EPA’s Proposed Clean Power Plan: Conversion to Mass-Based Emission Targets
Released: 2015-03-17T00:00:00

Introduction

In June 2014, the Environmental Protection Agency (EPA) published a proposed rule that would require states to address carbon dioxide (CO 2 ) emissions from existing fossil fuel-fired electric generating units. The proposal relies on authority asserted by EPA in Section 111(d) of the Clean Air Act (CAA). However, many have questioned various aspects of EPA's proposed rule, including the agency's statutory authority to issue the rule pursuant to Section 111(d). In addition, the proposed rule has received considerable attention from Congress, state officials, and a range of stakeholder groups.

The proposal creates CO 2 emission rate goals—measured in pounds of CO 2 emissions per megawatt-hour (MWh) of electricity generation—for each state to achieve by 2030 and an interim goal in 2029, based on the average of a state's emission rates between 2020 and 2029. EPA's goals include potential emission reduction opportunities that are considered "outside the fence" of fossil fuel-fired generating facilities. These include increased renewable energy generation and energy efficiency improvements. Thus, the emission rate goals effectively apply to a state's overall electricity generation portfolio, not just the fossil fuel units. EPA estimates that if the states achieve their individual emission rate goals, the 2030 CO 2 emissions from the electric power sector in the United States would be reduced by 30% compared to 2005 levels.

Although EPA's proposed rule measures state compliance in terms of a CO 2 emissions rate, EPA allows states considerable flexibility in terms of meeting its emissions rate goals. In particular, EPA's proposed rule would allow states to meet their compliance obligations by converting their emission rate targets to mass-based targets—measured in metric tons of CO 2 . When EPA issued its proposal, the agency published a technical support document ("Projecting EGU CO 2 Emission Performance in State Plans") that provided one option for converting from rate-based to mass-based targets. After receiving feedback from states about the conversion process, EPA provided additional information in November 2014, including a new technical support document: "Translation of the Clean Power Plan Emission Rate‐Based CO 2 Goals to Mass‐Based Equivalents."

This report discusses EPA's mass-based conversion methodology and the resulting state-specific mass-based targets. The state-specific targets and percentage reduction requirements are provided in Table 1 , allowing the states to compare their compliance obligations. A state might consider using a mass-based target for a variety of reasons, including the opportunity to link with existing mass-based programs (e.g., the Regional Greenhouse Gas Initiative) or to continue existing, state emission reduction goals. This report indicates that the mass-based reduction requirements may be less stringent in some states than the emission rate requirements. Thus, some states may factor such a comparison into their decision process.

The first section of this report provides an overview of the emission rate methodology, which plays a role in the mass-based conversion calculations. The second section describes EPA's mass-based conversion methodologies: approach 1, which includes existing sources of electricity, and approach 2, which includes existing and new sources of electricity. The final section provides some observations about the results of the mass-based conversions, including a comparison of the required percentage reductions to the percentage reductions from the emission rate formula.

This report complements two other CRS reports:

1. CRS Report R43572, EPA's Proposed Greenhouse Gas Regulations for Existing Power Plants: Frequently Asked Questions , by [author name scrubbed] et al. This report discusses a range of issues—legal, historical, and procedural—regarding EPA's proposed rule. 2. CRS Report R43652, State CO2 Emission Rate Goals in EPA's Proposed Rule for Existing Power Plants , by [author name scrubbed]. This report discusses in detail EPA's emission rate methodology (i.e., the "building blocks") and the state-specific emission rates that result from EPA's calculations.

Overview of EPA's Emission Rate Methodology

EPA's emission rate methodology plays a critical role in the agency's mass-based conversion calculations. An overview of the emission rate formula is helpful in understanding EPA's mass-based conversion calculations.

EPA determined emission rate goals by first calculating each state's 2012 emission rate baseline, which is generally each state's portfolio of electricity generation in 2012. The resulting baselines in each state vary considerably, reflecting, among other things, the different energy sources used to generate electricity in each state. Next, EPA applied four "building blocks" to the state baselines. The building blocks involve estimates of various opportunities for states to decrease their emission rates:

Building block 1: Coal-fired power plant efficiency improvements, such as operation and maintenance best practices and equipment upgrades; Building block 2: Natural gas combined cycle (NGCC) displacement of more carbon-intensive sources of electricity, particularly coal-fired generation; Building block 3: Increased use of renewable energy and preservation of existing and under-construction nuclear power; and Building block 4: Energy efficiency improvements, which result in decreased electricity generation.

Although EPA used the building blocks to create state-specific emission rates, the agency would not require states to precisely implement the activities EPA used in the building blocks. States may choose to meet their emission rate goals by focusing on one or more of the building block strategies (e.g., increase renewable energy beyond building block 3 expectations) or through alternative methods. For further details about EPA's emission rate methodology and state-specific results, see CRS Report R43652, State CO2 Emission Rate Goals in EPA's Proposed Rule for Existing Power Plants , by [author name scrubbed].

