Midcontinent Power Sector Collaborative Examines Considerations for Distributing CPP Allowances

The CPP offers states choosing to comply under a mass-based emission trading program discretion to decide both the methods that will be used to distribute CO2 allowances and the parties that will receive such distribution.  In order to assist states with making these distribution decisions, the Midcontinent Power Sector Collaborative—a multi-sector initiative that is convened and staffed by the Great Plains Institute “to consider an optimal approach to reduce carbon emissions from existing power plants and meet Clean Power Plan requirements”—recently released a white paper entitled Key Considerations for Making Allowance Distribution Decisions.

The white paper discusses various issues states should consider when making allowance distribution determinations, including that states should consider the goals they seek to achieve through such distribution (e.g. to protect consumers, reward early action, provide financial security, etc.).

The white paper posits that emission allowances are an operating cost for the generators, regardless of whether they are obtained for free or purchased, and that the total value of allowances will be greater than the cost of reducing emissions. The paper also posits that if allowances are allocated at no cost to the generator, the “flow” of the allowance value (i.e. whether or not consumers benefit) will depend, in part, on: (i) whether the state regulates its utilities or is restructured, (ii) the utility’s ownership structure (e.g. public power, investor owned utility, merchant generator), and (iii) whether generators participate in a regional market.

The white paper also examines the opportunities and challenges associated with several different distribution options, including:

  • Allocating based on historical baseline data (such as emissions);
  • Using an “updating output-based” approach in which incentives or subsidies are provided based on changes that occur during the program period;
  • Providing allocations to the affected entities;
  • Providing allocations to load-serving entities;
  • Distributing allocations directly;
  • Distributing allocations through set-asides; and
  • Distributing allocations through an auction process.
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New White Paper Examines Cost Impacts of Nuclear Retirements on CPP Compliance

A recent white paper issued by the global business advisory firm FTI Consulting, The Impacts of Nuclear Retirements under the Clean Power Plan, suggests that the recent and potentially continuing uptick in nuclear retirements, currently totaling 8.3 gigawatts or 8% of total current nuclear capacity, may make CPP compliance more costly.

The study modeled the electricity and emissions price impacts of the CPP under two cases.  The Baseline Case assumes that existing capacity, including nuclear generation that had previously announced intent to retire, is maintained through 2035 and current nuclear capacity under construction is built as planned.  The Alternative Case assumes that announced nuclear retirements will occur as planned, additional nuclear units will retire at the expiration of their current licenses, and new nuclear capacity under construction will be built as planned.

Under the Alternative Case, FTI estimates that nuclear retirements will result in a 26% increase in carbon dioxide prices in the Eastern Interconnection over the Baseline Case.  FTI predicts that higher carbon dioxide prices will drive increases in wholesale electricity prices, with electricity prices under the Alternative Case between 6-8% higher than the Baseline Case between 2022 and 2032.  By 2035, FTI projects this price disparity will widen further, with electricity prices under the Alternative Case nearly 15% higher than the Baseline Case due to predicted acceleration of nuclear retirements after 2031.  Areas with significant nuclear capacity or concentrated nuclear retirements demonstrated more dramatic price increases, sooner.  For example, FTI’s projections showed electricity prices in the New York Independent System Operator-administered wholesale markets to be roughly 18% higher on average in the Alternative Case than in the Baseline Case.

In comparing its Alternative Case to EPA’s modeling, the paper suggests that CPP compliance may be more expensive than EPA initially projected.  According to the paper, the Alternative Case projects electricity prices will be 23% higher in 2025, and 16% higher in 2030, when compared with EPA’s modeling.

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DOE to Host Webinar on Marine Hydrokinetic Wave Energy Funding Opportunity

The Department of Energy (DOE) will host an informational webinar on Tuesday, August 23, 2016, 4:00-5:00 P.M. EDT, regarding its recent marine wave energy Funding Opportunity Announcement (FOA).  The FOA, issued August 16, 2016, is administered through DOE’s Energy Efficiency and Renewable Energy Water Power Technologies Program and will provide up to $40 million, subject to congressional appropriations, to support the site selection, design, permitting, and construction of a marine hydrokinetic wave energy testing facility within U.S. federal or state waters.  DOE envisions that the testing facility will contain at least three test berths to simultaneously and independently test wave energy devices.  The facility will be used to gather performance data which DOE hopes will inform future designs and accelerate the commercialization and deployment of wave energy technologies in the United States.

Those interested in attending Tuesday’s webinar can register here.  Entities wishing to apply for the funding must submit to DOE a letter of intent by 5:00 P.M. EDT on August 29, 2016.  The application deadline is 5:00 P.M. EDT on September 20, 2016.

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Natural Gas Generation Predicted to Emit More CO2 Than Coal in 2016

The Energy Information Administration (EIA) has predicted that energy-associated CO2 emissions from natural gas will be greater than those from coal for the first time since 1972.  While coal is more carbon-intensive than natural gas, changes in generation mix have led to increased CO2 emissions from natural gas (and a decrease from coal-fired generation).

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Litigation Update: EPA’s Methane Rules for Oil and Natural Gas

Nine petitions challenging EPA’s final New Source Performance Standards for the oil and natural gas sector have been filed with the D.C. Circuit (the rule was published in the Federal Register in early June).  EPA’s rule limits certain greenhouse gas, including methane, and volatile organic compound emissions from oil and natural gas operations, such as hydraulically fractured oil wells.  EPA stated that it expects the final rule to reduce 510,000 short tons of methane in 2025, or the equivalent of eleven million metric tons of CO2.

States (Alabama, Arizona, Kansas, Kentucky, Louisiana, Michigan, Montana, North Dakota, Ohio, Oklahoma, South Carolina, West Virginia, Wisconsin, Texas, Kentucky Energy and Environment Cabinet, Texas Commission on Environmental Quality, and North Carolina Department of Environmental Quality) and industry groups have challenged the rule, with North Dakota being the first to file and thus the named petitioner in the consolidated cases.  Other states—California, Connecticut, Illinois, New Mexico, New York, Oregon, Rhode Island, Vermont, and Massachusetts—and the City of Chicago have filed a motion to intervene in support of EPA, as have several environmental groups.  EPA has filed an unopposed motion to extend certain deadlines, which would push the next big steps in this proceeding, including the submission of dispositive motions, into October.

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