DETROIT — The Midwest’s largest electric utilities and the environmental groups forever pressing them to lessen reliance on fossil fuels still disagree about plenty when it comes to U.S. EPA’s Clean Power Plan.
But this much they agree on: keeping it as simple as possible, and bigger is better.
More than a dozen executives representing the region’s largest electric generators discussed compliance strategies during a daylong conference Friday at a Detroit hotel. The meeting was organized by the Bipartisan Policy Center and the Great Plains Institute — two groups working most closely with state regulators to help them vet their options.
The conference was held just weeks before EPA is expected to release the final version of the rule, starting the clock for states to develop compliance plans.
Among key decisions facing state regulators as they go about the task: Do they choose a rate-based standard or an optional mass-based standard? And do they act alone or work with other states?
Officials from utilities including American Electric Power Co. Inc., Duke Energy Corp. and DTE Energy Co., the region’s grid operator, as well as representatives from the Natural Resources Defense Council and Union of Concerned Scientists, agreed Friday that, with limited exceptions, a mass-based standard is simpler and easier to implement.
There was also strong consensus that state implementation plans that enable trading of emissions allowances could reduce costs of complying with the rule. And trading would be more easily achieved among states that adopt mass-based standards.
The views are in line with a report last month by Duke University’s Nicholas Institute for Environmental Policy Solutions that showed compliance costs could be substantially lower if states work together and adopt mass-based standards (ClimateWire, May 19).
And the Midcontinent Independent System Operator last summer said compliance costs across its 15-state footprint could be reduced by approximately $3 billion annually by taking a regional approach to curbing emissions compared to making similar cuts separately across its nine subregions (EnergyWire, Sept. 18, 2014).
"I tend to think that emissions trading is a pretty pragmatic way to go if the programs are structured with an eye toward simplicity," said Kevin Leahy, director of environmental and energy policy for Duke Energy, which operates in three Midwestern states.
By contrast, trading between states with mass- and rate-based standards would add complexity and open the door to gaming by traders, he said.
"There are some clever people there, and they are going to be trying to do the math to figure out what the game is," he said.
Compacts not necessary
There was also widespread agreement at Friday’s conference that a formal compact or agreement among states, such as the Regional Greenhouse Gas Initiative, isn’t necessary to enable trading of emissions allowances.
"I don’t believe … that you need to set up a large regional program with a lot of administration, a lot of administrative costs," said Bruce Braine, vice president of strategic analysis for AEP.
Braine, who is also chairman of the International Emissions Trading Association, said a "simple party-to-party emissions allowance trading system" is preferable for states that don’t have the budget or want the administrative responsibility that goes with a formal agreement with other states.
Such a system "would put the operational decisionmaking, which states frankly don’t want to get involved in … in the hands of generators," he said.
Many of the parties that took part in Friday’s conference are part of the Midwestern Power Sector Collaborative, an initiative of the Great Plains Institute, which sent EPA a two-page letter earlier this spring asking to give states the ability to opt into interstate trading without formal agreements as long as they meet minimum compatibility requirements.
Adopting mass-based standards and enabling trading of emissions allowances would create a market that would lead electric generators to the least-cost and most efficient solution to reducing CO2 emissions, whether that means building a wind farm, scaling up energy efficiency programs or fuel switching, utility executive said.
Skiles Boyd, vice president of environmental management and resources for DTE, said renewable and energy efficiency mandates limit the flexibility in complying with the rule.
"When we look at it, at least in Michigan, the thought is with carbon mandates, the need for those kind of things go away," he said.
But Rebecca Stanfield, deputy director of the NRDC’s Midwest Program, said the market won’t by itself encourage enough investment in energy efficiency and renewables.
"I disagree that the market signal from a mass-based program will result in capturing efficiency and overcoming those market barriers on its own," she said. "If you want to reap the rewards of regional collaboration and energy efficiency, you have to look at multiple strategies.
"We don’t have evidence that market signal from a mass-based system would result in that same level of success."
Defeating climate change
Steve Corneli, senior vice president of policy and strategy for NRG Energy Inc., said a lot can be done to reduce carbon emissions at a relatively low cost. But sufficiently tackling climate change will require more than putting a price on carbon.
Ultimately, what’s needed are incentives that go beyond existing renewable and energy efficiency standards and drive development and deployment of new technologies and business systems, he said.
"The goal of defeating climate change is not about defeating coal but making it feasible to deploy new technologies and make money doing it," he said.
Ultimately, how states choose to meet their obligations under the Clean Power Plan will depend on what the final rule looks like when it’s out later this summer.
Mark Rupp, EPA’s deputy associate administrator for intergovernmental relations, said the agency recognizes that states will have a hard time developing plans until a final rule is released.
He also reiterated a point made by other agency officials in the past — that there will be changes in the final rule based on the millions of public comments received.
"The final rule will not look like the proposed rule," Rupp said.