Clean Air Task Force's Schneider proposes trading plan for existing source rule

As U.S. EPA nears its June deadline for existing power plant emissions regulations, stakeholder groups are moving to offer suggestions as to how the agency should craft the rule. During today's OnPoint, Conrad Schneider, advocacy director at the Clean Air Task Force, discusses a new proposal by his organization that seeks to address the potential economic impacts of the standards.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Conrad Schneider, advocacy director at the Clean Air Task Force. Conrad, thank you for coming back on the show.

Conrad Schneider: Thank you very much for having me.

Monica Trauzzi: Conrad, you've released a new report that you're hoping will shape EPA's direction on its existing power plant rule. One of the primary concerns we hear regarding this rule as it comes out are the potential economic impacts, and you're suggesting that the agency can take a route that will not have negative economic effects. What are you proposing here?

Conrad Schneider: Exactly right. In fact, part of the reason that we commissioned this study was to try to rebut arguments that a rule like this would be financially devastating for the country, would drive energy prices higher, run people out of jobs, and so forth. What we hope to do is to be able to demonstrate that there was an effective policy, a common-sense policy that could achieve meaningful emission reductions at minimal cost. And the key to this insight really that we learned in commissioning this work from the NorthBridge Group, our analytics shop, was that there is a large amount of underutilized natural gas generation that's out there right now. These plants were built 10 to 15 years ago to run in base load capacity. They're not running in base load mode right now. That means they're being underutilized. And simply by turning up that generation slightly and turning down coal generation slightly we could achieve this very large reduction in CO2 at minimal cost.

Monica Trauzzi: OK, let's break this down a little bit. What assumptions are you making about natural gas and the price of natural gas?

Conrad Schneider: Right, so two things: first of all in terms of the base assumptions, we're using something that's very close to the Annual Energy Outlook that the Energy Information Administration puts out for 2013, and then the NorthBridge Group used its own modeling assumptions with respect to what the price impacts would be on gas as a result of this. And frankly we've spoken with a lot of people in the industry and they think we may have actually overshot that, so we've run a couple of sensitivities a little higher and lower. Regardless the answer is that the gas prices sort of moderate a little bit but that the overall impact on prices for electricity is very, very small. We see the potential for a 27 percent reduction in CO2 from the power sector from 2005 levels for only about a 2 percent increase in retail rates in 2020, probably something that people would not even see on their residential bills.

Monica Trauzzi: So on coal, I mean, we will see plant retirements; doesn't that mean that certain regions of the country will take a bigger economic hit and couldn't we see a downward slope in job activity and economic activity?

Conrad Schneider: You know, not necessarily. It would be a mixture in some of those places. For example, in the Southeast where typically we see that there's a lot of coal, and there were already going to be some retirements as a result of low gas prices and the MATS rule, those are also areas where the spread in price between coal and gas is the right spread right now to see this sort of displacement of coal with gas. If that happens under our program, which has an interstate trading program, a model rule that allows states to join together in interstate trading, that area would actually be probably a net seller of credit. So while their coal generation might go down a bit, they actually might see an upside economically from the sale of these credits by running their gas units a little harder. So it's very hard to say, you know, one way or another. Some of these areas are actually going to see a lot of upside from this policy.

Monica Trauzzi: One of the big questions everyone seems to have about how EPA will move forward with this rule is how they'll include carbon capture and storage technology. Do you address that?

Conrad Schneider: You know, we don't assume that there's going to be any of that. Technically we think it's feasible. We think for new plants it's adequately demonstrated under the proposal that EPA has put out, a re-proposal that they've put out, but we don't rely on that in this particular case. As I said, the dominant compliance pathway that we see to our proposed standards would be through simple displacement of some coal generation by gas. It doesn't entail a lot more coal retirements than would already come anyway. Most of what it means is literally that the coal just doesn't run as hard; gas runs a little harder. So no, we don't see that.

Monica Trauzzi: Is this legally defensible?

Conrad Schneider: Well, that's the other touchstone that we ... there's no reason for EPA to write a rule that the circuit court is going to throw out or the Supreme Court is going to throw out. So the way we fashioned this was to try to avoid excess litigation risk. We know this is a little bit of an untried provision of the Clean Air Act, so being a little bit more cautious in our approach was something that we wanted to achieve. And so one of the ways we do that is through offering states a model rule. We're recommending that EPA offer states a model rule that they can opt into rather than a mandatory program, a mandatory trading program. And that would give states the ability to take advantage of the low-cost opportunities from interstate trading but not have EPA be in the position of having to mandate such a program.

Monica Trauzzi: This report comes at a time when the House is taking up legislation that would limit EPA's ability to act on greenhouse gas emissions. How do you think this report or how do you hope this report will influence the political debate?

Conrad Schneider: Well, it wasn't necessarily planned in terms of the timing, but we hope it's a direct response to people who are skeptics or opponents who would say that this provision of the act cannot achieve the emission reductions, or that if it did, that those emission reductions would cause economic dislocation. The findings of this study show that we can achieve very, very meaningful reductions, as I said 27 percent from 2005 levels, for a very minimal cost, 2 percent increase in retail rates in 2020. That should be a very strong rebuttal to the voices who say that we should stop EPA in its tracks.

Monica Trauzzi: So the agency has a June 2014 deadline for the proposal of these rules. Talk a bit about the timing of the release of this report. Are you a bit late to the game, or do you think you can have a direct impact on what the agency does?

Conrad Schneider: Well, we hope they'll take a close look at this. We're going to be presenting this proposal to them later today. And we have in different forms around the country and over the last six months rolled out little pieces of this when we had some preliminary results so I don't think it'll be a complete surprise. But we think it's timely. We certainly released it with it in mind that EPA could take it into account as they're drafting the rule. But part of it, too, is we've suggested this sort of model rule with interstate trading and so forth, and that is not necessarily something that EPA has to propose in June. They may propose a target level, a performance standard in June, and as they have with other rules follow it up in the subsequent months with steps and guidance that will help states implement it. So I don't think we're too late for that certainly.

Monica Trauzzi: How is industry reacting? What have you heard from ...

Conrad Schneider: Well, we have talked to over a dozen companies that have generating assets, both coal and gas, and nuclear and so forth, and you know, I would say it's a mixed reaction. There are some industry folks in the power sector who probably like both our stringency and our mechanism, and there's some that don't like either one of them, and some of them a little bit of one and a little bit of the other. Maybe some like the stringency, maybe some like the mechanism, and so forth. And we're continuing those discussions, and we're hopeful that as EPA moves forward more companies will step forward and sort of say what they think would be the best plan, and we hope, like EPA, that some of those companies will adopt some of the mechanisms that we've proposed.

Monica Trauzzi: All right, Conrad, we'll end it there. Thank you so much for coming on the show.

Conrad Schneider: Thank you very much, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]



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