How Much Will the Clean Power Plan Cost?

FACT: The benefits of the EPA’s Clean Power Plan far outweigh the costs

UPDATE (August 5, 2015): This page has been updated to reflect the projected benefits and costs of the final Clean Power Plan.

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An in-depth analysis of the EPA's final Clean Power Plan found that the combined climate and health benefits of the...

Posted by Union of Concerned Scientists on Thursday, March 26, 2015

On August 3, 2015, the Environmental Protection Agency (EPA) finalized new rules, or standards, that set the first-ever national limits on carbon pollution from existing power plants, the largest source of U.S. global warming emissions. These standards, known as the Clean Power Plan, establish state-level targets that collectively would cut national electricity sector CO2 emissions 32 percent below 2005 levels by 2030.

An  in-depth analysis of the final rule by the EPA found that the combined climate and health benefits of the Clean Power Plan will far outweigh the costs of implementing it. and that it will deliver billions of dollars in net benefits each year, estimated at $26 billion to $45 billion in 2030.

Climate benefits worth billions

The Clean Power Plan will set the first-ever national limits on carbon pollution from power plants.

The EPA estimates the Clean Power Plan will cut carbon by millions of tons per year, and generate climate benefits worth billions of dollars, reaching $20 billion in 2030.

To calculate the Clean Power Plan’s climate benefits, the EPA uses the social cost of carbon, an official monetary estimate of the costs imposed by climate change impacts, such as property damage from increased flood risk.

Measured as the associated cost per metric ton of CO2 emissions in a given year, the social cost of carbon provides a tool for evaluating the benefits of cutting a ton of CO2. Regulators and analysts can then determine the total climate benefits of a particular policy by adding up the benefits from all the tons of carbon that would be cut.

Economists say the social cost of carbon likely underestimates the costs of climate change, which means the climate benefits of the Clean Power Plan are likely higher than those anticipated by the EPA.

It’s important to note that the social cost of carbon quantifies global, rather than domestic, benefits because of the nature of climate change as a global phenomenon. “Emissions of greenhouse gases contribute to damages around the world, even when they are released in the United States, and the world’s economies are now highly interconnected,” the EPA explains. This approach also sets an important precedent for governments of other nations to consider the global impacts of their greenhouse gas emissions, including impacts on the United States.

Billions in health benefits

The Clean Power Plan will reduce air pollution. Photo: Andy Mort/Flickr

While reducing CO2 emissions is the primary goal of the Clean Power Plan, the EPA also expects the rule to deliver billions of dollars in health benefits per year by reducing exposure to fine particulates and ozone pollution. The health benefits range from $12 billion to $34 billion in 2030.

The EPA estimates that because of the Clean Power Plan, by 2030 emissions of sulfur dioxide (SO2) from power plants will be 90 percent lower compared to 2005 levels, and emissions of nitrogen oxides (NOx) will be 72 percent lower. Those emissions are precursors to the formation of particulate matter and ozone pollution. The EPA analysis quantifies the monetized value of health benefits—such as avoided premature deaths—that would come from anticipated reductions of fine particulates and ozone pollution in the U.S., beyond those achieved in previous rulemakings.

The reductions of these harmful pollutants are projected to have a wide impact of health benefits. The EPA projects the Clean Power Plan could prevent up to 3,600 deaths, 1,700 heart attacks, 90,000 asthma attacks, and 300,000 missed work and school days per year. As a result, for every dollar Americans spend on the Clean Power Plan, we will gain up to $4 worth of health benefits.

The EPA also expects that the Clean Power Plan will reduce emissions of several other types of hazardous pollutants, including mercury, but has not quantified the value of health benefits associated with these reductions. In addition the analysis does not include the benefits of cutting non-CO2 greenhouse gases, or the health benefits of reduced direct exposure to SO2 and NO2, and the ecosystem and visibility improvement benefits of cutting SO2 and NOx. These unquantified benefits suggest the value of benefits from the Clean Power Plan could exceed initial estimates.

Minimal upfront costs, with lower electricity bills to follow

The Clean Power Plan will lower electricity bills over time. Photo: Diliff/Wikimedia Commons

The EPA estimates that the annual costs of complying with the Clean Power Plan will be substantially lower than the associated climate and health benefits of the proposal.

Annual cost estimates for complying with the Clean Power Plan range from $1.4 billion to $2.5 billion in 2020, to $5.1 billion to $8.4 billion in 2030. These annual cost estimates factor in both the costs of investments in transitioning to lower-carbon electricity options and the savings that result from investments in energy efficiency.

