Power Plant Thermal Efficiency as a Regulatory Mechanism: Implications for Emission Rates and Levels
35 Pages Posted: 19 Jan 2019
Date Written: December 21, 2018
In August 2018, the U.S. Environmental Protection Agency (EPA) proposed a new policy – the Affordable Clean Energy rule – to reduce greenhouse gas (GHG) emissions from existing coal-fired electric generating units and power plants. The new rule establishes emissions guidelines, including heat-rate efficiency improvements, for states when developing plans to limit GHG emissions. Past studies have indicated that thermal efficiency improvements can increase electricity output, leading to a reduction in emissions rates and an increase in emissions levels – a rebound effect that can temper the emissions-reduction benefits of plant-level thermal efficiency. This study adds to the literature by examining data on the relationship of plant-level thermal efficiency on the rate and level of GHG emissions. We explore three different types of GHGs – carbon dioxide, methane, and nitrous oxide. Using a fixed-effects panel data approach, we find that thermal efficiency improvements have only reduced carbon dioxide emissions rates, but (on average) these improvements have led to an increase in the levels of all three pollutants. Based on our findings, the U.S. EPA should consider rebound effects in its policy plans associated with implementing the Affordable Clean Energy rule.
Keywords: greenhouse gas emissions, thermal efficiency, electricity policy, regulation, electric utilities
JEL Classification: L51, L94, Q40, Q53, Q58
Suggested Citation: Suggested Citation