A new analysis by the US Chamber of Commerce’s Global Energy Institute has found significant issueswith the Environmental Protection Agency’s (EPA) recent rule addressing carbon dioxide emissions’ reductions of 90 percent from coal power plants by 2030 and from natural gas plants by 2035. The analysis questions the EPA’s methodology, highlighting exaggerated emissions reduction claims, overlooked electricity demand factors and questionable deployment timelines for carbon capture and sequestration. EPA’s power plant rule targets electricity from coal and natural gas, which together make up about 60 percent of the electricity generation in the United States. As such, the Global Energy Institute finds that the EPA may have had its “thumb on the scale” when it came to justifying the rule, in pursuit of its political goals.
Specifically, the Chamber of Commerce found:
- Unrealistic claims of massive emissions reductions occurring in the absence of the new rule, which leads to significantly suppressed cost projections.
- Omitting materially increased electricity demand from other EPA rulemakings, which will place greater stress on the power grid.
- Modeling outputs and real-world data that call into question the deployment timelines of carbon capture and sequestration, which is the technology that EPA is relying on as the centerpiece for industry compliance with the rule.
EPA claims that the rule, if implemented, would cost only $960 million annually through 2042, while generating $6.9 billion in annualized climate and public health benefits (totaling up to $85 billion in net benefits through 2042). But, those results are questionable giving EPA’s unrealistic modeling assumptions.
- U.S. Chamber of Commerce’s Global Energy Institute reviewed EPA’s Power Plant Rule and found many faults with EPA’s methodology and analysis, which appear to lower the rule’s costs while increasing its purported benefits.
- EPA made its own baseline estimates to justify the regulation, rather than relying on the objective analysis provided by the Energy Information Administration, particularly in its implementation of the Inflation Reduction Act.
- In its analysis, the Chamber found EPA ignores massive increases in electricity demand owing to Biden’s “electrify everything” policies and EPA’s associated proposed regulations, including electrifying transport.
- EPA assumes an unproven and uncommercial technology called carbon capture and sequestration (CCS) will be available to lessen the impact of the regulation, while also forecasting low adoption rates of the technology based on the rule.
EPA’s Modeling Assumptions and Results
EPA finds that the power plant rule will reduce power sector carbon emissions by just about 1 percent in 2040 because it assumes massive power sector changes in the baseline scenario before the proposed rule’s requirements are applied. The baseline scenario is driven primarily by two factors: optimistic assumptions regarding the Inflation Reduction Act’s (IRA) impacts and very low natural gas prices. In both cases, EPA’s forecast differs significantly from that of the Energy Information Administration’s (EIA) Annual Energy Outlook 2023, which also includes the impacts of IRA.
EPA included the IRA and its financial incentives for wind, solar, and other generation technologies in its “baseline” to evaluate the impacts and the costs of its proposed rule without calibrating to the results of EIA’s analysis, which many forecasters do. While both agencies assume the instantaneous construction of transmission capacity, EPA’s analysis results in more renewable and natural gas generation in 2040 than EIA’s forecast and far less coal generation. EPA’s baseline projects nearly 650 gigawatts of new renewable capacity through 2040 – a quadrupling of current capacity. Given the amount of time it takes to build anything—due to extensive federal permitting delays as well as supply chain and construction challenges— the idea that America can quadruple its current renewables capability in the next 16 years is a stretch. It is not uncommon for the permitting of these facilities to take a decade or more. Because EPA ignores the immense permitting obstacles associated with such a dramatic transformation of the power sector, EPA gets the unrealistic result that compliance with the rule will be inexpensive and easy to meet.
Natural Gas Prices and Associated Demand
The second key factor is natural gas prices where EPA’s assumptions are markedly different than those of the EIA and help to produce the dichotomy between coal, natural gas and renewable generation in the EPA and EIA forecasts. In 2035 and 2040, EIA expects natural gas prices to be approximately double EPA’s prices, resulting in different demand outlooks. While EIA projects total natural gas demand (domestic consumption and net exports) growing by 15 percent, or 5.5 trillion cubic feet, between 2028 and 2050, EPA’s model projects a decline in natural gas demand of 12 percent, making it 4.9 trillion cubic feet lower by 2050 than in 2028. In the generation sector, EPA’s baseline projects that only 79 terawatt hours of coal generation will remain in 2040—235 terawatt hours less than EIA. Meanwhile, EPA is projecting far higher natural gas generation throughout the rule’s compliance period than EIA. In 2030, it expects natural gas generation to be 602 terawatt hours higher and in 2035, it expects natural gas generation to be 366 terawatt hours higher, most likely due to the lower natural gas price forecast assumed by EPA.
