CAMBRIDGE, Mass., Nov. 16, 2016 /PRNewswire/ -- A report issued today by consultants at global economic consulting firm The Brattle Group examines the potential implications for competitive wholesale electricity markets if new gas-fired combined cycle (CC) plants are not covered under the Clean Power Plan's (CPP) mass-based state implementation plans (SIPs). The authors find that if state implementation plans exclude new gas CC plants, the electric sector could fall short of the carbon dioxide (CO 2) reduction goals set by the CPP, while incurring higher system costs per ton of CO 2 avoided. The report focuses on the consequences of not covering new gas-fired CCs in regions with organized wholesale electricity markets, but explains that the same cost and emissions outcomes would be expected in traditionally regulated regions.
The report, "Covering New Gas-Fired Combined Cycle Plants under the Clean Power Plan," is prepared for the Natural Resources Defense Council (NRDC) and authored by Brattle Principals Judy Chang, Kathleen Spees, and Metin Celebi, and Research Analyst Tony Lee. The report is available for download at brattle.com. "Organized wholesale electricity markets were founded on a basic economic principle that resource-neutral approaches allowing competition will minimize system costs," noted Ms. Chang. "A mass-based cap that covers the CO 2 emissions of all existing and new fossil plants would be a technology-neutral approach to control CO 2 emissions cost-effectively and preserve market competition among gas plants." Under the CPP, a mass-based emissions cap covering the CO 2 emissions from all existing and new fossil plants (commencing construction after January 8, 2014) would require all fossil generators to surrender one CO 2 allowance for each ton emitted. The report finds that if only existing plants were covered, the emissions from new plants would increase even while emissions from existing plants would decrease under increasingly stringent caps. With respect to wholesale electricity markets, the authors find that excluding new gas CCs from the emissions cap would introduce a discrepancy in the economics facing new and existing gas CCs that are identical in all respects other than their in-service dates. New CCs would earn greater profits in the energy market because they would be compensated as if they were entirely non-emitting plants. In simulations performed by Brattle for this study, these inflated economic incentives induced overinvestment in new gas-fired CCs, displaced investments in new non-emitting resources, and contributed to retirement pressures for existing non-emitting resources.