Publications

Ongoing Evolution of the Electricity Industry: Effects of Market Conditions and the Clean Power Plan on States

The electricity industry is evolving as changes in natural gas and coal prices, along with environmental regulations, dramatically shift the generation mix. Future trends in gas prices and costs of renewables are likely to continue moving the industry away from coal-fired generation and into lower-emitting sources such as natural gas and renewables. The U.S. Environmental Protection Agency’s Clean Power Plan (CPP) is likely to amplify these trends. The CPP rule regulates emissions from existing fossil generators and allows states to choose among an array of rate-based and mass-based goals. The analysis in this paper uses the electricity-dispatch component of the Nicholas Institute for Environmental Policy Solutions’ Dynamic Integrated Economy/Energy/Emissions Model to evaluate electricity industry trends and CPP impacts on the U.S. generation mix, emissions, and industry costs. Several coordinated approaches to the Clean Power Plan are considered, along with a range of uncoordinated “patchwork” choices by states. The model results indicate future industry trends are likely to make compliance with the Clean Power Plan relatively inexpensive; cost increases are likely to be on the order of 0.1% to 1.0%. Some external market conditions such as high gas prices could increase these costs, whereas low gas or renewables prices can achieve many of CPP goals without additional adjustments by the industry. However, policy costs can vary substantially across states, and may lead some of them to adopt a patchwork of policies that, although in their own best interests, could impose additional costs on neighboring 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.

Assessing Impacts of the Clean Power Plan on Southeast 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 explores the potential impact of the proposed CPP on Southeast states across a range of compliance options relative to a baseline without the CPP. The analysis presents modeling results from the Dynamic Integrated Economy/Energy/Emissions Model for eight primary compliance scenarios involving rate-based or mass-based compliance, unilateral state action or regional cooperation, and inclusion or non-inclusion of natural gas combined cycle (NGCC) units as regulated entities under the CPP.

Regarding electricity sector adjustments, the modeling shows that a rate-based approach initially decreases coal generation, encourages use of existing and construction of new NGCC units, and incentivizes renewable generation, although use of renewables is not cost-effective in the Southeast under baseline cost assumptions. By comparison, a mass-based approach initially increases coal generation and removes incentives for use of existing NGCC units while significantly increasing new NGCC generation. Including new NGCC units under CPP compliance shifts generation from those units to existing NGCC units under mass-based compliance and increases coal generation under rate-based compliance.

Regarding policy costs, the modeling shows that individual state compliance costs vary considerably, that a mass-based approach initially entails half the costs of a rate-based approach, and that both regional rate-based and mass-based approaches create significant net cost savings over unilateral state compliance.

Regulating Existing Power Plants under the U.S. Clean Air Act: Present and Future Consequences of Key Design Choices

In June 2014, the U.S. Environmental Protection Agency (EPA) released its proposed rules to regulate carbon dioxide emissions from existing fossil fuel power plants, triggering considerable debate on the proposal’s design and its environmental and economic consequences. One question not addressed by this debate is this: What if the EPA regulations turn out to be inadequate to address future mitigation goals? That is, what will the landscape for future policies look like if these regulations turn out to be just an interim measure? This analysis in the journal Energy Policy compares potential short- and long-term consequences of several key regulatory design choices, including mass-based versus rate-based standards, tradable versus non-tradable standards, and differentiated versus single standards. It finds that long-term consequences may be significant in terms of the legacy they leave for future policy revisions: tradable standards lead to lower electricity prices and become weaker over time; differentiated tradable standards lead to relatively greater investment in coal retrofits; non-tradable standards lead to relatively greater retirement of coal capacity. It may be the case that key policy choices entail one set of tradeoffs if proposed EPA rules are viewed as relatively permanent and final and another set of tradeoffs if the rules are viewed as an interim solution.

Structure of the Dynamic Integrated Economy/Energy/Emissions Model: Electricity Component, DIEM-Electricity

This paper, a companion to NI WP 14-12, describes the structure of, and data sources for, the electricity component of the Dynamic Integrated Economy/Energy/Emissions Model (DIEM), which was developed at the Nicholas Institute for Environmental Policy Solutions at Duke University. The DIEM model includes a macroeconomic, or computable general equilibrium (CGE), component and an electricity component that gives a detailed representation of U.S. regional electricity markets. The electricity model (DIEM-Electricity) discussed in thus paper can be run as a stand-alone model or can be linked to the DIEM-CGE macroeconomic model to incorporate feedbacks among economy-wide energy policies and electricity generation decisions and interactions between electricity-sector policies and the rest of the U.S and global economies. Broadly, DIEM-Electricity is a dynamic linear-programming model of U.S. wholesale electricity markets that represents intermediate- to long-run decisions about generation, capacity planning, and dispatch of units. It provides results for generation, capacity, investment, and retirement by type of plant. It also determines wholesale electricity prices, production costs, fuel use, and CO2 emissions. Currently, the model can consider, at a national policy level, renewable portfolio standards, clean energy standards, caps on electricity-sector CO2 emissions, and carbon taxes.

