The EPA’s proposed rule to regulate carbon dioxide from existing power plants emphasizes the ample flexibility it provides to states. However, careful analysis of the rule shows that it provides significant flexibility for how states can achieve the required CO2 reductions, but little flexibility on when to achieve them. In fact, most of the emission reductions it calls for are required in 2020, the rule’s first year.

These dramatic early emission reduction requirements — often 30 percent to 50 percent below the 2012 benchmark — should be expected to render large numbers of coal plants uneconomic and hence lead to their retirement in 2020.

This sudden retirement is likely to cause resource adequacy risks, high power prices, and the rapid deployment of large numbers of new natural gas combined cycle power plants, especially in certain states and regions. Large amounts of new natural gas power plants at the beginning of the 2020’s, in turn, will tend to lock-out renewable and other clean energy technologies, potentially for decades — especially since more efficient end use is likely to keep overall demand for additional power plants from growing.

This lock-in of new gas generation and corresponding lock-out of renewable and other energy technologies could seriously delay the longer term de-carbonization of the U.S. power sector. However, this unintended consequence of the proposed rule can readily be avoided by one or more of the following modifications in the EPA’s final rule.

• EPA should broadly defer to states to set the actual emission reduction trajectories needed to achieve the ultimate emission reduction goals in EPA’s final rule. Each state can craft an emission reduction trajectory to achieve these goals that will address legitimate state concerns such as resource adequacy, cost and stranded assets.
• Alternatively, EPA should modify the rule’s 10-year average compliance requirement, which is largely responsible for the dramatic first-year reduction requirements of the proposed rule. Allowing states to comply by meeting, on average in the first ten years, half of the reductions required by their interim goals would allow each state to select a uniform “glide path” trajectory from its 2012 benchmark levels to the EPA’s 2030 goals.
• EPA should also modify the timing of and the degree to which various building blocks in its assumed best system of emission reductions are activated. In particular, the EPA’s assumption that a full re-dispatch of existing gas to displace coal could be implemented overnight is unwarranted. Such a dramatic change needs to be phased in over time to avoid the significant resource adequacy, cost and other consequences of suddenly rendering large numbers of existing power plants uneconomic. 

These changes will support state plans that ensure the gradual but persistent transition from high to low power sector CO2 emissions, while limiting the reliability risks, price shocks, and other significant problems the proposed rule is poised to create. At the same time, they will help avoid the immediate lock-in of large amounts of new gas. Instead, they will ensure states can devise gradual transitions to renewable energy, fossil resources that capture and use carbon, and efficient distributed clean energy systems, thus producing far greater overall CO2 reductions at a lower cost. 

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