The Regulatory Assistance Project 50 State Street, Suite 3Montpelier, VT 05602

Phone: 802-223-8199www.raponline.org

111(d) Compliance Measures Outside EPA’s Four Building Blocks

3N Meeting

December 4-5, 2014 – Washington, DC

Presented by

Ken Colburn, Senior Associate

• The Regulatory Assistance Project (RAP) is a global, non-profit team of energy experts, mostly veteran regulators, advising current regulators on the long-term economic and environmental sustainability of the power and natural gas sectors. (www.raponline.org)

– Non-advocacy; no interventions

• Ken Colburn is a Senior Associate at RAP. His experience as an air quality regulator came as Air Director for the State of New Hampshire and as Executive Director of NESCAUM.

Introduction

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Origin: The Next in a Long Series of NACAA “Menus of Options”

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Goal: Illuminate (and Expand) 111(d) Options for States

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• Working Title: “Reducing Greenhouse Gas Emissions from the Power Sector: A Menu of Options”

• 25 chapters detailing technology and policyoptions

• 26th chapter on “emerging issues”

• “Expand”: Began months before 111(d) Proposal,so goes beyond EPA’s four “Building Blocks”

EPA’s Building Blocks & “Menu” Chapters

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1. Heat Rate Improvements

2. Redispatch

3. Renewable and Nuclear Generation

4. Energy Efficiency

1. Optimize Power Plant Operations

2. Electric-Sector CHP

3. Other-Sector CHP

6. Increase Low-GHG Generation

8. Retire Aging Power Plants

11. Establish Energy Efficiency Targets (EE, DSM, EERS)

13. Pursue Behavioral Efficiency Programs

14. Boost Appliance Standards

15. Boost Building Codes

Other Technology Optionsin the “Menu of Options”

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4. Improve Coal Quality

5. Optimize Grid Operations

7. Pursue Carbon Capture & Utilization or Sequestration

9. Switch Fuels at Existing Power Plants

10. Reduce Losses in the T&D System

Other Policy Optionsin the “Menu of Options”

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12. Foster New Markets for Energy Efficiency

16. Increase Clean Energy Procurement Requirements

17. Encourage Clean Distributed Generation

18. Revise Transmission Access & Pricing

19. Revise Capacity Market Practices

Other Policy Optionsin the “Menu of Options” (Continued)

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20. Improve Integration of RE into the Grid

21. Adopt Environmental Dispatch

22. Improve Utility Resource Planning

23. Improve Demand Response Programs

24. Adopt Market-Based Reduction Programs

25. Tax Carbon Dioxide Emissions

Bottom Line

• EPA developed its “Building Blocks” approach to provide a consistent, legally-defensible way to determine state-specific rate targets…

• …NOT to constrain states to those options alone!

• So think outside the “Building Block Box”– Consider other options in the “Menu of Options”– And even beyond (e.g., Water Conservation)– Target least-cost solutions

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…And Try to Capture Co-Benefits

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• Good 111(d) choices can help air quality; good air quality choices can help 111(d) compliance

• Ditto for increasing water concerns

• Integrated multi-pollutant, multi-media approach can lower cost, risk (IMPEAQ)

Energy Efficiency

Energy and Demand Resource Management

Combined Heat & Power

Wind, Solar, Tidal

Low- and Zero-Emission Vehicles

Carbon Capture & Storage

Flue Gas Desulfurization

(Scrubbers)

Three-Way Catalysts (Petro)

Diesel Particulate Filters

Uncontrolled Fossil Fuel

Combustionin Stationary and Mobile Sources

Increase in “Uncontrolled” Diesel

Biofuels

Biomass

Buying Emissions Credits Overseas

Forthcoming DOE/LBNL Guide on Using EE to Reduce Emissions

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• EE as least-cost strategy to reduce power sector CO2

• Shaped with input from NACAA, NARUC, NASEO

• Complementary to other efforts

• Practical information:

– Tried-and-true policy and program options to advance EE

– Examples of existing policy and program documents

– Tools & methods to estimate and measure EE savings & emission reductions

• Publication targeted Spring 2015

• Contact: Johanna Zetterberg

(202) 586-8778

Johanna.Zetterberg@ee.doe.govwww.seeaction.energy.gov

State 111(d) Compliance Plans:The Actual Opportunity

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1 2 3 4

+ + +=State

Compliance

Conventional Wisdom:

Beyond

+Actual Opportunity:

Each BB likely > 0 Some BBs may be 0…

Keys:• “Better to seek ‘approval’ than to ask permission”• EPA can’t promote “Beyond BB” options…• If you don’t focus on least-cost, who will?

About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts focused on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies to:

Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

Thank You for Your Time and Attention

Ken Colburn: kcolburn@raponline.org

617-784-6975

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Additional Slides

• Profile (description, pros, cons, etc.)

• Regulatory Backdrop

• State & Local Implementation Experience

• GHG Emissions Reductions

• Co-Benefits

• Costs and Cost-Effectiveness

• Other Considerations

• For More Information

• Summary

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NACAA Menu of Options:Chapter Contents

The Biggest Challenge?

