Regulating Carbon Brochure

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AN INDUST RY ST UDY

REGULATING CARBON:
Impacts of the EPAs Final Clean Power Plan Options

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

Regulating Carbon:
Impacts of the EPAs Final Clean Power Plan Options

BACKGROUND AND OVERVIEW

On August 3rd the U.S. EPA finalized its regulations for existing power generation units and for new and
modified/reconstructed fossil power plants (the Clean Power Plan, or CPP). The EPA also proposed a
Federal Implementation Plan (FIP), which would be imposed on states that do not submit an acceptable
plan to comply with the CPP, and a model trading rule, a path that states could choose to directly
adopt. A very complicated regulatory framework has now been laid out, with the EPA expecting full
implementation to result in U.S. power sector emissions lowered by as much as 32% vs. 2005 levels.
The final rule saw significant changes versus the proposal with particularly large swings in terms of
emissions reductions required from many states. The proposed FIP/model trading rule lays out EPAs
vision for implementing the final CPP, while highlighting limits on EPAs authority. EPA is still taking
comment on key implementation details, such as renewables accounting and emissions leakage to
new natural gas combined cycle units. There is a clear need for key stakeholders state agencies,
air offices, public utility commissions, RTOs, electricity generators, natural gas suppliers, coal
companies, renewables developers and operators to understand what exactly is being required,
what this may mean for their regions or businesses, and the implications of different compliance
approaches and choices.
The second installment of PIRAs Regulating Carbon
study series (the first study analyzed the impacts of
the CPP proposal), Impacts of the EPAs Final Clean
Power Plan Options provides an in-depth review of
the implications of the power sector regulations under
Section 111 of the Clean Air Act. The studys expert
analysis delivered through a comprehensive written
report, a webinar, and an expansive database offers
an objective, unbiased view: it isnt done to support any
particular stakeholder position, nor does it utilize the
models used by EPA with EPA assumptions. database
offers an objective, unbiased view: it isnt done to
support any particular stakeholder position, nor does it
utilize the models used by EPA with EPA assumptions.

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

Sectoral and market outcomes can vary given the flexibility the EPA is offering states in coming up with
plans/policies to comply with the rule. Policy choices are to be outlined in state implementation plans
(SIPs), to be first submitted in September 2016 and completed by 2018. Each state has its own individual
emissions mass and rate target, though states can choose to have individual emitting units comply vs. the
national category rate standards for steam or natural gas combined cycle units.
How the states choose to comply on a rate or mass basis; individually or through a multi-state
program; covering all power plants or just existing units will be critical. States can also choose to
use/adapt EPAs model rule, which is still in the proposal stage. Different policy approaches will have
alternative sensitivities to changes in assumptions (e.g. what if load growth is stronger than expected;
what if renewables penetration does not meet plans). Impacts on power sector unit retirements, newbuild capacity, power demand growth, natural gas usage, coal-fired generation, renewables uptake,
and power prices can be significant.
Of particular concern is how individual U.S. states will address the rules. Among the key policy
decisions they need to make are:

W
 hether to meet target state blended emissions rates or rate standards by source category
(steam generating units, combined cycles).

W
 hether to seek to comply with equivalent mass emissions caps for existing fossil generation.

S
 hould state programs to reduce emissions cover just existing fossil fuel fired sources or all
sources? How will concerns about leakage to new gas combined cycle units be addressed?
Should states use New Source Complements?

H
 ow much could the state policies rely on new renewables penetration for compliance?

S
 hould states join in regional efforts that cross state lines be they a collection of states, RTObased solutions, efforts within utility territories/areas, etc.

D
 oes a trading-ready model rule impact their decisions?

W
 hat combinations of efforts and partnerships can lead to lower compliance costs?

The answers to these questions will prove critical. Our preliminary analysis also suggests that state
choices cannot be assessed in a vacuum, as the decision of neighboring states can significantly impact
the incentives to reduce emissions, build new generation, and import/export power. The Regulating
Carbon II study also reviews the potential for the policy proposals to face legal challenges (with
discussions of the various likely legal arguments and politically motivated changes and adjustments).

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

RESEARCH FEATURES OF REGULATING CARBON

The study features:

A detailed overview of the final Clean Power Plan and the proposed Federal Implementation Plan /
model trading rules: what entities are covered, what is required, etc.

A
 n assessment of the implementation risks, including detailed regulatory timelines and a thorough
discussion of expected legal and regulatory hurdles.

By modeling the power sector and the policies, PIRA is developing an outlook for capacity, electricity
generation and fuel use balances under different state compliance scenarios. Specific modeling runs
include the following policy scenarios:

Single-state compliance with blended rate limits.


