 of this RIA, we use a benefit-per-ton approach to quantify health co-benefits. All benefit-per-ton have inherent limitations, including that the estimates reflect the geographic distribution of the modeled sector emissions, which may not match the emission reductions anticipated by the final emission guidelines, and they may not reflect local variability in population density, meteorology, exposure, baseline health incidence rates, or other local factors for any specific location. In addition, these estimates reflect the regional average benefit-per-ton for each ambient PM 2.5 precursor emitted from EGUs, which assumes a linear atmospheric response to emission reductions. The regional benefit-per-ton estimates, although less subject to these types of uncertainties than national estimates, still should be interpreted with caution. Even though we assume that all fine particles have equivalent health effects, the benefit-per-ton estimates vary between precursors depending on the location and magnitude of their impact on PM 2.5 levels, which drive population exposure.

8.3 References Docket ID EPA-HQ-OAR-2013-0602, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon, with 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 Agen cy, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Also available at: <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. Accessed July 15, 2015.***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review***

8-10 Interagency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury. Response to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. July 2015. Available at<https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-commentsfinal-july-2015.pdf.> Accessed July 15, 2015. Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: Synthesis Report Contribution of Working Groups I, II and III to the Fourth Assessment Report of the IPCC . Available at <http://www.ipcc.ch/publications_and_data/publications_ipcc_fourth_assessment_report_synt hesis_report.htm>. Accessed June 6, 2015. National Research Council (NRC). 2002. Estimating the Public Health Benefits of Proposed Air Pollution Regulations . National Academies Press. Washington, DC. U.S. Environmental Protection Agency—Science Advisory Board (U.S. EPA-SAB). 2004. Advisory Council on Clean Air Compliance Analysis Response to Agency Request on Cessation Lag. EPACOUNCIL-LTR-05-001. December. Available at <http://yosemite.epa.gov/sab/sabproduct.nsf/0/39F44B098DB49F3C85257170005293E0/$File/co uncil_ltr_05_001.pdf>. Accessed June 4, 2015. 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 Division, Research Triangle Park, NC. Available at <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546>. Accessed June 4, 2015.***E.O. 12866 Review – Draft – 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-15-003 July 2015