Potential Electricity and Energy Price Outcomes under EPA’s Federal Plan Alternatives for the Clean Power Plan

Thu Jan 21 11:51:00 EST 2016
By Dr. David Harrison Jr., Dr. Anne E. Smith, Scott Bloomberg, Dr. Sugandha D. Tuladhar, Dr. Elizabeth Walker, and Preston White

In response to the EPA’s proposed rule for a Federal Plan (FP) for the Clean Power Plan, NERA Economic Consulting prepared a report for the American Forestry and Paper Association, American Wood Council, American Chemistry Council, American Iron & Steel Institute, Aluminum Association, and the Fertilizer Institute. The NERA report provides modeling results for alternative FP implementation choices, focusing primarily on the implications for state-level retail electricity rates and national natural gas prices of the FP options. Additionally, the authors provide insights on means of preventing leakage, i.e., increases in emissions from non-regulated sources.

The NERA report provides results for the major choice for design of a FP—which is whether to adopt a rate-based or mass-based FP—and considers several important implementation uncertainties that may affect that choice. Using the NewERA model—an economy-wide integrated energy and economic model that includes a bottom-up representation of the US electricity sector and a top-down representation of all other sectors of the economy, including households and governments—the authors found that a rate-based implementation of the FP would result in lower delivered electricity prices at the state level compared to a mass-based implementation of the FP. In addition, NERA’s report provides estimated ranges by state for these two approaches under different assumptions regarding the level of trading (intra-state, regional, or national) and for the mass-based alternative, the fraction of allowances that are used to lower retail electricity prices.