To put these projected costs in perspective, the EPA expects that in 2030 the power sector will spend $201 billion to generate, transmit, and distribute electricity before the Clean Power Plan is factored in to the equation. Therefore, the EPA notes, “the projected costs of compliance with the final rule amount to a 4 percent increase in the cost of meeting electricity demand, while securing public health and welfare benefits that are several times greater.”

The EPA projects that Americans will save about $7 per month and more than $80 per year on their electricity bill by 2030 under the Clean Power Plan. EPA projections also show that electricity bills will rise modestly by 2.4 to 2.7 percent in 2020, but then decline by 2.7 to 3.8 percent in 2025, and 7 to 7.7 percent in 2030 as investments in energy efficiency pay off.

Cost-effective solutions to cut carbon

Many states are already using renewable energy and energy efficiency to cost-effectively reduce carbon emissions. Photo: germanborillo/Flickr

To meet Clean Power Plan emissions reduction targets, states will have the flexibility to choose from a variety of zero- or low-carbon energy solutions, including investing in renewable energy; efficiency improvements at individual fossil fuel plants; energy efficiency in homes, businesses, or factories; nuclear power; shifting generation from coal to natural gas; and improving efficiency at power plants. They can also collaborate with other states to find the lowest cost options to cut carbon emissions, including through emissions trading programs.

In a joint letter to the EPA, public utility commissioners and environmental and energy agency leaders from 14 states voiced strong support for the Clean Power Plan, while recognizing that further reductions in carbon emissions are needed to address climate change. “Our states are already demonstrating that significant, cost-effective reductions can be achieved from the power sector through the ‘system’ EPA identifies as the basis for its proposed emission guideline,” they noted.

Many states are already making progress in cutting their power sector carbon emissions using several smart and effective clean energy policies:

Renewable energy standards

Twenty-nine states have already enacted policies requiring utilities to obtain an increasing percentage of their electricity from renewable energy sources, such as wind and solar power. Reviews of state renewable electricity standard (RES) policies by the National Renewable Electricity Laboratory and UCS have found that utilities are meeting their renewable energy requirements at little to no additional cost to consumers, and in some cases savings, while delivering significant economic, environmental, and public health benefits.

Energy efficiency resource standards

A total of 24 states have energy efficiency resources standard (EERS) policies in place establishing specific targets for energy savings. The World Resource Institute took a look at energy efficiency programs in 23 of these states, and found they regularly save utility customers $2 for every $1 invested, and in some cases up to $4 in savings. Other recent reviews by the Lawrence Berkeley National Laboratory and American Council for an Energy-Efficient Economy affirm that energy efficiency is our cheapest energy resource.

Regional collaboration and carbon trading programs

Nine states currently participate in the Regional Greenhouse Gas Initiative (RGGI), which offers a model for cost-effective multi-state collaboration to reduce power plant carbon emissions. A study by the Analysis Group found that consumers paid less than 1 percent more for electricity under RGGI from 2009-2011. Meanwhile, RGGI raised $440 million for investment in energy efficiency programs that will ultimately generate $1.1 billion in net savings.

The nine RGGI states together reduced regional power plant carbon emissions by more than 40 percent from 2005 to 2012, achieving more ambitious cuts in carbon over a shorter period of time than the EPA outlines in the Clean Power Plan.  

The Clean Power Plan allows states to choose from state-based and regional approaches when developing plans to meet their targets for reducing carbon emissions. Economists and grid operators have pointed to the regional option as an economical way for states to comply with the new carbon standards for existing power plants.

Like the RGGI states, California also has a carbon trading program that puts a price on carbon, cuts emissions cost-effectively, and generates revenue for investments in public goods. The final Clean Power Plan includes the option for other states and utilities to avail of these types of programs to cut emissions.

Ultimately, the costs and benefits of the Clean Power Plan will become clearer as states begin to develop implementation plans for meeting the new carbon standards. But it is clear that states have a historic opportunity to cost-effectively reduce carbon emissions and diversify their electric portfolios by ramping up renewable energy, energy efficiency, and increasing regional collaboration.

Share the facts about the Clean Power Plan

2,500 scientists and thousands of other concerned citizens have stood up to defend the EPA’s ability to act on the science and limit carbon pollution under the Clean Air Act against attacks from industry and Congress. You can help by sharing the facts about the Clean Power Plan.

Share the facts on Twitter:

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An in-depth analysis of the EPA's final Clean Power Plan found that the combined climate and health benefits of the...

Posted by Union of Concerned Scientists on Thursday, March 26, 2015

 

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Last Revised: August 5, 2015

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