I recently wrote an entry on the estimated effects of recent EPA ozone regulations.  In short, the EPA is currently finalizing rules regulating greenhouse gas (GHG) emissions from existing steam-boilers and refineries.  My entry quantifies the estimated negative impacts on the U.S. economy.

A study by Dallas Burtraw, Anthony Paul, and Matt Woerman addresses possible compliance cost savings of these rulemakings.  Under their microscopes in particular were the retail electricity price savings from a flexible GHG standard.

The authors noted that of most importance is the regulation of stationary sources and electricity generation being high on the list for various reasons including:

• 33 percent of the U.S. GHG emissions, including 40 percent of carbon dioxide emissions are caused by the generation of electricity.
• Existing coal-fired power plants account for one-third of national emissions of carbon dioxide (the most prevalent GHG).
• Coal-fired power plants operation account for 82.5 percent of electricity sector emissions.

What are the primary methods of reduction?  According to the authors, there are four: 1) a flexible energy efficiency-based or emission rate-based performance standards, 2) an inflexible compliance standard, 3) cap and trade, with a revenue generation auction or 4) cap and trade via allocation of free allowances to local distribution companies.

The study used a “highly parameterized regional, intertemporal economic model” Avoiding technical details of their economic model, the author’s proposed flexible standard is preferred: “We find a flexible standard, calibrated to achieve the same emissions reductions as an inflexible approach, reduces the increase in electricity price by 60 percent and overall costs by two-thirds in 2020. The flexible standard also leads to substantially more investment to improve the operating efficiency of existing facilities, whereas the inflexible standard leads to substantially greater retirement of existing facilities.”

They also note that the flexible standard results in an increase of 1.3 percent in electricity prices, as opposed to the inflexible standard, 3.3 percent.  Costs to firms are also estimated to be one third of the opposed inflexible standard.

“Legal analysis indicates the agency has substantial authority to implement flexibility in compliance with these rules,” according to the authors.  Shouldn’t the agency take action to do so? A flexible standard makes sense on many fronts.  These rulemakings are expected to cost an estimated $1 trillion and put the jobs of millions of American’s at risk … why not employ a type of standard that will reduce costs and increase efficiencies?

–Kara Behrens