Conversion to Mass-Based Targets

EPA's November 2014 support document describes two approaches states could use to convert their emission rate targets to mass-based targets. EPA states that the approaches "are illustrations of two potential options that implementing authorities may choose to adopt if they choose to use a mass-based form of the emission rate-based goal." With each approach, EPA prepared state-specific mass-based targets, which, according to EPA, "could be considered equivalent to the proposed rate-based goals."

The first approach is generally based on historical (2012) emissions from existing sources. The second is based on historical emissions from existing sources and projected emissions from existing and new sources.

The basic formula for converting from an emission rate to a mass-based target is the following:

The state-specific CO 2 emission rate targets in the above formula are included in EPA's June 2014 proposed rule. To convert a rate target to a mass-based target, a state would need an annual estimate of its electricity generation in future years (i.e., 2020-2029). EPA's November 2014 support document provides two methodologies that the agency used to calculate these electricity generation estimates. These methodologies are discussed below.

Approach 1: Existing Sources

EPA's first mass-based conversion approach uses (1) the 2012 baseline data—emissions and electricity generation—for each state's fossil fuel fleet and (2) specific results from parts of the emission rate building blocks to calculate future electricity generation. EPA's conversion methodology includes several steps. The example provided below demonstrates how EPA projected the state-specific electricity generation levels for 2029.

i. EPA determined the electricity generation from "affected electric generating units" in 2012; in general, an "affected EGU" is a fossil fuel-fired unit that was in operation or had commenced construction as of January 8, 2014, has a generating capacity above a certain threshold, and sells a certain amount of its electricity generation to the grid; this value serves as the electricity generation baseline; EPA used the same data that were provided with the emission rate methodology supporting materials;

ii. EPA adjusted the fossil-fuel electricity generation baseline by subtracting the estimated, incremental generation from renewable energy in 2029 (building block 3), the under-construction nuclear power (building block 3), and reduced generation from energy efficiency for 2029 (building block 4); EPA refers to this value as the "adjusted affected fossil fuel generation";

iii. EPA combined the adjusted affected fossil fuel generation value (for 2029) with the estimated generation from renewable energy (both existing in 2012 and incremental in 2029), at-risk and under-construction nuclear generation, and avoided generation from energy efficiency activities (for 2029); EPA refers to this value as the "mass equivalent generation level" for 2029.

In its supporting technical materials, EPA calculated the mass equivalent generation levels for each year between 2020 and 2029. The agency then multiplied these electricity generation values by the corresponding emission rate values (from the June 2014 proposed rule) to produce state-specific, mass-based, emission targets for each year. Table 1 lists each state's 2012 CO 2 emission baseline, 2030 CO 2 emission target, and the percentage reduction required to meet the 2030 target.

Approach 2: Existing and New Sources

EPA's second mass-based conversion approach is based on both historical emissions from existing sources (i.e., approach 1) and projected emissions from certain new, fossil fuel-fired electricity generation sources, particularly NGCC units. The new units would be constructed to address the projected growth in electricity demand. In the proposed rule, and in a supplemental notice published in November 2014, EPA specifically asked for comments on whether and how new NGCC units could be addressed under its proposal. EPA offered this second mass-based approach to account for the possibility that new units may play a role in meeting a state's emission rate or mass-based target.

As with the first approach, the second approach involves a series of steps to produce the estimated electricity generation levels in future years. The following example describes how EPA estimated the states' 2029 electricity generation (from existing and new sources), and thus the 2030 emission targets:

i. EPA determined a state's projected sales of electricity in 2029 by multiplying a state's 2012 electricity retail sales (i.e., in-state) by a specific growth factor; EPA used growth factors for 21 different areas from the Energy Information Administration's (EIA) 2013 Annual Energy Outlook; Figure 1 shows the different growth factors in each state; ii. EPA calculated the incremental demand for new electricity in 2029 by multiplying a state's 2029 projected electricity by expected transmission losses, and then subtracting projected generation from NGCC units that are under construction; iii. EPA combined the incremental demand in 2029 with the 2029 mass equivalent generation level from existing sources (calculated in approach 1); the resulting sum is the "mass equivalent generation level" for 2029 that includes existing and new sources.

Similar to approach 1, EPA calculated the mass equivalent generation levels for each year between 2020 and 2029. EPA then multiplied these values by the corresponding emission rates to produce state-specific, mass-based, emission targets for each year. Table 1 lists each state's 2012 CO 2 emission baseline, 2030 CO 2 emission target, and the percentage reduction required to meet the 2030 target.

Observations About the Mass-Based Targets

Table 1 lists the state-specific, mass-based targets (2030) that EPA prepared using both approaches and compares these targets to each state's 2012 CO 2 emission baseline. In addition, Table 1 provides the 2012 emission rate baseline, 2030 emission rate target, and the emission rate percentage reduction required between 2012 and 2030.

As with the emission rate reduction requirements, the mass-based reduction targets (calculated by EPA) vary by state. This section discusses some observations about the targets, how they compare with one another, and how they compare to emission rate targets.

