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ES - 1 **EXECUTIVE SUMMARY** This R egulatory Impact Analysis (RIA) discusses potential benefits, costs, and economic impacts of the proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources fo r Electric Utility Generating Units (herein referred to as EGU GHG NSPS ). **ES .**  **1 Background and Context of Proposed Rule**  The proposed EGU GHG NSPS will limit greenho use gas emissions (GHG) from new and reconstructed fossil fuel fired electric generating units (E GU) constructed in t he United State s in the future. 1 This rulemaking will apply to carbon dioxide (CO 2 ) emissions from new electric generating sources that exceed 25 megawatts (MW) in capacity. The United States Environmental Protection Agency ( EPA ) is p roposing requirements for these sources because CO 2 is a GHG and power plants are the country’s largest stationary source emitters of GHGs . As stated in the EPA’s Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Se ction 202(a) of the Clean Air Act (74 FR 66, 518 ; Dec. 15, 2009) and summarized in Chapter 3 of this RIA, the anthropogenic buildup of GHGs in the atmosphere is very likely the cause of most of the observed global warming over the last 50 years. This action is taken in response to a proposed settlement agreement entered into on December 23, 2010 to issue rules that will deal with GHGs from certain fossil fuel -fired EGUs . The statutory authority for this action is the Clean Air Act (CAA) section 111(b) that requires EPA to regulate new, modified, and reconstructed sources. For the purposes of this rule , a new source is one that commences construction after the publication of th e rule. A reconstructed source is generally defined as an existing source that conducts extensive replacement of components and is treated as a new source under CAA section 111 . A m odification is any physical change in, or c hange in the method of operation of, a source that increases the amount of any air pollutant emitted by the source or results in the emission of any air pollutant not previously emitted. EPA is not proposing a standard of performanc e for a group of sources it is calling transitional sources as long as they commence construction 2 within 12 months from the date of this proposal . Transitional sources are affected EGUs that have received approval for their

1 F or purposes of this rule, covered EGUs do not include simple cycle combustion turbines. In addition, units subject to emission requirements under CAA section 129 would not be subject to requirements under this proposed rule. 2 EPA’s regulations define “commenced construction” as, in general, un dertaking a continuous program of construction or entering into a binding contract to do so.***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 2 complete Prevention of Significant Deterioration ( PSD ) preconstruction permits, but that have not “commenced construction” by the date of today’s proposed rulemaking. EPA is aware of approximately 1 5 -transitional sources, six of which are expected to utilize carbon capture and sequestration (CCS) technology . CAA section 111(d) requires EPA to regulate existing stationary sources that are not regulated under other parts of the CAA (i.e., pollutants regulated under NAAQS requirements or NESHAP r equirements) and to which a n ew source performance standard ( NSPS ) would apply if such existing source were a new source. This rulemaking affects CAA section 111(b) new sources of GHG emissions from fossil fuel -fired EGUs but does not address GHG emission s from existin g sources. EPA is currently examining options for developing CO 2 emission guidelines that will be used by states to develop plans establishing standards of performance as required by CAA section 111(d) . CAA Section 111 (b) requires that this standa rd be reviewed every eight years, thus this regulatory requirement will likely be reviewed and potentially revised after the 2020 tim eframe. The refore, this economic analysis focuses on benefits and costs of this proposal for the years through 2020. **ES .**  **2 Summary of Proposed Rule**  This proposal requires that all new fossil -fuel fired units that exceed 25 MW in capacity be able to meet an emission rate standard of 1 , 000 pounds of CO 2 per megawatt hour (lbs CO 2/MWh) calculated over a rolling 12 - month period . It also proposes an alternative compliance option that would allow units to meet the 1 , 000 lbs CO 2/MWh standard using a 30 - year averaging period. These standards could be met either by natural gas combined cycle (NGCC) generation with no additional GHG control or coal -fired generation using CCS . T he base case modeling EPA performed for this rule (as well as modeling that EPA has performed for other recen t air rules) project that, even in the absence of this action, new fossil -fuel fired capacity constructed through 2020 will most likely be either combined cycle capacity or coal fired capacity with CCS, built with support from federal grants. Any projected combustion turbine capacity would not be affected by this rule. Analysis performed both by EPA and the U.S. Energy Information Administration (EIA), along with statements and actions of a number of major utilities , 3 project that generation technologies other than coal (including natural gas and

