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Can we afford Obama’s climate plan? This analysis makes it a real bargain

One good way to understand the plan’s potential impact is to peruse a compelling piece of analysis widely credited with influencing the White House.

President Barack Obama speaking about his vision to reduce carbon pollution while preparing the country for the impacts of climate change while at Georgetown University on Tuesday.
REUTERS/Larry Downing

Second of two articles.

One good way to understand the potential national impacts of President Obama’s climate plan, laid out in his speech at Georgetown University on Tuesday, is to peruse a compelling piece of analysis that is widely credited with influencing the White House’s thinking in designing the plan.

The analysis was prepared by the National Resources Defense Council, long known for bringing sound science and solid economics to its research papers.

For this project, which required elaborate modeling of the potentials, costs and returns of multiple, sweeping scenarios of change, NRDC contracted with ICF International, whose models for this sort of thing are relied upon by industry, investment houses and regulators — including the U.S. Environmental Protection Agency, which will be turning the new climate plan into detailed rules over the next couple of years.

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NRDC published its analysis just before last Christmas. It won wide praise for the ambitious quality of the work — offset by general hopelessness that it might actual result in real change, given an administration that seemed to have lost its conviction on doing anything seriously big about climate change, with or without cooperation of a gridlocked Congress.

But now Barack Obama has recovered his voice on climate and the NRDC’s analysis — a genuinely absorbing document despite the unsexy title, “Closing the Power Plant Carbon Pollution Loophole: Smart Ways the Clean Air Act Can Clean up America’s Biggest Climate Polluters,” is getting a well-deserved second look.

NRDC’s starting point is a rule EPA rolled out in April 2012 for new power plants — whether they burn coal, natural gas, oil or other hydrocarbon fuels — that would hold their carbon dioxide emissions to 1,000 pounds per megawatt-hour of electricity generated.

As Obama noted on Tuesday, this is the first national rule to govern CO2 pollution under the venerable and much-strengthened Clean Air Act that has been used to scrub sulfur, mercury, soot and other toxics out of smokestack streams.

When NRDC published its work, and for months afterward, there was great doubt whether the administration would try to apply any similar restraints on CO2 from existing coal plants, and especially to the older ones that have received decades of special treatment under the Clean Air Act on the supposition, frequently disproved, that they were heading rapidly toward retirement.

NRDC and ICF International looked at a series of scenarios to determine what would happen if existing coal plants were granted a more liberal benchmark of 1,500 tons per MWh (retaining  1,000 tons for oil- and gas-fired units), using pretty much any combination of methods you can imagine: Modernization, repowering, investments in offsetting renewables like wind or solar, expanded programs of efficiency and  conservation, trading among themselves in a system of CO2-reduction credits.

The key findings:

  • Dramatic reductions in CO2 pollution from the U.S. electricity production — 26 percent, from 2005 levels, in the next seven years, and 34 percent by 2020 — is well within reach, and at a cost of perhaps $4 billion per year. Which is real money, to be sure, but hardly the ruinous burdens you’ve been hearing in the pushback to Obama’s speech.
  • The wholsesale price of electricity would actually decline significantly over time, because of the efficiency and conservation projects that utilities can be expected to undertake as cheaper alternatives to building new (and unneeded) generating capacity.
  • The U.S.  already possesses adequate generating capacity — and also enough transmission capacity, which is become perhaps even more important as renewable resources are added to an antiquated system of grids — to meet foreseeable demand as progress toward these new standards goes forward.
  • The dollar value of social benefits delivered by these cleaner-power investments — chiefly in the form of public health and productivity gains — would be in the neighborhood of $25 billion a year by 2020, using conservative valuations, and $60 billion at the high end. In other words, benefits could be worth 15 times the costs of these projects.

 How is this possible? Rather than condense their already terse summary, I’ll just let the NRDC authors explain:

 Here’s how it would work: the EPA would first tally up the share of electricity generated by coal and gas-fired plants in each state during the baseline years (2008-2010 was used for this analysis). Then the agency would set a target emission rate for each state for 2020, based on the state’s baseline share of coal and gas generation.

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The state standards proposed and analyzed in this report were calculated by applying a rate of 1500 pounds of CO2/MWh for the baseline coal generation share and 1000 pounds of CO2/MWh for the baseline gas-fired generation share.

For example, a state that now gets 90 percent of its fossil-fueled electricity from coal and 10 percent from gas would be required to reduce its 2020 emissions rate to 1450 pounds/MWh [(90  percent x 1500) + (10 percent times 1000)]. In contrast, a state with 90 percent gas-fired generation would have a target of 1050 pounds/MWh [(10 percent x 1500) + (90 percent times 1000)]….

The emissions standard for each state would be an overall emission rate average of all fossil fuel plants in the state. An individual plant could emit at a higher or lower rate.

Each covered plant with an emission rate above the state standard could meet the standard by using one or more compliance options: First, a plant could reduce its own CO2 emission rate by retrofitting a more efficient boiler or installing CO2 capture systems, for instance, or it could burn a mixture of coal and cleaner fuels, such as gas or certain types of biomass.

Second, the owners of multiple power plants could average the emissions rates of their plants, meeting the required emission rate on average by running coal plants less often, and ramping up generation from natural gas plants or renewable sources instead. They could retire coal plants and build new natural gas and renewable capacity, if needed, creating a cleaner overall electricity-generating fleet. Low- or zero-emitting sources, such as wind and solar, would earn credits that generators could use to lower their average emissions rate.

The plan also allows trading of credits between companies within a state, and across state lines among states that choose to allow it, further lowering the overall costs of compliance.

An innovative feature of the proposal is the inclusion of energy efficiency. State-regulated energy efficiency programs could earn credits for avoided power generation, and avoided pollution….

Will any or all of this come to pass? That depends on lots of unpredictable factors, including the high likelihood of industry litigation to further postpone the overdue and inevitable.

But there’s good reason to think it could.

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Home page for the NRDC research, including links to the full report and summaries in PDF format, is here.