Approach 1 (Existing Sources) vs. Emission Rate Targets

For the vast majority of states, the percentage reductions (between the 2012 baseline and 2030 targets) required by the emission rates match those required by the mass-based targets EPA created using approach 1 (existing sources). However, in some cases the percentage reductions differ. The reasons for these differences vary.

In nine states—California, Colorado, Florida, Kentucky, Mississippi, North Carolina, Ohio, Virginia, and Wyoming—the mass-based targets for existing sources result in a smaller percentage reduction requirement from the 2012 baseline than the percentage reduction requirement for the emission rate target. The percentage reductions for these states are highlighted in blue in Table 1 . The differences in percentage reductions range from 1% to 14%. For example, if Virginia were to use an emission rate target, its percentage reduction requirement would be 38% between 2012 and 2030. However, Virginia's mass-based target requires a 24% reduction during the same time period.

The reason for the percentage differences in these states relates to EPA's treatment of NGCC units that are under construction. These nine states are the only ones with NGCC units under construction. In EPA's mass-based conversion methodology, the agency includes under-construction NGCC units in the 2012 fossil fuel-fired generation baseline. However, in the emission rate methodology the generation from these units is not included in the 2012 baseline. Thus, the baselines for these nine states are effectively higher using the mass-based methodology, and a relatively higher baseline yields a smaller reduction requirement.

Two other states—Washington and Idaho—also have lower percentage reduction requirements under the mass-based methodology. Their reduction percentages are highlighted in green in Table 1 . These differences are the result of an adjustment EPA made to the states' "adjusted affected fossil fuel generation." As discussed above (step 2 in the mass-based methodology for existing sources), EPA calculates a state's "adjusted affected fossil fuel generation" by subtracting incremental renewable energy and energy efficiency values from a state's 2012 fossil fuel generation baseline. If EPA were to strictly apply this step for these states, the resulting values would be negative, an impossible outcome. If a negative value were allowed ("on paper") for the purposes of the calculations, these states' percentage reductions would match their emission rate percentage reductions. EPA adjusts the calculations in these states, by holding the "adjusted affected fossil fuel generation" at zero.

Four other states—Iowa, Maine, Minnesota, and South Dakota—have larger percentage reductions under the mass-based targets for the existing sources approach. The percentage reductions for these states are highlighted in orange in Table 1 . The reason for these differences is due to the treatment of renewable energy (RE) in EPA's emission rate methodology, particularly its treatment in building block 3.

In building block 3, EPA applies an annual growth rate to each state's RE generation in 2012 to estimate annual RE generation for each state from 2017 through 2030. If the growth factor results in an individual state equaling or exceeding its 2030 RE target, the state's RE use is held constant at the level that matches its regional target. The 2012 RE generation in these four states matched or exceeded their 2030 RE targets, so the estimated future RE generation (for the purposes of the emission rate calculations) in these states actually decreases to match their regional targets. Arguably, this outcome artificially lowers the emission rate targets for these states. In the mass-based methodology, RE generation is captured in the target calculations, not in the 2012 baseline. Thus, in comparison to the emission rate reductions, the mass-based reductions in these states are greater.

Approach 2 (Existing and New Sources)

EPA's second approach for converting to mass-based targets, which includes electricity generation from both existing and new sources, provides some results that may be of interest to policymakers and stakeholders. Table 1 lists the state-specific 2012 emission baselines, 2030 emission targets, and their percentage changes. All of the states have lower percentage reduction requirements than those in approach 1 (existing sources only), because approach 2 includes projected increases of electricity generation. However, the range of percentage reduction requirements varies considerably. In particular, three states—California, Hawaii, and Idaho—have emission targets in 2030 that are higher than their 2012 baseline (highlighted in yellow in Table 1 ). Three other states—Alaska, Kentucky, and Virginia—have percentage reduction requirements that are 3% or less.

Several factors help explain the range of percentage reduction requirements that result from approach 2. First, as discussed above, the methodology in this approach uses a regional growth factor to project electricity demand in future years. These growth factors vary significantly—from 0.29% in the Northeast region to 1.31% in the Southwest region. Assuming these factors hold true, Arizona's demand for electricity will increase by 25% between 2012 and 2029. In contrast, the demand for electricity in Massachusetts will increase by 5% over the same time period.

Second, EPA uses electricity sales data in 2012 to calculate future electricity demand. The 2012 sales data include electricity generation from all sources, including hydroelectricity. This source of generation is included in EPA's emission rate methodology, but to a lesser extent than in the mass-based methodology. The different accounting mechanisms appear to have an impact in states that generate a significant percentage of electricity generation from hydropower (e.g., Idaho, Washington, Oregon). Moreover, these three states are located in a region with a relatively high electricity growth factor ( Figure 1 ).

Third, as with approach 1 (discussed above), the CO 2 emissions from NGCC units that are under construction are counted (at a 55% capacity rate) toward a state's 2012 baseline. This is a factor in nine states, particularly Virginia. In that state, under-construction NGCC units account for approximately 20% of the state's fossil-fuel fired generation in 2012, although these plants generated no power that year.