EPA’s CPP Impact
Impact of the EPA’s Clean Power Plan
The goal of energy policy should be to make the entire “energy pie” bigger, not to try to force favored parts to grow or shrink. Energy markets are volatile. If policymakers begin to interfere with marketplace decisions by picking one fuel source over another, we can expect price distortions and supply constraints to have significant effects on the economy.
Today, the Texas energy sector faces an increasing amount of uncertainty from intrusive and disruptive federal regulatory initiatives. Although many of EPA’s rules threaten Texas’ success, the greatest threat to Texas’ current generation mix is EPA’s so-called “Clean Power Plan” – EPA’s rule to limit CO2 emissions from power plants.
The EPA’s CO2 emission reduction targets threaten to destabilize the electricity market, impose a heavy burden on the ratepayers of Texas, and undermine Texas’ control of its electricity generation markets. The Clean Power Plan will require Texas to shoulder a huge share of the nation’s CO2 reductions. Texas reductions will be greater than those of 19 other states combined. This is despite the fact that the Texas CO2 emission rate is lower than 32 other states.
What is EPA’s “Clean Power Plan?”
In August 2015, the EPA released its finalized Clean Power Plan, which provides “guidelines” for carbon emission reductions in the electric sector under Section 111(d) of the Clean Air Act. By September 2016, states are required to submit implementation plans to the EPA. States may request an extension, and if so, they are required to submit to the EPA initial implementation plans for meeting these requirements. Final plans, for states with extensions, are due September 2018. States will then be required to implement their respective plans by 2022.
The EPA has established individual statewide carbon emission limits for fossil fuel plants in 47 states, estimating that its rule will result in a 32 percent reduction in CO2 emissions (relative to 2005 U.S. levels) from U.S. power plants by 2030.
Increase in Electricity and Natural Gas Costs
Numerous studies were prepared to estimate the cost of EPA’s Proposed Clean Power Plan, which required a nationwide reduction of 30% of CO2 emissions. Studies are currently underway to estimate the impact of EPA’s Final Rule requiring a 32% CO2 emissions reduction.
Studies found that under the Proposal, the United States will face an estimated $284 billion annual increase in the cost of power and natural gas beginning in 2020, compared to 2012. This represents a 60% rise in costs over 8 years. Texas will experience, by far, greater economic harm than any other state.
The total annual cost of power and gas in Texas will grow to more than $80 billion in 2020. This represents a $42 billion annual cost increase for electricity and gas in the state, $30 billion coming from an increase in electricity costs alone. Texas household electricity and gas bills will increase by more than 54% by 2020. This represents a $1,060 increase in the average Texan’s annual household power and gas bills, with average annual power bills increasing almost $750 and average home gas heating bills rising over $310.
Power sources will be forced to change dramatically under the Clean Power Plan. Natural gas fueled power generation is expected to increase by almost 30% in Texas at the same time that EPA expects wholesale natural gas prices to more than double.
Total annual cost of power and gas in Texas will grow to more than $80 billion in 2020. This represents a:
54% increase →
in household electricity & gas bills
A $1,060 increase in average annual household power and gas bills, with power bills increasing almost $750 and gas heating bills rising over $310.
Threat to the Nation’s Electric Reliability
Resource owners, particularly owners of coal units, will be required to take actions, at significant costs, to comply with the Clean Power Plan. Many resource owners will be forced to retire units, resulting in a substantial number of unit retirements even as electricity demand is on the rise. The accelerated retirement or suspended operations of coal resources will result in higher costs for consumers, pose challenges to maintaining the reliability of the ERCOT grid and potentially lead to power outages in parts of the state.
Negative Economic Impact
The economic activity generated by lignite coal mining, coal fired electric power generation and related industries in Texas is a catalyst for economic growth and development. Moreover, the economic benefits of coal mining are concentrated in regions where the mines and their ancillary activities represent a substantial share of total regional economic activity.
Coal mining and coal-fired power generation contribute more than $7 billion to the Texas economy each year and support more than 24,000 jobs that pay over $1.8 billion in salaries, wages and benefits. Mining alone employs over 10,400 Texans, many of them in areas that sorely need the jobs. Coal mining and coal-fired power contribute about $641 million in annual tax revenues to Texas state and local governments. For the electric power production, coal mining and natural gas production sectors, EPA itself acknowledges an average loss of 47,000-49,000 jobs nationally per year from 2017 to 2030.
average jobs lost per year as predicted by the EPA (2017-2030)
The EPA’s Rule is Illegal
The plain language of the Clean Air Act prohibits EPA from issuing this rule.
The Act only provides EPA the authority to set emissions limits for specific industry sources (e.g. coal-fired power plants) that are “achievable” by individual coal-fired power plants with proven technology. These are known as limits that can be met “within the fence” of the power plant. In the Clean Power Plan, EPA has finalized a rule that looks FAR “outside of the fence” of power plants. It will require states to significantly change their entire electricity markets. In addition to requiring reductions in coal-fired power plant operation, the Rule contemplates states mandating increases in the operation of natural gas generation and huge build-outs of new renewable generation. EPA has absolutely no authority over renewable generation but is proceeding with this rule nonetheless.
EPA’s Rule is not “Flexible”
The EPA is setting mandatory state CO2 budgets based on assumptions that are so unrealistic that they will effectively force Texas to redesign the state’s electric market – a system successfully managed by the state for generations. EPA’s own modeling anticipates the forced retirement of nearly thousands of megawatts of gas, oil and coal electricity generation.
“A Whole Other Country” of Wind and Solar Generation
The EPA’s emission requirements cannot be achieved by any commercially demonstrated fossil fuel technology in the world. This means that even the newest, best, and most-efficient coal or gas power plant cannot meet the emission limit for Texas. EPA derived its target rate for Texas knowing that in order to comply, Texas must look “beyond the fence” of power plants and increase its renewable electricity generation at unheard of levels. From 2013 to 2030, ERCOT is expected to grow its renewable energy production by three times as much as it was producing in 2012 – the baseline year of this rule. Looking at wind and solar generation alone, statewide, Texas would be expected to generate more electricity from these sources than every other country (besides the United States) generated in 2012.
The EPA’s emission requirements cannot be achieved by any commercially demonstrated fossil fuel technology in the world.
The United States Cannot Act Alone
If the United States acts alone in addressing emissions without similar action from all industrial economies, increases in the rest of the world will rapidly offset reductions here. The U.S. Chamber of Commerce has found that, by 2025, the total annual nationwide reductions forced by this rule will be completely offset by Chinese emissions in just three weeks.
Future Regulation of Other Sectors?
The EPA has asserted that it has the authority to regulate greenhouse gases across the economy. As a result, the impacts of these regulations could ultimately extend throughout the industrial economy, from refining to manufacturing, agriculture to mining.