Designing CO2 Performance Standards for a Transitioning Electricity Sector: A Multi-Benefits Framework
26 Pages Posted: 17 May 2014
Date Written: April 30, 2014
The U.S. electricity sector is in the midst of a significant transition driven by changes in markets, technology, and regulation. This transition, and the pace at which it is occurring, presents a number of challenges for state utility regulators as they evaluate cost-effective options for managing short-term and long-term risks. Coinciding with these challenges, state environmental regulators will soon have an obligation under section 111(d) of the Clean Air Act to develop performance standards to limit carbon dioxide (CO2) emissions from the existing fleet of fossil fuel-fired power plants. Responses to these issues will affect electricity prices and environmental impacts for years to come.
The flexibility embedded in section 111(d) creates an opportunity for utility commissioners, state environmental officials, and other state-level policy makers to take a more holistic view of the electricity sector and factors that will affect electricity rates and reliability as well as public health. In particular, state regulators can seek strategies that achieve multiple benefits for electricity generators and consumers, such as reducing CO2 emissions while also addressing the emerging risks and challenges described above. For example, energy efficiency may reduce dispatch at fossil fuel-fired facilities, thereby reducing CO2 emissions, while also allowing electric utilities to forestall building new generation facilities. Similarly, new renewable energy investments may satisfy section 111(d) requirements while also helping to increase diversity in the generation mix and hedging against the risk of more stringent air quality standards in the future. The electricity sector varies from state to state, so identifying multi-benefits strategies to comply with environmental regulations and address other challenges will likely require an increased level of coordination among energy regulators and environmental regulators.
Keywords: Clean Air Act, climate change, EPA, public utility commission, PUC, 111(d), 111d
JEL Classification: K32
Suggested Citation: Suggested Citation