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Nicholas Institute for Environmental Policy Solutions
May 2015

The Clean Power Plan: Implications of Three Compliance Decisions for U.S. States

The Clean Power Plan: Implications of Three Compliance Decisions for U.S. States

The proposed Clean Power Plan gives U.S. states flexibility in how they attain state-level carbon dioxide emissions rate goals from existing power plants. This analysis uses the Dynamic Integrated Economy/Energy/Emissions Model to illuminate the implications of three key decisions: whether to choose rate- or mass-based compliance, whether to pursue multistate or individual state compliance, and whether—if allowed in the final rule—to include new natural gas combined cycle (NGCC) units under the emissions limit.

Regarding power sector adjustments, modeling shows that (1) a rate-based approach initially decreases coal generation 25% and increases use of existing NGCC units and construction of new renewables; (2) compared to that approach, a mass-based approach initially increases coal generation and removes incentives for use of existing NGCC and new renewables generation; (3) assumptions about renewables capital costs, energy efficiency savings, and natural gas prices significantly affect generation responses; and (4) rate-based approaches allow for more emissions growth than mass-based approaches post–2030.

Regarding policy costs, the modeling shows that (1) a mass-based approach, especially with multistate cooperation, offers large cost savings opportunities; (2) neither approach has a big effect on wholesale electricity prices, but including new NGCC units lowers prices under a rate-based approach and increases them under a mass-based approach; and (3) costs differ across U.S. regions and across the mass- and rate-based approaches within regions.