Single-state compliance with mass-based limits at existing units.

S
 ingle-state compliance with mass-based limits at all units, with New Source Complements.
Illustrative discussion of set asides and addressing of leakage

Compliance over market/regional Control Area.

Compliance over national area.

Special model run illustrating RGGI expansion.

Scenarios with different assumptions on renewables load growth, and natural gas prices.

I llustrative discussion of the implications of adopting model trading rule/national standards/FIP.

HOW DOES PIRA MODEL THE U.S. POWER SECTOR?

PIRAs production cost modeling of the power sector optimizes power plant dispatch and long-term capacity
decisions. Inputs into the modeling reflect PIRAs expert judgment of key parameters.
The modeling takes into account:

Regional blocks of energy loads that need to be met.

Regional capacity reserve requirements.

Variable costs: fuel (natural gas, coal, fuel oil, distillate, nuclear), VOM.

Fixed costs: new generating capacity builds, pollution control equipment, FOM.

Transmission flows/constraints.

National, regional, state-level policy constraints.

Dimensions include: time periods, regions/nodes, resources fuel types, network description.

R
 eference Case modeling through 2035. Results include: power prices, plant/regional fuel use, plant
capacity decisions (new-build, retirements, retrofits), emissions levels, and marginal carbon prices/costs
of policy constraints.

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

STUDY DELIVERABLES AND TIMING

Written Report (Released online mid-December)


The report details the EPAs final and proposed policies and discusses the key challenges (legal, political)
to their implementation. It presents the results of the different scenarios while outlining key takeaways
regarding the impact of policy choices on sectoral costs and energy balances. It also highlights
uncertainties that can impact the major conclusions.
Webinar (early-January 2016)
PIRA will present the final results and explain in depth the key takeaways of the study in a live (and later
recorded) webinar in early January (date is TBA). The results of the study will be addressed by all of
the studys authors, who will discuss the specific market implications of these findings. Clients will
have the opportunity to ask questions during and after the webinar.
Online Database Optional Upgrade (December)
Purchasers of this upgrade as well as clients of PIRAs North American Environmental Markets
Service or Greenhouse Gas Service receive a comprehensive Excel database with results from PIRAs
modeled power sector runs for the selected policy scenarios. The modeling will be based on PIRAs
Reference Case assumptions, adjusted for the adoption of particular policies to comply with the EPAs
GHG regulations. Specifically, the database features model run outputs for key years that include:
State- and coal plant unit-level power sector generation
Regional gas and coal power sector demand
Power prices (on-peak/off-peak), emissions and carbon price forecasts by region
Custom Scenarios
For an additional fee, study buyers may choose to work with PIRA to develop tailored scenarios, with
potential to focus on particular regions. Such an option allows for a more thorough and regionally
specific assessment of the possible policy outcomes. It can also allow for adjustments of some of PIRAs
underlying assumptions. Please contact your PIRA sales representative if you are interested.
Workshop Option
For an additional fee, buyers may choose to have a private (online or on-site) briefing of the studys
findings. Such an option allows for a more thorough dialog with the study authors as well as some
customization of the presentation. Arrangements (location, date, etc.) are made on a case-by-case basis.

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

WHO WILL BENEFIT FROM THIS STUDY

The following market participants can all benefit from this study:

Policy-makers (state environmental agencies/air offices, state PUCs, etc.) need to determine an
appropriate policy suite to meet the regulatory goals and understand the implications of their choices.

RTO/ISOs need to understand the implications of potential policy choices on regional


reserve margins/ reliability as well as consider taking a more active role in the policy
design and implementation.

Power generators, whose operating decisions are most directly regulated and impacted
by the regulations.

Coal companies, already impacted by cheaper gas prices and EPA regulations, would better
understand the likelihood for decreased coal utilization and additional coal-fired power
plant closures.

Natural gas producers will want to examine how the key power sector markets for their
product will evolve and the degree to which the carbon policies can spur demand.

Industrial energy consumers require a solid understanding of where energy prices are
heading and how they will compare with prices in other locations around the world.

Renewables manufacturers may want to consider the future incentives for their product.

Trading companies want to anticipate supply/demand changes and price dynamics for gas,
coal and power. This analysis will aid in planning terminal and shipping infrastructure needs
to best capture opportunities.

Railroad companies will need to address some of the same changes.

Financial institutions must make sound evaluations of how changing market conditions will affect
the economics and financing of new ventures. This study will allow for more informed decisionmaking on potential new builds.

Law firms will need to be conversant in the Clean Power Plan not only in order to best advise their
clients on sound compliance strategies, but also to potentially take part in legal challenges to the new
rules, to advise on state policy choices and to shape the final form of the FIP regulations.