3 For example: “We have no other coal -fueled generation planned at this time... When we do need new capacity, it is highly likely that we will look to natural gas p lants instead of coal, especially if natural gas prices remain as low as projected.” AEP January 1, 2011, Washington Post; “If you actually look at the economics today, you would be burning gas, not coal,” Jack Fusco, Calpine, 12/1/2010, Marketplace; “Coa l’s most ardent defenders are in no hurry to build new ones in this environment.” John Rowe, Exelon, 9/2011, EnergyBiz; “With low gas prices, gas -fired generation kind of snowplows everything else” Lew Hay, NextEra, 11/1/2010, Dow Jones.***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 3 renewable sources) are likely to be the technology of choice for new generating capacity due to cur rent and projected economic market conditions. This means that technologies planned for new sources currently envisioned by owners and operators of EG U s will meet the regulatory requirements of this NSPS. **ES .**  **3 Key Findings of Economic Analysis**  As expla ined in detail in this document, energy market data and projections support the conclusion that , even in the absence of this rule , the power sector will choose technologies that meet the proposed standards due to existing and anticipated economic conditions in the marketplace . Therefore, this analysis does not anticipate that the proposed EGU GHG NSPS will r esult in notable CO 2 emission changes, energy impacts, monetized benefits , costs , or economic impacts by 202 0. Accordingly, we believe this rule will not have any impacts on the price of electricity, empl oyment or labor markets, or the US economy. Nonetheless, this rule will have several important beneficial effects. This NSPS provides legal assurance that an y new coal -fired plants must limit CO 2 emissions. Rather than relying solely on changeable energy market conditions to provide low emissions from new power plants in the future, this rule provides an important safeguard against possible construction of un controlled, high - emitting new sources that might continue to emit at high levels for decades, contributing to accumulation of CO 2 in the atmosphere. In addition, the power sector has advocated reducing regulatory uncertainty. The rule will reduce regulat ory uncertainty by defining section 111(b) requirements for limiting GHG from new EGU sources . The availability of the NSPS also will reduce uncertainty concerning PSD Best Achievable Control Technology (BACT) determinations. This proposed rule is consistent with the President’s goal to ensure that “by 2035 we will generate 80 percent of our electricity from a diverse set of clean energy sources - including renewable energy sources like wind, solar, biomass a nd hydropower, nuclear power, efficient natural gas , and clean coal.” 4 The rule will also send a clear signal about the future of CCS technology that, in conjunction with other policies such as Department of Energy (DOE) financial assistance, will support development and demonstration of CCS technology from coal fired plants at commercial scale. The lack of GHG regulatory requirements has hampered utilities pursuing such projects and in July 2011 was cited as a key reason for cancellation of an

4 “Blueprint for a Secure Energy Future . ” March 30, 2011 . Available online at: http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf***E.O. 12866 Review– Draft– Do Not Cite, Quote, Or Release During Review ***

ES - 4 American Electric Power CCS power plant project. 5 Carbon capture also can help to improve U.S. energy production through enhanced oil recovery, as highlighted by a series of regional assessments conducted for DOE. 6 Internationally, this rule will help demonstrate to other countries that the United States is taking action to limit GHGs from its largest emissions sources . The impact of GHGs is global, and U.S. action to minimize GHG emissions complements ongoing programs and efforts in other countries .

5 American Electric Power. “AEP Places Carbon Capture Commercialization On Hold, Citing Uncertain Status Of Clima te Policy, Weak Economy .” July 14, 2011. Available online at: http://www.aep.com/environmental/news/?id=1704 6 U.S. Department of Energy. DOE web page, “Ten Basin - Oriented CO2 - EOR Assessments Examine Strategies for Increasing Domestic Oil Production . ,” Available online at: http://www.fossil.energy.gov/programs/oilgas/eor/Ten_Basin - Oriented_CO2 - EOR_Assessments.html .