(Un)intended consequences?

Proposed carbon regulations on US power plants could make for some interesting compliance choices.

Draft regulations from the US Environmental Protection Agency on emissions from new coal- and gas-fired power plants are being met with strong opposition from the usual quarters. However, behind the political wrangling over new plants, the proposed limits on existing power plant emissions could produce some interesting results.

The New York Times’ Matt Wald wrote a piece recently that notes, among other things, that restrictions on existing power plants are governed by a different part of the Clean Air Act than those aimed at plants yet to be built. Critically, those limits, like the ones in place for emissions of sulfur dioxide and nitrous oxides, are administered at the state level. So, a state that relies extensively on coal for its power supply might look for alternatives to shutting plants that would take with them many jobs (the currency of almost any policy discussion in America these days). For example, the state in question might seek to reduce overall demand by promoting energy efficiency, or it might look to renewables to fill the gap as demand increases over time.

What states end up doing will depend largely on the shape the EPA regulations take. As NYT’s Wald notes, the agency “might set a simple limit in pounds per kilowatt-hour, or might let the states convert that rate of emissions into an overall cap.” With a cap, states could conceivably join together to create regional exchanges along the lines of the existing Regional Greenhouse Gas Initiative (RGGI) where states can trade emissions credits between them. Such a system, which allows for some flexibility in compliance, could prove to be the most palatable solution among a range of distasteful prospects for the owners of coal-fired power plants.

Just establishing some certainty around carbon regulation might be the most important thing here. Regardless of what the rules are, businesses just want to know what they have to do to comply, and regulatory certainty has a way of making capital expenditure decisions less risky.

Still, it’s interesting to note the differences between different parts of the world.  According to the survey of global executives in ABB’s soon-to-be-released report on Energy Efficiency Trends, 64 percent of respondents see regulation as benefit rather than a burden. I guess it all depends on your perspective.

Image credit: Lapatia under a CC license via Flickr