Full Title: EPA’s Proposed Clean Power Plan Implications for States and the Electric Industry
Author(s): Metin Celebi et al.
Publisher(s): The Brattle Group
Publication Date: 6/2014

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On June 2, 2014 the U.S. Environmental Protection Agency (EPA) announced its proposed performance standards for reducing carbon dioxide (CO2) emissions from existing power plants under the Clean Air Act Section 111(d). The proposed rule requires each state to reduce its CO2 emissions rate from existing fossil fuel plants to meet state-specific standards (in pounds per MWh) starting in 2020, with a final rate for 2030 and beyond.  The EPA estimates that the rule will achieve a 30% reduction in CO2 emissions from the U.S. electric power sector in 2030 relative to 2005 levels. Once the rule is finalized in 2015, states will have until June 2016 to submit initial state implementation plans, to be finalized by June 2017 for stand-alone plans, and by June 2018 for multi-state plans.

The proposed rule sets widely varying, state-specific targets based on four CO2 emissions reduction measures. However, the rule is not prescriptive about how to meet the targets. Instead, each state’s target can be met in a variety of ways, including through interstate cooperation and emissions allowance trading. It is not immediately obvious how costly it will be for each state to comply with the rules, as that will depend on the extent and relative cost of the CO2 abatement alternatives available to each state (i.e., the cost effectiveness of energy efficiency, renewables, and fuel substitution opportunities), and multi-state solution possibilities.