Structure of the Dynamic Integrated Economy/Energy/Emissions Model: Computable General Equilbrium Component, DIEM-CGE

This paper, a companion to NI WP 14-11, describes the structure of, and data sources for, the macroeconomic component of the Dynamic Integrated Economy/Energy/Emissions Model (DIEM), which was developed at the Nicholas Institute for Environmental Policy Solutions at Duke University. The DIEM model includes a macroeconomic, or computable general equilibrium (CGE), component and an electricity component that gives a detailed representation of U.S. regional electricity markets, DIEM-Electricity. The DIEM-CGE component can be run as a stand-alone model to look at both global and U.S. domestic policies related to the economy, energy, or greenhouse gas emissions. Alternatively, DIEM-CGE can be linked to DIEM-Electricity to investigate the macroeconomic impacts of policies affecting electricity generation. This paper describes DIEM-CGE’s model structure, data sources, representations of production technologies, and possible linkages to DIEM-Electricity. It provides an overview of the model and details of the equilibrium structure underlying the model. It presents the production equations and discusses the model’s data and forecast sources. It also presents information on the model’s greenhouse gas emissions and abatement options as well as details of the linkage between DIEM-CGE and DIEM-Electricity.

Regulating Existing Power Plants under the Clean Air Act: Present and Future Consequences of Key Design Choices

In June 2014, the EPA released its proposal for rules to regulate carbon dioxide emissions from existing fossil fuel power plants, triggering considerable debate on the proposal’s environmental and economic consequences and on alternatives highlighted by the proposal and by other stakeholders. One question not addressed by this debate is this: What if the EPA regulations turn out to be inadequate to address future mitigation goals? That is, what will the landscape for future policies look like if these regulations turn out to be just an interim measure? This analysis explores the long-term consequences of several key regulatory design choices, including mass-based versus rate-based standards, tradable versus non-tradable standards, and differentiated versus single standards. It finds that these consequences may be significant: differentiated standards lead to relatively greater investment in coal retrofits; non-tradable standards lead to relatively greater retirement of coal capacity. It may be the case that key policy choices entail one set of tradeoffs if proposed EPA rules are viewed as relatively permanent and final and another set of tradeoffs if the rules are viewed as an interim solution.

An Economic Evaluation of North Carolina's Landfill Biogas Development Potential

Duke University has developed the OptimaBIOGAS tool to model the opportunities for and costs of developing, transporting, and generating usable energy from a variety of biogas sources. In this analysis, the tool is used to clarify the options for and costs of sourcing biogas from landfills within North Carolina. The study found that biogas production is possible throughout many existing landfills in the state, but the economic viability of producing biogas at these locations depends on the cost of collecting and conditioning the gas and either using it to produce electric power onsite or transporting it into the existing natural gas pipeline network. In most cases, both the pipeline injection and electricity generation scenario are more costly than conventional sources in the gas and electricity markets; therefore some price premium would need to be paid to make them profitable. The state’s Renewable Energy and Efficiency Portfolio Standard might offer renewable energy credit payments to help these projects compete. However, biogas buyers may need to pay an additional “green energy” price premium to cover the higher costs of generation.

The Lieberman-Warner America's Climate Security Act: A Preliminary Assessment of Potential Economic Impacts

On August 2, 2007 Senator Lieberman and John Warner (R-VA) introduced a framework for Lieberman-Warner America's Climate Security Act of 2007. The proposal, which we refer to here as the "Lieberman-Warner" bill, calls for the United States to make substantial cuts in greenhouse gas emissions below current levels by 2050. Such greenhouse gas emissions cuts will contribute to global efforts aimed at reducing atmospheric concentrations of greenhouse gases and mitigating harm to our climate system. The most recent assessment report of the Intergovernmental Panel on Climate Change provides a scientific basis for th world's countries to take strong action to mitigate the threats of climate change.

A Path to Greenhouse Gas Reductions in the United States: Economic Modeling of Interim National Targets

This study employs a computable general equilibrium model of the U.S. integrated into the global economy (ADAGE) and a detailed model of the U.S. energy sector (NI-NEMS) to examine the broad and deep economic implications of interim-term greenhouse gas cap-and-trade programs across sectors and regions of the U.S. economy over time. Interim target scenarios hold U.S. emissions to either 1990 or 2005 levels in the year 2020. These 2020 emission targes are in the range of those now being considered by the U.S. Congress, though several of the Congressional proposals call for continued cuts beyond 2020. This study therefore provides abounding assessment of the initial pathway to greenhouse gas reductions, one which can provide a first order assessment of "economic harm" and provides a platform for guaging implications of longer term cuts should they be applied. Results suggest rather modest macroeconomic impacts on the U.S. economy of greenhouse gas targets considered, though impacts tend to be concentrated, as expected, in the more energy intensive sectors.