Kentucky Submits White Paper to EPA Outlining Potential Framework for Clean Air Act Section 111(d) Existing Power Plant Greenhouse Gas Emission Standards
On Oct. 22, 2013, Kentucky Energy and Environment Cabinet (EEC) Secretary Len Peters submitted a white paper entitled “Greenhouse Gas Policy Implications for Kentucky under Section 111(d) of the Clean Air Act” to EPA Administrator Gina McCarthy. The purpose of the document was to illustrate an alternate potential framework for compliance with the upcoming proposed rules for CO2 emissions from existing power plants under the Clean Air Act. The key points of the white paper are outlined below.
Kentucky evaluated both an emission rate standard and a mass-emission standard for its white paper framework. An emissions rate standard is one where the emission level is established in relationship to raw material input or production output (i.e., allowable CO2 emissions per unit of electricity generation output). In contrast, a mass-emission standard establishes a quantity or mass of pollutant to be reduced from a baseline level (i.e., percent reduction of the mass (in tons) of pollutant (CO2)).
Kentucky determined that an emissions rate standard approach would negatively impact the Commonwealth’s economy and would not achieve the level of emissions reductions that could occur through a mass-emission reduction strategy. Kentucky concluded that an emission rate standard would force Kentucky’s utilities to retire their coal units (which currently provide more than 90 percent of Kentucky’s electricity) and build new natural gas fired generation. Kentucky would simply go from being primarily dependent on coal to being primarily dependent on natural gas, another fossil energy source. The cost for rate payers would be high, renewal and efficiency opportunities would not achieve their full potential and the amount of greenhouse gas emissions reductions achieved in the aggregate would be less than specified by President Obama’s goals.
In contrast, the EEC determined that a mass-emission standard approach would provide Kentucky with the flexibility under Section 111(d) guidelines to encourage CO2 reductions from multiple pathways, achieve sustained greenhouse gas reductions and encourage economic growth until the commercial availability of carbon capture and sequestration (CCS) technology has been demonstrated as feasible and cost-effective on a large scale for the power sector.
Kentucky identified the following objectives for a mass-based approach framework:
- Utilize mass-emission reductions from the fossil fueled electricity generating sector as the primary mechanism for addressing greenhouse gases;
- Ensure that the fossil fueled electricity generating sector has the time and resources necessary to transition to a cleaner fleet when necessary and appropriate;
- Provide that the fossil fueled electricity generating sector has the flexibility to choose the least-cost method of achieving reductions; and
- Encourage diversity for Kentucky’s electricity generation fleet.
To meet these objectives, the following framework was presented. Kentucky could establish a statewide baseline CO2 level using the CO2 emissions from fossil fuel-fired electric generating units from 2005. Next, Kentucky could establish the following baseline CO2 reduction targets for 2020 (17 percent reduction), 2025 (28 percent reduction) and 2030 (38 percent reduction). After 2020, state specific data, as well as energy portfolio trends, could be used to set additional reductions with the 2050 target being the 80 percent reduction goal proposed by President Obama. Kentucky could obtain credit for CO2 reductions that have occurred from the baseline established in 2005, thereby allowing the state to comply with baseline reduction targets established after 2020.
Kentucky suggested that a suite of compliance options would enable the implementation of the least-cost method of meeting reduction targets. These potential compliance options include, but are not limited to: demand side energy efficiency, supply side conservation or efficiency programs, transmission upgrades, renewable and other low carbon energy projects at the affected source or at the consumer level, CCS technology, fuel switching to lower emitting fuels, quantifiable and verifiable offsets and participation in regional or national market based CO2 credit trading programs.
Finally, Kentucky could establish an enforcement and monitoring mechanism whereby Kentucky would be responsible for review, verification of emission estimates and reductions and approval of the compliance options. The state would be responsible for tracking statewide trends and projects.
The EEC identified several potential compliance options that could be available under such a framework. These include energy efficiency, renewable energy and fuel switching projects, as well as carbon offsets.
According to the white paper, energy efficiency is a cost-effective tool for reducing greenhouse gas emissions. Compared with more costly compliance strategies, the savings from energy efficiency could mitigate the cost of supply side diversification. Kentucky has a number of active energy efficiency initiatives and has received broad stakeholder support for demand side energy efficiency through its Stimulating Energy Efficiency in Kentucky program. As a result of this initiative, Kentucky, through the cooperation of utility and other stakeholders, is committed to reducing electricity demand by 1 percent annually between 2015 and 2020. The white paper also states that Kentucky can realistically and cost-effectively increase its renewable electricity generation to 15 percent by 2030 assuming Kentucky achieves one third of this goal by 2020 and relies mostly on out-of-state wind along with some in-state hydro, wind, solar and landfill gas generated electricity. Kentucky is already experiencing retirements of coal units, with much of that lost capacity being replaced by new natural gas combined cycle units. This level of fuel switching is considered realistic by EEC, even without stringent rate-based emission standards.
Finally, according to the white paper, carbon sequestration through reforestation is an achievable and affordable emission reduction strategy. Reforestation of 22,700 acres of previously mined land by 2020 would avoid 0.02 MMtCO2e. An additional 142,000 acres of other land could be reforested in Kentucky by 2020 avoiding 0.55 MMtCO2e by 2020.
Without the flexibility afforded under Section 111(d) for a mass-emissions approach, the EEC indicates that Kentucky will face serious economic impacts and job losses. The Secretary found that the white paper framework could diversify Kentucky’s electricity generating portfolio, reduce emissions and benefit the economy.
Following the submission of the 111(d) white paper, the Kentucky EEC issued a second document entitled “Economic Challenges Facing Kentucky’s Electricity Generation under Greenhouse Gas Constraints” on Dec.16, 2013. This document presents the results of an electricity generation dispatch model that was added to the EEC’s existing energy forecasting tools. Both this document and the white paper reinforce the position that Kentucky’s manufacturing economy is particularly vulnerable to energy sector dynamics. Both documents can be found at http://eec.ky.gov/Pages/default.aspx.
On Feb. 5, 2014, the EEC issued a response to comments it had received from the Kentucky Coal Association (KCA) regarding the white paper. In that response, the EEC stressed that the primary purpose of the white paper was to broaden the national discussion beyond a rigid rate-based standard (which would cause shutdowns of coal-fired power plants in Kentucky). Additionally, the EEC stated that the white paper “was not an endorsement” of the legality of the EPA proposals, but rather served to identify, on a timely basis, potential policy options which do not simply target existing power plants and present them to others. The EEC also stated that it plans to seek “robust public input” from stakeholders prior to submitting a compliance plan after issuance of the final rule in 2015 by EPA.
To view a complete PDF of the Fourth Quarter 2013 issue of the Air Quality Letter, click HERE.