• The federal Clean Air Act:– 40-years old and highly prescriptive

– 2 generations of federal delegation to state air agencies

• Section 111(d) is:– The “40-year-old virgin” and highly flexible

• EPA’s never done this before either…

• Morphing the traditional practice of air regulation into the new permissiveness reflected in EPA’s proposed rule may be more difficult (for both EPA offices and the states) than it is for the regulated community to actually comply with the rule…

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Unfortunately, EM&V Hurdles Remain

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Calculating Avoided Emissions Should be a Standard Part of EM&V and Potential Studies

The Pr oblem EE i s a Pr oven Solu t i on EE i s a Sm ar t Solu t i onWe Need Bet ter Data

• Improve accuracy of cost-effectiveness tests and economic potential studies

• Include EE in State Implementation Plans (SIPs) for air quality (e.g., ozone SIPs)

• Earn credits for “111d” compliance (power plant carbon regulations)

We Need You r H elp• Air quality profession has very

limited resources and lacks expertise on EE

• EE program money already allocates resources for EM& V

• Missing ingredients are timing and location of energy savings

• EE professionals have the knowledge and skills to estimate timing and location

• Little incremental effort is needed to calculate avoided emissions using standard U.S. EPA tools

147 Million Americans in 43 StatesBreathe Unhealthy Air

Electricity is a Big Source of Air Pollut ion

Avoided Emissions are Part of What Makes EE Cost-Ef ect ive

Examples of Avoided Emissions Attributed to Energy Ef ciency

Wisconsin

Texas

Northeast States

EE is the Cheapest Way to Control Air Pollut ion

I Wan t You !

Business 1,978,570 106,048,600 4,810,382,690 6,237,757 7,588,884 29.62

Residential 746,807 20,200,130 1,582,495,514 2,160,038 2,863,243 10.68

Total 2,725,377 126,248,730 6,392,878,204 8,397,795 10,452,127 40

Connecticut 245,592,110 132,240 299,120

Maine 118,488,550 63,800 144,310

Maryland 699,625,780 634,910 2,155,040

Massachusetts 741,682,600 399,370 903,330

New Hampshire 43,977,220 23,680 53,560

New York 1,479,008,990 1,450,360 3,187,210

Rhode Island 85,000,140 45,770 103,530

Vermont 84,777,170 45,650 103,250

Total 3,498,152,560 2,795,780 6,949,350

Incentive Costs $15,775,767 $28,090,892 $43,866,659

Admin Costs $3,792,038 $3,374,847 $7,166,885

Delivery Costs $8,647,538 $13,780,905 $22,428,443

Incremental Measure Costs $38,764,692 $98,249,403 $137,014,095

Total Non-Incentive Costs $51,204,268 $115,405,154 $166,609,422

Electric Benefits $61,608,536 $203,458,650 $265,067,186

Gas Benefits $45,627,166 $138,716,232 $184,343,398

Emissions Benefits $30,541,571.90 $100,147,119 $130,688,691

Total TRC Benefi ts $137,777,274 $442,322,000 $580,099,274

TRC Benefi ts Minus Costs $86,573,006 $326,916,846 $413,489,852

TRC Ratio 2.69 3.83 3.48

Program Area

State

State

Lifecycle Verified Gross MWh

Lifecycle Verified Gross Therms

CO2 (lbs)

Avoided CO2

(lbs)

Carbon Dioxide (CO2)

NOx (lbs)

Avoided NOx (lbs)

Nitrogen Oxides (NOx)

Sulfur Dioxide (SO2)

Particulate Matter

SO2 (lbs)

Avoided SO2

(lbs)

Mercury (lbs)

Carbon Dioxide2012

Count ies Designated “ Nonattainment ”for Clean Air Act’s National Ambient Air Quality Standards (NAAQS)

Lifecycle Verif ed Gross Emissions DisplacedJuly 1, 2001 – December 31, 2010

Avoided Emissions from Electric Sector EE Programs

Wisconsin 2012 Costs, Benef ts, and TRC Rat io

Cost of Selected Emissions Control Measures

Nitrogen Oxides2011

Sulfur Dioxide2011

Mercury2005

Electric PowerAll Other Sectors

62%

86%

29% 50% 50%71%

14%

38%

Selective Catalytic Reduction No reduction $1550+/ton No reduction No reduction

Fabric Filter (“Baghouse”) No reduction No reduction No reduction $42+/ton

Electrostatic Precipitator No reduction No reduction No reduction $40+/ton

Wet Flue Gas Desulfurization (“Wet Scrubber” ) No reduction No reduction $80+/ton $80+/ton

Energy Efficiency ≤ $0/ton ≤ $0/ton ≤ $0/ton ≤ $0/ton

Source: Tetra Tech, Focus on Energy Evaluation Annual Report (2010)

Source: U.S. EPA, Green Book (2014)

Source: U.S. EPA, Various Documents

Source: U.S. EPA, Menu of Air Pollution Control Measures (2013)

Source: Northeast Energy Efficiency Partnerships, Regional Energy Efficiency Database: Program Year 2011 Annual Report (2013)

Source: Cadmus, Focus on Energy Calendar Year 2012 Evaluation Report (2013)

SEER13-Multi-Family

SEER13-Single Family

Furnace Pilot Light Program

ESL-Commercial

Wind-ERCOT

SECO

PUC (SB7)

ESL-Multi-Family

ESL-Single Family

Ton

s/O

zon

e S

easo

n D

ay

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

Energy Systems Laboratory at Texas A&M University, Energy Efficiency/Renewable Energy Impact in the Texas Emissions Reduction Plan (2012) 2005 2006 2007 2008 2009 2010 2011

Residential Nonresidential Total

OSD NOx Reduct ion Levels for ERCOT (Preliminary Est imates)

Over 20%!

Consider Multi-State Compliance Approaches

• Better for power sector- Allows broader reliability regions- More compliance options => lower cost

• Better for states- Fewer “seams” issues- Lighter lift; shared/lower costs- Strength in numbers

• Better for EPA- Less reliability & cost risk- Fewer, faster approvals

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Additional Advice (continued)

• Think outside the box (e.g., water conservation)

• Don’t worry (much) about FIPs, federal incursion on PUC authority, building block conflicts, etc.

• Immediate goal for state plans: Goldilocks (Not

too specific, but enough detail to gain initial EPA approval)

• Comment, comment, comment!

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