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.