Different Carbon Emission Baselines
The above differences result in a difference in baseline carbon emissions from the generation sector. In 2040, EIA projects power sector emissions will be 47 percent higher than EPA. In 2045, EIA’s forecast is 73 percent higher, or 298 million metric tons (704 million metric tons vs 406 million metric tons). If EPA’s baseline is unrealistic, then tens of billions in regulatory compliance costs are being missed in its forecast.
Under-Representing Electricity Demand from EPA Vehicle Rules
EPA fails to consider parallel EPA regulations that will result in a significant increase in electricity demand driven by the Administration’s vehicle rules. A large portion of Biden’s carbon reduction goals depend on the electrification of vehicles, appliances, and industries that are the source of most other emissions. EPA has proposed a duo of rules that would require the rapid electrification of the transportation sector – which today accounts for the largest source of carbon emissions. EPA’s Light-Duty Vehicle Rule projects that the electrification of many of our cars and trucks will increase electricity demand by 195 terawatt hours in 2040 and EPA’s Heavy-Duty Vehicle Rule predicts that the electrification of portions of the U.S. trucking fleet will drive an additional 68 terawatt hours of demand in 2040, bringing the total increase in demand from the two rules to 263 terawatt hours. Other rules that accelerate the electrification of water heaters, furnaces and stoves will add to electricity demand.
Missing Hydrogen Electricity Demand
EPA also does not track any incremental electricity demand associated with hydrogen production, but reports that incremental electricity demand from hydrogen production in 2035 is estimated at about 108 terawatt hours, or approximately 2 percent of total projected nationwide generation. Assuming hydrogen production does not decline in 2040, EPA is adding at least 371 terawatt hours of electricity demand from electrification of the transportation system and the production of hydrogen that it ignores in the modeling of its power plant rule—an amount equivalent to an 8.7 percent increase in nationwide electricity use compared to 2022 levels, or 1.5 times the electricity used each year in the State of California. Underestimating the future demand for electricity biases the cost-benefit calculation for the power plant rule.
Unrealistic Technology Assumptions
The centerpiece of the power plant rule is a requirement that 90 percent of carbon emissions from certain coal and natural gas plants be captured and sequestered (in the case of gas, plants are also given an option to co-fire with clean hydrogen—a technology heavily dependent on significant infrastructure additions and modifications). The legal standard by which EPA must support these emissions reductions is whether the technologies have been “adequately demonstrated.” Given that no power plant in the world is currently capturing 90 percent of its carbon emissions, meeting the ‘adequately demonstrated’ standard is a dubious claim.
EPA predicts near-negligible adoption of coal based carbon capture and sequestration (CCS) technology based on the proposed power plant rule, with just between 1 and 3 gigawatts of capacity adding CCS technology because of it. By 2035, EPA projects that all coal capacity without CCS will shutter. By 2040, only 9 gigawatts of coal capacity with CCS remain as part of the generating fleet with the proposed rule in place. EPA assumes that just 13 gigawatts of natural gas capacity will co-fire with hydrogen by 2040 with the rule and that only 8 gigawatts of natural gas plants will adopt CCS by 2040—2 less than the baseline with 10 gigawatts of natural gas plants with CCS in 2040. Because EPA projections show very few plants adopting CCS and hydrogen co-firing technology, either via the forecast or by assumption, EPA’s modeling undermines its assertion that these are “adequately demonstrated technologies” set to play a more than trivial role in keeping the lights on.
The U.S. Chamber of Commerce’s analysis reveals major flaws in the methodology used by EPA to draft the power plant rule, resulting in inaccurate claims about the costs, benefits and anticipated impacts of the rule. To better inform stakeholders and the public, EPA should conduct an analysis projecting the costs and benefits of its rule using EIA’s Annual Energy Outlook 2023 assumptions and projections. The Chamber of Commerce’s analysis demonstrates that the investments in generation needed to meet existing and new electricity demand while complying with the proposed EPA regulations are certain to be much higher than EPA has stated. Further, the reliability implications of the projected coal and natural gas retirements will be greater than EPA has considered. The American public deserve much better information than the EPA has provided to justify the rule. Contrary to its legal duty to reasonably assess costs and benefits of regulatory actions, it appears EPA’s modeling is designed to justify the end it wishes to achieve to meet President Biden’s climate agenda.