EIA Report Weighs Costs of Multipollutant Strategy

The Energy Information Administration (EIA) recently released a new study entitled “Strategies for Reducing Multiple Emissions from Electric Power Plants.” This study measures the costs of imposing simultaneous caps on power plant emissions of nitrogen oxides (NO_x), sulfur dioxide (SO₂), mercury (Hg), and carbon dioxide (CO₂).

This new report by EIA follows up its December 2000 study on the projected costs of a three pollutant approach. It also sheds light on the prospective costs of recent legislative proposals, including H.R. 1335 (the Clean Power Act of 2001) and S. 1131 (the Clean Power Plant and Modernization Act of 2001) which advocate a four pollutant approach.

In the report, EIA points out that over the next 20 years NO_x emissions are expected to rise slowly, SO₂ emissions are expected to remain at year 2000 levels, and CO₂ emissions are expected to increase steadily. The agency explains that, due to expanding electricity demand, a growing dependency on natural gas and the construction of a small number of new coal-fired power plants will cause CO₂ emissions to rise.

The agency states that the effects of capping CO₂ emissions at 1990 levels or at 7% below 1990 levels will force people to pay higher prices for electricity. Specifically, the report says “Electricity prices are projected to be much higher when CO₂ emissions are capped than when NO_x, SO₂, or Hg emissions are capped43 percent higher in 2010 and 38 percent higher in 2020 than projected in the reference case. Consumers are expected to reduce their electricity consumption by 8 percent in 2010 and 12 percent in 2020 when faced with higher electricity prices.”

In addition, the agency explains that electricity prices could be substantially higher if natural gas prices turn out to be higher than projected. If CO₂ caps are imposed, both domestic production and imports of natural gas must grow to meet electricity demands. Specifically, production of 0.8 trillion cubic feet from domestic sources and 2.3 trillion cubic feet from imports must be added over the next 20 years to meet the increased demand. This would require domestic natural gas producers to achieve record levels of output from 2005-2010 and would represent a serious challenge for the industry.

Therefore, the adoption of a four-pollutant approach would introduce serious uncertainty into Americas energy infrastructure. As unexpected fluctuations in natural gas prices contributed to the California electricity crisis, uncertainty in markets for coal, natural gas, and renewables could cause unanticipated problems for consumers. As the report states: “History does not offer clear guidance as to how the various markets might respond to changes as large as those required by the proposed emissions targets.”

In conclusion, a four pollutant approach to reducing power plant emissions would introduce tremendous uncertainty into the viability of American electricity markets. Dropping CO₂ from the program would do a great deal to strip away some of this uncertainty and ensure that consumers can obtain the electricity they demand during the 21st century.