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

THE STUDY TEAM

Kramarchuk, Roman
Managing Director | Emissions and Clean Energy

Roman Kramarchuk heads up PIRA's Greenhouse Gas Emissions and North American Environmental Markets services, which
focus on assessing environmental policies and their implications for the energy sector, including specific markets addressing
emissions/environmental goals. Prior to joining PIRA in 2005, he was at the U.S. EPA, developing key regulations at the Clean
Air Markets Division. With PG&E NEG and PA Consulting / PHB Hagler Bailly, he evaluated strategies regarding power sector
fuel choice and capital investments and advised on plant development/acquisition and asset valuation. Roman also worked
on USAID- and World Bank-funded projects to develop power markets, market rules and regulatory capacity in the FSU and
India. He has an M.P.P. from the Kennedy School of Government at Harvard and a B.A. in economics and B.S.E. in systems
engineering from the University of Pennsylvania.

Greenberg, Morris J.
Managing Director | Electric Power

Morris J. Greenberg develops short-term and long-term regional electricity-pricing models based on detailed analysis of North
American electric supply, demand and pricing. He has over 30 years of experience in consulting, planning and finance, most
recently as Vice President and Senior Energy Analyst at Lehman Brothers and Director of the WEFA Energy Group. Morris has
a B.S. in economics from the Wharton School, University of Pennsylvania, and an M.S. in economics from Temple University.

McIsaac, Jennifer
Director | Emissions and Clean Energy

Jennifer McIsaac follows environmental and regulatory trends, contributing to regular reports on U.S. federal policy initiatives
and regional carbon markets as well as conducting special analysis. Prior to joining PIRA in 2001, her experience in the energy
industry included positions at NUI Corp., the parent company of several gas utilities, and at Exxon Company International. Ms.
McIsaac has a B.A. in mathematics from Drew University and an M.A. in economics from Cornell University.

Schwartz, Glenn
Senior Analyst | Emissions and Clean Energy

Glenn Schwartz is responsible for tracking U.S. federal, state-by-state, and international regulations and legislation and
assessing their impact on renewable markets and on the markets of complementary sectors. Prior to joining PIRA in 2010,
Glenn worked as an attorney with experience in environmental and energy law. He has a B.A. in economics from the University
of Pennsylvania and received his J.D. at Temple University Beasley School of Law.

Roth, Robert (Bob)


Senior Director | North American Coal

Robert (Bob) Roth joined PIRA in 2008 to lead PIRAs U.S. coal market analysis. He is responsible for the U.S. Coal Market
Forecast, U.S. Stockpile Estimates as well as assisting with the International Thermal Coal Market reports and monthly electricity reports. Bob comes to PIRA from Louis Dreyfus Highbridge Energy Services, where he led their U.S. coal and emissions
analytics. Prior to LDH, he served as Director of Energy Economics at Peabody Energy. He began his career in the electric
power industry spending 15 years with Illinois Power Company and Progress Energy Corp in a variety of roles. He holds an M.S.
and a B.S. in economics from Illinois State University.

3 Park Avenue, 26 th Floor, New York, NY 10016-5989 tel 1-212-686-6808 fax 1-212-686-6503 email sales @ pira.com

REGULATING CARBON: IMPACTS OF THE EPAS FINAL CLEAN POWER PLAN OPTIONS

PRICING OPTIONS

Study Options

Non-Client
Rate

Pira Client Rate*

Client of EMS
or GHG Service

Pre-Purchase Discount

Written Report and


Webinar Only

$2,695

PIRA clients receive an


additional 10% discount**

Free to all entitled


users of these services

Save $200 by ordering


before November 27, 2015

Written Report,
Webinar, and Excel
Database

Addl Users
CLICK HERE
TO BUY NOW

$5,695

PIRA clients receive an


additional 10% discount**

Free to all entitled


users of these services

Save $700 by ordering


before November 27, 2015

$350 ea.

* I ncludes clients to any PIRA retainer service except Greenhouse Gas (GHG) and North AmericanEnvironmental Markets (EMS) services.
GHG and EMS clients receive the study for free.
** A
 10% off code will be emailed to all PIRA clients.
New York City-based companies, please add 8.875% sales tax; all other New York State companies, please add the city-/county-appropriate sales tax.

CLIENT ACCEPTANCE FORM

If you are an existing PIRA client and wish to be billed, please complete the form below and email to PIRA at [email protected]
or fax to 1 212 686 6628. You can also buy online by clicking here.
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wishes to purchase Regulating Carbon: Impacts of the EPAs Final Clean
Power Plan Options. We understand and agree to the fees above.

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tel 1-212-686-6808 ext. 315
fax 1-212-686-6628
email [email protected]

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