As expected the U.S. Environmental Protection Agency (EPA) last Friday once more proposed Clean Air Act standards to cut carbon pollution from new power plants. Under the new proposal, new large natural gas-fired turbines would need to meet a carbon dioxide (CO2) limit of 1,000 pounds of CO2 per megawatt-hour, while new small natural gas-fired turbines would need to meet a limit of 1,100 pounds of CO2 per megawatt-hour. New coal-fired units would need to meet a limit of 1,100 pounds of CO2 per megawatt-hour, and would have the option to meet a somewhat tighter limit if they choose to average emissions over multiple years. All existing plants and currently permitted and built in the next 12 months will be grandfathered and exempt from this new rule for a period of time.
This new proposal is a revision (and slight loosening) of the proposal made in March by the EPA. This is part of the President’s Climate Action Plan that directs all federal agencies to address climate change using existing executive authorities. The EPA is the lead regulator of the plan to cut carbon pollution. The Plan has three key pillars: cutting carbon pollution in the United States; preparing the country for the impacts of climate change; and leading international efforts to combat global climate change. Power plants are the largest concentrated source of emissions in the United States, accounting for roughly one-third of all domestic greenhouse gas emissions. While the United States has federal limits on arsenic, mercury and lead pollution that power plants can emit, currently, there are no national limits on the amount of carbon pollution power plants can emit. This is the first federal regulation to limit CO2.
Despite the progress being made on the carbon capture and sequester system that’s being developed by Alliant Techsystems and partner ACENT Laboratories to sequester carbon from coal fired power plants before it enters the atmosphere, the cost of capturing CO2 from power plants is currently too high for wide-scale implementation, and for now there will be no more coal fired power plants built. The continued existence of coal fired power plant will depend on developing more affordable technologies for carbon capture, utilization and storage (CCUS). The Department of Energy (DOE) Loan Programs Office is has launched a new loan guarantee program with $8 billion in loan guarantees available to develop new technologies.
The program seeks to make loans to advance the technology in three primary areas. Advanced Resource Development; projects that employ new or significantly improved technologies that avoid, reduce, or sequester air pollutants or greenhouse gas emissions from the development, recovery, and production of traditional and non-traditional fossil energy resources. Carbon Capture to selectively remove CO2 from process streams and flue gases, and produce a concentrated stream that can be compressed and transported to a permanent storage site. Third, because natural gas electricity generation produces a flue gas with low concentrations of CO2, and, therefore, making the adoption of carbon capture expensive and inefficient, the DOE is looking to finance the development of Low-Carbon Power Systems that utilize natural gas for electricity generation using novel processes or improved technologies that can integrate with CO2 storage or beneficial reuse. For now, the fuel of choice for all future power capacity additions will be natural gas, nuclear, or the renewable category (with government subsidies).
All federal agencies are required, “to assess both the costs and the benefits of intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” To justify the costs to the economy to implement the Presidents Climate Plan, the agencies use the “social cost of carbon” (SCC) to quantify the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that in reality have only tiny impacts on cumulative global emissions. At this time in history the global emission of CO2 that are being driven by the growth in emission in the emerging markets of China and India.
The SCC is an estimate of the dollar damages associated with an incremental increase in carbon emissions in a given year to the global economy. It includes estimated changes in net agricultural productivity from changes in temperature and precipitation patterns, human health, and property damages from increased flood risk, loss of land from rising sea levels and the value of ecosystem services due to climate change. According to the National Academies of Science (NRC 2009) any assessment of the social cost of carbon will suffer from “uncertainty, speculation, and lack of information about (1) future emissions of greenhouse gases, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the translation of these environmental impacts into economic damages. As a result, any effort to quantify and monetize the harms associated with climate change will raise serious questions of science, economics, and ethics.”
Nonetheless, an interagency group made up of the EPA, the Departments of Agriculture, Commerce, Energy, Transportation, and Treasury with input from the Council on Environmental Quality, National Economic Council, Office of Energy and Climate Change, and Office of Science and Technology Policy selected three assessment models (IAMs) commonly used to estimate the SCC on future global gross domestic product (GDP) and assigned a range of costs for a metric ton of CO2 based on the percentage of the global economy that we represent. The models used were: the FUND, DICE, and PAGE models. These models are used in the Intergovernmental Panel on Climate Change (IPCC) assessments. The models produced a range of four estimated costs that were used for the social cost of carbon.
These models combine aspects of the climate change models, economic growth models, and feedbacks between the climate and the global economy into a single modeling framework, though there is only a limited amount of research linking climate impacts to economic damages. Underlying the models are a number of simplifying assumptions and judgments reflecting the various modelers’ best attempts to synthesize the available scientific and economic research and opinions characterizing these relationships and to translate global warming into damage estimates.
One of the most important factors influencing SCC estimates is the discount rate assumed. A large portion of climate change damages are expected to occur many decades into the future and the present value of those damages (the value at present of damages that occur in the future) is highly dependent on the discount rate assumed. Though there have been updates in the damages based on additional work relating to rising sea levels since the development of the SCC in 2010 the assumptions for the discount rate were not revisited. The SCC is actually a range consisting of four scenario estimates for the year 2020. In 2010 when interagency group first reported the SCC estimates, they were $7, $28, $44 and $86 per metric ton (2011$). This year the estimates were revised and the corresponding four scenario SCC estimates for 2020 were $13, $46, $69, and $137 per metric ton (2011$). The average SCC increased from $41 to $66 and increase of over 60% enabling a significantly larger positive benefit to be estimated from any carbon reducing regulation.
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