Short- and Long-Term Economic Impact of the Clean Power Plan on Texas Debated

 While fuel switching may be the easiest option for hitting the 2020 and 2030 goals set by the Environmental Protection Agency’s (EPA’s) proposed Clean Power Plan, it may impede reaching longer-term climate targets said experts at an April 8 symposium hosted by the Central Texas Association for Energy Economics and the Energy Institute at the University of Texas at Austin: “EPA’s Proposed Clean Power Plan Rules: Economic Modeling and Effects on the Electric Reliability Council of Texas.”

The simplest way to respond to the Clean Power Plan is to go with the market flow, switching from coal plants to natural gas. Low gas prices are already driving a shift in market share from coal to gas, with coal falling from 48.5% of U.S. electricity supply in 2007 to only 38.7% last year. The Energy Information Administration projects it to drop another three percentage points in 2015, to 35.8%, despite an increase in overall electricity generation.

But according to Jack Moore of Energy + Environmental Economics Consulting (E3), approaches that lock in emissions over longer time frames are “dead end” strategies.

Moore’s firm E3 has been looking at “deep decarbonization” for the Sustainable Development Solutions Network, a project of the United Nations. At the symposium, Moore expressed concerns about reduction strategies that locked in natural gas use. New gas plants, with 35-year lives, could cause the state to exceed stricter carbon limits after 2030.

Trevor Houser, a partner at the New York–based research firm Rhodium Group, concurred. “This is one of the tensions in our research. For most states, if you just look at compliance obligations between 2020 and 2030, the dispatch switch from coal to gas is probably the least-cost option,” he said. “But if you were expecting further reductions post 2030, that would likely change what you want to do from 2020 to 2030. As states think through how to meet current targets, they should ask how they would meet further requirements.”

An Upside for Utilities

The strategy of converting end uses to electricity, like electric vehicles and electric heat pumps, could have a big upside for electric utilities, boosting overall sales, the experts noted.

In some electrification scenarios, power demand could rise 40%, Moore said. One counteracting force is increased levels of energy efficiency. “Lighting demand goes away nearly entirely with LEDs,” he said.

Describing his analysis of the Clean Power Plan, Houser said that in some regions, the economic impact of potentially higher electricity prices would be much smaller than that of changes in fuel production. The Texas census region, which also includes Oklahoma, Arkansas, and Louisiana, would see an $18 billion increase in economic activity from gas production, compared to $1 billion in losses. The coal-heavy Mountain census region would see a $5 billion increase for gas, but an $8 billion coal loss.

“The fuel shift impact is much larger than the end-use economic impact,” said Houser. Gas producers in Texas region will gain “an order of magnitude” more than it will cost end users.

The Generation Impact of Environmental Rules

Warren Lasher, director of system planning for the Electric Reliability Council of Texas (ERCOT), described a December study on the impact of environmental regulations on Texas. He said the Regional Haze program and the Clean Power Plan would have the biggest impacts, putting as much as 9 GW of coal out of business. The same plants are at risk from both rules. (As the figure shows, Texas has the highest level of power sector greenhouse gases.) If those coal plants are retired too quickly, it could create tight operating margins and local reliability impacts around Dallas and Houston.

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Top 20 electricity sector greenhouse gas emitting states. As the old saying goes, everything is big in Texas—including carbon emissions from Texas power plants. Texas is number one when it comes to power sector greenhouse gas emissions, with more than twice those of Pennsylvania and Florida, the second and third states. Source: Energy Information Administration 

Although a number of speakers thought greater reliance on wind and solar would be difficult to integrate, Lasher was less concerned. “We’re good at that,” he commented, noting that ERCOT got 10.6% of its power from wind in 2014 and has 6.4 GW of solar in its interconnection queue. ERCOT is planning a more detailed set of ancillary service products that would reward greater flexibility.

Lasher’s bigger concern was how carbon regulations could be integrated without disrupting the highly efficient competitive market in Texas. While ERCOT does not set market policies, it did model the dynamics of both emission limits and imposing a carbon price.

Lasher pointed to the acid rain program in the 1990s and the new Cross State Air Pollution Rule (CSAPR) as precedents. In both cases, power marketers trade electricity through normal channels, with a separate market used to buy and sell emission credits. Emission reduction costs are internalized without disrupting the efficiency of a merit-order dispatch.

“The easiest alternative [for us] is if the unit owners themselves incorporate compliance into their bid into the energy markets,” Lasher argued. “That would be the lowest impact to current grid operations.” Still, he cautioned: “It’s premature to advocate for a certain compliance path.”

Bentham Paulos is a freelance writer and consultant specializing in energy issues.